To maintain the role of the Board of Governors as the supervisor of holding companies and State member banks.

RESTORING AMERICAN FINANCIAL STABILITY ACT OF 2010--Continued

Mr. DODD. Mr. President, I ask unanimous consent that the following
be the next amendments in order: Bennet of Colorado amendment No. 3928;
Corker amendment No. 3955; Merkley-Klobuchar amendment No. 3962, a
side-by-side to the Corker amendment; that the Senate resume
consideration of S. 3217; that Senator Bennet of Colorado be recognized
to call up his amendment; that after his statement, the amendment be
set aside and Senator Corker be recognized to call up his amendment;
that immediately after the amendment is reported by number it be
temporarily set aside and Senators Merkley and Klobuchar be recognized
to call up their side-by-side amendment.
Mr. SHELBY. Mr. President, reserving the right to object, I ask the
chairman, after the Corker amendment is disposed of, is it possible to
bring up the Klobuchar-Hutchison amendment and have a debate and vote
tomorrow?
Mr. DODD. After the side-by-side on Senators Corker and Merkley--
after that, I would be happy to set a time and either debate this
evening and vote in the morning, however the Senators want to do it.

[[Page S3511]]

Mr. SHELBY. Can we agree on that, to have a vote at what time in the
morning?
Mrs. HUTCHISON. Could the vote be at 9:30 in the morning?
Mr. SHELBY. Can they have a vote tonight?
Mr. DODD. I am worried about an obligation that we all have this
evening. We are getting pressed. I want to be careful about asking
Members to hang around when we all have an obligation--100 of us. I
suggest that we enter into an agreement if we can. I am hopeful this
can be worked out. There may be a side-by-side. I would be agreeable to
setting a time certain tonight--preferably tomorrow, with debate
tonight and a vote in the morning--maybe an hour after we come in, or a
half hour after we come in. We will have to make sure the leadership is
fine with that.
Mrs. HUTCHISON. Mr. President, we could certainly have 30 minutes
equally divided on the Hutchison-Klobuchar amendment, and we can agree
to vote 30 minutes after we come in, whatever time that is.
Mr. DODD. We will work this out. Let's get the vote here.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Colorado is recognized.

Amendment No. 3928 to Amendment No. 3739

Mr. BENNET. Mr. President, I will reserve 2 minutes for Senator
Tester out of my time.
As I mentioned earlier this week, we have an important opportunity to
safeguard our economy from the conditions that drove our country into
this catastrophic financial meltdown.
The Wall Street reform bill we have before us takes critically
important steps forward, helping to stabilize and safeguard our
financial institutions, our financial system for consumers and
businesses alike. But we should not stop here. This debate must be
about making the underlying bill better.
I rise today to suggest one substantial way that we can rebuild the
credibility of our financial system, save taxpayers billions of
dollars, and finally move to end the TARP.
Mr. President, I have an amendment at the desk, No. 3928, and I wish
to call it up and ask unanimous consent to add Senator Brown of
Massachusetts as a cosponsor.
The PRESIDING OFFICER. Without objection, it is so ordered.
The clerk will report.
The legislative clerk read as follows:

The Senator from Colorado (Mr. Bennet), for himself, Mr.
Tester, Mr. Isakson, Ms. Klobuchar, Mr. Begich, Mr. Udall of
Colorado, Mr. LeMieux, and Mr. Brown of Massachusetts,
proposes an amendment numbered 3928 to Amendment No. 3739.

The amendment is as follows:

(Purpose: To apply recaptured taxpayer investments toward reducing the
national debt)

At the end of the bill, insert the following:

TITLE XIII--PAY IT BACK ACT

SEC. 1301. SHORT TITLE.

This title may be cited as the ``Pay It Back Act''.

SEC. 1302. AMENDMENT TO REDUCE TARP AUTHORIZATION.

Section 115(a) of the Emergency Economic Stabilization Act
of 2008 (12 U.S.C. 5225(a)) is amended--
(1) in paragraph (3)--
(A) by striking ``If'' and inserting ``Except as provided
in paragraph (4), if'';
(B) by striking ``, $700,000,000,000, as such amount is
reduced by $1,259,000,000, as such amount is reduced by
$1,244,000,000'' and inserting ``$550,000,000,000''; and
(C) by striking ``outstanding at any one time''; and
(2) by adding at the end the following:
``(4) If the Secretary, with the concurrence of the
Chairman of the Board of Governors of the Federal Reserve
System, determines that there is an immediate and substantial
threat to the economy arising from financial instability, the
Secretary is authorized to purchase troubled assets under
this Act in an amount equal to amounts received by the
Secretary before, on, or after the date of enactment of the
Pay It Back Act for repayment of the principal of financial
assistance by an entity that has received financial
assistance under the TARP or any other program enacted by the
Secretary under the authorities granted to the Secretary
under this Act, but only--
``(A) to the extent necessary to address the threat; and
``(B) upon transmittal of such determination, in writing,
to the appropriate committees of Congress.''.

SEC. 1303. REPORT.

Section 106 of the Emergency Economic Stabilization Act of
2008 (12 U.S.C. 5216) is amended by inserting at the end the
following:
``(f) Report.--The Secretary of the Treasury shall report
to Congress every 6 months on amounts received and
transferred to the general fund under subsection (d).''.

SEC. 1304. AMENDMENTS TO HOUSING AND ECONOMIC RECOVERY ACT OF
2008.

(a) Sale of Fannie Mae Obligations and Securities by the
Treasury; Deficit Reduction.--Section 304(g)(2) of the
Federal National Mortgage Association Charter Act (12 U.S.C.
1719(g)(2)) is amended--
(1) by redesignating subparagraph (C) as subparagraph (D);
and
(2) by inserting after subparagraph (B) the following:
``(C) Deficit reduction.--The Secretary of the Treasury
shall deposit in the General Fund of the Treasury any amounts
received by the Secretary from the sale of any obligation
acquired by the Secretary under this subsection, where such
amounts shall be--
``(i) dedicated for the sole purpose of deficit reduction;
and
``(ii) prohibited from use as an offset for other spending
increases or revenue reductions.''.
(b) Sale of Freddie Mac Obligations and Securities by the
Treasury; Deficit Reduction.--Section 306(l)(2) of the
Federal Home Loan Mortgage Corporation Act (12 U.S.C.
1455(l)(2)) is amended--
(1) by redesignating subparagraph (C) as subparagraph (D);
and
(2) by inserting after subparagraph (B) the following:
``(C) Deficit reduction.--The Secretary of the Treasury
shall deposit in the General Fund of the Treasury any amounts
received by the Secretary from the sale of any obligation
acquired by the Secretary under this subsection, where such
amounts shall be--
``(i) dedicated for the sole purpose of deficit reduction;
and
``(ii) prohibited from use as an offset for other spending
increases or revenue reductions.''.
(c) Sale of Federal Home Loan Banks Obligations by the
Treasury; Deficit Reduction.--Section 11(l)(2) of the Federal
Home Loan Bank Act (12 U.S.C. 1431(l)(2)) is amended--
(1) by redesignating subparagraph (C) as subparagraph (D);
and
(2) by inserting after subparagraph (B) the following:
``(C) Deficit reduction.--The Secretary of the Treasury
shall deposit in the General Fund of the Treasury any amounts
received by the Secretary from the sale of any obligation
acquired by the Secretary under this subsection, where such
amounts shall be--
``(i) dedicated for the sole purpose of deficit reduction;
and
``(ii) prohibited from use as an offset for other spending
increases or revenue reductions.''.
(d) Repayment of Fees.--Any periodic commitment fee or any
other fee or assessment paid by the Federal National Mortgage
Association or Federal Home Loan Mortgage Corporation to the
Secretary of the Treasury as a result of any preferred stock
purchase agreement, mortgage-backed security purchase
program, or any other program or activity authorized or
carried out pursuant to the authorities granted to the
Secretary of the Treasury under section 1117 of the Housing
and Economic Recovery Act of 2008 (Public Law 110-289; 122
Stat. 2683), including any fee agreed to by contract between
the Secretary and the Association or Corporation, shall be
deposited in the General Fund of the Treasury where such
amounts shall be--
(1) dedicated for the sole purpose of deficit reduction;
and
(2) prohibited from use as an offset for other spending
increases or revenue reductions.

SEC. 1305. FEDERAL HOUSING FINANCE AGENCY REPORT.

The Director of the Federal Housing Finance Agency shall
submit to Congress a report on the plans of the Agency to
continue to support and maintain the Nation's vital housing
industry, while at the same time guaranteeing that the
American taxpayer will not suffer unnecessary losses.

SEC. 1306. REPAYMENT OF UNOBLIGATED ARRA FUNDS.

(a) Rejection of ARRA Funds by State.--Section 1607 of the
American Recovery and Reinvestment Act of 2009 (Public Law
111-5; 123 Stat. 305) is amended by adding at the end the
following:
``(d) Statewide Rejection of Funds.--If funds provided to
any State in any division of this Act are not accepted for
use by the Governor of the State pursuant to subsection (a)
or by the State legislature pursuant to subsection (b), then
all such funds shall be--
``(1) rescinded; and
``(2) deposited in the General Fund of the Treasury where
such amounts shall be--
``(A) dedicated for the sole purpose of deficit reduction;
and
``(B) prohibited from use as an offset for other spending
increases or revenue reductions.''.
(b) Withdrawal or Recapture of Unobligated Funds.--Title
XVI of the American Recovery and Reinvestment Act of 2009
(Public Law 111-5; 123 Stat. 302) is amended by adding at the
end the following:

``SEC. 1613. WITHDRAWAL OR RECAPTURE OF UNOBLIGATED FUNDS.

``Notwithstanding any other provision of this Act, if the
head of any executive agency withdraws or recaptures for any
reason funds appropriated or otherwise made available under
this division, and such funds have not been obligated by a
State to a local government or for a specific project, such
recaptured funds shall be--

[[Page S3512]]

``(1) rescinded; and
``(2) deposited in the General Fund of the Treasury where
such amounts shall be--
``(A) dedicated for the sole purpose of deficit reduction;
and
``(B) prohibited from use as an offset for other spending
increases or revenue reductions.''.
(c) Return of Unobligated Funds by End of 2012.--Section
1603 of the American Recovery and Reinvestment Act of 2009
(Public Law 111-5; 123 Stat. 302) is amended by--
(1) striking ``All funds'' and inserting ``(a) In
General.--All funds''; and
(2) adding at the end the following:
``(b) Repayment of Unobligated Funds.--Any discretionary
appropriations made available in this division that have not
been obligated as of December 31, 2012, are hereby rescinded,
and such amounts shall be deposited in the General Fund of
the Treasury where such amounts shall be--
``(1) dedicated for the sole purpose of deficit reduction;
and
``(2) prohibited from use as an offset for other spending
increases or revenue reductions.
``(c) Presidential Waiver Authority.--
``(1) In general.--The President may waive the requirements
under subsection (b), if the President determines that it is
not in the best interest of the Nation to rescind a specific
unobligated amount after December 31, 2012.
``(2) Requests.--The head of an executive agency may also
apply to the President for a waiver from the requirements
under subsection (b).''.

Mr. BENNET. Mr. President, my amendment is based on bipartisan
legislation I introduced earlier this Congress called the Pay It Back
Act. I was greatly encouraged at that time by the broad bipartisan
support in this body for winding down the TARP, getting serious about
deficit reduction, and spurring our economy back to health.
As I talk with Coloradans all across my State, I hear the same
concerns again and again. People are deeply concerned and worried about
the economy. They worry about jobs and they worry about our rising
Federal deficit. But mostly they just want a fair shake--a chance to
achieve their own vision of success through hard work.
That is why they don't understand the behavior of some of our largest
financial institutions. They don't understand how these behemoths could
have made bad bets, lose billions of dollars, and then be bailed out by
the Federal Government. That doesn't make sense to most people in
Colorado, and it certainly doesn't make sense to anybody running a
business.
This pay it back amendment takes a big step forward in our efforts to
wind down and eventually end the TARP. It prevents further government
spending, recaptures taxpayers' investments in financial institutions,
and ensures that repaid funds are used for deficit reduction.
It does this in a couple of ways. First, it reduces the TARP's
authority by about $150 billion, which will ensure that unused TARP
funds are not used for new government spending.
Chairman Dodd's bill sends a strong message to Wall Street and our
broader markets that there is no longer an implicit guarantee of
government support for excessive and sloppy risk taking. This amendment
reinforces this important principle by reducing TARP's authority. In
short, it begins to wind down the TARP and ensures that the government
doesn't use the excess funding for new spending initiatives. It is a
commonsense way forward for a program whose time has come and
thankfully is almost gone.
But that is not enough. As we wind down TARP, we need to make sure
that taxpayers realize a fair return on their investment. That is why
the second element of the Pay It Back Act amendment is that it takes
captured, repaid TARP funds and applies them to deficit reduction. It
does it by severely restricting TARP's revolving door of credit.
Although some companies have already repaid the money they received,
TARP currently allows the Treasury to keep $700 billion ``outstanding
at any one time.''
Let me make this clear. The Treasury has already received about $180
billion in repaid funds from banks that are now in a position to repay
the taxpayers. But right now, Treasury can turn around and lend that
same money to some other financial institution. It can use our money
again and again. And since the TARP money is borrowed against our kids'
and grandkids' futures, that is using their money again and again and
again. I can tell you for sure that my daughters don't want to be stuck
footing the bill for keeping the TARP around even 1 day longer than we
have to. By supporting my amendment, this body can move forcefully
toward ending the TARP and restoring fiscal sanity.
The amendment also creates a sunset for unused Recovery Act funds.
Any funds not obligated by the Federal Government by December 31, 2012,
will be returned to the Treasury to pay down the national deficit.
Congress passed the Recovery Act to jolt our struggling economy back to
life and help create and save jobs now. Yet, if funds have not been
used by the end of 2012, can we say they have been used to ease our
current recession? The taxpayers deserve to see stimulus funds used for
real stimulus. If not, they should be used to pay down our debt.
The pay it back amendment sets a schedule for getting the government
out of the business of owning businesses. It lets excessive risk takers
know that Washington no longer provides a backstop for greed,
overleveraging, reckless levels of risk, and irresponsibility. If big
financial institutions want to behave that way, they must know that
they do so without the TARP--without money from Main Street--to bail
them out any longer.
In short, it is time for this assistance to come to a responsible
end. At the heart of the Wall Street reform bill is an effort to
prevent future bailouts. So let's start by finally winding down the
biggest bailout of them all and making sure taxpayers get the best
possible return on their money.
I thank my colleagues who are cosponsors of the bill, and I ask all
of my colleagues to support this important amendment. I thank Senator
Dodd and Senator Lincoln and the ranking members of the Banking and
Agriculture Committees for their hard work to bring Wall Street reform
to the floor.
I know the Senator from Montana wants to take a couple of minutes. I
will say this. Americans have been watching the news in Europe this
week, and they are seeing what is happening in Greece and the rest of
Europe. If we don't think that is a canary in the coal mine, we do that
at our peril. This bill will not solve our deficit and debt problem,
but it takes a stand that says we are not going to leave a legacy of
$12 trillion behind for our kids and grandkids.
With that, I yield the floor.
The PRESIDING OFFICER. The Senator from Montana is recognized.
Mr. TESTER. Mr. President, I rise to speak in strong support of
Senator Bennet's amendment to begin winding down the Wall Street
bailout once and for all.
I also want to express my appreciation for Senator Bennet's
effectiveness and stick-to-itiveness in working on this for some time
and being able to get this through. This is a very important amendment.
As Senator Bennet has said, it will not solve our debt problems, but it
is a step in the right direction. I appreciate his vision and
leadership.
Montanans were disgusted by the reckless actions of big, greedy Wall
Street banks that brought this country to the brink of another
Depression.
I voted against both the bailouts of Wall Street and the U.S. auto
industry because I thought taxpayers were getting a raw deal. I don't
believe in bailouts.
Why? Whether you are a family farmer or a hot-shot executive, the
opportunity that allows us to fail is the same opportunity that allows
us to succeed.
And America's taxpayers--Main Street small businesses and working
families--should never have to pay for the sins of Wall Street.
That is why I am pleased to join Senator Bennet on this amendment to
ensure that we get the maximum value for the taxpayer dollars spent
through the TARP bailout.
I opposed the bailout then and I oppose it now. But at a minimum, we
should recapture taxpayer investments and unused Recovery Act funds to
pay down the debt.
This amendment not only achieves that but also begins to wind down
TARP by reducing its authority by over $190 billion. And it prevents
the Treasury from redirecting funds for other purposes.
The amendment would also establish a sunset for unused Recovery Act
funds and improve oversight of unused funds.

[[Page S3513]]

Additionally, it would ensure that the proceeds from taxpayer
investments in Fannie and Freddie are used to pay down the debt.
We have a commitment to the American people to spend their hard-
earned money as wisely as we would spend our own.
Our national debt is something both parties have ignored for far too
long. How do we get our arms around it?
It is going to take smart--and very tough--decisions. It is going to
take working together. and it is going to take rebuilding our economy
by creating jobs and new opportunities, not more taxpayer-funded
bailouts.
This amendment will get things back on track to return taxpayer
dollars. And to begin paying down the debt that we have inherited.
Once again, I thank Senator Bennet for his leadership.
With that, I yield the floor.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Mr. President, very briefly, I commend our colleague from
Colorado for reaching out on this. The amendment is authored by the
Senator from Colorado, and he has attracted good bipartisan support
from Senators Tester, Isakson, Klobuchar, Begich, LeMieux, Mark Udall,
and Brown of Massachusetts on how this ought to be done. The substance
of the amendment is critically important. He worked with Treasury to
ensure that we are responsibly winding down the TARP and getting the
government out of the business of owning businesses. We can all agree
with that, and I commend him for that amendment. It also ensures that
unused TARP funds are used to pay down the deficit. We have heard a lot
of talk about fiscal responsibility and watching what is happening in
Europe and other countries and knowing the fiscal problems of those
nations are the root cause of a lot of the problems they are going
through today.
This amendment actually dedicates these resources to deficit
reduction. I think all of us applaud his leadership on it.
There are signs our economy is recovering. In the last 3 months of
2010, our economy added roughly 187,000 jobs a month. Last year, it was
290,000 jobs, which is the largest number in over 4 years. Compare that
to the first 3 months of 2009 when we were losing 750,000 jobs a month.
In the first quarter, the economy grew 3.2 percent, a swing upwards of
nearly 10 percent in 1 year, something many economists say is largely
due to the Recovery Act. Just over a year ago, the economy was
shrinking about 6 percent on an annual basis.
This amendment is tremendously valuable to this bill. We have all had
discussions about it--our colleague from Georgia, Senator Isakson,
Senator LeMieux, and Senator Tester. Because of the leadership of Mike
Bennet, he has brought us to this point. I thank him immensely. I thank
all of our colleagues.
I am prepared to do a voice vote, unless someone objects to a voice
vote on the Bennet amendment, so we can move to finalize how we deal
with the Corker amendment and the other issues before us.
Mr. SHELBY. We have no objection to the Bennet amendment.
The PRESIDING OFFICER (Mr. Pryor). Is there further debate? If not,
the question is on agreeing to the amendment.
The amendment (No. 3928) was agreed to.
Mr. DODD. Mr. President, I move to reconsider the vote, and I move to
lay that motion on the table.
The motion to lay on the table was agreed to.
The PRESIDING OFFICER. The Senator from Tennessee.

