PROP Trading Act

Mr. President, I thank Chairman Dodd for yielding to me and for his leadership on financial reform.

I yield to Senator Levin.

I thank Senator Levin and will be setting forth here our joint explanation of the Merkley-Levin provisions of the Dodd-Frank Act. Sections 619, 620 and 621 do three things: prohibit high-risk proprietary trading at banks, limit the systemic risk of such activities at systemically significant nonbank financial companies, and prohibit material conflicts of interest in asset-backed securitizations.

Sections 619 and 620 amend the Bank Holding Company Act of 1956 to broadly prohibit proprietary trading, while nevertheless permitting certain activities that may technically fall within the definition of proprietary trading but which are, in fact, safer, client-oriented financial services. To account for the additional risk of proprietary trading among systemically critical financial firms that are not banks, bank holding companies, or the like, the sections require nonbank financial companies supervised by the Federal Reserve Board, the ``Board'', to keep additional capital for their proprietary trading activities and subject them to quantitative limits on those activities. In addition, given the unique control that firms who package and sell asset-backed securities (including synthetic asset-backed securities) have over transactions involving those securities, section 621 protects purchasers by prohibiting those firms from engaging in transactions that involve or result in material conflicts of interest.

First, it is important to remind our colleagues how the financial crisis of the past several years came to pass. Beginning in the 1980's, new financial products and significant amounts of deregulation undermined the Glass-Steagall Act's separation of commercial banking from securities brokerage or ``investment banking'' that had kept our banking system relatively safe since 1933.

Over time, commercial and investment banks increasingly relied on precarious short term funding sources, while at the same time significantly increasing their leverage. It was as if our banks and securities firms, in competing against one another, were race car drivers taking the curves ever more tightly and at ever faster speeds. Meanwhile, to match their short-term funding sources, commercial and investment banks drove into increasingly risky, short-term, and sometimes theoretically hedged, proprietary trading. When markets took unexpected turns, such as when Russia defaulted on its debt and when the U.S. mortgage-backed securities market collapsed, liquidity evaporated, and financial firms became insolvent very rapidly. No amount of capital could provide a sufficient buffer in such situations.

In the face of the worst financial crisis in 60 years, the January 2009 report by the Group of 30, an international group of financial experts, placed blame squarely on proprietary trading. This report, largely authored by former Federal Reserve System Chairman Paul Volcker, recommended prohibiting systemically critical banking institutions from trading in securities and other products for their own accounts. In January 2010, President Barack Obama gave his full support to common-sense restrictions on proprietary trading and fund investing, which he coined the ``Volcker Rule.''

The ``Volcker Rule,'' which Senator Levin and I drafted and have championed in the Senate, and which is embodied in section 619, embraces the spirit of the Glass-Steagall Act's separation of ``commercial'' from ``investment'' banking by restoring a protective barrier around our critical financial infrastructure. It covers not simply securities, but also derivatives and other financial products. It applies not only to banks, but also to nonbank financial firms whose size and function render them systemically significant.

While the intent of section 619 is to restore the purpose of the Glass-Steagall barrier between commercial and investment banks, we also update that barrier to reflect the modern financial world and permit a broad array of low-risk, client-oriented financial services. As a result, the barrier constructed in section 619 will not restrict most financial firms.

Section 619 is intended to limit proprietary trading by banking entities and systemically significant nonbank financial companies. Properly implemented, section 619's limits will tamp down on the risk to the system arising from firms competing to obtain greater and greater returns by increasing the size, leverage, and riskiness of their trades. This is a critical part of ending too big to fail financial firms. In addition, section 619 seeks to reorient the U.S. banking system away from leveraged, short-term speculation and instead towards the safe and sound provision of long-term credit to families and business enterprises.

We recognize that regulators are essential partners in the legislative process. Because regulatory interpretation is so critical to the success of the rule, we will now set forth, as the principal authors of Sections 619 to 621, our explanations of how these provisions work.

