June 23, 2016

Brown Opening Statement at Hearing on Bank Capital and Liquidity Rules

WASHINGTON, D.C. — U.S. Sen. Sherrod Brown (D-OH) – ranking member of the U.S. Senate Committee on Banking, Housing, and Urban Affairs – released the following opening statement, as prepared for delivery, at today’s hearing entitled, “Bank Capital and Liquidity Regulation, Industry Perspectives.”

Brown’s remarks, as prepared for delivery, follow.

Senator Sherrod Brown - Opening Statement
Hearing: “Bank Capital and Liquidity Regulation, Industry Perspectives”

June 23, 2016

 Thank you, Chair Shelby, and I thank our witnesses for being here today.

Two weeks ago, we heard academics’ views on capital regulations and today we are hearing the banks’ views.

I think it is good that we hear from different perspectives.  I hope we will also hear from representatives of the nearly nine million workers who lost their jobs, or the five million Americans who lost their homes to foreclosure during the Great Recession, or the millions of taxpayers that provided billions of dollars in bailout funds.

Congress put in place a framework for capital and liquidity rules, including stress tests and living wills, to strengthen the U.S. banking system. We did this to prevent a repeat of the economic devastation that forever changed the lives of millions of Americans.

The rules were meant to tighten as institutions increase their size, complexity, and riskiness, and the agencies have tailored their rules to banks of varying profiles.

Last week, FDIC Chair Martin Gruenberg observed that, at the end of 2015, large banks had twice as much tier 1 capital and liquid assets in proportion to their assets as they had entering the crisis.

He concluded that, “the evidence suggests that the reforms put in place since the crisis have been largely consistent with, and supportive of, the ability of banks to serve the U.S. economy.”

Without objection I would like to submit Chair Gruenberg’s full remarks for the record of today’s hearing.

In addition to instituting much-needed reforms to bank capital, liquidity, risk management, and other standards, Wall Street reform tailored its approach to the regulation of community banks.

For example, it carved about 98.4 percent of banks—and apparently all but four members of the Independent Community Bankers of America at the time that Dodd-Frank became law—out of direct CFPB supervision and limitations on so-called “swipe fees.”

Even more banks were exempted from changes in the treatment of trust preferred securities under the new capital rules.

Perhaps most importantly, small banks benefited from a change in the FDIC’s assessment formula included in Dodd-Frank.

When the change was implemented in the second quarter of 2011, small banks’ assessments fell by one third, saving these banks over a billion dollars. 

Last year, the FDIC announced additional changes that will further lower the assessment rates for 93 percent of small banks.

And just this past Tuesday, Federal Reserve Chair Janet Yellen indicated that the Fed, FDIC, and OCC may tailor their rules further, as they use an interagency regulatory review process to consider “a significant simplification of the capital regime for … community banks.”

Regulators have also tailored their rules to provide relief to larger banks when appropriate, as both sides of the aisle have asked of them.  The Fed recently announced plans to alter stress test requirements for banks over $50 billion in total assets.

Despite this reality, many of my colleagues on the other side of the aisle have called for dismantling Dodd-Frank.

The Chair of the House Financial Services Committee is pushing for Wall Street reform to be “ripped out by its roots and tossed on the trash heap of history.”

Some have even claimed, despite the solid evidence to the contrary, that Wall Street regulations are the cause of, not the cure for, financial instability.

The inconvenient truth is that a financial crisis, brought about by reckless deregulation and Wall Street greed, set off a broader economic crisis.

The recovery from that crisis has required a sustained period of record-low interest rates that have compressed banks’ profit margins.

But that doesn’t make for a compelling hearing topic for an agenda that views repealing Dodd-Frank, or many of its reforms, as the panacea for all economic issues, real and imagined.

The President of the ICBA, Cam Fine, said it well last October that, “Dodd-Frank … became the poster child for every regulatory ill that’s been foisted onto community banks ... There are regulatory burdens that community banks face today that are real, but had nothing to do with Dodd-Frank.”

I look forward to a time when we can stop fighting old partisan battles.

The families living in the low- and moderate-income communities that are still struggling to recover deserve more of our attention and energy.

Thank you, Mr. Chairman, and I thank the witnesses for their testimony.

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