Amendment No. 3955 to Amendment No. 3739

(Purpose: To provide for a study of the asset-backed securitization
process and for residential mortgage underwriting standards.)

Mr. CORKER. Mr. President, I call up amendment No. 3955.
The PRESIDING OFFICER. The clerk will report the amendment.
The assistant legislative clerk read as follows:

The Senator from Tennessee [Mr. Corker], for himself, Mr.
Gregg, Mr. LeMieux, Mr. Coburn, and Mr. Brown of
Massachusetts, proposes an amendment numbered 3955 to
amendment No. 3739.

Mr. CORKER. Mr. President, I ask unanimous consent that the reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The amendment is printed in today's Record under ``Text of
Amendments.'')
Mr. CORKER. Mr. President, my understanding is we have about 30
minutes on each side--is that correct--on this amendment--30 minutes on
this amendment and 30 minutes on Merkley; is that correct?
The PRESIDING OFFICER. There is no order in effect.
Mr. CORKER. I know Senator Isakson, Senator Gregg, and Senator Shelby
wish to speak on our side.
Mr. DODD. Technically, there is no time agreement.
Mr. CORKER. I will be very brief.
The PRESIDING OFFICER. The Senator from New Hampshire.
Mr. GREGG. Mr. President, I ask unanimous consent that after Senator
Corker finishes his remarks, Senator Isakson be recognized and then I
be recognized. If Senator Shelby wants to be recognized, he should be
recognized before Senator Isakson. Senator Shelby should start, then
Senator Isakson, and then myself.
Mr. DODD. If a Member on this side somewhere in the midst of this can
be heard as well----
Mr. GREGG. That would be totally reasonable.
Mr. DODD. That was not a sophisticated request.
Mr. CORKER. If we can move along on our side----
Mr. DODD. Move along.
Mr. CORKER. It sounds like there was no objection, Mr. President.
The PRESIDING OFFICER. Is there objection to the sequence the Senator
from----
Mr. CORKER. To restate, Senator Shelby, Senator Isakson, Senator
Gregg, and then anybody else on our side.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. CORKER. Mr. President, the Dodd bill attempts to deal with
quarterly liquidation. I know there have been discussions about the
pros and cons. There have been attempts to deal with the derivatives
title. My sense is, before it is all said and done, there is a chance
that may work out well. I think we have overly dealt with consumer
protection and hope that somehow in this body we will bring that back
into balance.
This bill glaringly does not deal with some of the core issues of
this last crisis. We just voted on GSEs, an amendment that would have
dealt with that over the next couple of years in a way that does not
prescribe exactly a solution but makes sure we deal with it. We just
voted it down.
Even more glaring, the Dodd bill does not deal with the essence of
what created this last crisis. At the base of this crisis--an inverted
pyramid--was the fact that we had a lot of loans that were written that
should never have been written. Those loans were done by companies that
were leveraged 30, 40, 50 to 1, and then $600 trillion worth of
notional value of these loans that should never have been written were
spread across the world. That, in essence, brought down our financial
system.
It seems to me if we are going to do a financial regulation bill, we
ought to at least deal with the core issue, which is very poor
underwriting. I have offered an amendment. I know there is going to be
a side-by-side. I might add, the side-by-side--and I want to make sure
the people on my side know this--lets the consumer protection agency
deal with underwriting, which is pretty incredible to me.
It seems to me that what we want to ensure is that the underwriting
we do does not undermine the safety and soundness of our financial
institutions and, therefore, should be dealt with by those regulators.
This amendment is very simple. It does some things that have been
very basic to making our country strong as it relates to residential
lending. Here is what it does: It establishes that there will be a
minimum of a 5-percent downpayment. If I was left to my own accord, I
might do something more stringent than that. It causes any loan that is
written at above an 85 percent loan to value to have private mortgage
insurance. It actually requests the persons's income; that this loan
has to be fully documented, including credit history and employment
history. It seems this is something at a minimum in this country we
would like to see

[[Page S3514]]

happen as it relates to residential lending.
Then there has to be a method for determining the borrower's ability
to repay--a no-brainer--considering their debt-to-income ratio.
Those four simple requirements are put into law so we do not have the
same type of underwriting problems we just had with this last episode.
This does not apply to the VA. VA is an entitlement, something we have
given to those who serve our country. It does not apply to rural
housing. Regulators have to update the standards no less than every 5
years.
For those people who may be concerned about organizations such as
Habitat for Humanity and others that use sweat equity and do not use
money down, this gives the regulators the ability to exempt nonprofits
that meet certain criteria on a case-by-case basis. So if there is a
nonprofit in your community that is involved in allowing people to
create sweat equity for housing, they would not be hurt. This requires
a review of exemptions every 2 years to make sure they are within that
criteria and it prohibits an exemption going to organizations that are
prohibited from receiving Federal funding. We know of some of those.
This also requires a study of FHA to make sure their underwriting
standards are intact.
The way the Dodd bill addresses underwriting, it deals with something
called risk retention on securitizations. I think most people realize
that is a flawed model. It has nothing to do with the loans underneath
those securities. I think Chairman Dodd is even trying to find a better
solution.
This bill also strikes the 5-percent retention that most people in
this room think is going to actually shut down the securitization
process and make less credit available, especially in the commercial
areas. This, instead, puts in place a study so we can actually
determine the best way to look at securitizations and know what type of
risk retention should be in place.
I urge all colleagues on both sides of the aisle to do something that
is real, that is substantive, that gets at the heart of this issue,
that actually causes us to put in law proper underwriting standards. I
cannot imagine there are many people in America who do not think this,
at a minimum, ought to be done as part of underwriting home mortgages.
I yield time now to the Senator from Alabama, who may not be here. I
divert and yield to Senator Isakson from Georgia.
The PRESIDING OFFICER. The Senator from Georgia.
Mr. ISAKSON. Mr. President, I thank the Senator from Tennessee. I
commend the Senator from Tennessee who has worked tirelessly for months
on this legislation but in particular has worked tirelessly on this
particular amendment.
I rise to try and make my point as strongly as I can. This body, I
know, always wants to do the right thing. We want to address the
concerns that made the market begin to collapse 2 years ago. We want to
restore confidence in real estate finance. We want to bring back the
vibrant housing industry. We do not want to reincarnate subprime loans.
And we ought to do one simple thing today: We ought to learn from
history. I want to give everybody a small history lesson.
The underlying bill answers the question of better underwriting by
putting risk retention as a requirement on a newly originated mortgage,
a risk retention of 5 percent. The tier 1 minimum capital requirement
of a nationally chartered bank is 8 percent. You are going to tell me
the banks of America are going to reserve another 5 percent against the
mortgages they originate? No, they are just not going to originate
mortgages whatsoever.
Secondly, risk retention is no insurance for a better mortgage having
been made. The fact is, in the late 1980s, the American savings and
loan industry, which was chartered for the purpose of financing
American homes, went under, and they had a 100-percent risk retention.
What causes bad lending is bad underwriting. Risk retention has
nothing to do with it if you have bad underwriting or, as we had in
late 2007, 2008, 2009, no underwriting at all.
First of all, Senator Corker's amendment is an outstanding amendment
that strikes at the heart of the problem that got us here, while at the
same time according the opportunity for the American finance industry
to bring back competitive mortgage lending. If it is not FHA and it is
not VA and it is not a Freddie Mac or Fannie Mae loan right now, you
are not getting one. We do not have people in the market anymore
because they are scared. There is no standard.
This brings us back to a standard of underwriting that is right. It
recognizes somebody has a job, has an ability to pay, has reasonable
credit, and has some skin in the game so they will pay that loan back.
Historically, the default rate on the mortgage industry in the United
States of America, outside the last 3 years, was around 1.2 percent to
1.4 percent--very little; in fact, probably the highest best risk
investment an investor could make.
What happened was, when underwriting failed and we got into exotic
instruments, when Congress told Freddie and Fannie to make affordable
loans and they created market subprime loans, the genie got out of the
bottle and everything failed.
I want to say to the body, if we let this bill pass with risk
retention in it thinking we have done something, the only thing we will
have accomplished is a total absence of mortgage money for the American
home buyer and American real estate industry. That is a bad mistake.
Facts are stubborn things. If a guy has a job, makes a downpayment,
he will repay his loan. If he does not, he might not.
Let's get back to the roots that got us to where we are as a great
country. Let's restore home ownership and ability to finance it, but
let's recognize the weakness was in underwriting. It was not in the
retained risk of the originator.
I commend Senator Corker, Senator Shelby, Senator Gregg, Senator
LeMieux, and the others who have worked on this issue. If this
amendment fails, then this entire legislation fails in meeting the
standard it set upon itself. That would be a tragedy and a mistake for
the United States of America.
I yield to the distinguished Senator from New Hampshire.
The PRESIDING OFFICER. The Senator from New Hampshire.
Mr. GREGG. Mr. President, I wish to join in congratulating Senator
Corker, Senator Isakson, Senator Shelby, and others who have come
together around this issue of better underwriting standards.
It is hard for me to understand why this would be resisted in this
bill because this has been outlined both by Senator Corker and by
Senator Isakson. It was underwriting that created the problems which
led our Nation to the brink of a fiscal collapse.
The way I have described it is this: What we had was an inverted
pyramid. We had this situation where an individual made a loan to
another individual or a corporation made a loan to an individual based
on the value of a piece of property. Unfortunately, when that loan was
made, it was made in a way where nobody looked at the value of the
property relative to the loan and nobody looked at whether the person
who was getting the loan could pay it back because the system no longer
had strong underwriting standards.
Then that loan was taken and it was syndicated, it was securitized,
it was synthesized, and it became multiplied, as the Senator from
Tennessee said, into $600 trillion of notional value. We ended up with
this huge pyramid of debt built on the basis of this loan down here at
the bottom between this corporation and this individual, this loan
which was based on value which was not there, and ability to repay,
which was not there once the rates of the loan were reset.
Why did this happen? Why was this loan so inappropriately made? It
was inappropriately made because we had a breakdown in underwriting
standards. I have been through three of these events in my professional
career: once in the late seventies when I was involved in representing
a bank in New Hampshire, once in the late eighties when I was Governor
of New Hampshire, and now. Three major financial disruptions which were
created almost entirely by a failure in underwriting standards, where
people were making

[[Page S3515]]

loans that couldn't be paid back based on asset value which wasn't
there. It just was aggravated radically this time because of the way
the system suddenly took these loans and exploded them through the
securitization process and the syndication process.

So if you are going to fix this problem, if you are going to put in
place a regulatory reform system which actually fixes the issues which
caused the crisis, you have to address underwriting standards. That is
why the Corker amendment is so critical, because this bill does not
address underwriting standards in any other way, in any significant
manner. So if you are going to have a legitimate effort to try to make
sure this type of an event doesn't occur again, you have to put in
place underwriting standards which establish the rules of the road,
which say that in the future America will not allow this sort of
proliferation of lending which is not properly secured, where we know
that the person getting the loan can't repay the obligation.
Ironically, in this situation, these loans were made, in some
instances, with the full understanding that this wouldn't happen, that
they couldn't repay and the value wasn't there. Why? Because we
separated underwriting standards from the process of actually making
the loan. The people making loans were only interested in making a fee.
They were not interested in making sure there was value of the
security. They weren't interested in making sure the people could
repay. They were just interested in the fee.
This should stop. The language Senator Corker has put before us would
accomplish that. It would put in place not unusual underwriting
standards, not new underwriting standards, it would simply go back
essentially to the types of standards--and they are not quite as
strict, honestly--we had at a prior time when we didn't have this kind
of risk in the marketplace because people knew when they borrowed money
to buy a house they were going to have to put money down, and if they
didn't put the full amount of the value down, they would have to have
insurance to cover the difference. They knew their creditworthiness was
going to be checked, and thoroughly checked, and their ability to pay
the loan was going to be checked. So it is a totally reasonable
approach.
If you are going to do one thing in this bill to avoid a future event
like the one we confronted in late 2008 where basically the entire
financial industry of this country almost melted down, if you are going
to do one thing to prevent that event, you should adopt the Corker
amendment. This should be a bipartisan amendment. I don't understand
any opposition to it. I don't understand the concept which would oppose
it because it is basically good banking and good lending. It is also
good for the people who borrow money because they are not going to get
money just arbitrarily but only if they have the value in the asset
they are borrowing on and if they have the ability to repay. So I
certainly hope this amendment will be approved.
The PRESIDING OFFICER. The Senator from Alabama.
Mr. SHELBY. Mr. President, I rise specifically to support the
important steps the Corker amendment takes to establish sound
underwriting standards for mortgages. If there is any clear message
from the crisis we have been through, it is that much of what went
wrong began when loans were made to individuals who couldn't repay
them.
The Corker amendment makes commonsense changes. It requires minimum
downpayments on mortgages, which makes it more likely that borrowers
remain committed to paying their mortgages. It requires, among other
things, that lenders verify a borrower's income and their ability to
repay these loans. These might sound simple, but remarkably they have
been overlooked by the Dodd bill. In the past, they have worked. We
used to not have these kinds of problems. The Corker amendment, if we
adopt this--and I urge my colleagues to vote for it--will go a long way
in taking the right steps to bring common sense to our mortgage market.
Mr. CORKER. Mr. President, how much time remains of our 30 minutes?
The PRESIDING OFFICER. There is 13 minutes 40 seconds remaining.
Mr. CORKER. I yield a few minutes, if I could, to the Senator from
Florida.
The PRESIDING OFFICER. The Senator from Florida.
Mr. LeMIEUX. Mr. President, I wish to congratulate my colleague from
Tennessee on his amendment, and I rise in support of it.
In Florida, we know this was the very problem that started this whole
crisis. We called them NINJO loans--no income, no job. Underwriting
standards went out the window because of the hunger of Wall Street to
suck up these mortgages, to bundle them into these large securitized
packages and then sell them off. So as Wall Street demanded more and
more, underwriting went out the window. And what does the bank or the
mortgage broker care if they can just ship off their mortgage and sell
it off to Wall Street? What do they care if the person they are giving
the mortgage to can't pay it back? What do they care if that person
can't afford the home to start with? So we got ourselves into this
perfect storm of a situation, and one of the key elements that allowed
this to happen was the fact that there weren't underwriting standards.
When I bought my first home back in 1995, I didn't have 20 percent to
put down; I had 15 percent. So I had to get mortgage insurance to cover
the other 5 percent of my downpayment. Until such time as my family--my
wife and I at the time, before we had any of our kids--could make a
payoff to get the 20 percent of equity value to the loan, we had to pay
for the mortgage insurance. Once we did, we no longer had to pay for
that.
Well, in the late 1990s and the early 2000s, that went out the
window. No longer were these underwriting standards in place. We now
know, looking back on the debacle that happened in 2008, that one of
the key reasons it happened, one of the key things that made it fertile
for this problem to grow was the fact that there weren't underwriting
standards.
What Senator Corker does in his bill is he puts these mortgage
underwriting standards back into law the way they were when everything
operated the right way--a 5-percent downpayment, credit enhancement to
get you to an 80-percent loan to value, fully documented income,
including credit history and employment history, and a method for
determining the borrower's ability to repay. All those things make
common sense. But that common sense didn't prevail in the mid-2000s.
Last year, in an initiative the Wall Street Journal put forward, it
talked about the 20 most important things that could be done to avert
the financial collapse that happened, and the No. 1 most important
thing was to strengthen underwriting standards. But this bill we are
considering which is supposed to get at the problems that caused this
meltdown in 2008--it is 1,409 pages long--doesn't address perhaps the
No. 1 biggest reason we had a financial failure in 2008.
Senator Corker, along with Senators Isakson, Shelby, Gregg, and to a
smaller extent myself, have worked on this, and I commend my colleague
from Tennessee. There is absolutely no reason not to pass this. If any
of our colleagues are serious about really reforming our financial
system and preventing this problem from happening again, then they must
support this very fine amendment.
I thank the Chair.
Mr. CORKER. Mr. President, not seeing other Senators at this time
wishing to speak, I want to recap, if I could.
We spend a year and a half working on financial regulation in this
body, and there are a lot of fancy things we are looking at that
certainly need to be looked at, no question. We are looking at clearing
trades with derivatives. We are looking at all kinds of section 106
issues and other kinds of things, many of which I have issues with. But
it is amazing that after all this time, we are still not dealing with
the core issue.
It is hard for me to imagine that anybody in this body would think
that a 5-percent downpayment on a loan would be something that is
extraordinary. This puts in place, as the other Senators have
mentioned--and I certainly appreciate those who have joined me in
cosponsoring. I have had a couple of folks on the other side of the
aisle today come up and say: Look, this makes common sense. I am going
to support this. It is amazing to me that we are not focusing on those
very things that we think are the core issues.

[[Page S3516]]

We had a chance a minute ago to deal with Fannie Mae and Freddie Mac,
and, of course, we didn't. I know it is a complex issue, but I felt the
McCain amendment gave us a timeframe within which we could deal with
Fannie Mae and Freddie Mac. We didn't. We decided to have another
study.
But I would say to my friends on the other side of the aisle, while
there is an unwillingness to deal with the issues over Fannie Mae and
Freddie Mac and some of the problems that exist right now within FHFA,
what this amendment would do is to put in place underwriting standards
that would at least ensure the mortgages Fannie Mae and Freddie Mac are
purchasing themselves would have proper underwriting standards. I think
that is very important.
It is amazing that sometimes we will spend a year and a half in this
body--a year, 6 months, whatever--on different types of issues, and we
focus on lots of things that industry brings us, that other people
bring us, but we don't get down to just the commonsense core issues
that Americans know work.
I thank the Senator from Florida and others who have joined in this
effort to ensure we have appropriate underwriting standards. Again, let
me just recap. These are not Draconian steps. Basically, Federal
banking regulators themselves--the regulators of our financial
institutions--would set criteria for underwriting. There would be a
minimum of a 5-percent downpayment. Any loan that is above 80 percent
loan to value would have a credit enhancement--such as has been done
for years in the past--of private mortgage insurance. There would be
fully documented income--I can't imagine anybody in this body not
thinking that wouldn't be a good idea for people taking out a loan that
many people expect to pay off over a 30-year period--including a credit
history and employment history. There would be a method for determining
the borrower's ability to repay. This is something the regulators
themselves would get together and lay out. It would also include
consideration--imagine this--of the debt-to-income ratio--again, just a
basic element of lending. This does not apply to VA, where we have made
guarantees to veterans. It does not apply to rural housing.
For those people who may hear from some of the nonprofit
organizations that I have worked with and some others in this body have
worked with--I helped create one in Chattanooga in 1986 that helped
over 10,000 families have decent housing--those types of organizations
have the ability to be exempted if they are the types that allow
people, through sweat equity and other kinds of things, to have sort of
skin in the game in other ways. We applaud those efforts and applaud
people who go out and volunteer and take care of their fellow citizens
by helping them have homes, helping people who are less fortunate. I
know all of us support that. We go to events where we thank people who
volunteer in that way. This amendment does nothing other than allow
them to operate as they do through exemptions through our regulators.
I know the other side of the aisle, as I mentioned earlier, has tried
to deal with this issue, and they haven't figured out a way to deal
with it yet. I know we have a side-by-side amendment that is coming up,
and I thank those on the other side of the aisle who have put some
effort into trying to do this same thing. But this, again, is a
commonsense effort. And my guess is that if you laid this out in front
of most citizens back home in every State we come from, they would say:
You know, this is just basic. If you are going to loan money to
someone, these basic underwriting standards ought to be in place.
Mr. President, I urge everyone in this body to please at least look
at this seriously. This is one thing we can do that is tangible, that
is not a study, that is not putting something off and hoping regulators
might do something down the road. This is something tangible that we
can do to ensure that the core issue that created this financial crisis
over the last 24 months is dealt with and that the individual loan that
is made from a lender to somebody who is borrowing money is done with
proper underwriting standards in place.
Mr. President, I see the Senator from Connecticut is ready to move on
to the next issue, so I yield the rest of my time, and I thank the
Chair for his patience.
The PRESIDING OFFICER. The Senator from Oregon.