Section 619's prohibitions and restrictions on proprietary trading are set forth in a new section 13 to the Bank Holding Company Act of 1956, and subsection (a), paragraph (1) establishes the basic principle clearly: a banking entity shall not ``engage in proprietary trading'' or ``acquire or retain . . . ownership interest[s] in or sponsor a hedge fund or private equity fund'', unless otherwise provided in the section. Paragraph (2) establishes the principle for nonbank financial companies supervised by the Board by subjecting their proprietary trading activities to quantitative restrictions and additional capital charges. Such quantitative limits and capital charges are to be set by the regulators to address risks similar to those which lead to the flat prohibition for banking entities.

Subsection (h), paragraph (1) defines ``banking entity'' to be any insured depository institution (as otherwise defined under the Bank Holding Company Act), any entity that controls an insured depository institution, any entity that is treated as a bank holding company under section 8 of the International Banking Act of 1978, and any affiliates or subsidiaries of such entities. We and the Congress specifically rejected proposals to exclude the affiliates and subsidiaries of bank holding companies and insured depository institutions, because it was obvious that restricting a bank, but not its affiliates and subsidiaries, would ultimately be ineffective in restraining the type of high-risk proprietary trading that can undermine an insured depository institution.

The provision recognizes the modern reality that it is difficult to separate the fate of a bank and its bank holding company, and that for the bank holding company to be a source of strength to the bank, its activities, and those of its other subsidiaries and affiliates, cannot be at such great risk as to imperil the bank. We also note that not all banks pose the same risks. Accordingly, the paragraph provides a narrow exception for insured depository institutions that function principally for trust purposes and do not hold public depositor money, make loans, or access Federal Reserve lending or payment services. These specialized entities that offer very limited trust services are elsewhere carved out of the definition of ``bank,'' so we do not treat them as banks for the purposes of the restriction on proprietary trading. However, such institutions are covered by the restriction if they qualify under the provisions covering systemically important nonbank financial companies.

Subsection (h), paragraph (3) defines nonbank financial companies supervised by the Board to be those financial companies whose size, interconnectedness, or core functions are of sufficiently systemic significance as to warrant additional supervision, as directed by the Financial Stability Oversight Council pursuant to Title I of the Dodd- Frank Act. Given the varied nature of such nonbank financial companies, for some of which proprietary trading is effectively their business, an outright statutory prohibition on such trading was not warranted. Instead, the risks posed by their proprietary trading is addressed through robust capital charges and quantitative limits that increase with the size, interconnectedness, and systemic importance of the

business functions of the nonbank financial firm. These restrictions should become stricter as size, leverage, and other factors increase. As with banking entities, these restrictions should also help reduce the size and risk of these financial firms.

Naturally, the definition of ``proprietary trading'' is critical to the provision. For the purposes of section 13, proprietary trading means ``engaging as a principal for the trading account'' in transactions to ``purchase or sell, or otherwise acquire or dispose of'' a wide range of traded financial products, including securities, derivatives, futures, and options. There are essentially three key elements to the definition: (1) the firm must be acting ``as a principal,'' (2) the trading must be in its ``trading account'' or another similar account, and (3) the restrictions apply to the full range of its financial instruments.

Purchasing or selling ``as a principal'' refers to when the firm purchases or sells the relevant financial instrument for its own account. The prohibition on proprietary trading does not cover trading engaged with exclusively client funds.

The term ``trading account'' is intended to cover an account used by a firm to make profits from relatively short-term trading positions, as opposed to long-term, multi-year investments. The administration's proposed Volcker Rule focused on short-term trading, using the phrase ``trading book'' to capture that concept. That phrase, which is currently used by some bank regulators was rejected, however, and the ultimate conference report language uses the term ``trading account'' rather than ``trading book'' to ensure that all types of accounts used for proprietary trading are covered by the section.

