CRAPO STATEMENT AT HEARING ON SYSTEMIC RISK

WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing on Dodd-Frank implementation entitled “Mitigating Systemic Risk through Wall Street Reforms”:

"Thank you, Mr. Chairman. 

"Today, we have asked the regulators to discuss the implementation of Titles I and II of the Dodd-Frank Act.

"Title I of Dodd-Frank brought us the Financial Stability Oversight Council, heightened prudential standards, increased leverage and risk-based capital requirements, while Title II established a new system for resolution of systemically important non-bank financial companies.

"The U.S. banking system and capital markets must remain the preferred destination for investors throughout the world.

"It is important that the implementation of capital standards and orderly liquidation are done properly without overburdening our financial system and without placing the U.S. markets at a competitive disadvantage.

"In the past couple of weeks, the federal banking regulators have been very busy issuing a number of rules and guidance regarding capital standards.

"Very recently, the Federal Reserve, Office of the Comptroller of Currency and Federal Deposit Insurance Corporation issued final rules strengthening the regulatory capital framework for banking organizations, including Basel III.

"Earlier this year, Chairman Johnson and I sent a letter regarding potential effects of Basel III proposals on community banks and insurance entities, so I appreciate the distinctions made by the regulators in the final rules for these banks and insurers.

"With regard to overall capital standards and whether Dodd-Frank ended “too-big-to-fail,” I look forward to hearing from the regulators on these issues today.

"I appreciate the hard work that has gone into the capital standards and into producing and reviewing living wills, but many, including myself, believe that Dodd-Frank did not end too-big-to-fail.

"Going forward, we must learn more about the additional steps the regulators plan to undertake to determine leverage and debt-to-equity ratios for big banks, as well as how to treat short-term, wholesale funding.

"It also remains to be seen whether and how orderly liquidations plans are able to address dissolution of systemically important non-bank financial companies while avoiding shocks to the market. 

"As we approach Dodd-Frank’s third anniversary, there is considerable work to be done, such as working through the complexity of the Volker Rule and issuing the outstanding risk retention rules.

"Encouragingly, there does appear to be a building bipartisan consensus that some elements of Dodd-Frank may need to be fixed.

"At the last Humphrey-Hawkins hearing, Chairman Bernanke identified the end-user exemption, swaps push-out and community banks relief as specific Dodd-Frank provisions that should be reconsidered.

"And at our recent hearing on community banks, it became clear that both sides of the aisle agree on the need to provide relief to community banks, especially in rural areas.   

"The regulatory framework that emerged out of Dodd-Frank has made it increasingly difficult for community banks as they are disproportionately affected by increased regulation because they are less able to absorb additional costs. 

"In the brevity of time so that we can get to the panel quickly, I also wish to reiterate the points I have made at other hearings this year about the potential for cumulative regulatory burden and the drain to our financial system, the necessity of well-prepared economic analyses, and how these rules will affect our economy as a whole and may affect our global competitiveness.  

"It is my hope that today’s hearing also will allow us to address the critical and needed Dodd-Frank reforms as a bipartisan consensus grows so that we can fix at least some of these issues. 

"Thank you, Mr. Chairman."