Amendment No. 3962 to Amendment No. 3739

(Purpose: To prohibit certain payments to loan originators and to
require verification by lenders of the ability of consumers to repay
loans)

Mr. MERKLEY. Mr. President, I call up amendment No. 3962, the
Merkley-Klobuchar amendment.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:

The Senator from Oregon (Mr. Merkley), for himself, Ms.
Klobuchar, Mr. Schumer, Ms. Snowe, Mr. Brown of
Massachusetts, Mr. Begich, Mrs. Boxer, Mr. Dodd, Mr. Kerry,
Mr. Franken, and Mr. Levin, proposes an amendment numbered
3962 to amendment No. 3739.

Mr. MERKLEY. I ask unanimous consent to dispense with the reading of
the amendment.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The text of the amendment is printed in today's Record under ``Text
of Amendments.'')
Mr. MERKLEY. I ask unanimous consent Senator Kerry, Senator Franken,
and Senator Levin be added as cosponsors.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. MERKLEY. Mr. President, I thank the bipartisan cosponsors of this
amendment, including Senator Snowe, Senator Scott Brown, and Members on
both sides--my colleague, Senator Klobuchar, will be speaking in a
moment--Senator Begich, Senator Boxer, as I mentioned, Senator Kerry,
Senator Franken, and Senator Schumer.
I would like to applaud my colleague from Tennessee. Virtually every
word that Senator Corker stated tonight is an argument for this
amendment that Senator Klobuchar and I are cosponsoring. I will get
into the details later because I want to yield time to my colleague
from Minnesota and then my colleague from Connecticut to speak to the
bill. Then I will offer my remarks.
I do think it is important to recognize that the bulk of what Senator
Corker addressed goes right to the heart of this amendment as well.
There is a point of distinction between the two amendments, a critical
point of distinction; that is, the 5-percent underwriting absolute
line. That line is a line of great concern for those of us who have had
experience with first-time home buyers, those who have had experience
with families who are at the bottom of the income spectrum. I should
make it clear that the downpayment is only a portion of the skin in the
game that such families have because there are tremendous closing costs
associated with these loans that the families must bear as well. So the
inflexibility of that standard is a great concern and a great point of
distinction between these two amendments.
I will continue on after my colleagues have spoken to address some of
the major challenges this amendment addresses, but I would like to
yield 5 minutes to Senator Klobuchar.
The PRESIDING OFFICER. The Senator is recognized.
Ms. KLOBUCHAR. Mr. President, I thank Senator Merkley for his
leadership on this issue. I was proud to work with him on this issue. I
thank Chairman Dodd as well for advancing this amendment, for the work
he has done in this area. I also want to mention my good colleague in
the House, Representative Ellison, who was a leader on this in the
State legislature in Minnesota and now in Congress. We worked on this
issue in this bill together.
Complex and deceitful lending practices were at the heart of the
financial crisis, and as we work to reform Wall Street we must ensure
that the homes and the home equity of Americans are not put at
unnecessary risk. With 1 in 7 homeowners--1 in 7, who would have ever
thought that--delinquent on their mortgage or already in foreclosure,
and many home loans delinquent, the housing market continues to slow
economic recovery.
It has been estimated that each year predatory mortgage lending
results in a loss of $1.9 billion for American families. It is critical
that families have access to safe, fair, and affordable mortgages.
I see my colleague from Illinois, Senator Durbin, who has seen
firsthand in

[[Page S3517]]

his State people losing their homes, people at the mercy of call-lines
where they cannot reach anyone when they are calling for help.
Important borrower protections such as those we have in Minnesota
should be a national policy to help safeguard families across the
country. A decade ago, just 5 percent of mortgage loan originations
were subprime, meaning they were made to borrowers who would not
qualify for regular mortgages--only 5 percent. By 2005 it was 20
percent of mortgages that were subprime. It was a disaster waiting to
happen.
This expanded home ownership to millions of people, but it also
greatly increased the risk to our financial system. In Minnesota, in
2000 there were 8,347 subprime mortgages issued. By 2005 it had
increased more than fivefold to more than 47,000 subprime mortgages.
However, we now know that between 60 and 65 percent of people who ended
up with subprime mortgages actually qualified for traditional
mortgages. We need to make sure this never happens again.
That is why last year I introduced the Homeowner Fairness Act, which
is comprehensive housing reform legislation that proposes tough new
national standards based on the successes of the Minnesota mortgage
lending law passed in 2007. That is why I have joined Senator Merkley
on an amendment that will ensure several key ideas from this bill are
included in the Wall Street reform bill.
These are not radical ideas. The fact that practices were ever
allowed to take place should be shocking to those who have not even
heard about them.
First, this amendment would require all mortgage originators to
verify a borrower has the ability to repay a mortgage before giving
loan approval. Let me repeat that. This amendment would require
mortgage originators to verify a borrower has the ability to repay a
mortgage before they approve the loan. It may just sound like common
sense that you wouldn't loan someone money without first figuring out
if they were able to pay, but these lenders never intended to keep the
loans they originated long enough for it to matter. They simply sold
their risky bets to someone else and put the profits on the bank.
Second, this amendment would prohibit a mortgage originator from
steering a borrower toward terms that are more expensive than those for
which he can qualify. In recent years, loan originators were often paid
more if they got borrowers to take out predatory subprime loans, even
when the borrower qualified for a prime loan. It is important to
remember that the crisis we are addressing today with this
comprehensive Wall Street reform bill was first triggered by the
downturn in the national housing market. This downturn brought to light
the prevalence of unsound lending practices, especially predatory
lending tactics in the subprime market.
Ultimately, this disregard for underwriting standards spread risk
throughout the financial system as these unsound loans were securitized
and sold, chopped up and sold again. No one had any skin in the game.
Although the market for some prime mortgages was less than 1 percent
of global financial assets, the faults in the system that started with
unscrupulous origination practices allowed the turmoil in the housing
market to spill over into other sectors. When sound mortgage loans are
made they provide families with a piece of the American dream. But when
loans are made recklessly, without concern for the consumer, these
loans become nightmares--not just for the families who are left on the
hook but for our entire economy. We need to make sure those abusive and
exploitative mortgage practices come to an end.
For far too long, subprime lenders have put the homes and home equity
of Americans at unnecessary risk. These commonsense protections are
essential to restoring our economy and preventing a future crisis in
the housing market.
I ask my colleagues to support the Merkley-Klobuchar amendment, and I
yield the floor to my friend and great leader on this issue, Senator
Merkley of Oregon.
The PRESIDING OFFICER. The Senator from Oregon.
Mr. MERKLEY. Mr. President, I compliment my colleague from Minnesota
for the incredibly solid and important work she has done on this topic.
It goes right to the heart of building a family's financial
foundations. There is a lot of movement that needs to be made to
restore a framework that will build those foundations rather than
destroy those foundations.
I yield to my colleague from Connecticut if he wishes to make remarks
on this amendment?
The PRESIDING OFFICER. The Senator from Connecticut is recognized.
Mr. DODD. Mr. President, first let me thank my colleague from Oregon
and my colleague from Minnesota as well for their contribution. While
he has left the floor, I would be remiss if I did not express my
gratitude to Bob Corker from Tennessee. Putting aside whatever
differences we may have on this amendment, he has been a very valuable
member of our committee.
This bill that is right here, all 1400 pages of it--substantial parts
of this bill can be attributed to the work of Bob Corker of Tennessee.
I want my colleagues to know how grateful I am to him, to his staff,
and others for some valuable ideas and thoughts. While not every one
was included in the bill, he played a consistent role, showing up every
time there was a meeting or gathering on this legislation. He spent a
lot of hours with our colleague from Virginia, Mark Warner,
particularly on titles I and II of this bill. I will say more about
Senator Corker's contribution during debate on this bill, but I wanted
at least at the outset of this debate and discussion to thank him for
his wonderful efforts on this legislation.
Let me begin and thank, of course, Senator Merkley and Senator
Klobuchar, as well as their other cosponsors of this, for the
bipartisan support for their amendment. I will ask to have printed in
the Record some correspondence. I have a letter we sent out in 2006. It
will give you an idea--it was 4 years ago. It was signed by myself,
Wayne Allard, who is no longer with us, of Colorado, Senator Sarbanes,
Jim Bunning of Kentucky, Jack Reed of Rhode Island, and Chuck Schumer.
The letter was pushing the regulators to establish some underwriting
guidance for subprime mortgages. That is in 2006 that we sent that
first letter. We were in the minority, we Democrats.
In April of 2007 we sent another letter to Chairman Bernanke. Here we
said that our committee had held two hearings this year on the problem
in subprime mortgage rates. This was in February and March of 2007, 3
years ago.

At the hearings, a number of committee members raised
concerns that the regulators have not kept pace with
deteriorating credit standards on the growth of abusive,
unfair and deceptive lending practices. In addition, we are
concerned that the Federal Reserve Board has not exercised
its obligations under the Home Ownership and Equity
Protection Act of 1994 to issue regulations that address the
problems of predatory lending.

The letter goes on for two or three pages. That was signed by myself,
Senator Reed, Senator Schumer, Senator Bayh, Senator Carper, Senator
Menendez, Senator Akaka, Senator Sherrod Brown, Senator Bob Casey, and
Senator Tester.
In December of 2007 we sent another letter to Chairman Bernanke.

In light of the deepening crisis in the mortgage markets, a
crisis you correctly attribute to abusive practices and lax
underwriting standards in the subprime market, we want to
reiterate to you the importance of acting forcefully to
protect consumers in the rulemaking the Federal Reserve Board
is currently undertaking under the Homeowners Equity
Protection Act.

We go on for two or three pages. Again, I say respectfully, but not a
single member of our committee from the other side signed that letter
or the one in April of 2007. This letter was signed by myself, Senator
Johnson, Senator Reed, Senator Schumer, Senator Bayh, Senator Carper,
Senator Menendez, Senator Akaka, Senator Brown, Senator Casey, Senator
Tester, and Senator John Kerry of Massachusetts.
Those are just three pieces of correspondence going back years ago,
trying to get some attention to the predatory lending practices that
were going on. Had we acted in 2006 or even in 2007, we would not even
be close to the disastrous effects that have occurred with 7 million
homes lost, 4 million today underwater in the country--in danger of
falling into foreclosure, 250,000. A

[[Page S3518]]

quarter of a million homes this year have been seized in foreclosure
proceedings. Here were three pieces of lengthy correspondence signed,
in one case on a bipartisan basis in 2006; in 2007 unfortunately on a
partisan basis--not because we didn't seek additional signatures on the
letter--to highlight the importance of underwriting standards and the
need to step up.
I also want to add at this point a letter from the National
Association of REALTORS, expressing strong opposition to the Corker-
Gregg amendment. In their letter to the Senate--to all Senators, this
letter went--they say the following.

The Corker-Gregg-Isakson amendment replaces the risk
retention provisions . . . of the credit risk retention with
a study on a feasibility of risk retention requirements for
financial institutions and implements the residential
mortgage underwriting standards that include a mandatory 5
percent downpayment for all mortgages. As our Nation
continues to recover from the worst economic downturn since
the Great Depression, REALTORS are cognizant that lax
underwriting standards brought us to this point. It must be
curtailed. However we caution that swinging the pendulum too
far in the opposite direction may reverse the fragile
recovery.
Based on data from the National Association of REALTORS, of
home buyers and sellers, 11 percent of all home purchasers
surveyed had downpayments of 5 percent or less. When
considering only first-time home buyers, the percentage
utilizing a downpayment of under 5 percent increases to 18
percent of all purchases. Improving underwriting to ensure
that the consumer has the ability to pay their obligation is
in the best interests of everyone, but eliminating the
possibility for some creditworthy customers to buy a home
will have significant detrimental ramifications for American
families, the housing sector, and those businesses that
support it.

Let me take a couple of minutes. I know my colleague from Texas is
here, and others, but this is important, that people understand what
happened. Because 5 percent sounds pretty reasonable. Why not 5
percent? Let me explain why that provision poses some risk to all of
us. The Senator's amendment as offered has two parts to it. They almost
kind of run into each other in a way.
The first half of the amendment strikes the government-imposed risk
retention requirements in the underlying bill. These requirements, as
explained before, and I will in a second again, would result in strong
market-based underwriting standards in the residential mortgage market.
Then in the second half of the amendment, the amendment puts in
government-dictated, hard-wired underwriting standards that would have
very serious consequences, as the National Association of Realtors
points out, for first-time home buyers, minority home buyers, and
others who are seeking to attain the American dream of home ownership.
Like the earlier debates we have had, it does this at a time, as we
all know, that the housing markets are just starting to recover,
potentially putting that recovery at risk.
Let me start by discussing the first part of this amendment. The
bill, section 941 of our bill, requires securitizers to retain an
economic interest in the material portion of the credit risk for any
asset that securitizers transfer, sell, or convey to a third party.
What does this mean? Very simply put, it is skin in the game. Skin in
the game--a skin-in-the game requirement that creates incentives that
encourage sound lending practices, restores investor confidence, and
permits securitization markets to resume their important role as a
source of credit for households and businesses.
Excesses and abuses in the securitization process played a very major
role in this crisis under what is called the ``originate to
distribute'' model. Loans were made expressly to be sold into the
securitization pools, which meant the lenders did not expect to bear
the credit risk of borrower default.
What does that mean? Well, if you are the broker out cutting the
deal, what was the first piece of advice on their Web page to the
brokers, the unregulated brokers? The first piece of advice to them
was, from their association: Convince the borrower. Convince the
borrower you are their financial adviser.
Well, of course, they were anything but their financial adviser.
Their job was, of course, to get people to sign up and commit to these
mortgages, which they knew, in too many cases, could never, ever be
met; that is, they, the borrower, would never possibly meet it.
If you had some skin in the game if you are the broker, you may be a
little more careful about that. But, of course, the broker was acting
on behalf of the lending institutions. Now you think, well, the lending
institution is going to care about this. You know, when I bought my
first home back X numbers of years ago, my mortgage stayed at the Old
Stone Bank. I signed those papers. I could go down every day and I
could pull out that drawer, wherever it was, and look at my mortgage.
It did not leave the Old Stone Bank. It stayed right there.
Let me tell you, that fellow at the Old Stone Bank wanted to make
darn sure that this young lawyer in Connecticut was going to meet his
financial obligations. So they had underwriting standards for me. It
did not cost me a lot on a downpayment. I was a new buyer, first-time
home buyer. I had just gotten licensed to practice law in Connecticut,
so they had a little confidence I might be able to meet my obligations.
So they had underwriting standards.
Today it is vastly different. That fellow, a young lawyer today, who
goes and gets that mortgage, the lending institution frankly could care
less whether you have the underwriting standards. Why? Because it is
going to sell that mortgage. That is what securitization is: I am going
to sell it. On average they hold your mortgage 8 to 10 weeks. Then they
sell it. It goes right out the door. So the broker could care less. He
got me to sign up with a deal I could not afford. The old bank does not
care anymore, because they are selling it, and bundling them together
and shipping them out the door, and some unwitting investor may be
purchasing these. Because they have been branded by the rating agencies
as AAA or AA, they think they are pretty good.
So why am I putting skin in the game? Because if you do not have skin
in the game, if you do not have a vested interest financially in the
outcome, you do not care what happens, unfortunately, in too many
cases. You have been paid. You have got out your dollar. You have been
compensated as the broker; you have been compensated as the lending
institution; you wash your hands of the whole thing.
That is what created this domino effect, because there were not
people watching and caring what went on. So in my bill I said: Well,
why not keep a little skin in the game or drop the skin in the game but
write underwriting standards. You make the choice. But if you have got
skin in the game, I suspect you are going to be careful about
underwriting standards. If you write the underwriting standards, I do
not want to take a pound of your flesh from the lending institution, if
you are going to meet those obligations.
That is exactly what Senator Merkley and our colleague from Minnesota
and others are suggesting here: Let's get good underwriting standards
here. That is why I support what they are talking about. So I apologize
for going into all of that ``originate to distribute,'' but originate
the mortgage to distribute it. That is exactly what it means.
This led to significant, of course, deterioration in credit and loan
underwriting standards, particularly in residential mortgages. With the
onset of the crisis, there was widespread uncertainty regarding the
true financial condition of holders of asset-backed securities, for
obvious reasons, freezing interbank lending, constricting the general
flow of credit. Complexity and opacity in the securitization markets
prolonged and deepened the crisis, and it made recovery efforts that
much more difficult.
My proposal in the bill has a measured approach which requires, of
course, separate rulemaking requirements for different assets. I will
not bother you with all of that.
A lot of people support this, by the way, including the Consumer
Federation of America, the Investors Working Group, the America
Securitization Forum, CalPERS, the Group of 30, even a former
Republican Secretary of the Treasury, John Snow. And he says:

Because of the lack of participant accountability, the
originate-to-distribute model of mortgage finance, with its
once great promise of managing risk, became itself a massive
generator of risk.

[[Page S3519]]

A study is not a credible response. I say that respectfully of the
amendment of the Senator from Tennessee. He calls for a study in all of
this. Our bill provides for comprehensive regulation of securitization
markets, to prevent excesses and eliminate a potential source of
financial instability.
Let me add quickly, I am a strong supporter of securitization. That
has provided liquidity, which has made home ownership more available to
more people. But you have got to do it carefully. If you are packaging
these mortgages with no regard to whether they are available, and
sending them out the door to be sold off, then you jeopardize
securitization. If you get good underwriting standards, as the Senator
from Oregon and Minnesota are requiring, then you are going to build in
some safeguards; then securitization, with proper branding of what they
are worth, and you are back on track again, and we can start to see
housing improve for everybody.
The Corker amendment also requires, of course, here a 5-percent
downpayment for all loans, no matter what the circumstance. That is a
government-mandated requirement in a sense in this amendment. Even with
FHA loans, hardwiring in statutes that as a requirement is very ill-
considered, I would say.
The key cause of the crisis, as I have said many times over the past
almost 4 years on the floor of this body, was the unscrupulous mortgage
brokers and mortgage lenders who sold unaffordable mortgages to people
who could not pay those mortgages.
In the majority of the cases, those loans were refinance loans, they
were not even original mortgages. It was refinancing. No downpayments
are required in refinancing at all. Downpayments did not even come up
or come into play for these borrowers. But the mortgages were still
outrageous and unaffordable. They still led to the foreclosures and
contributed to the economic crisis we are in.
Why was this? Well, it was because the brokers and bankers had no
skin in the game. So they not only did not pay attention, in too many
cases they did not even care whether the borrowers had the ability to
pay back those loans. The Merkley-Klobuchar amendment specifically
addresses this problem, by specifically requiring that lenders take
into account the borrower's ability to pay, and laying out important
criteria for determining that.
It will end the steering payments that caused so much of the trouble
in the first place. And while the 5-percent downpayment may sound
reasonable, and in some cases it is, there are many lending programs
out there that allow for downpayments that are lower than 5 percent:
FHA, which is struggling now, has traditionally allowed for
downpayments less than 5 percent. FHA has been a path to home
ownership, as we know, for millions of our fellow citizens. Many
nonprofits such as Habitat for Humanity, the Enterprise Foundation,
church-related housing groups--in fact, I have a letter signed by a
number of these nonprofit organizations in opposition to the Corker
amendment. I ask unanimous consent that all these letters I have
referred to be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

National Association

of REALTORS,

Washington, DC, May 6, 2010.
U.S. Senate,
Washington, DC.
Dear Senator: On behalf of more than 1.1 million members of
the National Association of REALTORS (NAR) involved in
residential and commercial real estate as brokers, sales
people, property managers, appraisers, counselors, and others
engaged in all aspects of the real estate industry, I
respectfully request that you oppose the Corker-Gregg (#3834)
and the McCain-Shelby-Gregg (#3839) amendments to S. 3217,
the Restoring American Financial Stability Act of 2010.