To ensure broad coverage of the prohibition on proprietary trading, paragraph (3) of subsection (h) defines ``trading account'' as any account used ``principally for the purpose of selling in the near term (or otherwise with the intent to resell in order to profit from short- term price movements)'' and such other accounts as the regulators determine are properly covered by the provision to fulfill the purposes of the section. In designing this definition, we were aware of bank regulatory capital rules that distinguish between short-term trading and long-term investments, and our overall focus was to restrict high- risk proprietary trading. For banking entity subsidiaries that do not maintain a distinction between a trading account and an investment account, all accounts should be presumed to be trading accounts and covered by the restriction.

Linking the prohibition on proprietary trading to trading accounts permits banking entities to hold debt securities and other financial instruments in long-term investment portfolios. Such investments should be maintained with the appropriate capital charges and held for longer periods.

The definition of proprietary trading in paragraph (4) covers a wide range of financial instruments, including securities, commodities, futures, options, derivatives, and any similar financial instruments. Pursuant to the rule of construction in subsection (g), paragraph (2), the definition should not generally include loans sold in the process of securitizing; however, it could include such loans if such loans become financial instruments traded to capture the change in their market value.

Limiting the definition of proprietary trading to near-term holdings has the advantage of permitting banking entities to continue to deploy credit via long-term capital market debt instruments. However, it has the disadvantage of failing to prevent the problems created by longer- term holdings in riskier financial instruments, for example, highly complex collateralized debt obligations and other opaque instruments that are not readily marketable. To address the risks to the banking system arising from those longer-term instruments and related trading, section 620 directs Federal banking regulators to sift through the assets, trading strategies, and other investments of banking entities to identify assets or activities that pose unacceptable risks to banks, even when held in longer-term accounts. Regulators are expected to apply the lessons of that analysis to tighten the range of investments and activities permissible for banking entities, whether they are at the insured depository institution or at an affiliate or subsidiary, and whether they are short or long term in nature.

The new Bank Holding Company Act section 13 also restricts investing in or sponsoring hedge funds and private equity funds. Clearly, if a financial firm were able to structure its proprietary positions simply as an investment in a hedge fund or private equity fund, the prohibition on proprietary trading would be easily avoided, and the risks to the firm and its subsidiaries and affiliates would continue. A financial institution that sponsors or manages a hedge fund or private equity fund also incurs significant risk even when it does not invest in the fund it manages or sponsors. Although piercing the corporate veil between a fund and its sponsoring entity may be difficult, recent history demonstrates that a financial firm will often feel compelled by reputational demands and relationship preservation concerns to bail out clients in a failed fund that it managed or sponsored, rather than risk litigation or lost business. Knowledge of such concerns creates a moral hazard among clients, attracting investment into managed or sponsored funds on the assumption that the sponsoring bank or systemically significant firm will rescue them if markets turn south, as was done by a number of firms during the 2008 crisis. That is why setting limits on involvement in hedge funds and private equity funds is critical to protecting against risks arising from asset management services.

Subsection (h), paragraph (2) sets forth a broad definition of hedge fund and private equity fund, not distinguishing between the two. The definition includes any company that would be an investment company under the Investment Company Act of 1940, but is excluded from such coverage by the provisions of sections 3(c)(1) or 3(c)(7). Although market practice in many cases distinguishes between hedge funds, which tend to be trading vehicles, and private equity funds, which tend to own entire companies, both types of funds can engage in high risk activities and it is exceedingly difficult to limit those risks by focusing on only one type of entity.

Despite the broad prohibition on proprietary trading set forth in subsection (a), the legislation recognizes that there are a number of low-risk proprietary activities that do not pose unreasonable risks and explicitly permits those activities to occur. Those low-risk proprietary trading activities are identified in subsection (d), paragraph (1), subject to certain limitations set forth in paragraph (2), and additional capital charges required in paragraph (3).

While paragraph (1) authorizes several permitted activities, it simultaneously grants regulators broad authority to set further restrictions on any of those activities and to supplement the additional capital charges provided for by paragraph (3).

