U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing, and Urban Affairs, today delivered the following speech on the floor of the U.S. Senate regarding financial regulatory reform legislation.
The full text of Shelby’s statement, as prepared, is as follows:
Floor Statement of Senator Richard Shelby
Thursday, April 29, 2010
“Thank you Mr. President.
“Before proceeding to my remarks on the bill, I want to thank Senator McConnell for his leadership and the members of the Banking Committee for their hard work and dedication.
“I also want to thank my colleague and the Committee’s Chairman, Senator Chris Dodd. Over the years we have worked together on a number of bills and quite often found a way to compromise on some very difficult and complex issues. Unfortunately, compromise has eluded us on this particular piece of legislation.
“Throughout our discussions we have shared roughly the same goals. Where we have differed, however, is in how to achieve them.
“My goal during consideration of this legislation will be to reshape this bill so that it actually ends bailouts, protects consumers without jeopardizing our small community banks, and brings transparency to the world of derivatives without sacrificing economic growth and job creation.
“I, along with many of my colleagues on both sides of the aisle, will seek to remove dozens of provisions that unnecessarily expand the reach of the federal government into the private affairs of Americans and potentially endanger our civil liberties. As always, I will be focused on policy, not politics.
“Unfortunately, over the last several days the debate has become tainted by accusations and misrepresentations. The process has already become overly political with allegations that Republicans are blindly following the advice of a pollster’s political memo.
“Mr. President, I would just like to say for the record that I voted against the Chrysler bailout when this particular pollster was still in high school.
“I also advanced the toughest piece of legislation that would have reined in Fannie and Freddie years ago, but was opposed unanimously by Democrats.
“I was the only Senator criticizing the SEC’s lack of supervision of the nation’s largest investment banks while my Democrat colleagues, including then Senator Obama, were endorsing it.
“I also opposed the imposition of the Basel II capital accords that would have left our banks in far worse shape than they were when the crisis hit.
“I was questioning regulators about the growing housing bubble and the stability our housing market years before the collapse.
“I authored and passed the only attempt to address the lack of competition in the credit rating industry, once again over Democrat opposition.
“Finally, when Congress repealed the restrictions put in place by Glass/Steagall, I was the only Republican to vote no. So, if any my colleagues wish to discuss my motivations and my record, I am standing right here.
“Mr. President, as I have stated, there are a number of changes that need to be made to this bill before I can even consider supporting it.
“I think we should begin by listening to the people who will be negatively affected by this bill if it were to become law.
“If a small business owner from Tuscaloosa tells me that he fears an out of control consumer regulator, I listen. If an orthodontist from Mobile fears regulatory burdens because she offers installment payments, I listen. If the makers of Mars candy bars fear massive cost increases from this legislation that will threaten American jobs, I listen.
“Mr. President, there are others we should be listening to as well. For example, large financial firms like Goldman Sachs and Citigroup are in favor of this bill. Why is that?
“The answer is that they know that the bill will bring them and Wall Street firms like them under the Federal safety-net where they will get preferential treatment just like Goldman Sachs got in the AIG bailout.
“Yes, Mr. President, the bill as written will guarantee that Goldman Sachs could again be paid 100 cents on the dollar if its bets go bad. That is a huge benefit for Wall Street firms at the expense of others.
“The resolution authority established by this bill will ensure that the politically-influential investors in these firms, such as foreign governments, and sovereign wealth funds, will get special taxpayer bailouts not available to creditors of small financial companies.
“This will give these firms a permanent funding advantage over smaller competitors on Main Street.
“Make no mistake, this bill will help the big banks get bigger, and further tilt the competitive playing field against small and less politically connected firms.
“Mr. President, the legislation that we are about to consider will help the likes of Goldman Sachs, but will harm the American people. It will lead to job losses, lost opportunities for businesses to productively invest in the future, and it will ensure future bailouts.
“Chairman Dodd has assured me that he will address a number of concerns I have expressed with respect to ending bailouts. I appreciate his assurances and take him at his word, but I am concerned that there appear to be no substantive changes in the relevant sections of the bill that would reflect such assurances.
“Therefore, at the conclusion of my remarks, I would like to hear how the Chairman intends to address the following:
•removal of the $50 billion bailout fund.
•not allowing the government to pay creditors and shareholders of a failed firm more than they would be entitled to in bankruptcy.
•not allowing the FDIC to prop up failing firms with government debt guarantees.
•not allowing the Federal Reserve to lend broadly on bad collateral.