Corker-Gregg-Isakson Amendment

The Corker-Gregg-Isakson (#3834) amendment replaces the
risk retention provisions of S. 3217, Title VII, Subtitle D,
(b) Credit Risk Retention--with a study on the feasibility of
risk retention requirements for financial institutions and
implements residential mortgage underwriting standards that
include a mandatory 5% down payment for all mortgages. As our
nation continues to recover from the worst economic downturn
since the Great Depression, REALTORS are cognizant that lax
underwriting standards brought us to this point, and must be
curtailed. However, we caution that swinging the pendulum too
far in the opposite direction may reverse our fragile
recovery.
Based on data from NAR's 2009 Profile of Home Buyers and
Sellers, 11% of all home purchasers surveyed had downpayments
of 5% or less. When considering only first-time homebuyers,
the percentage utilizing a downpayment below 5% increases to
18%. Improving underwriting to ensure that the consumer has
the ability to repay their obligation is in the best interest
of everyone, but eliminating the possibility for some
creditworthy consumers to buy a home will have significant
detrimental ramifications for American families, the housing
sector and those businesses that support it.

McCain-Shelby-Gregg Amendment

The McCain-Shelby-Gregg (#3839) amendment, which creates
Title XII to S. 3217, places Fannie Mae and Freddie Mac on
the fast track to dissolution. REALTORS believe that reform
of these institutions, that have played a pivotal role in the
evolution of the U.S. housing market, is necessary; however,
now is not the time for drastic action. Especially,
considering their current role in stabilizing the housing
market, and that the McCain-Shelby-Gregg amendment does not
offer a replacement to fill the enormous gap that the
shuttered GSEs will leave.
As NAR mentioned in our testimony before the House
Financial Services Committee, March 23rd, 2010, on the
``Future of the Housing Finance,'' the transition of these
organizations to their new form must be conducted in a
fashion that is the least disruptive to the marketplace and
ensures mortgage capital continues to flow to all markets in
all market conditions. The establishment of aggressive
timetables for the GSEs to return to profitability, prior to
the full recovery of our nation's economy and housing market,
pre-disposes them to failure, and will cause significant
angst for homebuyers and the nation's housing markets.
Furthermore, the requirements that this amendment places on
Fannie Mae and Freddie Mac, when they become viable, will
effectively prohibit them from participating in the secondary
mortgage market.
First, the aggressive reduction of their portfolio will
prevent them from being an effective buffer during future
economic downturns. A key element of NAR's recommendation for
the restructure of the GSEs is that their portfolios should
only be large enough to support their business needs and
ensure a stable supply of mortgage capital when necessary
because of insufficient private investment. The requirements
established in this amendment would thwart the GSEs ability
to be an effective buffer.
Second, the amendment repeals all increases to loan limits,
both permanent and temporary. The loan limits would return
to: $417,000. Moreover, the GSEs would be prohibited from
purchasing homes that had prices over the median-home price,
for properties of the same size, for the area in which the
property was purchased. This would reduce loan limits to less
than $100,000 in some areas, less than half the current FHA
floor.
NAR advocated for the increase of the loan limits for high
cost areas and is actively advocating that the current limits
be made permanent in order to ensure that creditworthy
homebuyers have access to affordable capital. The housing
market remains fragile, and private capital has not returned
to either the mortgage or MBS markets to the extent that is
needed to support the housing industry. Reducing the GSEs'
loan limits to the suggested levels will significantly limit
the ability of homebuyers to obtain mortgage funding
throughout the country, and damage the business sectors
supported by mortgage finance.
Third, the amendment establishes an escalating mandatory
down payment percentage that REALTORS believe unfairly and
unnecessarily denies the opportunity to many families who
have the potential to succeed as homeowners. Beginning 1-year
after the 24-month assessment period, the minimum down
payment requirement will be 5%. 2-years out, the down payment
will be 7.5%. After three years, the down payment will be 10%
for conventional-conforming loans.
The removal of flexible down payment options will
significantly reduce the ability of creditworthy consumers to
purchase a home. As mentioned with regard to the Corker-Greg-
Isakson amendment, a 5% down payment requirement excludes 11%
of all current homebuyers and 18% of all current first-time
homebuyers, based on NAR's most recent homebuyers survey.
Increasing the down payment to requirement to 10% would
exclude nearly 25% of all current creditworthy borrowers, and
up to 37% of current creditworthy first-time homebuyers.
Underwriting standards have already been corrected and loans
are only available for borrowers who can afford them. There
is no reason to over-correct by imposing higher downpayment
requirements.
As we have seen, without the GSEs, the current crisis would
have been even more catastrophic for the housing market and
the overall economy, as virtually no activity would have
occurred within the housing sector because little private
capital would have been available. REALTORS support
reforming our housing finance system, and the GSEs. However,
taking a measured approach is critical to ensuring that our
economic recovery remains viable.
I appreciate the opportunity to share with you the views of
more than 1.1 million real estate practitioners respectfully
request that

[[Page S3520]]

you oppose the McCain-Shelby-Gregg (# ) and the Corker-Gregg-
Isakson (# ) amendments to S. 3217, the Restoring American
Financial Stability Act of 2010.
Sincerely,

Vicki Cox Golder,

2010 President,
National Association of
REALTORS.
____

May 11, 2010.
Hon. Christopher Dodd,
Chairman, Senate Committee on Banking, Housing, and Urban
Affairs, Russell Senate Office Building, Washington, DC.
Hon. Richard Shelby,
Ranking Member, Senate Committee on Banking, Housing, and
Urban Affairs, Russell Senate Office Building,
Washington, DC.
Dear Chairman Dodd and Senator Shelby: We write in
opposition to amendments to the Restoring American Financial
Stability Act that would mandate a one-size-fits-all approach
to mortgage underwriting and those amendments that would
undercut the current mortgage finance system by eliminating
Government Sponsor Enterprises (GSEs) without having a
successor system in place.
Certain amendments currently being considered, such as a
mandatory 5 percent down payment requirement, would undermine
successful first-time homebuyer and workforce housing
programs offered by qualified nonprofits and state and local
governments. Unlike the broader mortgage market, these
nonprofit and government sponsored lending programs require
borrower financial education and have very low default rates.
For example, the program administered by NYC's Department of
Housing Preservation and Development had only five
foreclosures out of 17,000 loans. The reason is that programs
such as these utilize stringent underwriting standards that
were lacking in some segments of the mortgage finance market.
Yet, local government and nonprofit loan programs would be
virtually eliminated by a national mandate for a 5 percent
down payment because these programs utilize alternative down
payment requirements to ensure that the homebuyer has ``skin
in the game.'' For example, self-help homebuyer programs
allow hours spent in building homes to compensate as part of
the down payment. Other programs require extensive financial
literacy, including pre- and post-purchase counseling, and
state or local government issued loans coupled with sound
underwriting standards that have proved successful in
enabling low income and workforce families to achieve the
American dream of homeownership, build wealth, and remain in
their homes.
Moreover, buyers who receive financial literacy training
and homeownership counseling with traditional loan products,
irrespective of the down payment percentage, are critical to
our nation's ability to address the foreclosure crisis and
stabilize the housing market. A one-size-fits-all approach
and flat down payment amounts eliminate the ability for local
communities to rely on the experience and strong track
records of local non-profit and government lenders who have
built successful homeownership programs that did not
contribute to the housing crisis.
In addition to avoiding flat down payments and federally
mandated underwriting standards, we also believe that
Congress should employ a thoughtful and analytic approach to
examining the role of the two Government Sponsored Entities
(GSEs) in the mortgage crisis and what the future of the U.S.
mortgage finance system should look like versus an immediate
wind down of both GSEs. We urge Congress to ensure that a
successor system is in place prior to dissolving the two
firms. The GSEs have provided critical capital to the housing
market, ensuring that more Americans can benefit from
homeownership. Though we must be careful only to extend
mortgage loans to those who can afford to pay the loans over
the life of the mortgage, we must be equally careful not to
cut off mortgage lending at a time when the markets are
recovering.
The problems in the housing market were caused by a
confluence of factors. We must address all of them, instead
of singling out one or two reasons or entities, and,
inadvertently, making homeownership unattainable for many
working families.
Thank you for taking the time to address these concerns.
Sincerely,
Enterprise Community Partners; National NeighborWorks
Association; Habitat for Humanity International;
Community Resources and Housing Development
Corporation; National Community Reinvestment Coalition;
Kalamazoo Neighborhood Housing Services, Inc.; Nuestra
Comunidad Development Corporation; Manna, Inc;
Community Frameworks; UNHS NeighborWorks HomeOwnership
Center; Frontier Housing, Inc.; Boston LISC; Chicago
LISC; Connecticut Statewide LISC; Duluth LISC; Houston
LISC; Jacksonville LISC; Los Angeles LISC; Mid South
Delta LISC; New York City LISC; Philadelphia LISC;
Pittsburgh Partnership for Neighborhood Development
(SWPA LISC); San Diego LISC; Toledo LISC; Virginia
LISC; Impact Capital (Washington State LISC); Local
Initiatives Support Corporation; Housing Assistance
Council; Homes for America, Inc.; Housing Partnership
Network; Neighborhood Housing Services of Phoenix;
Cambridge Neighborhood Apartment Housing Services; NHS
of the Lehigh Valley, Inc.; NeighborWorks Columbus;
Ithaca Neighborhood Housing Services; Knox Housing
Partnership; NHS of Orange County; Buffalo LISC;
Greater Cincinnati & NE Kentucky LISC; Detroit LISC;
Hartford LISC; Indianapolis LISC; Greater Kansas City
LISC; Michigan Statewide LISC; Milwaukee LISC; Greater
Newark & Jersey City LISC; Phoenix LISC; Rhode Island
LISC; San Francisco Bay Area LISC; Twin Cities LISC;
Washington DC LISC.

Mr. DODD. These are groups, it appears that, in fact, I should say in
fairness to Senator Corker, in the latest version of his amendment,
that allows for some exceptions on a case-by-case basis of these
nonprofits, where each individual nonprofit has to go to the regulators
for such an exemption. But they simply may not get it. They get to
apply. It is optional to give that.
Many insured depositors, of course, have mortgage programs that
require less than 5-percent downpayments. They are performing well, and
have done so in the past. And we want low- and moderate-income families
to go to banks and get loans, qualified low- and moderate-income people
to have to meet those standards. We do not want to simply shut them off
to nonprofits. We want to get them into the financial mainstream.
The Corker amendment would create a new barrier to accomplishing that
goal. But the Merkley-Klobuchar amendment provides for those
underwriting safeguards, does not put such tight restrictions, even on
FHA mortgages, that would make it impossible for an awful lot of
people.
I thank my colleagues. I have spoken a long time here. I apologize.
But I think it is important to know the history of how we got into the
mess and what happened out there that led us to these difficulties, why
underwriting is important.
What Senator Merkley and Senator Klobuchar have offered is to get
back to that sensible requirement here without writing these stringent
requirements in this legislation that would be so difficult. So I urge
my colleagues to support the Merkley-Klobuchar amendment and
respectfully oppose the Corker amendment.
By the way, their amendment is endorsed by a number of our colleagues
on both sides of the aisle. I thank Senator Scott Brown of
Massachusetts, who is involved with this amendment, by Senator Merkley
and others. I commend him for it. It is a good proposal.
The PRESIDING OFFICER (Mr. Udall of Colorado.) The Senator from Rhode
Island.
Mr. WHITEHOUSE. May I interject myself in this debate for 1 minute to
ask unanimous consent with respect to the Whitehouse amendment that
restores States rights to protect against exorbitant, out-of-State
lenders doing business in one's own State.
I ask unanimous consent that Senator Cochran of Mississippi be added
as a cosponsor. I want to take a moment to let him know how much I
appreciate his cosponsorship of what is now a bipartisan amendment, and
I look forward to continuing to secure additional sponsors from both
sides of the aisle.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Oregon.
Mr. MERKLEY. Mr. President, before I speak on this amendment, I want
to applaud my colleague from Connecticut who spoke so passionately and
knowledgeably about the challenge that had been faced by subprime
underwriting gone astray.
If only the letters that he and his colleagues wrote in 2006 and in
2007, those multiple appeals, if only those who had the power to
establish those underwriting standards had been listened to, had been
followed up on, then we would have a much smaller challenge today. We
would not have had this big meltdown in 2008 and 2009, with so many
millions of American families having the value of their home destroyed.
I applaud him for his advocacy year after year after year.
I am pleased to be able to join him in this effort now. I
particularly applaud the efforts to establish standards for skin in the
game. This is a very responsible way to create accountability for our
mortgage originators. I do want to note that there are three issues
that particularly contributed to dysfunction at the retail mortgage
level.

[[Page S3521]]

The first is liar loans, undocumented income, where a mortgage
originator would tell the client: Well, we will just pencil in here
that you earn $150,000. It does not matter. Don't you worry about what
you are earning. We will put this in here. That obviously led to a
complete corruption of the quality of the mortgage. Certainly the
families involved had no prospect of paying for those mortgages and the
interest rates they were being signed up for.
A second was to fail to employ basic underwriting measures, measures
like loan to value and credit history and employment history, and
current obligations and debt to income, and so forth.
These are the types of measures any responsible originator goes
through to understand whether this loan makes sense for this family,
whether there will be the ability to repay.
The third piece is the incentives that were provided to mortgage
originators put those originators 180 degrees out of sync with their
customers. Essentially, it worked like this. If a loan was good for a
family, it didn't make as much money for the lender. If it was bad for
a family, it made a lot of money for the lender. So the lender and the
home buyer have different interests; one wants a low-interest mortgage,
a fair mortgage; the other wants a mortgage that has hidden clauses,
prepayment penalties, and exploding interest rates. But incentive
payments, sometimes called steering payments, technically called yield
spread premiums--these were paid to the mortgage originators to induce
them to sign those families they had taken into their trust into a loan
that was good for the lender but not good for the family, corrupting a
transaction at the heart of the most important financial moment in a
family's experience, the moment of buying their family home.
This amendment addresses all three of these core pieces of
dysfunction in the mortgage market. It ends no-documentation or liar
loans as they are called, where income is created like writing a work
of fiction. It sets minimum underwriting standards related to loan to
value, ability to repay, and ability to repay not based on some teaser
rate but on any rate the loan could potentially go up to in the first 5
years. So you make sure, if this has a variable rate clause, that this
family will be able to manage those payments in the first 5 years and
certainly verification of income in the process. So you have
documentation and verification, essentially the sound underwriting
process that was in place for decades before it all went awry over the
last 10 years.
This amendment will apply to all loans. It amends the Truth in
Lending Act or TILA, which applies to all loans. It will base broker
compensation on the size of the loan and on the loan value or the loan
amount and the volume of loans a broker makes, rather than on the type
of loan. We take this impossible situation that mortgage originators
were put in, where their interests were 180 degrees reversed from the
client. Yet it is a trust relationship, it puts them in sync, where the
broker has no incentive to steer a family into an exploding interest
rate, no incentive to steer a family into a loan with a prepayment
penalty, no incentive to steer a family into a loan that has other
hidden clauses designed to strip wealth from working families.
Finally, this amendment provides a safe harbor to make sure mortgage
originators are on sound ground if they follow this set of originating
principles and, in the process, makes sure they do not do balloon
payments or fees that exceed 3 percent, a series of sound business
practices that serve the industry and serve the family.
I mentioned before that my colleague from Tennessee has a bill that
has many of these mortgage underwriting standards. I applaud him for
his long experience and concern in helping families to succeed. But we
do disagree about two provisions. One provision is stripping the skin
in the game that makes sure mortgage originators have a stake in the
quality of the mortgage. The second is to establish a solid line on a
5-percent standard. Many families, when they are buying a modest home,
have a significant expenditure in all kinds of closing costs,
independent of their downpayment. They may well have thousands of
dollars, $5,000, $8,000 of skin in the game before they ever get to the
downpayment. So we want to create the flexibility for first-time home
buyers and for families on the lower end of the income spectrum to be
able to get into home ownership.
In fact, frankly, it is these families for whom it is so important we
make the mortgage process available. Because a young family who is able
to buy that first home and do so with the responsible underwriting
principles laid out in this amendment, in 5 years they will be buying
their second home, maybe a bit nicer home, maybe an extra bedroom or
two for the children, and maybe later on they are able to move up again
to the sort of home they have always dreamed about having or the sort
of yard with the trees in it that the treehouse is going into and so
forth. That is the American dream, to be able to engage in this
progression. You engage in that progression because you build equity.
You build equity by getting into home ownership at the start. Having
solid underwriting standards but not an inflexible line is the way to
go on this.
I do note that the amendment Senator Klobuchar and I are offering is
supported by a host of organizations: The Center for American Progress,
the Center for Responsible Lending, the National Association of
Consumer Advocates, the National Consumer Law Center, the National Fair
Housing Alliance, Consumer Action, the Housing Finance Alliance, and
Mortgage Insurance Companies of America.
This is a bipartisan sentiment to restore solid mortgage underwriting
standards. I appreciate the thoughtfulness and energy that has gone
into it from both sides of the aisle to craft ways to approach this.
When we vote tomorrow morning, I ask all my colleagues to vote yes for
strong underwriting standards. Vote yes for putting mortgage
originators in sync with their clients rather than radically oppose the
interests of their clients. Vote yes to end liar loans. Certainly, vote
yes for the young families and those families with lower income who
wish to get into that first home so they can get their share of the
American dream.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.