Subparagraph (d)(1)(A) authorizes the purchase or sale of government obligations, including government-sponsored enterprise, GSE, obligations, on the grounds that such products are used as low-risk, short-term liquidity positions and as low-risk collateral in a wide range of transactions, and so are appropriately retained in a trading account. Allowing trading in a broad range of GSE obligations is also meant to recognize a market reality that removing the use of these securities as liquidity and collateral positions would have significant market implications, including negative implications for the housing and farm credit markets. By authorizing trading in GSE obligations, the language is not meant to imply a view as to GSE operations or structure over the long-term, and permits regulators to add restrictions on this permitted activity as necessary to prevent high-risk proprietary trading activities under paragraph (2). When GSE reform occurs, we expect these provisions to be adjusted accordingly. Moreover, as is the case with all permitted activities under paragraph (1), regulators are expected to apply additional capital restrictions under paragraph (3) as necessary to account for the risks of the trading activities.

Subparagraph (d)(1)(B) permits underwriting and market-making-related

transactions that are technically trading for the account of the firm but, in fact, facilitate the provision of near-term client-oriented financial services. Market-making is a customer service whereby a firm assists its customers by providing two-sided markets for speedy acquisition or disposition of certain financial instruments. Done properly, it is not a speculative enterprise, and revenues for the firm should largely arise from the provision of credit provided, and not from the capital gain earned on the change in the price of instruments held in the firm's accounts. Academic literature sets out the distinctions between making markets for customers and holding speculative positions in assets, but in general, the two types of trading are distinguishable by the volume of trading, the size of the positions, the length of time that positions remains open, and the volatility of profits and losses, among other factors. Regulations implementing this permitted activity should focus on these types of factors to assist regulators in distinguishing between financial firms assisting their clients versus those engaged in proprietary trading. Vigorous and robust regulatory oversight of this issue will be essential to the prevent ``market-making'' from being used as a loophole in the ban on proprietary trading.

The administration's draft language, the original section 619 contemplated by the Senate Banking Committee, and amendment 4101 each included the term ``in facilitation of customer relations'' as a permitted activity. The term was removed in the final version of the Dodd-Frank Act out of concern that this phrase was too subjective, ambiguous, and susceptible to abuse. At the same time, we recognize that the term was previously included to permit certain legitimate client-oriented services, such pre-market-making accumulation of small positions that might not rise to the level of fully ``market-making'' in a security or financial instrument, but are intended to nonetheless meet expected near-term client liquidity needs. Accordingly, while previous versions of the legislation referenced ``market-making'', the final version references ``market-making-related'' to provide the regulators with limited additional flexibility to incorporate those types of transactions to meet client needs, without unduly warping the common understanding of market-making.

We note, however, that ``market-making-related'' is not a term whose definition is without limits. It does not implicitly cover every time a firm buys an existing financial instrument with the intent to later sell it, nor does it cover situations in which a firm creates or underwrites a new security with the intent to market it to a client. Testimony by Goldman Sachs Chairman Lloyd Blankfein and other Goldman executives during a hearing before the Permanent Subcommittee on Investigations seemed to suggest that any time the firm created a new mortgage related security and began soliciting clients to buy it, the firm was ``making a market'' for the security. But one-sided marketing or selling securities is not equivalent to providing a two-sided market for clients buying and selling existing securities. The reality was that Goldman Sachs was creating new securities for sale to clients and building large speculative positions in high-risk instruments, including credit default swaps. Such speculative activities are the essence of proprietary trading and cannot be properly considered within the coverage of the terms ``market-making'' or ``market-making- related.''

The subparagraph also specifically limits such underwriting and market-making-related activities to ``reasonably expected near term demands of clients, customers, and counterparties.'' Essentially, the subparagraph creates two restrictions, one on the expected holding period and one on the intent of the holding. These two restrictions greatly limit the types of risks and returns for market-makers. Generally, the revenues for market-making by the covered firms should be made from the fees charged for providing a ready, two-sided market for financial instruments, and not from the changes in prices acquired and sold by the financial institution. The ``near term'' requirement connects to the provision in the definition of trading account whereby the account is defined as trading assets that are acquired ``principally for the purpose of selling in the near term.'' The intent is to focus firms on genuinely making markets for clients, and not taking speculative positions with the firm's capital. Put simply, a firm will not satisfy this requirement by acquiring a position on the hope that the position will be able to be sold at some unknown future date for a trading profit.