•holding the FDIC accountable if it fails to properly conduct resolutions or uses the resolution authority to provide bailouts; and
•not allowing the government to deem any nonbank financial company as systemically important and worthy of taxpayer funds at the Fed’s discount window.
“As many of my colleagues are beginning to realize, it doesn’t matter what we say. What matters is what is in the bill’s language. And the language in this bill allows for bailouts. I urge my colleagues to read the language.
“I have been assured that the bailout provisions will be addressed, but they have not been addressed in the Chairman’s substitute language. We need to see language from the majority that clearly addresses the issues I have set forth. My hope is that this can be resolved quickly.
“Nonetheless, we are still left with a bill that will create massive and intrusive new government bureaucracies, damage job creation, reduce private investment in productive projects, make risk management more difficult, and threaten our economy.
“This bill establishes overarching bureaucracies without any meaningful protections for our financial privacy rights. Also, the bureaucracies have been designed to address many issues that have little or no bearing on the recent crisis or any financial crisis.
“It is a pure power grab that can reach into virtually every facet of our economy and it needs to be restrained.
“Mr. President, I wonder how any crisis will be prevented through data collection from banks about deposit accounts of their customers to identify community development opportunities as found in Section 1071 of this bill.
“Small businesses across this country fear the massive and potentially very intrusive new bureaucracy created under the rubric of consumer protection. And they have every right to be afraid. This massive new government bureaucracy has authorities and powers to call you forward and ask you, under oath, about your personal financial affairs.
“The fact so many are looking the other way on these serious threats to our civil liberties is troubling.
“Mr. President, the architects of this massive new bureaucracy have long argued for a consumer bureau with the right ‘culture.’ Whether that ‘culture’ focuses on consumer protection and a safe and sound banking system or it becomes a way for community organizers and groups like ACORN to grab federal resources is left wide open.
“Mr. President, this massive new bureaucracy will be funded by over $600 million dollars taken directly from the Fed, outside of the Congressional oversight process.
“Tapping the Central Bank to pay for political initiatives is a very disturbing and dangerous precedent. They did that in Argentina, to the utter dismay of the global community.
“It shows a complete lack of understanding of the importance of an independent central bank.
“For us to follow Argentina’s lead and tap the Fed for new government programs is not only short-sighted, but signals to the rest of the world the failure of this country to act in a fiscally responsible manner.
“In addition to the new Fed consumer protection bureaucracy, this bill envisions a massive new potentially half-billion dollar per year federal bureaucracy called the Office of Financial Research designed to collect ‘granular’ financial data and to construct complex financial models.
“This new bureaucracy is given unprecedented authority, including abilities to obtain virtually any type of data it wants from financial companies, to the level of detail of what you buy on your credit card.
“This new bureaucracy is also designed to gather data, process it, and then is required to make it available to Wall Street firms so they can cut their costs. Who’s for Wall Street now?
“Mr. President, this bill also threatens our economy by its treatment of derivatives.
“Greater transparency in all derivatives markets is a good thing. But this bill, under the guise of promoting transparency, threatens Main Street companies and their customers for no good reason.
“The end-user exemptions put Main Street companies through almost endless and unworkable hoops that will ensure higher costs, lower growth, fewer jobs, and diminished economic opportunity.
“In addition, by seeking to concentrate all manner of risky products onto clearinghouses, the bill threatens to concentrate risks to the point of becoming systemically large which, as we all know, leads to government bailouts.
“This bill could actually increase risk in our financial system and decrease economic output at a time when we need it most.
“Finally, while concentrating risks in America, this bill will shift derivative trades offshore to places where we have no oversight or regulatory abilities to act.
“Mr. President, proponents of this bill also argue that regulatory gaps are being closed and that the bill somehow simplifies and rationalizes the regulatory framework.
“Yet, the Kansas City Fed President has said: ‘the bill actually increases the complexity of the regulatory structure . . . as well as creating unnecessary costs.’ As is often the case with this bill, claims about it does do not match what is in the language. The claim is regulatory simplicity; the language means that there will be increased complexity.
“Mr. President, I have highlighted some major problems in this bill; it will not end taxpayer funded bailouts; it provides for a drastic expansion and overreach of government into the economy and every aspect of our personal financial lives; it raises costs of risk management and threatens the abilities of companies to manage risk using derivatives while potentially accumulating risks to systemic proportions; and it makes an already complex regulatory maze even more complex.
“I welcome the opportunity to debate the bill before us and to offer useful amendments to improve its deficiencies and shortcomings.
“Unfortunately, as presently drafted, this bill threatens our future with continued bailouts, reduced economic growth, and fewer jobs for American workers.”