Amendment No. 3759, as Modified

Mrs. HUTCHISON. Mr. President, I rise to talk about the Hutchison-
Klobuchar amendment, which will be in order after votes on the Merkley
and Corker amendments. The votes will come tomorrow, but my colleague,
Senator Klobuchar, and I are very concerned about the underlying bill
only putting Fed supervision over bank holding companies that are $50
billion and above. One of the key parts of regulatory reform in this
financial arena is that nobody wants too big to fail anymore. My
colleague, the cosponsor of this amendment, and I wish to assure there
is no indication in any way that only bank holding companies that are
$50 billion and above would be having supervision of and access to the
Fed.
We want to make sure of two things. First, that there is a level
playing field, that everyone who wants to be a member of the Fed, who
wants to have access to the Fed, will be able to do that, including
State banks.
The underlying bill would prohibit State banks from being able to be
members of the Fed. That is a real concern for community bankers all
over America. The second concern is that we have regional Feds. When
the Federal Reserve was established, there was a debate about whether
we would have regional offices or whether there would just be the
Federal Reserve Board sitting in Washington. The decision was made to
have Federal banks in key parts all over the country that would be
regional banks. The purpose was that we needed to know what was
happening all over the country, not only in New York, not only in
Washington, DC, but throughout the country, because it is the community
banks that are the depository institutions that are the mainstay of our
economy and our financial community. If you take the Federal Reserve
supervisory authority away from all those community banks around the
country and regional banks no longer have input into what is going on
in smaller communities, we will have too big to fail in reality, and we
will also have a monetary policy that is going to cater to the big
financial institutions, which are what utterly

[[Page S3522]]

failed in the last 2 years in the financial meltdown.
Senator Klobuchar and I have an amendment that would go back to where
we are today, that the Fed would have supervisory power over State
banks that choose to go into the Fed, and it would be universal for all
the holding companies and the banks in the system.
Before my colleague from Minnesota speaks, I wish to submit for the
Record a couple letters that have been written, one by the Independent
Community Bankers of America.

Dear Senator,
On behalf of the nearly 5,000 members of the Independent
Community Bankers of America, I write to urge your support
for an amendment to S. 3217 to be offered by Senators
Hutchison and Klobuchar . . . that would restore the Federal
Reserve's authority to examine state-chartered community
banks and small bank holding companies.

That is the amendment we are discussing tonight.
I ask unanimous consent to have this letter printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Independent Community

Bankers of America<sup>'</sup>,

Washington, DC, May 6, 2010.
Dear Senator: On behalf of the nearly 5,000 members of the
Independent Community Bankers of America, I write to urge
your support for an amendment to S. 3217 to be offered by
Senators Hutchison and Klobuchar (#3759) that would restore
the Federal Reserve's authority to examine state-chartered
community banks and small bank holding companies.
The Federal Reserve System comprises 12 regional Federal
Reserve Banks overseen by a Board in Washington. The virtue
of this structure is that it prevents the Federal Reserve
from being focused exclusively on the power-centers of
Washington and New York. Through their examination of state-
chartered community banks and bank holding companies, the
regional Federal Reserve Banks keep their finger on the pulse
of a diverse range of institutions in diverse regional
economies and the Main Street small businesses and
municipalities served by these institutions. As Chairman
Bernanke has testified, the Federal Reserve's authority gives
them insight into what's happening in the entire banking
system. This insight is crucial not only to the Federal
Reserve's exercise of its monetary functions, but to its
ability to gauge the impact of banking regulations across
diverse institutions.
The Federal Reserve must be the central bank of the United
States, not the central bank of Wall Street and a handful of
too-big-to-fail institutions. Your support for the Hutchison/
Klobuchar amendment will help ensure that the Federal Reserve
serves the entire economy.
Thank you for your attention to this matter.
Sincerely,
Camden R. Fine,
President and CEO.

Mrs. HUTCHISON. I also will include a letter from the Chamber of
Commerce of the United States of America, signed by the executive vice
president.

The U.S. Chamber of Commerce, the world's largest business
federation representing the interests of more than three
million businesses and organizations of every size, sector,
and region, strongly supports an amendment expected to be
offered by Sens. Hutchison and Klobuchar to S. 3217 . . .
which would maintain Federal Reserve Board oversight of state
member banks and smaller holding companies.

I ask unanimous consent to have this letter printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Chamber of Commerce of the

United States of America,

Washington, DC, May 6, 2010.
To the Members of the United States Senate: The U.S.
Chamber of Commerce, the world's largest business federation
representing the interests of more than three million
businesses and organizations of every size, sector, and
region, strongly supports an amendment expected to be offered
by Senators Hutchison and Klobuchar to S. 3217, the
``Restoring American Financial Stability Act of 2010
(RAFSA),'' which would maintain Federal Reserve Board
oversight of state member banks and smaller holding
companies.
S. 3217 would focus the attention of the Federal Reserve on
just the largest institutions and could serve to limit the
Federal Reserve's understanding of the importance of
community banks. Federal Reserve supervision enhances the
ability of the Federal Reserve to assess credit impact in
local communities. Smaller banks tend to fund smaller
businesses, which is an important source of jobs for the
economy. Removing Federal Reserve supervision of community
banks could mean the Federal Reserve would lose timely
information about the flow of credit to small businesses.
The Chamber looks forward to working with the Senate on
meaningful, bipartisan legislation to ensure that the U.S.
financial system is protected and that small businesses
continue to have access to the capital they need to sustain,
grow, and create jobs.
Sincerely,
R. Bruce Josten.

Mrs. HUTCHISON. I also wish to read a couple excerpts from a letter
by the Federal Reserve Bank of Kansas City to Senator Bennet. It goes
into a lot of other things, but the relevant part says:

Unfortunately, if the Senate divides the oversight of the
[bank holding companies] between the banking regulators, it
will multiply and complicate this oversight significantly.
This is hardly an improvement. And, limiting the regional
Reserve Banks' source of industry information gained through
their contact with all institutions and bank regulators will
greatly compromise its ability to understand industry trends
and deal with future crises. This is a mistake and I hope you
will consider it carefully in your deliberations.

That is signed by Thomas Hoenig, president of the Federal Reserve
Bank of Kansas City.
In addition, the President of the Dallas Federal Reserve Bank,
Richard Fisher, came to my office to make this point most
affirmatively, that he wanted to make sure he still had the supervisory
power and the ability to learn from the State banks, the community
banks in the whole region where the Dallas Federal Reserve Bank sits.
Last, I wish to read an excerpt from the alert of the American
Bankers Association:

As you know, S. 3217, the regulatory restructuring bill,
contains language that would move oversight of state banks
that are members of the Federal Reserve and their holding
companies to the [FDIC]. [The American Bankers Association]
is strongly opposed to this provision, as this would take
away the Federal Reserve's ability to regulate state member
banks and would undermine the Federal Reserve's ability to
fully understand small and mid-size institutions and the
communities they serve.
As early as Wednesday, May 5, the Senate will consider an
ABA-supported amendment . . . by Senators Kay Bailey
Hutchison and Amy Klobuchar that would restore current law by
returning oversight of state member banks and holding
companies to the Federal Reserve.

It is very important that our amendment be passed by the Senate. It
will make a great improvement to this bill in that it will restore the
law as it is today. It will not have the mixup of the varying
regulatory bodies having control in one area, where a bank across the
street does not have the ability to go to the Fed and one across the
street does. We don't need that. What we want in this regulatory reform
is to allow all the banks to be members of the Federal Reserve, to have
the same discounts, the same backing of that supervisory authority so
Federal Reserve banks all over our country will have the input of the
community banks in our system rather than making monetary policy from
New York and Washington, DC. The last thing we need is more people who
are out of touch with mainstream America doing the regulation of our
financial industry.

Mr. President, I commend my colleague, Senator Klobuchar from
Minnesota, and would like to ask her to speak at this time because I
think this bipartisan amendment will improve this bill greatly, and I
look forward to having the vote tomorrow.
The PRESIDING OFFICER. The Senator from Minnesota.
Ms. KLOBUCHAR. Mr. President, I thank my colleague, Senator
Hutchison, for her great leadership on this issue. We have worked
together from the beginning on this amendment, and you can see there is
support for this amendment from the Lone Star State to the North Star
State, spanning this country--as you look at the many States across
this country that truly believe it is important to have the regional
Federal Reserve involved in decisions, not have anything and everything
concentrated in Washington and New York City, which we believe got us
into lots of this trouble in the first place.
The amendment we have offered is important because what it does is
seek to preserve a system that ensures that the institution charged
with our Nation's monetary policy has a connection to Main Street, not
just Wall Street--Main Street in Benson, MN; Main Street in Austin, TX;
Main Street in Denver, CO. That is what we are talking about.
As I have said before, Main Street banks pretty much stayed away from

[[Page S3523]]

the high flying, way-too-risky deals of the past decade, and when the
pavement on Wall Street began to buckle and collapse, these banks--
these small community banks--did not panic and run to Washington with
tin cups and outstretched hands.
Like the rest of Main Street, they suffered because of bad bets made
on Wall Street. But they kept doing their work. They kept serving their
customers. So now, with us debating a Wall Street reform that will
affect how these small banks, these community banks do business, I
think they have a right to speak up. That is what this amendment is
about.
I would like to give a lot of credit to Chairman Dodd, who is here as
usual in the late evening hours, as well as Ranking Member Shelby,
along with the rest of their Banking Committee who worked so incredibly
hard. Chairman Dodd has been working with us on this amendment and has
been working with us on many issues affecting the community banks. I
thank him for that.
I think we took another important step yesterday when we passed the
Tester-Hutchison amendment that will make sure community banks pay only
their fair share when it comes to Federal bank insurance.
But the issue my colleague, Senator Hutchison, so eloquently
discussed is whether the Federal Reserve will continue to oversee our
State member community banks. That issue still remains.
Like I am sure all of you have, I have heard from my community banks.
I have heard from the Fed. I have thought about this a lot. I just want
to give you an example of what those community banks--the bankers out
there in the heartland, who basically are standing out there with their
feet firmly on the ground, with their briefcases in their hands. They
were not there as these credit default swaps swallowed and swirled
around their heads. They were there just doing their job.
Here is what Noah Wilcox, the president of Grand Rapids State Bank in
Grand Rapids, MN--Grand Rapids, MN, home of the Judy Garland Museum. If
you ever want to go there, you can actually put your head in a cut-out
hole of the Tin Man. Yes, you can. The Tin Man--right--needed a heart.
The lion needed courage. And the scare crow needed a brain. You could
go there to Grand Rapids.
Well, this is what the president of the Grand Rapids State Bank said:

All Senators should be reminded that the Federal Reserve
System was created to serve all of America, not just Wall
Street.

From the Lone Star State to the North Star State.
When Congress established the Federal Reserve in 1913, Congress
purposely created a system of regional banks, overseen by a board in
Washington, to ensure that the power of this institution would not be
concentrated far from these banks and the communities they serve. That
is why I believe Mr. Wilcox's--the guy from Grand Rapids, the banker--
statement rings especially true. He was not just advocating for his
bank or other banks in Minnesota or across the country. He said the
Federal Reserve was created for ``all of America.''
The Federal Reserve Bank of Minneapolis just does not supervise
banks, it also partners with the communities it serves by providing
resources and sharing expertise. I will give you one example. We have
Art Rolnick, known nationally for the work he has done on early
childhood development. He works with the Federal Reserve. He is one of
their policy experts. He is retiring this summer. He has literally
devoted the last few years of his career looking at early childhood
development--the investment. He has put out numbers. He has put out
studies straight from the Federal Reserve because he had that
information on the ground to show the kind of return of investment you
get when you invest in kids early on. I do not think we would see that
coming out of the Federal Reserve in Washington. This came out of the
regional banks.
This interaction with regional banks can clearly be seen in the
interdisciplinary research it conducts in Minnesota with the University
of Minnesota and in its partnerships with financial institutions and
community-based organizations to provide investment in low- and
moderate-income communities.
Together the regional banks provide a presence across this country
that gives the Fed grassroots connections--not just in board rooms in
New York, not just in the hallways of Congress in Washington, but right
there in Grand Rapids, MN, on Main Street--insights into local
economies. What is happening with the timber industry? What is
happening with the medical device industry? They know that on the front
line. What is happening to the high-tech industry? What is happening
with the telecommunications industry in Denver? That is what the
regional banks do for us.
They also provide legitimacy when they have to make tough decisions--
when the Fed has to make those tough decisions--to have those regional
banks out there with legitimacy in the banking community and the
business community to say: This is not just about Wall Street; this is
also about Main Street.
Their geographic diversity also allows the regional banks to develop
unique expertise. For instance, the Federal Reserve Bank in Minneapolis
has a wide breadth of knowledge in the agricultural economies of
Minnesota and the other States in its district. You are not going to
get that in the middle of New York City. You are not going to get that
in the middle of Washington, DC. Through the Federal Reserve of
Minneapolis, the community banks they supervise have a better
understanding of the markets that ultimately aid them in their loan
making decisions.
Through their working relationships with community banks, the
regional Federal Reserve banks also collect and analyze important
information about the movements and trends in local economies. Because
community banks interact with so many parts of the economy--from the
ordinary folks who bank with them, to the small businesses they provide
loans, to real estate developers, and even local governments--their
connections to the communities they serve provide a unique perspective
for the Fed to tap.
This relationship is a two-way street, as it also provides a voice
for our community banks that would be lost if the Federal Reserve were
to only supervise the largest banks. A system like this would certainly
limit, and potentially distort, the picture the Federal Reserve gets of
what is happening in our Nation's banking system.
I repeat, this crisis did not happen because of this little bank in
Grand Rapids, MN. It happened because eyes were not watching what was
going on on Wall Street. Eyes were not watching what was going on in
these big banks. The rest of these guys--these small banks--they were
the ones who were the victims of this crisis.
As the president of the Federal Reserve Bank in Minneapolis pointed
out in a speech this past March, it would be shortsighted to conclude
that the Federal Reserve ``can safely be stripped of its role as a
supervisor of small banks.'' As he noted, disruptions in the financial
system can come from all sectors and the connection the regional
Federal Reserve banks provide to local economies can be vital in
ensuring the stability of the financial system.
Opponents will argue that the Federal Reserve does not need to
supervise banks to gain insight into them, that they can get this
information by other means and through other sources. But, currently,
much of the Federal Reserve's interaction with community banks comes
from the supervision done by its examiners. Many of these examiners
have lived and worked in the districts they serve for many years, and
the information they provide is critical to the Fed's understanding of
local economies.
This system--a system that serves all Americans--is threatened if we
do not act. Currently, the Federal Reserve Bank of Minneapolis--and I
am sure you see this in Texas, in Missouri, in Colorado, and the
Federal Reserve's banks all across this country--currently, the Federal
Reserve Bank of Minneapolis oversees over 600 banks in the Ninth
District. Without this amendment, it would oversee one--one--bank.
This is what my friend, the Senator from Texas, is talking about. You
would go from 600 banks--in an area that did not cause this financial
crisis, that was simply a victim of this financial crisis--you would
take 600 banks

[[Page S3524]]

from them, send them out somewhere in a consolidated way to Washington
and New York, and they would oversee one. All they would have is a bank
holding company with over $50 billion in assets. This means connections
to over 600 communities will be lost, not just in Minnesota, but in
Montana, North Dakota, South Dakota, Wisconsin, and Michigan. That is
the region.
The Federal Reserve System was designed to prevent it from being
focused just on Wall Street, at the expense of Main Street. That is why
the Hutchison-Klobuchar amendment is so important, to put this bill in
a place where we not only get the great accountability of the bill,
with the great work that is being done in every single sector, so we do
not make these mistakes again that were made that brought us to the
brink of a financial crisis that allowed all of these banks to be on
the verge of collapse--and some of them, in fact, collapsed on Wall
Street--that is an important piece--but it is equally important to make
sure our Main Street community banks get a fair shake and that the
Federal Reserve in the regional areas of this country--from the Lone
Star State to the North Star State--be allowed to continue to get the
information they need to do their job.
I urge other Senators to join Senator Hutchison and me in supporting
this amendment, to make sure the voices of our community banks, the
voices of our small towns across the country and the local economies
they serve, continue to be heard.
Mr. President, I yield back to Senator Hutchison.
The PRESIDING OFFICER. The Senator from Texas.
Mrs. HUTCHISON. Mr. President, I call up the amendment Senator
Klobuchar and I have just been discussing, and the amendment, as
modified, is at the desk. It is No. 3759, as modified.
The PRESIDING OFFICER. Without objection, the clerk will report the
amendment, as modified.
The assistant editor of the Daily Digest read as follows:

The Senator from Texas [Mrs. Hutchison], for herself, Ms.
Klobuchar, Mr. Johanns, Mr. Corker, Mr. Vitter, Mr. Bond, Mr.
Shelby, Mr. Crapo, Mr. Brown of Massachusetts, and Mr.
Bennett proposes an amendment numbered 3759, as modified, to
amendment No. 3739.

Mrs. HUTCHISON. Mr. President, I ask unanimous consent that reading
of the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:

(Purpose: To maintain the role of the Board of Governors as the
supervisor of holding companies and State member banks)

On page 299, strike line 3 and all that follows through
page 367, line 19, and insert the following:

SEC. 312. POWERS AND DUTIES TRANSFERRED.

(a) Effective Date.--This section, and the amendments made
by this section, shall take effect on the transfer date.
(b) Functions of the Office of Thrift Supervision.--
(1) Savings and loan holding company functions
transferred.--There are transferred to the Board of Governors
all functions of the Office of Thrift Supervision and the
Director of the Office of Thrift Supervision (including the
authority to issue orders) relating to--
(A) the supervision of--
(i) any savings and loan holding company; and
(ii) any subsidiary (other than a depository institution)
of a savings and loan holding company; and
(B) all rulemaking authority of the Office of Thrift
Supervision and the Director of the Office of Thrift
Supervision relating to savings and loan holding companies.
(2) All other functions transferred.--
(A) Board of governors.--All rulemaking authority of the
Office of Thrift Supervision and the Director of the Office
of Thrift Supervision under section 11 of the Home Owners'
Loan Act (12 U.S.C. 1468) relating to transactions with
affiliates and extensions of credit to executive officers,
directors, and principal shareholders and under section 5(q)
of such Act relating to tying arrangements is transferred to
the Board of Governors.
(B) Comptroller of the currency.--Except as provided in
paragraph (1) and subparagraph (A), there are transferred to
the Comptroller of the Currency all functions of the Office
of Thrift Supervision and the Director of the Office of
Thrift Supervision relating to Federal savings associations.
(C) Corporation.--Except as provided in paragraph (1) and
subparagraph (A), all functions of the Office of Thrift
Supervision and the Director of the Office of Thrift
Supervision relating to State savings associations are
transferred to the Corporation.
(D) Comptroller of the currency and the corporation.--
Except as provided in paragraph (1) and subparagraph (A), all
rulemaking authority of the Office of Thrift Supervision and
the Director of the Office of Thrift Supervision relating to
savings associations is transferred to the Office of the
Comptroller of the Currency.
(c) Conforming Amendments.--
(1) Federal deposit insurance act.--Section 3(q) of the
Federal Deposit Insurance Act (12 U.S.C. 1813(q)) is amended
by striking paragraphs (1) through (4) and inserting the
following:
``(1) the Office of the Comptroller of the Currency, in the
case of--
``(A) any national banking association;
``(B) any Federal branch or agency of a foreign bank; and
``(C) any Federal savings association;
``(2) the Federal Deposit Insurance Corporation, in the
case of--
``(A) any insured State nonmember bank;
``(B) any foreign bank having an insured branch; and
``(C) any State savings association;
``(3) the Board of Governors of the Federal Reserve System,
in the case of--
``(A) any State member bank;
``(B) any branch or agency of a foreign bank with respect
to any provision of the Federal Reserve Act which is made
applicable under the International Banking Act of 1978;
``(C) any foreign bank which does not operate an insured
branch;
``(D) any agency or commercial lending company other than a
Federal agency;
``(E) supervisory or regulatory proceedings arising from
the authority given to the Board of Governors under section
7(c)(1) of the International Banking Act of 1978, including
such proceedings under the Financial Institutions Supervisory
Act of 1966;
``(F) any bank holding company and any subsidiary (other
than a depository institution) of a bank holding company; and
``(G) any savings and loan holding company and any
subsidiary (other than a depository institution) of a savings
and loan holding company.''.
(2) Federal deposit insurance act.--
(A) Application.--Section 8(b)(3) of the Federal Deposit
Insurance Act (12 U.S.C. 1818(b)(3)) is amended to read as
follows:
``(3) Application to Bank Holding Companies, Savings and
Loan Holding Companies, and Edge and Agreement
Corporations.--
``(A) Application.--This subsection, subsections (c)
through (s) and subsection (u) of this section, and section
50 shall apply to--
``(i) any bank holding company, and any subsidiary (other
than a bank) of a bank holding company, as those terms are
defined in section 2 of the Bank Holding Company Act of 1956
(12 U.S.C. 1841), as if such company or subsidiary was an
insured depository institution for which the appropriate
Federal banking agency for the bank holding company was the
appropriate Federal banking agency;
``(ii) any savings and loan holding company, and any
subsidiary (other than a depository institution) of a savings
and loan holding company, as those terms are defined in
section 10 of the Home Owners' Loan Act (12 U.S.C. 1467a), as
if such company or subsidiary was an insured depository
institution for which the appropriate Federal banking agency
for the savings and loan holding company was the appropriate
Federal banking agency; and
``(iii) any organization organized and operated under
section 25A of the Federal Reserve Act (12 U.S.C. 611 et
seq.) or operating under section 25 of the Federal Reserve
Act (12 U.S.C. 601 et seq.) and any noninsured State member
bank, as if such organization or bank was a bank holding
company.
``(B) Rules of construction.--
``(i) Effect on other authority.--Nothing in this paragraph
may be construed to alter or affect the authority of an
appropriate Federal banking agency to initiate enforcement
proceedings, issue directives, or take other remedial action
under any other provision of law.
``(ii) Holding companies.--Nothing in this paragraph or
subsection (c) may be construed as authorizing any Federal
banking agency other than the appropriate Federal banking
agency for a bank holding company or a savings and loan
holding company to initiate enforcement proceedings, issue
directives, or take other remedial action against a bank
holding company, a savings and loan holding company, or any
subsidiary thereof (other than a depository institution).''.
(B) Conforming amendment.--Section 8(b)(9) of the Federal
Deposit Insurance Act (12 U.S.C. 1818(b)(9)) is amended to
read as follows:
``(9) [Reserved].''.
(d) Consumer Protection.--Nothing in this section may be
construed to limit or otherwise affect the transfer of powers
under title X.