Subparagraph (d)(1)(C) permits a banking entity to engage in ``risk- mitigating hedging activities in connection with and related to individual or aggregated positions, contracts, or other holdings of the banking entity that are designed to reduce the specific risks to the banking entity in connection with and related to such positions, contracts, or other holdings.'' This activity is permitted because its sole purpose is to lower risk.

While this subparagraph is intended to permit banking entities to utilize their trading accounts to hedge, the phrase ``in connection with and related to individual or aggregated positions . . .'' was added between amendment 4101 and the final version in the conference report in order to ensure that the hedge applied to specific, identifiable assets, whether it be on an individual or aggregate basis. Moreover, hedges must be to reduce ``specific risks'' to the banking entity arising from these positions. This formulation is meant to focus banking entities on traditional hedges and prevent proprietary speculation under the guise of general ``hedging.'' For example, for a bank with a significant set of loans to a foreign country, a foreign exchange swap may be an appropriate hedging strategy. On the other hand, purchasing commodity futures to ``hedge'' inflation risks that may generally impact the banking entity may be nothing more than proprietary trading under another name. Distinguishing between true hedges and covert proprietary trades may be one of the more challenging areas for regulators, and will require clear identification by financial firms of the specific assets and risks being hedged, research and analysis of market best practices, and reasonable regulatory judgment calls. Vigorous and robust regulatory oversight of this issue will be essential to the prevent ``hedging'' from being used as a loophole in the ban on proprietary trading.

Subparagraph (d)(1)(D) permits the acquisition of the securities and other affected financial instruments ``on behalf of customers.'' This permitted activity is intended to allow financial firms to use firm funds to purchase assets on behalf of their clients, rather than on behalf of themselves. This subparagraph is intended, in particular, to provide reassurance that trading in ``street name'' for customers or in trust for customers is permitted.

In general, subparagraph (d)(1)(E) provides exceptions to the prohibition on investing in hedge funds or private equity funds, if such investments advance a ``public welfare'' purpose. It permits investments in small business investment companies, which are a form of regulated venture capital fund in which banks have a long history of successful participation. The subparagraph also permits investments ``of the type'' permitted under the paragraph of the National Bank Act enabling banks to invest in a range of low-income community development and other projects. The subparagraph also specifically mentions tax credits for historical building rehabilitation administered by the National Park Service, but is flexible enough to permit the regulators to include other similar low-risk investments with a public welfare purpose.

Subparagraph (d)(1)(F) is meant to accommodate the normal business of insurance at regulated insurance companies that are affiliated with banks. The Volcker Rule was never meant to affect the ordinary business of insurance: the collection and investment of premiums, which are then used to satisfy claims of the insured. These activities, while definitionally proprietary trading, are heavily regulated by State insurance regulators, and in most cases do not pose the same level of risk as other proprietary trading.

However, to prevent abuse, firms seeking to rely on this insurance- related exception must meet two essential qualifications. First, only trading for the general account of the insurance firm would qualify. Second, the

trading must be subject to adequate State-level insurance regulation. Trading by insurance companies or their affiliates that is not subject to insurance company investment regulations will not qualify for protection here.

Further, where State laws and regulations do not exist or otherwise fail to appropriately connect the insurance company investments to the actual business of insurance or are found to inadequately protect the firm, the subparagraph's conditions will not be met.

Subparagraph (d)(1)(G) permits firms to organize and offer hedge funds or private equity funds as an asset management service to clients. It is important to remember that nothing in section 619 otherwise prohibits a bank from serving as an investment adviser to an independent hedge fund or private equity fund. Yet, to serve in that capacity, a number of criteria must be met.

First, the firm must be doing so pursuant to its provision of bona fide trust, fiduciary, or investment advisory services to customers. Given the fiduciary obligations that come with such services, these requirements ensure that banking entities are properly engaged in responsible forms of asset management, which should tamp down on the risks taken by the relevant fund.

