Waters Touts Importance of Volcker Rule
Today, Congresswoman Maxine Waters (D-CA), Ranking Member of the House Financial Services Committee, touted the importance of the recently-released Volcker Rule for ensuring taxpayer dollars are no longer used to protect banks from risky trading losses. In a statement delivered in a hearing of the full Financial Services Committee on the measure, Waters underscored that a strongly implemented and enforced Volcker rule will protect the U.S. economy from suffering another debilitating financial crisis and will ensure taxpayers are never again asked to rescue failed financial firms.
Her full remarks are below.
As prepared for delivery:
Thank you, Mr. Chairman.
It’s been more than five years since the beginning of the financial crisis – which resulted in the largest destruction of wealth in a generation. And while many observers still disagree about its central cause, we know that proprietary trading played a significant role. Such trading has indeed produced tremendous profits for some of our largest financial firms – but it also contributed to losses during the height of the crisis.
In fact, one academic study estimated that by mid-April of 2008, banks had lost roughly $230 billion dollars on certain proprietary holdings, which regulators and other interested parties had believed were simply inventories of assets held to facilitate client trading.
In the wake of these devastating losses, taxpayers stepped in to staunch the bleeding and Congress took action to ensure that such an emergency would never happen again, enacting comprehensive legislation to address the many causes of the crisis – from the bad loans at the heart of the collapse, to the exotic securitizations that drove the demand for predatory mortgages, to the opaque derivatives markets that created tremendous interconnectedness and risk in our financial system.
A key part of Wall Street Reform is the Volcker Rule. If properly implemented, the Rule will provide that banks insured by taxpayer dollars can no longer engage in proprietary trading or investments in risky vehicles like hedge funds.
The concept of the Rule is simple: loan-making, deposit-taking banks should not be engaged in risky, speculative activity on the backs of the American taxpayers.
Many observers of our financial system agree on this. Standard & Poor’s has pointed out that, “the implementation of the Volcker rule could have favorable implications for the credit profiles of some of the largest U.S. banks, such as reducing trading portfolio risk.”
John Reed, the former Citigroup Chairman, notes that, “a strong Volcker rule is one of the most important provisions to prevent ‘too big to fail’ financial institutions, stop conflicts of interest and support credit in our economy.”
And even Chairman Hensarling has stated to the Wall Street Journal that, “we have to do a better job ring-fencing, fire-walling—whatever metaphor you want to use—between an insured depository institution and a noninsured investment bank.”
In the face of their statutory directive to implement Volcker, our regulators have undertaken the tremendous task of wading through 18,000 comments – and have engaged with stakeholders during dozens upon dozens of meetings. We see the European Union potentially moving forward with a similar effort, and the United Kingdom has passed legislation implementing a similar measure, known as the “Vickers Report.” All of these actions should be applauded.
At the same time, I understand that regulators are working diligently to address some issues related to the Rule that have come up in the last month, including the issue related to collateralized debt obligations backed by Trust Preferred Securities. Most of the Democratic members of this Committee urged regulators to provide an exemption for banks that would be consistent with their treatment under the Wall Street Reform Act. I appreciate the regulators’ responsiveness on this point, and believe their recent interim rule has provided important relief to community banks.
Mr. Chairman, the Volcker rule will ensure federal dollars are no longer used to protect losses from risky trading. Doing so will protect the U.S. economy from suffering another debilitating financial crisis and will ensure taxpayers are never again asked to rescue failed financial firms.
And now that we have the Rule’s framework in place, I look forward to conducting oversight and ensuring that our regulators are faithfully enforcing this provision, which will be central to the success of the Wall Street Reform Act. Thank you, I yield back.