SEC. 313. ABOLISHMENT.

Effective 90 days after the transfer date, the Office of
Thrift Supervision and the position of Director of the Office
of Thrift Supervision are abolished.

SEC. 314. AMENDMENTS TO THE REVISED STATUTES.

(a) Amendment to Section 324.--Section 324 of the Revised
Statutes of the United States (12 U.S.C. 1) is amended to
read as follows:

[[Page S3525]]

``SEC. 324. COMPTROLLER OF THE CURRENCY.

``(a) Office of the Comptroller of the Currency
Established.--There is established in the Department of the
Treasury a bureau to be known as the `Office of the
Comptroller of the Currency' which is charged with assuring
the safety and soundness of, and compliance with laws and
regulations, fair access to financial services, and fair
treatment of customers by, the institutions and other persons
subject to its jurisdiction.
``(b) Comptroller of the Currency.--
``(1) In general.--The chief officer of the Office of the
Comptroller of the Currency shall be known as the Comptroller
of the Currency. The Comptroller of the Currency shall
perform the duties of the Comptroller of the Currency under
the general direction of the Secretary of the Treasury. The
Secretary of the Treasury may not delay or prevent the
issuance of any rule or the promulgation of any regulation by
the Comptroller of the Currency, and may not intervene in any
matter or proceeding before the Comptroller of the Currency
(including agency enforcement actions), unless otherwise
specifically provided by law.
``(2) Additional authority.--The Comptroller of the
Currency shall have the same authority with respect to
functions transferred to the Comptroller of the Currency
under the Enhancing Financial Institution Safety and
Soundness Act of 2010 (including matters that were within the
jurisdiction of the Director of the Office of Thrift
Supervision or the Office of Thrift Supervision on the day
before the transfer date under that Act) as was vested in the
Director of the Office of Thrift Supervision on the transfer
date under that Act.''.
(b) Amendment to Section 329.--Section 329 of the Revised
Statutes of the United States (12 U.S.C. 11) is amended by
inserting before the period at the end the following: ``or
any Federal savings association''.
(c) Effective Date.--This section, and the amendments made
by this section, shall take effect on the transfer date.

SEC. 315. FEDERAL INFORMATION POLICY.

Section 3502(5) of title 44, United States Code, is amended
by inserting ``Office of the Comptroller of the Currency,''
after ``the Securities and Exchange Commission,''.

SEC. 316. SAVINGS PROVISIONS.

(a) Office of Thrift Supervision.--
(1) Existing rights, duties, and obligations not
affected.--Sections 312(b) and 313 shall not affect the
validity of any right, duty, or obligation of the United
States, the Director of the Office of Thrift Supervision, the
Office of Thrift Supervision, or any other person, that
existed on the day before the transfer date.
(2) Continuation of suits.--This title shall not abate any
action or proceeding commenced by or against the Director of
the Office of Thrift Supervision or the Office of Thrift
Supervision before the transfer date, except that, for any
action or proceeding arising out of a function of the
Director of the Office of Thrift Supervision or the Office of
Thrift Supervision that is transferred to the Comptroller of
the Currency, the Office of the Comptroller of the Currency,
the Chairperson of the Corporation, the Corporation, the
Chairman of the Board of Governors, or the Board of Governors
by this subtitle, the Comptroller of the Currency, the Office
of the Comptroller of the Currency, the Chairperson of the
Corporation, the Corporation, the Chairman of the Board of
Governors, or the Board of Governors shall be substituted for
the Director of the Office of Thrift Supervision or the
Office of Thrift Supervision, as appropriate, as a party to
the action or proceeding as of the transfer date.
(b) Continuation of Existing Orders, Resolutions,
Determinations, Agreements, Regulations, and Other
Materials.--All orders, resolutions, determinations,
agreements, regulations, interpretative rules, other
interpretations, guidelines, procedures, and other advisory
materials that have been issued, made, prescribed, or allowed
to become effective by the Office of Thrift Supervision, or
by a court of competent jurisdiction, in the performance of
functions of the Office of Thrift Supervision that are
transferred by this subtitle and that are in effect on the
day before the transfer date, shall continue in effect
according to the terms of those materials, and shall be
enforceable by or against the Office of the Comptroller of
the Currency, the Corporation, or the Board of Governors, as
appropriate, until modified, terminated, set aside, or
superseded in accordance with applicable law by the Office of
the Comptroller of the Currency, the Corporation, or the
Board of Governors, as appropriate, by any court of competent
jurisdiction, or by operation of law.
(c) Identification of Regulations Continued.--
(1) By the office of the comptroller of the currency.--Not
later than the transfer date, the Office of the Comptroller
of the Currency shall--
(A) in consultation with the Corporation, identify the
regulations continued under subsection (b) that will be
enforced by the Office of the Comptroller of the Currency;
and
(B) publish a list of such regulations in the Federal
Register.
(2) By the corporation.--Not later than the transfer date,
the Corporation shall--
(A) in consultation with the Office of the Comptroller of
the Currency, identify the regulations continued under
subsection (b) that will be enforced by the Corporation; and
(B) publish a list of such regulations in the Federal
Register.
(3) By the board of governors.--Not later than the transfer
date, the Board of Governors shall--
(A) in consultation with the Office of the Comptroller of
the Currency and the Corporation, identify the regulations
continued under subsection (b) that will be enforced by the
Board of Governors; and
(B) publish a list of such regulations in the Federal
Register.
(d) Status of Regulations Proposed or Not Yet Effective.--
(1) Proposed regulations.--Any proposed regulation of the
Office of Thrift Supervision that the Office of Thrift
Supervision, in performing functions transferred by this
subtitle, has proposed before the transfer date, but has not
published as a final regulation before that date, shall be
deemed to be a proposed regulation of the Office of the
Comptroller of the Currency or the Board of Governors, as
appropriate, according to its terms.
(2) Regulations not yet effective.--Any interim or final
regulation of the Office of Thrift Supervision that the
Office of Thrift Supervision, in performing functions
transferred by this subtitle, has published before the
transfer date, but which has not become effective before that
date, shall become effective as a regulation of the Office of
the Comptroller of the Currency or the Board of Governors, as
appropriate, according to its terms.

SEC. 317. REFERENCES IN FEDERAL LAW TO FEDERAL BANKING
AGENCIES.

Except as provided in section 312(d)(2), on and after the
transfer date, any reference in Federal law to the Director
of the Office of Thrift Supervision or the Office of Thrift
Supervision, in connection with any function of the Director
of the Office of Thrift Supervision or the Office of Thrift
Supervision transferred under section 312(b) or any other
provision of this subtitle, shall be deemed to be a reference
to the Comptroller of the Currency, the Office of the
Comptroller of the Currency, the Chairperson of the
Corporation, the Corporation, the Chairman of the Board of
Governors, or the Board of Governors, as appropriate.

SEC. 318. FUNDING.

(a) Funding of Office of the Comptroller of the Currency.--
Chapter 4 of title LXII of the Revised Statutes is amended by
inserting after section 5240 (12 U.S.C. 481, 482) the
following:
``Sec. 5240A.  The Comptroller of the Currency may collect
an assessment, fee, or other charge from any entity described
in section 3(q)(1) of the Federal Deposit Insurance Act (12
U.S.C. 1813(q)(1)), as the Comptroller determines is
necessary or appropriate to carry out the responsibilities of
the Office of the Comptroller of the Currency. In
establishing the amount of an assessment, fee, or charge
collected from an entity under this section, the Comptroller
of the Currency may take into account the funds transferred
to the Office of the Comptroller of the Currency under this
section, the nature and scope of the activities of the
entity, the amount and type of assets that the entity holds,
the financial and managerial condition of the entity, and any
other factor, as the Comptroller of the Currency determines
is appropriate. Funds derived from any assessment, fee, or
charge collected or payment made pursuant to this section may
be deposited by the Comptroller of the Currency in accordance
with the provisions of section 5234. Such funds shall not be
construed to be Government funds or appropriated monies, and
shall not be subject to apportionment for purposes of chapter
15 of title 31, United States Code, or any other provision of
law. The authority of the Comptroller of the Currency under
this section shall be in addition to the authority under
section 5240.
``The Comptroller of the Currency shall have sole authority
to determine the manner in which the obligations of the
Office of the Comptroller of the Currency shall be incurred
and its disbursements and expenses allowed and paid, in
accordance with this section.''.
(b) Funding of Board of Governors.--Section 11 of the
Federal Reserve Act (12 U.S.C. 248) is amended by adding at
the end the following:
``(s) Assessments, Fees, and Other Charges for Certain
Companies.--
``(1) In general.--The Board shall collect a total amount
of assessments, fees, or other charges from the companies
described in paragraph (2) that is equal to the total
expenses the Board estimates are necessary or appropriate to
carry out the responsibilities of the Board with respect to
such companies.
``(2) Companies.--The companies described in this paragraph
are--
``(A) all bank holding companies having total consolidated
assets of $50,000,000,000 or more;
``(B) all savings and loan holding companies having total
consolidated assets of $50,000,000,000 or more; and
``(C) all nonbank financial companies supervised by the
Board under section 113 of the Restoring American Financial
Stability Act of 2010.''.
(c) Corporation Examination Fees.--Section 10(e) of the
Federal Deposit Insurance Act (12 U.S.C. 1820(e)) is amended
by striking paragraph (1) and inserting the following:
``(1) Regular and special examinations of depository
institutions.--The cost of conducting any regular examination
or special examination of any depository institution

[[Page S3526]]

under subsection (b)(2), (b)(3), or (d) or of any entity
described in section 3(q)(2) may be assessed by the
Corporation against the institution or entity to meet the
expenses of the Corporation in carrying out such
examinations, or as the Corporation determines is necessary
or appropriate to carry out the responsibilities of the
Corporation.''.
(d) Effective Date.--This section, and the amendments made
by this section, shall take effect on the transfer date.

SEC. 319. CONTRACTING AND LEASING AUTHORITY.

Notwithstanding the Federal Property and Administrative
Services Act of 1949 (41 U.S.C. 251 et seq.) or any other
provision of law, the Office of the Comptroller of the
Currency may--
(1) enter into and perform contracts, execute instruments,
and acquire, in any lawful manner, such goods and services,
or personal or real property (or property interest) as the
Comptroller deems necessary to carry out the duties and
responsibilities of the Office of the Comptroller of the
Currency; and
(2) hold, maintain, sell, lease, or otherwise dispose of
the property (or property interest) acquired under paragraph
(1).

Subtitle B--Transitional Provisions

SEC. 321. INTERIM USE OF FUNDS, PERSONNEL, AND PROPERTY OF
THE OFFICE OF THRIFT SUPERVISION.

(a) In General.--Before the transfer date, the Office of
the Comptroller of the Currency, the Corporation, and the
Board of Governors shall--
(1) consult and cooperate with the Office of Thrift
Supervision to facilitate the orderly transfer of functions
to the Office of the Comptroller of the Currency, the
Corporation, and the Board of Governors in accordance with
this title;
(2) determine jointly, from time to time--
(A) the amount of funds necessary to pay any expenses
associated with the transfer of functions (including expenses
for personnel, property, and administrative services) during
the period beginning on the date of enactment of this Act and
ending on the transfer date;
(B) which personnel are appropriate to facilitate the
orderly transfer of functions by this title; and
(C) what property and administrative services are necessary
to support the Office of the Comptroller of the Currency, the
Corporation, and the Board of Governors during the period
beginning on the date of enactment of this Act and ending on
the transfer date; and
(3) take such actions as may be necessary to provide for
the orderly implementation of this title.
(b) Agency Consultation.--When requested jointly by the
Office of the Comptroller of the Currency, the Corporation,
and the Board of Governors to do so before the transfer date,
the Office of Thrift Supervision shall--
(1) pay to the Office of the Comptroller of the Currency,
the Corporation, or the Board of Governors, as applicable,
from funds obtained by the Office of Thrift Supervision
through assessments, fees, or other charges that the Office
of Thrift Supervision is authorized by law to impose, such
amounts as the Office of the Comptroller of the Currency, the
Corporation, and the Board of Governors jointly determine to
be necessary under subsection (a);
(2) detail to the Office of the Comptroller of the
Currency, the Corporation, or the Board of Governors, as
applicable, such personnel as the Office of the Comptroller
of the Currency, the Corporation, and the Board of Governors
jointly determine to be appropriate under subsection (a); and
(3) make available to the Office of the Comptroller of the
Currency, the Corporation, or the Board of Governors, as
applicable, such property and provide to the Office of the
Comptroller of the Currency, the Corporation, or the Board of
Governors, as applicable, such administrative services as the
Office of the Comptroller of the Currency, the Corporation,
and the Board of Governors jointly determine to be necessary
under subsection (a).
(c) Notice Required.--The Office of the Comptroller of the
Currency, the Corporation, and the Board of Governors shall
jointly give the Office of Thrift Supervision reasonable
prior notice of any request that the Office of the
Comptroller of the Currency, the Corporation, and the Board
of Governors jointly intend to make under subsection (b).

SEC. 322. TRANSFER OF EMPLOYEES.

(a) In General.--
(1) Office of thrift supervision employees.--
(A) In general.--All employees of the Office of Thrift
Supervision shall be transferred to the Office of the
Comptroller of the Currency or the Corporation for employment
in accordance with this section.
(B) Allocating employees for transfer to receiving
agencies.--The Director of the Office of Thrift Supervision,
the Comptroller of the Currency, and the Chairperson of the
Corporation shall--
(i) jointly determine the number of employees of the Office
of Thrift Supervision necessary to perform or support the
functions that are transferred to the Office of the
Comptroller of the Currency or the Corporation by this title;
and
(ii) consistent with the determination under clause (i),
jointly identify employees of the Office of Thrift
Supervision for transfer to the Office of the Comptroller of
the Currency or the Corporation.
(2) Employees transferred; service periods credited.--For
purposes of this section, periods of service with a Federal
home loan bank, a joint office of Federal home loan banks, or
a Federal reserve bank shall be credited as periods of
service with a Federal agency.
(3) Appointment authority for excepted service
transferred.--
(A) In general.--Except as provided in subparagraph (B),
any appointment authority of the Office of Thrift Supervision
under Federal law that relates to the functions transferred
under section 312, including the regulations of the Office of
Personnel Management, for filling the positions of employees
in the excepted service shall be transferred to the
Comptroller of the Currency or the Chairperson of the
Corporation, as appropriate.
(B) Declining transfers allowed.--The Office of the
Comptroller of the Currency or the Chairperson of the
Corporation may decline to accept a transfer of authority
under subparagraph (A) (and the employees appointed under
that authority) to the extent that such authority relates to
positions excepted from the competitive service because of
their confidential, policy-making, policy-determining, or
policy-advocating character.
(4) Additional appointment authority.--Notwithstanding any
other provision of law, the Office of the Comptroller of the
Currency and the Corporation may appoint transferred
employees to positions in the Office of the Comptroller of
the Currency or the Corporation, respectively.
(b) Timing of Transfers and Position Assignments.--Each
employee to be transferred under subsection (a)(1) shall--
(1) be transferred not later than 90 days after the
transfer date; and
(2) receive notice of the position assignment of the
employee not later than 120 days after the effective date of
the transfer of the employee.
(c) Transfer of Functions.--
(1) In general.--Notwithstanding any other provision of
law, the transfer of employees under this subtitle shall be
deemed a transfer of functions for the purpose of section
3503 of title 5, United States Code.
(2) Priority.--If any provision of this subtitle conflicts
with any protection provided to a transferred employee under
section 3503 of title 5, United States Code, the provisions
of this subtitle shall control.
(d) Employee Status and Eligibility.--The transfer of
functions and employees under this subtitle, and the
abolishment of the Office of Thrift Supervision under section
313, shall not affect the status of the transferred employees
as employees of an agency of the United States under any
provision of law.
(e) Equal Status and Tenure Positions.--
(1) Status and tenure.--Each transferred employee from the
Office of Thrift Supervision shall be placed in a position at
the Office of the Comptroller of the Currency or the
Corporation with the same status and tenure as the
transferred employee held on the day before the date on which
the employee was transferred.
(2) Functions.--To the extent practicable, each transferred
employee shall be placed in a position at the Office of the
Comptroller of the Currency or the Corporation, as
applicable, responsible for the same functions and duties as
the transferred employee had on the day before the date on
which the employee was transferred, in accordance with the
expertise and preferences of the transferred employee.
(f) No Additional Certification Requirements.--An examiner
who is a transferred employee shall not be subject to any
additional certification requirements before being placed in
a comparable position at the Office of the Comptroller of the
Currency or the Corporation, if the examiner carries out
examinations of the same type of institutions as an employee
of the Office of the Comptroller of the Currency or the
Corporation as the employee was responsible for carrying out
before the date on which the employee was transferred.
(g) Personnel Actions Limited.--
(1) 2-year protection.--Except as provided in paragraph
(2), during the 2-year period beginning on the transfer date,
an employee holding a permanent position on the day before
the date on which the employee was transferred shall not be
involuntarily separated or involuntarily reassigned outside
the locality pay area (as defined by the Office of Personnel
Management) of the employee.
(2) Exceptions.--The Comptroller of the Currency and the
Chairperson of the Corporation, as applicable, may--
(A) separate a transferred employee for cause, including
for unacceptable performance; or
(B) terminate an appointment to a position excepted from
the competitive service because of its confidential policy-
making, policy-determining, or policy-advocating character.
(h) Pay.--
(1) 2-year protection.--Except as provided in paragraph
(2), during the 2-year period beginning on the date on which
the employee was transferred under this subtitle, a
transferred employee shall be paid at a rate that is not less
than the basic rate of pay, including any geographic
differential, that the transferred employee received during
the pay period immediately preceding the date on which the
employee was transferred.
(2) Exceptions.--The Comptroller of the Currency or the
Chairman of the Board of Governors may reduce the rate of
basic pay of a transferred employee--