Second, subparagraph (d)(1)(G) provides strong protections against a firm bailing out its funds. Clause (iv) prohibits banking entities, as provided under paragraph (1) and (2) of subsection (f), from entering into lending or similar transactions with related funds, and clause (v) prohibits banking entities from ``directly or indirectly, guarantee[ing], assum[ing], or otherwise insur[ing] the obligations or performance of the hedge fund or private equity fund.'' To prevent banking entities from engaging in backdoor bailouts of their invested funds, clause (v) extends to the hedge funds and private equity funds in which such subparagraph (G) hedge funds and private equity funds invest.

Third, to prevent a banking entity from having an incentive to bailout its funds and also to limit conflicts of interest, clause (vii) of subparagraph (G) restricts directors and employees of a banking entity from being invested in hedge funds and private equity funds organized and offered by the banking entity, except for directors or employees ``directly engaged'' in offering investment advisory or other services to the hedge fund or private equity fund. Fund managers can have ``skin in the game'' for the hedge fund or private equity fund they run, but to prevent the bank from running its general employee compensation through the hedge fund or private equity fund, other management and employees may not.

Fourth, by stating that a firm may not organize and offer a hedge fund or private equity fund with the firm's name on it, clause (vi) of subparagraph (G) further restores market discipline and supports the restriction on firms bailing out funds on the grounds of reputational risk. Similarly, clause (viii) ensures that investors recognize that the funds are subject to market discipline by requiring that funds provide prominent disclosure that any losses of a hedge fund or private equity fund are borne by investors and not by the firm, and the firm must also comply with any other restrictions to ensure that investors do not rely on the firm, including any of its affiliates or subsidiaries, for a bailout.

Fifth, the firm or its affiliates cannot make or maintain an investment interest in the fund, except in compliance with the limited fund seeding and alignment of interest provisions provided in paragraph (4) of subsection (d). This paragraph allows a firm, for the limited purpose of maintaining an investment management business, to seed a new fund or make and maintain a ``de minimis'' co-investment in a hedge fund or private equity fund to align the interests of the fund managers and the clients, subject to several conditions. As a general rule, firms taking advantage of this provision should maintain only small seed funds, likely to be $5 to $10 million or less. Large funds or funds that are not effectively marketed to investors would be evasions of the restrictions of this section. Similarly, co-investments designed to align the firm with its clients must not be excessive, and should not allow for firms to evade the intent of the restrictions of this section.

These ``de minimis'' investments are to be greatly disfavored, and subject to several significant restrictions. First, a firm may only have, in the aggregate, an immaterial amount of capital in such funds, but in no circumstance may such positions aggregate to more than 3 percent of the firm's Tier 1 capital. Second, by one year after the date of establishment for any fund, the firm must have not more than a 3 percent ownership interest. Third, investments in hedge funds and private equity funds shall be deducted on, at a minimum, a one-to-one basis from capital. As the leverage of a fund increases, the capital charges shall be increased to reflect the greater risk of loss. This is specifically intended to discourage these high-risk investments, and should be used to limit these investments to the size only necessary to facilitate asset management businesses for clients.

Subparagraphs (H) and (I) recognize rules of international regulatory comity by permitting foreign banks, regulated and backed by foreign taxpayers, in the course of operating outside of the United States to engage in activities permitted under relevant foreign law. However, these subparagraphs are not intended to permit a U.S. banking entity to avoid the restrictions on proprietary trading simply by setting up an offshore subsidiary or reincorporating offshore, and regulators should enforce them accordingly. In addition, the subparagraphs seek to maintain a level playing field by prohibiting a foreign bank from improperly offering its hedge fund and private equity fund services to U.S. persons when such offering could not be made in the United States.

Subparagraph (J) permits the regulators to add additional exceptions as necessary to ``promote and protect the safety and soundness of the banking entity and the financial stability of the United States.'' This general exception power is intended to ensure that some unforeseen, low-risk activity is not inadvertently swept in by the prohibition on proprietary trading. However, the subparagraph sets an extremely high bar: the activity must be necessary to promote and protect the safety and soundness of the banking entity and the financial stability of the United States, and not simply pose a competitive disadvantage or a threat to firms' profitability.

Paragraph (2) of section (d) adds explicit statutory limits to the permitted activities under paragraph (1). Specifically, it prevents an activity from qualifying as a permitted activity if it would ``involve or result in a material conflict of interest,'' ``result directly or indirectly in a material exposure . . . to high-risk assets or high- risk trading strategies'' or otherwise pose a threat to the safety and soundness of the firm or the financial stability of the United States. Regulators are directed to define the key terms in the paragraph and implement the restrictions as part of the rulemaking process. Regulators should pay particular attention to the hedge funds and private equity funds organized and offered under subparagraph (G) to ensure that such activities have sufficient distance from other parts of the firm, especially those with windows into the trading flow of other clients. Hedging activities should also be particularly scrutinized to ensure that information about client trading is not improperly utilized.

The limitation on proprietary trading activities that ``involve or result in a material conflict of interest'' is a companion to the conflicts of interest prohibition in section 621, but applies to all types of activities rather than just asset-backed securitizations.

With respect to the definition of high-risk assets and high-risk trading strategies, regulators should pay close attention to the characteristics of assets and trading strategies that have contributed to substantial financial loss, bank failures, bankruptcies, or the collapse of financial firms or financial markets in the past, including but not limited to the crisis of 2008 and the financial crisis of 1998. In assessing high-risk assets and high-risk trading strategies, particular attention should be paid to the transparency of the markets, the availability of consistent pricing information, the depth of the markets, and the risk characteristics

of the assets and strategies themselves, including any embedded leverage. Further, these characteristics should be evaluated in times of extreme market stress, such as those experienced recently. With respect to trading strategies, attention should be paid to the role that certain types of trading strategies play in times of relative market calm, as well as times of extreme market stress. While investment advisors may freely deploy high-risk strategies for their clients, attention should be paid to ensure that firms do not utilize them for their own proprietary activities. Barring high risk strategies may be particularly critical when policing market-making-related and hedging activities, as well as trading otherwise permitted under subparagraph (d)(1)(A). In this context, however, it is irrelevant whether or not a firm provides market liquidity: high-risk assets and high-risk trading strategies are never permitted.

Subsection (d), paragraph (3) directs the regulators to set appropriate additional capital charges and quantitative limits for permitted activities. These restrictions apply to both banking entities and nonbank financial companies supervised by the Board. It is left to regulators to determine if those restrictions should apply equally to both, or whether there may appropriately be a distinction between banking entities and non-bank financial companies supervised by the Board. The paragraph also mandates diversification requirements where appropriate, for example, to ensure that banking entities do not deploy their entire permitted amount of de minimis investments into a small number of hedge funds or private equity funds, or that they dangerously over-concentrate in specific products or types of financial products.

Subsection (e) provides vigorous anti-evasion authority, including record-keeping requirements. This authority is designed to allow regulators to appropriately assess the trading of firms, and aggressively enforce the text and intent of section 619.

The restrictions on proprietary trading and relationships with private funds seek to break the internal connection between a bank's balance sheet and taking risk in the markets, with a view towards reestablishing market discipline and refocusing the bank on its credit extension function and client services. In the recent financial crisis, when funds advised by banks suffered significant losses, those off- balance sheet funds came back onto the banks' balance sheets. At times, the banks bailed out the funds because the investors in the funds had other important business with the banks. In some cases, the investors were also key personnel at the banks. Regardless of the motivations, in far too many cases, the banks that bailed out their funds ultimately relied on taxpayers to bail them out. It is precisely for this reason that the permitted activities under subparagraph (d)(1)(G) are so narrowly defined.