[[Page S3527]]

(A) for cause, including for unacceptable performance; or
(B) with the consent of the transferred employee.
(3) Protection only while employed.--This subsection shall
apply to a transferred employee only during the period that
the transferred employee remains employed by Office of the
Comptroller of the Currency or the Corporation.
(4) Pay increases permitted.--Nothing in this subsection
shall limit the authority of the Comptroller of the Currency
or the Chairperson of the Corporation to increase the pay of
a transferred employee.
(i) Benefits.--
(1) Retirement benefits for transferred employees.--
(A) In general.--
(i) Continuation of existing retirement plan.--Each
transferred employee shall remain enrolled in the retirement
plan of the transferred employee, for as long as the
transferred employee is employed by the Office of the
Comptroller of the Currency or the Corporation.
(ii) Employer's contribution.--The Comptroller of the
Currency or the Chairperson of the Corporation, as
appropriate, shall pay any employer contributions to the
existing retirement plan of each transferred employee, as
required under each such existing retirement plan.
(B) Definition.--In this paragraph, the term ``existing
retirement plan'' means, with respect to a transferred
employee, the retirement plan (including the Financial
Institutions Retirement Fund), and any associated thrift
savings plan, of the agency from which the employee was
transferred in which the employee was enrolled on the day
before the date on which the employee was transferred.
(2) Benefits other than retirement benefits.--
(A) During first year.--
(i) Existing plans continue.--During the 1-year period
following the transfer date, each transferred employee may
retain membership in any employee benefit program (other than
a retirement benefit program) of the agency from which the
employee was transferred under this title, including any
dental, vision, long term care, or life insurance program to
which the employee belonged on the day before the transfer
date.
(ii) Employer's contribution.--The Office of the
Comptroller of the Currency or the Corporation, as
appropriate, shall pay any employer cost required to extend
coverage in the benefit program to the transferred employee
as required under that program or negotiated agreements.
(B) Dental, vision, or life insurance after first year.--
If, after the 1-year period beginning on the transfer date,
the Office of the Comptroller of the Currency or the
Corporation determines that the Office of the Comptroller of
the Currency or the Corporation, as the case may be, will not
continue to participate in any dental, vision, or life
insurance program of an agency from which an employee was
transferred, a transferred employee who is a member of the
program may, before the decision takes effect and without
regard to any regularly scheduled open season, elect to
enroll in--
(i) the enhanced dental benefits program established under
chapter 89A of title 5, United States Code;
(ii) the enhanced vision benefits established under chapter
89B of title 5, United States Code; and
(iii) the Federal Employees' Group Life Insurance Program
established under chapter 87 of title 5, United States Code,
without regard to any requirement of insurability.
(C) Long term care insurance after 1st year.--If, after the
1-year period beginning on the transfer date, the Office of
the Comptroller of the Currency or the Corporation determines
that the Office of the Comptroller of the Currency or the
Corporation, as appropriate, will not continue to participate
in any long term care insurance program of an agency from
which an employee transferred, a transferred employee who is
a member of such a program may, before the decision takes
effect, elect to apply for coverage under the Federal Long
Term Care Insurance Program established under chapter 90 of
title 5, United States Code, under the underwriting
requirements applicable to a new active workforce member, as
described in part 875 of title 5, Code of Federal Regulations
(or any successor thereto).
(D) Contribution of transferred employee.--
(i) In general.--Subject to clause (ii), a transferred
employee who is enrolled in a plan under the Federal
Employees Health Benefits Program shall pay any employee
contribution required under the plan.
(ii) Cost differential.--The Office of the Comptroller of
the Currency or the Corporation, as applicable, shall pay any
difference in cost between the employee contribution required
under the plan provided to transferred employees by the
agency from which the employee transferred on the date of
enactment of this Act and the plan provided by the Office of
the Comptroller of the Currency or the Corporation, as the
case may be, under this section.
(iii) Funds transfer.--The Office of the Comptroller of the
Currency or the Corporation, as the case may be, shall
transfer to the Employees Health Benefits Fund established
under section 8909 of title 5, United States Code, an amount
determined by the Director of the Office of Personnel
Management, after consultation with the Comptroller of the
Currency or the Chairperson of the Corporation, as the case
may be, and the Office of Management and Budget, to be
necessary to reimburse the Fund for the cost to the Fund of
providing any benefits under this subparagraph that are not
otherwise paid for by a transferred employee under clause
(i).
(E) Special provisions to ensure continuation of life
insurance benefits.--
(i) In general.--An annuitant, as defined in section 8901
of title 5, United States Code, who is enrolled in a life
insurance plan administered by an agency from which employees
are transferred under this title on the day before the
transfer date shall be eligible for coverage by a life
insurance plan under sections 8706(b), 8714a, 8714b, or 8714c
of title 5, United States Code, or by a life insurance plan
established by the Office of the Comptroller of the Currency
or the Corporation, as applicable, without regard to any
regularly scheduled open season or any requirement of
insurability.
(ii) Contribution of transferred employee.--

(I) In general.--Subject to subclause (II), a transferred
employee enrolled in a life insurance plan under this
subparagraph shall pay any employee contribution required by
the plan.
(II) Cost differential.--The Office of the Comptroller of
the Currency or the Corporation, as the case may be, shall
pay any difference in cost between the benefits provided by
the agency from which the employee transferred on the date of
enactment of this Act and the benefits provided under this
section.
(III) Funds transfer.--The Office of the Comptroller of the
Currency or the Corporation, as the case may be, shall
transfer to the Federal Employees' Group Life Insurance Fund
established under section 8714 of title 5, United States
Code, an amount determined by the Director of the Office of
Personnel Management, after consultation with the Comptroller
of the Currency or the Chairperson of the Corporation, as the
case may be, and the Office of Management and Budget, to be
necessary to reimburse the Federal Employees' Group Life
Insurance Fund for the cost to the Federal Employees' Group
Life Insurance Fund of providing benefits under this
subparagraph not otherwise paid for by a transferred employee
under subclause (I).
(IV) Credit for time enrolled in other plans.--For any
transferred employee, enrollment in a life insurance plan
administered by the agency from which the employee
transferred, immediately before enrollment in a life
insurance plan under chapter 87 of title 5, United States
Code, shall be considered as enrollment in a life insurance
plan under that chapter for purposes of section 8706(b)(1)(A)
of title 5, United States Code.

(j) Incorporation Into Agency Pay System.--Not later than 2
years after the transfer date, the Comptroller of the
Currency and the Chairperson of the Corporation shall place
each transferred employee into the established pay system and
structure of the appropriate employing agency.
(k) Equitable Treatment.--In administering the provisions
of this section, the Comptroller of the Currency and the
Chairperson of the Corporation--
(1) may not take any action that would unfairly
disadvantage a transferred employee relative to any other
employee of the Office of the Comptroller of the Currency or
the Corporation on the basis of prior employment by the
Office of Thrift Supervision; and
(2) may take such action as is appropriate in an individual
case to ensure that a transferred employee receives equitable
treatment, with respect to the status, tenure, pay, benefits
(other than benefits under programs administered by the
Office of Personnel Management), and accrued leave or
vacation time for prior periods of service with any Federal
agency of the transferred employee.
(l) Reorganization.--
(1) In general.--If the Comptroller of the Currency or the
Chairperson of the Corporation determines, during the 2-year
period beginning 1 year after the transfer date, that a
reorganization of the staff of the Office of the Comptroller
of the Currency or the Corporation, respectively, is
required, the reorganization shall be deemed a ``major
reorganization'' for purposes of affording affected employees
retirement under section 8336(d)(2) or 8414(b)(1)(B) of title
5, United States Code.
(2) Service credit.--For purposes of this subsection,
periods of service with a Federal home loan bank or a joint
office of Federal home loan banks shall be credited as
periods of service with a Federal agency.

SEC. 323. PROPERTY TRANSFERRED.

(a) Property Defined.--For purposes of this section, the
term ``property'' includes all real property (including
leaseholds) and all personal property, including computers,
furniture, fixtures, equipment, books, accounts, records,
reports, files, memoranda, paper, reports of examination,
work papers, and correspondence related to such reports, and
any other information or materials.
(b) Property of the Office of Thrift Supervision.--Not
later than 90 days after the transfer date, all property of
the Office of Thrift Supervision that the Comptroller of the
Currency and the Chairperson of the Corporation jointly
determine is used, on the day before the transfer date, to
perform or support the functions of the Office of Thrift
Supervision transferred to the Office of the

[[Page S3528]]

Comptroller of the Currency or the Corporation under this
title, shall be transferred to the Office of the Comptroller
of the Currency or the Corporation in a manner consistent
with the transfer of employees under this subtitle.
(c) Contracts Related to Property Transferred.--Each
contract, agreement, lease, license, permit, and similar
arrangement relating to property transferred to the Office of
the Comptroller of the Currency or the Corporation by this
section shall be transferred to the Office of the Comptroller
of the Currency or the Corporation, as appropriate, together
with the property to which it relates.
(d) Preservation of Property.--Property identified for
transfer under this section shall not be altered, destroyed,
or deleted before transfer under this section.

SEC. 324. FUNDS TRANSFERRED.

The funds that, on the day before the transfer date, the
Director of the Office of Thrift Supervision (in consultation
with the Comptroller of the Currency, the Chairperson of the
Corporation, and the Chairman of the Board of Governors)
determines are not necessary to dispose of the affairs of the
Office of Thrift Supervision under section 325 and are
available to the Office of Thrift Supervision to pay the
expenses of the Office of Thrift Supervision--
(1) relating to the functions of the Office of Thrift
Supervision transferred under section 312(b)(1)(B), shall be
transferred to the Office of the Comptroller of the Currency
on the transfer date;
(2) relating to the functions of the Office of Thrift
Supervision transferred under section 312(b)(1)(C), shall be
transferred to the Corporation on the transfer date; and
(3) relating to the functions of the Office of Thrift
Supervision transferred under section 312(b)(1)(A), shall be
transferred to the Board of Governors on the transfer date.

SEC. 325. DISPOSITION OF AFFAIRS.

(a) Authority of Director.--During the 90-day period
beginning on the transfer date, the Director of the Office of
Thrift Supervision--
(1) shall, solely for the purpose of winding up the affairs
of the Office of Thrift Supervision relating to any function
transferred to the Office of the Comptroller of the Currency,
the Corporation, or the Board of Governors under this title--
(A) manage the employees of the Office of Thrift
Supervision who have not yet been transferred and provide for
the payment of the compensation and benefits of the employees
that accrue before the date on which the employees are
transferred under this title; and
(B) manage any property of the Office of Thrift
Supervision, until the date on which the property is
transferred under section 323; and
(2) may take any other action necessary to wind up the
affairs of the Office of Thrift Supervision.
(b) Status of Director.--
(1) In general.--Notwithstanding the transfer of functions
under this subtitle, during the 90-day period beginning on
the transfer date, the Director of the Office of Thrift
Supervision shall retain and may exercise any authority
vested in the Director of the Office of Thrift Supervision on
the day before the transfer date, only to the extent
necessary--
(A) to wind up the Office of Thrift Supervision; and
(B) to carry out the transfer under this subtitle during
such 90-day period.
(2) Other provisions.--For purposes of paragraph (1), the
Director of the Office of Thrift Supervision shall, during
the 90-day period beginning on the transfer date, continue to
be--
(A) treated as an officer of the United States; and
(B) entitled to receive compensation at the same annual
rate of basic pay that the Director of the Office of Thrift
Supervision received on the day before the transfer date.

SEC. 326. CONTINUATION OF SERVICES.

Any agency, department, or other instrumentality of the
United States, and any successor to any such agency,
department, or instrumentality, that was, before the transfer
date, providing support services to the Office of Thrift
Supervision in connection with functions transferred to the
Office of the Comptroller of the Currency, the Corporation or
the Board of Governors under this title, shall--
(1) continue to provide such services, subject to
reimbursement by the Office of the Comptroller of the
Currency, the Corporation, or the Board of Governors, until
the transfer of functions under this title is complete; and
(2) consult with the Comptroller of the Currency, the
Chairperson of the Corporation, or the Chairman of the Board
of Governors, as appropriate, to coordinate and facilitate a
prompt and orderly transition.
On page 459, line 17, strike ``bank'' and insert
``nonmember bank, and the Board may, by order, exempt a
transaction of a State member bank,''.
On page 1045, line 19, insert after ``Currency'' the
following: ``, the Board of Governors of the Federal Reserve
System,''.

Mrs. HUTCHISON. Mr. President, we are restoring section 605 of the
underlying bill. But I just think it is so important we take this
action. Senator Klobuchar made a great statement about what would
happen with the Minnesota Fed going down to one bank. How are they
going to have the input to talk to the Federal Reserve Board about
monetary policy if their supervision is over one bank? In fact, I
understood they might be closing some of the local offices of the Fed
because there will be nothing to supervise, and there will be no input,
there will be no knowledge of what is going on in some of the
communities.
I think the Federal Reserve Bank of Dallas is in much the same
situation. It would also go down to one from about over 400. I will get
the numbers exactly by tomorrow. But that is just going to make a huge
difference in the knowledge base of our Federal Reserve Board. It would
be unthinkable to have monetary policy made without the input from all
of our States that the regional banks give at this time.
The regional banks do a great job. I have dealt with many of the
regional banks. They have great influence on monetary policy. The
presidents of the regional banks rotate in the Open Market Committee
that makes our Fed decisions, and it is a very good system. It was
carefully put together so it would be a monetary system that represents
our whole country. That is probably one of the reasons why our economy
has remained so stable through the years since the Federal Reserve was
created.
So I appreciate the support of the Senator from Minnesota. This is a
truly bipartisan amendment. We have Republican cosponsors, Democratic
cosponsors, and I am very hopeful we will have a vote early tomorrow in
this mix because I think this will add a lot of support from our
community banks to know they are not going to be shut out of access to
the Federal Reserve, and that the Federal Reserve banks will not be
shut out from the community banks that are so important for the
knowledge base of our monetary policy that is made and, frankly, is the
main stay of the stability of our economic system.
So I thank the distinguished chairman of the committee for staying
and letting us talk tonight, and I look forward to having the vote
tomorrow on our amendment.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. First of all, let me just say regarding the Merkley-
Klobuchar amendment to the Corker--not amendment to it, but the side-
by-side--I wish to thank Senator Scott Brown of Massachusetts and
Olympia Snowe of Maine for cosponsoring that amendment on the
underwriting standards. I appreciate that very much.
Let me say to both of my colleagues, Senator Hutchison and Senator
Klobuchar, as my colleagues know, I started out many months ago with
the idea of trying to come down to a single prudential regulator as one
of the reforms in this bill. One of my concerns, as my colleagues know,
was we had some nine agencies. It was an alphabet soup out there with a
lot of overlap in terms of actually who is responsible, who is going to
be accountable for things that occur. Obviously, we want to have a dual
banking system, the State banks and so forth, that don't want to be
drawn into a Federal system unnecessarily. So it began to break down
from a single prudential regulator to maybe two.
I say this with great respect, but I would point out that the Federal
Reserve Board, of course, never implemented the requirements on
mortgage lending that passed in 1994. A lot of the major financial
institutions were basically unregulated institutions. My concern has
been that the Fed did not exactly live up to its reputation during this
period of time and contributed in major ways to the problems we are in
today.
So I have great respect for their monetary function, which is the
core function; the payment system, which is their core function; their
primarily monetary function, determining the credibility of our
currency. We had an earlier debate today on that very issue. The system
was established in 1914, 1917, almost 100 years ago.
At some point down the road we are going to need to think about the
Federal Reserve System. We have two Federal Reserve regional banks in
the State of Missouri. The next one is in San Francisco. So I think the
idea of thinking through how to make it more relevant is a legitimate
issue. Obviously, we are not going to deal with

[[Page S3529]]

that in this bill. We will leave that for a later Congress to work on
those issues.
I appreciate what my colleagues are trying to do, and I recognize the
importance at these regional levels that want to maintain some
involvement in all of this for the reasons that Senator Klobuchar and
Senator Hutchison have identified. Again, I know how we have been
talking about how to work on this a bit. Let me just make one plea. One
of the major concerns that happened with this proliferation of
regulators--it happened with AIG classically and in other cases; it
happened back in the thrift crisis days as well--is that industries go
out and shop and they look for the regulator of least resistance, the
ones they can get away the most with. That was one of the major
problems that happened here.
So I want to avoid wherever possible this, what they call regulatory
arbitrage; that is, the shopping that goes on: Let me find the
regulator that will let me get away with the most. Of course, the
Federal Reserve has a lot to demonstrate in the years ahead that they
got the message, as they didn't do a very good job when they had the
responsibility.
So coming Congresses will have to keep an eye on this to make sure
they are going to not only want the job, but also to assume the
responsibility in doing this so we don't end up with problems running
haywire again. It is true, small banks didn't create a problem. Only
about 800 out of the 8,000 are regulated by the Federal Reserve. The
overwhelming majority, of course, are not regulated by the Federal
Reserve. And, of course, they didn't do much in it because they didn't
get involved in subprime lending. So it wasn't a problem. There was a
reason they didn't get involved in subprime lending, which is for
another day, but nonetheless I understand they got in trouble with
commercial loans which was their major problem.
So I hope on the arbitrage issue that we try to create as much of a
level playing field as possible so we don't find institutions shopping
around because of assessment costs or other matters which can once
again find this migration into an area, not because it is a right place
to be but because it is where you would prefer to be. The decision by
institutions as to where they want to be ought not be the criteria by
which we determine regulation. We have to have a better set of rules
than that or we end up back where we were before.
My colleagues have done a great job. They have been faithful in
reaching out and trying to find accommodation where they can. So I am
very grateful to both of my colleagues and their cosponsors. We look
forward to tomorrow having a vote. In the meantime, I have made an
appeal to work on a couple of pieces of this thing. We would not go
into that right now. I thank them both and I thank my colleagues. It
has been a long day. We covered a lot of ground today--some major
amendments. We will vote tomorrow and move along.
Again, I make the point that this almost seems like a throwback. When
I arrived some 30 years ago, this was the way we did things. We haven't
had a single tabling motion. We haven't had a single filibuster. I
would argue maybe this is one of the top two pieces of legislation to
be considered in this Congress on regulatory reform. It is a major
undertaking. The patience and the involvement of my colleagues has been
terrific, and I wish to thank them as well.
The PRESIDING OFFICER. The Senator from Minnesota.
Ms. KLOBUCHAR. Mr. President, can I just commend Senator Dodd and
Senator Shelby for setting this tone. There was an article this weekend
about how we are working together on a major piece of legislation. As
my colleagues can see from the amendment, Senator Hutchison and I have
a bipartisan amendment, and I appreciate the chairman's openness to
this amendment and his kind words. I thank him for his work.
Mr. DODD. I thank you both.
The PRESIDING OFFICER. The Senator from Texas.
Mrs. HUTCHISON. Mr. President, I would also say that this shouldn't
be a political bill. This should be a bill that is hammered out on the
floor and that does have bipartisan amendments because it is
complicated. It does have to fit together a lot of different needs,
different regulatory standards, different types of banks and financial
institutions and nonbank financial institutions. I hope it is going to
be a product that--regardless of how big the vote is--will make the
system better. I think this process has been the best I have seen this
year in accommodating different concerns that have been raised by both
sides.
So I thank the chairman and the ranking member for that. I yield the
floor.
The PRESIDING OFFICER. The Senator from Connecticut.
Mr. DODD. Mr. President, there is no more debate this evening.
Mr. LEVIN. Mr. President, I come to the Senate floor today to speak
in support of a package of amendments to the financial reform bill that
is a result of an investigation by the Permanent Subcommittee on
Investigations, which I chair. I am submitting these amendments with
the support of my colleague, Senator Kaufman, who is not only a member
of the subcommittee but also sat with me through hours of subcommittee
hearings over a period of 2 weeks to examine some of the causes and
consequences of the crisis that nearly brought down our financial
system, that necessitated billions of dollars in taxpayer money to
arrest, and that was a principal cause of the worst recession in nearly
a century.
We also are submitting the package as eight separate amendments to
facilitate their consideration.
Over nearly a year and a half, our bipartisan investigation examined
millions of pages of documents, conducted over 100 interviews, and
culminated in four hearings during April, with over 2,500 pages of
hearing exhibits and more than 30 hours of testimony. The American
people, having suffered so much in this crisis and having had to pay so
much of their hard-earned money to keep it from getting even worse,
deserve to know what happened.
But more than establishing a record of what went wrong, we sought
information to help keep us from repeating the same mistakes in the
future. Like all of the subcommittee's investigations, our eye was on
both establishing a factual record and on using that record to support
legislation that would rebuild Main Street's defenses against the
excesses of Wall Street.
The recklessness, lax oversight, and conflicts of interest our
investigation has uncovered cry out for legislated reform. The hearings
revealed that mortgage lenders such as Washington Mutual dumped
hundreds of billions of dollars of high risk and sometimes fraudulent
home loans into the U.S. financial system; banking regulators, such as
the Office of Thrift Supervision, observed and understood the flaws and
the risks, failed to stop them, and even impeded the examination
efforts of the Federal Deposit Insurance Corporation; credit rating
agencies, such as Moody's and Standard & Poor's, gave inflated ratings
to risky structured finance products in an effort to keep market share
and please their investment bank clients; and investment banks such as
Goldman Sachs, assembled, marketed, and sold high risk mortgage-related
products, while betting against the very products they created.
That is why I and Senator Kaufman have assembled a package of
amendments to the financial regulatory reform bill now before the
Senate. We believe these amendments would help stop the bad loans,
misleading credit ratings, poor quality securitizations, and other
problems we saw in our investigation, as well as slow down the existing
revolving door for regulators. They are intended to strengthen an
already strong bill that so many of our colleagues have worked so hard
to bring to this point. Let me outline briefly what our amendments
would accomplish.
Ban on Stated-Income and Negative Amortization Loans. First, in
response to the hundreds of billions of dollars in high-risk mortgage
loans that began this crisis and that were featured in our first
hearing, our amendment would sharply limit two of the most dubious
practices: stated-income loans and negatively amortizing loans. Stated-
income loans, also known as ``liar loans,'' are ones in which lenders
allow borrowers simply to state their income on the loan applications
without any confirmation of the borrower's income or assets. Negative
amortization loans

[[Page S3530]]

are loans in which lenders allow the borrowers, for a specified period
of time, to pay less than the monthly amount needed to cover the
interest, resulting in loan balances that increase rather than decrease
over time, and then impose a much higher loan payment to make up for
the earlier low payments. That leads to payment shock and loan defaults
by a large number of borrowers.
Washington Mutual, which was the case history in our first hearing,
used stated-income and negative amortization loans with disastrous
results, leading to the largest bank failure in U.S. history. Stated-
income loans made up 90 percent of its home equity loans, for example,
and 70 percent of its option ARMs, adjustable-rate mortgages, which
often are negatively amortizing. Because both types of loans default at
much higher rates than traditional 30-year fixed rate mortgages,
lenders such as Washington Mutual quickly sold them to remove the risk
from their books. But those high-risk loans did not disappear; they
were packaged into securities and sold to investors, spreading risk
throughout the financial system. Eventually, when housing prices
stopped rising and borrowers could not refinance their mortgages, the
loans defaulted in record numbers, the securities plummeted in value,
and the securitization market crashed. Our amendment would ensure that
stated-income and negative amortization loans could not again be used
to foist high-risk, poor quality loans off on investors in
securitizations.
Skin in the Game Securitizations. Second, our amendment would
strengthen an existing provision in the bill that requires financial
firms to retain some of the risk of the mortgage-backed securities they
assemble. Too often, lenders such as Washington Mutual and investment
banks such as Goldman Sachs were in the business of packaging high-risk
mortgages into structured financial instruments, slicing and dicing
them in new ways, obtaining credit ratings indicating that portions of
these instruments carried no more risk than Treasury securities but
significantly higher returns, and then passing the risk to others,
selling them to investors without retaining any risk on their books. In
many cases, as our hearings showed, these financial institutions knew
the products they had assembled were of dubious quality but were happy
to sell them so long as they made a fee and knew that none of the risk
could come back to harm them. This short-term pursuit of profits, with
no concern for customers or for the toxic securities polluting the
financial system, so damaged the securitization markets that they are
still struggling to recover.
Our amendment would help stop these short-sighted and dangerous
securitization practices by requiring financial institutions that
securitize mortgages to keep some of their own skin in the game. It
would build on an existing provision in the Dodd bill by requiring that
securitizers keep an ownership interest in the securities they create.
While the existing provision would require securitizers to keep a 5
percent interest in the securitization as a whole, it does not specify
whether that 5 percent interest could be concentrated in a single
portion, or tranche, of securities, such as the low-risk, supersenior
tranche at the top or the high-risk equity tranche at the bottom, which
is often what happened during the crisis. Our amendment would make it
clear that the ownership interest would have to be distributed
throughout the capital structure--not just in a single tranche--so that
the securitizer's interests would be aligned with the interests of all
levels of investors buying the securities and would give the
securitizer a stake in the success of all of the tranches, not just
one.
In addition, our amendment would make it clear that regulators could
allow lenders to go below the 5 percent requirement only if they are
including high-quality, low-risk assets in their securities, such as
30-year fixed rate mortgages. Inclusion of this low-risk standard in
the provision allowing lenders to avoid the 5 percent requirement would
create an enormous incentive for securitizers to use low-risk loans in
their securitizations.
Gustafson Fix. Third, we would address the effects of a 1995 Supreme
Court ruling in the Gustafson case that has left investors in private
securities offerings without protection from material misstatements or
omissions in the security's prospectus. The Gustafson ruling
interpreted the securities laws as depriving purchasers in private
offerings of the same protections against material misstatements or
omissions that apply to public offerings. Our amendment would restore
congressional intent and close that loophole.
FDIC Examination Authority. Fourth, we would strengthen protections
for the Federal deposit insurance fund and against the need for
taxpayer bailouts by enhancing the FDIC's authority to initiate bank
exams and enforcement actions. Under our amendment, the FDIC's
chairperson would have the authority to initiate an exam, authority
that now rests solely with the FDIC's board, which is cumbersome and
includes other regulators that can prevent FDIC from acting quickly.
During the subcommittee's second hearing, documents and testimony
showed how the Office of Thrift Supervision thwarted FDIC efforts to
participate in examinations of Washington Mutual and take enforcement
action to reduce the bank's unsustainable high-risk lending. The
Federal agency charged with protecting the deposit insurance fund
should not have to jump through hoops to look at bank records or stop
unsafe or unsound practices. Our amendment would make it clear that the
FDIC can act decisively and quickly to deal with endangered financial
institutions before their failure threatens the FDIC insurance fund or
the safety of the financial system.
Credit Rating Agencies. Fifth, our amendment would strengthen a host
of provisions in the Dodd bill dealing with credit rating agencies.
Credit rating agencies did not originate the bad loans or risky
securities that led to the crisis. But their disastrously inaccurate
ratings made those loans and securities easy to sell and helped spread
risk throughout the financial system.
The subcommittee's third hearing showed a clear conflict of interest
inherent in the credit rating agencies' business model: They are
dependent for revenue upon the same financial firms whose products they
are supposed to impartially rate. Our amendment would eliminate that
conflict by requiring rating agencies to receive their fees through an
intermediary to be established or designated by the SEC.
In addition, the amendment would strike the existing statutory ban
that prohibits direct SEC oversight of the credit rating models,
methodologies, and criteria that failed so catastrophically in this
crisis, and would explicitly direct the SEC to oversee them. We would
also require the agencies to rate as more risky products that, for
example, lack past performance data; that are provided by an issuer
with a history of issuing poorly performing instruments; that receive
prior credit ratings already subject to downgrade; that consist of
synthetic instruments in which no income is being contributed by actual
assets; or that consist of instruments whose complexity or novelty make
it difficult to reliably predict their performance. We would also build
upon a Dodd provision requiring that certain information be provided
about each credit rating issued by an agency, including a requirement
that ratings come with an ``expiration date'' indicating whether they
are intended to be effective for more or less than a year. We would
also bar credit rating agencies from relying on due diligence reviews
of financial products when the agencies have reason to believe that the
due diligence is inadequate. Together, these provisions would help
ensure that the SEC has the authority it needs to conduct vigorous and
meaningful oversight of credit rating agencies, instead of the current
system that provides for SEC oversight in theory but denies it in
practice.
Restriction on Synthetic Asset-Backed Securities. Sixth, we would
rein in the pernicious effects of synthetic asset-backed securities on
the financial system. These securities contain no real assets. Their
value is tied to the assets that they reference, but the securitizer
and the investors need not, and often do not, have any economic
interest in those assets. Too often, these instruments have amounted to
nothing more than bets on whether a security or other asset would go up
or down in value. Such transactions,

[[Page S3531]]

usually embodied in collateralized debt obligations, or CDOs, greatly
magnified the damage that resulted when poor quality mortgage-backed
securities defaulted and helped bring down storied financial firms such
as Lehman Brothers and Bear Stearns.
Under our amendment, synthetic asset-backed securities that lack any
substantial or material economic purpose other than speculation on the
value or condition of referenced assets could no longer be sold. Wall
Street firms that claim a synthetic asset-backed security has a
substantial economic benefit apart from wagering on asset values will
have an opportunity to prove those claims to the SEC. We must end the
pollution of the U.S. financial system with these dangerous financial
instruments that spread risk without adding anything of substance to
the real economy.
Slowing the Revolving Door. Seventh, we would seek to slow down the
revolving door between financial regulatory agencies and the financial
sector by requiring a 1-year ``cooling off'' period before a Federal
financial regulator could work for a financial institution he or she
regulated. In 2005, we enacted a 1-year cooling off period for bank
examiners, after Riggs Bank hired the bank examiner who used to oversee
its operations and who took some questionable regulatory actions before
switching his employment. That law has been on the books for 5 years,
providing a healthy deterrent to bank examiners that get too close to
the banks they regulate. Our amendment would expand this approach to
all Federal financial regulators, from the Federal Reserve to the SEC
to the CFTC to the new Consumer Financial Protection Bureau. It would
prevent a regulator who participated personally and substantially in
the regulation or oversight of a particular financial institution or
took an enforcement action against a specific financial institution
from taking a job with the same institution for at least a year.
Foreign Bank Anti-Tax Evasion Remedy. Finally, based upon a number of
previous subcommittee investigations showing how some foreign banks
have been deliberately assisting U.S. clients to evade U.S. taxes, our
amendment would give the Treasury Department discretionary authority to
take measures against foreign financial institutions or foreign
jurisdictions that impede U.S. tax enforcement. Those measures include
such actions as imposing additional recordkeeping requirements,
refusing to honor credit cards issued by a foreign bank or, in the most
extreme cases, prohibiting U.S. financial institutions from doing
business with the offending foreign financial institution or
jurisdiction. This provision would build upon a Patriot Act provision
that has proven highly effective in stopping foreign banks from
engaging in money laundering activities and would take the same
approach in discouraging foreign banks from aiding or abetting tax
evasion.
We offer this amendment in the hope of improving what is already a
strong bill, either as a package or divided into its separate elements.
It is not all that needs to be done--for example, I have joined with
Senator Merkley in an amendment submitted to limit proprietary trading
and conflicts of interest by financial institutions--additional
problems examined during the subcommittee hearings. It is clear that
the evidence revealed by the subcommittee's lengthy investigation and
four hearings requires Congress to act now to protect Main Street from
financial abuses that have so damaged our economy and American
families.
Mrs. FEINSTEIN. Mr. President, I rise to speak in support of an
amendment I am offering to the Wall Street reform bill.
The Dodd-Lincoln bill, as currently drafted, takes major steps to
reform the $900 trillion derivative markets. It would require every
trade to be reported in real time to the CFTC; require all cleared
contracts to be traded on an exchange or on a swap execution facility;
require speculative position limits set in ``aggregate'' for each
commodity, instead of contract by contract; and require foreign boards
of trade to adhere to minimum standards comparable to those in the
United States, including reporting requirements--this provision is
designed to address the underlying problem of the so-called London
Loophole.
I very much support these provisions. However, I am concerned that
the bill doesn't go far enough to address the London loophole. This
loophole has allowed for the trading of U.S. energy commodities--such
as crude oil--on foreign exchanges without strong oversight from U.S.
regulators.
This means that there is no cop on the beat to shield U.S. oil prices
from manipulation or excessive speculation when they are traded in
foreign markets, like commodities exchanges in London or Shanghai.
The amendment I am proposing would allow CFTC to require foreign
boards of trade to register with CFTC, which would give CFTC the
enforcement authority it needs. This provision was in President Obama's
original proposed financial reform bill, and it is strongly supported
by CFTC Chairman Gensler.
First, let me explain what has become known as the London loophole.
As Congress has taken steps to improve regulatory oversight of
domestic commodity trading markets, Wall Street traders have
increasingly turned to offshore markets to electronically trade U.S.
energy futures--in order to evade American market oversight and
speculation limits.
This new regulatory loophole earned its nickname--the London
loophole--because America's most important crude oil contract--known as
West Texas Intermediate--is today traded on the Intercontinental
Exchange in London. This contract has what is called a price discovery
impact because it is commonly referenced as the standard market price
of oil.
The practical implication of this is that U.S. traders can use
electronic exchanges based overseas to artificially drive up the prices
of U.S. commodities--without any consequences from our Nation's market
regulators. This is a major problem.
A 2008 CFTC report found that traders using this London exchange to
trade U.S. crude oil futures held positions far larger than would be
allowed by American regulators. In fact, from 2006 to 2008 at least one
trader position exceeded U.S. speculation limits every single week on
the London exchange, and British regulators had done nothing about it.
The good news is that some steps have been taken administratively to
address this loophole.
In 2008, the CFTC negotiated an agreement with British regulators to
bring greater oversight to American commodities contracts traded in
London. The agreement called for speculation limits for the electronic
trading of U.S. energy commodities--like crude oil--on foreign
exchanges, and required recording-keeping and an audit trail. But CFTC
has limited legal authority to enforce this agreement.
Bottom Line: We need to make sure the CFTC can oversee trading of
American commodities, whether it happens through a computer server
located on Wall Street or in Shanghai.
The Dodd-Lincoln bill currently before us does include some important
provisions to help close the London loophole. As drafted, the bill will
require foreign boards of trade that provide access to American traders
to comply with comparable rules enforced by a foreign regulator,
publish trading information daily, supply data to CFTC, and enforce
position limits.
However, CFTC may be unable to force a Foreign Board of Trade to
comply with these requirements.
This is because the CFTC's current method of overseeing foreign
exchanges has tenuous legal underpinnings, due to a Commodity Exchange
Act provision forbidding CFTC from ``regulating'' foreign boards of
trade.
In many instances, the CFTC can take action against a U.S. trader on
a foreign exchange to prevent manipulation or excessive speculation
only with the cooperation and consent of the foreign regulator. The
other, more controversial option is for the CFTC to completely ban the
foreign exchange from all U.S. operations. Not surprisingly, the CFTC
often shies away from enforcement, in the face of these regulatory
obstacles.
That is why I am offering a proposal to allow CFTC to require foreign
boards of trade to register with CFTC, which would give CFTC the
enforcement authority it needs.

[[Page S3532]]

Here are the benefits of this amendment:
First, the registration process itself would give CFTC the authority
to impose appropriate regulatory requirements as a condition of
registration.
Second, a formal registration process would assure that foreign
boards of trade all follow the same set of rules.
Third, the registration process would provide a much clearer basis
for CFTC decisions to refuse or withdraw permission to foreign boards
of trade wishing to allow American traders on their exchange.
Finally, and most importantly, all of CFTC's existing enforcement
authorities apply to registered entities under the Commodity Exchange
Act.
This amendment would therefore allow CFTC to enforce its own statute
with regard to foreign exchanges operating in the United States.
This is a very moderate, practical amendment to assure that we give
CFTC the authority to enforce the statutory provisions already in the
proposed legislation. It would only provide the CFTC with equivalent
authority to that held by virtually all foreign futures regulators--
including the British.
I have worked for many years to bring about meaningful regulation of
the derivatives markets, and that is why I am so pleased that Senators
Lincoln and Dodd have brought forward the strongest derivatives
regulatory proposal considered by this Congress.
But as we crack down on traders in our markets, we must be ever
vigilant to assure that traders sitting on Wall Street do not avoid our
regulations by trading on electronic exchanges with computer servers in
London, or Dubai, or Singapore.
This amendment would improve the London loophole provisions in the
Dodd-Lincoln bill, by making those provisions more easily enforceable.
It is the final piece necessary to close the London loophole,
ensuring that our government has what it needs to protect American
markets from manipulation and excessive speculation, no matter where
U.S. energy commodities are traded.
I ask my colleagues to support this amendment.
Mr. DODD. Mr. President, I ask unanimous consent that on Wednesday,
May 12, following any leader time, the Senate then resume consideration
of S. 3217, and that the time until 10 a.m. be for debate with respect
to the following three amendments, with the time equally divided and
controlled between the leaders or their designees; that at 10 a.m., the
Senate proceed to vote in relation to the amendments in the order
listed, with no amendments in order to the amendments prior to a vote,
with 2 minutes of debate prior to the succeeding votes and with the
succeeding votes limited to 10 minutes: Merkley amendment No. 3962,
Corker amendment No 3955, Hutchison-Klobuchar amendment No. 3759, as
modified; provided further, that the next two amendments in order would
be the Landrieu-Isakson amendment regarding risk retention and the
Snowe-Landrieu amendment No. 3918.
The PRESIDING OFFICER. Without objection, it is so ordered.

____________________