Indeed, a large part of protecting firms from bailing out their affiliated funds is by limiting the lending, asset purchases and sales, derivatives trading, and other relationships that a banking entity or nonbank financial company supervised by the Board may maintain with the hedge funds and private equity funds it advises. The relationships that a banking entity maintains with and services it furnishes to its advised funds can provide reasons why and the means through which a firm will bail out an advised fund, be it through a direct loan, an asset acquisition, or through writing a derivative. Further, providing advisory services to a hedge fund or private equity fund creates a conflict of interest and risk because when a banking entity is itself determining the investment strategy of a fund, it no longer can make a fully independent credit evaluation of the hedge fund or private equity fund borrower. These bailout protections will significantly benefit independent hedge funds and private equity funds, and also improve U.S. financial stability.

Accordingly, subsection (f), paragraph (1) sets forth the broad prohibition on a banking entity entering into any ``covered transactions'' as such term is defined in the Federal Reserve Act's section 23A, as if such banking entity were a member bank and the fund were an affiliate thereof. ``Covered transactions'' under section 23A includes loans, asset purchases, and, following the Dodd-Frank bill adoption, derivatives between the member bank and the affiliate. In general, section 23A sets limits on the extension of credit between such entities, but paragraph (1) of subsection (f) prohibits all such transactions. It also prohibits transactions with funds that are controlled by the advised or sponsored fund. In short, if a banking entity organizes and offers a hedge fund or private equity fund or serves as investment advisor, manager, or sponsor of a fund, the fund must seek credit, including from asset purchases and derivatives, from an independent third party.

Subsection (f), paragraph (2) applies section 23B of the Federal Reserve Act to a banking entity and its advised or sponsored hedge fund or private equity fund. This provides, inter alia, that transactions between a banking entity and its fund be conducted at arms length. The fact that section 23B also includes the provision of covered transactions under section 23A as part of its arms-length requirement should not be interpreted to undermine the strict prohibition on such transactions in paragraph (1).

Subsection (f), paragraph (3) permits the Board to allow a very limited exception to paragraph (1) for the provision of certain limited services under the rubric of ``prime brokerage'' between the banking entity and a third-party-advised fund in which the fund managed, sponsored, or advised by the banking entity has taken an ownership interest. Essentially, it was argued that a banking entity should not be prohibited, under proper restrictions, from providing limited services to unaffiliated funds, but in which its own advised fund may invest. Accordingly, paragraph (3) is intended to only cover third- party funds, and should not be used as a means of evading the general prohibition provided in paragraph (1). Put simply, a firm may not create tiered structures and rely upon paragraph (3) to provide these types of services to funds for which it serves as investment advisor.

Further, in recognition of the risks that are created by allowing for these services to unaffiliated funds, several additional criteria must also be met for the banking entity to take advantage of this exception. Most notably, on top of the flat prohibitions on bailouts, the statute requires the chief executive officer of firms taking advantage of this paragraph to also certify that these services are not used directly or indirectly to bail out a fund advised by the firm.

Subsection (f), paragraph (4) requires the regulatory agencies to apply additional capital charges and other restrictions to systemically significant nonbank financial institutions to account for the risks and conflicts of interest that are addressed by the prohibitions for banking entities. Such capital charges and other restrictions should be sufficiently rigorous to account for the significant amount of risks associated with these activities.

To give markets and firms an opportunity to adjust, implementation of section 620 will proceed over a period of several years. First, pursuant to subsection (b), paragraph (1), the Financial Stability Oversight Council will conduct a study to examine the most effective means of implementing the rule. Then, under paragraph (b)(2), the Federal banking agencies, the Securities and Exchange Commission, and the Commodity Futures Trading Commission shall each engage in rulemakings for their regulated entities, with the rulemaking coordinated for consistency through the Financial Stability Oversight Council. In coordinating the rulemaking, the Council should strive to avoid a ``lowest common denominator'' framework, and instead apply the best, most rigorous practice from each regulatory agency.

Pursuant to subsection (c), paragraph (1), most provisions of section 619 become effective 12 months after the issuance of final rules pursuant to subsection (b), but in no case later than 2 years after the enactment of the Dodd-Frank Act. Paragraph (c)(2) provides a 2-year period following effective date of the provision during which entities must bring their activities into conformity with the law, which may be extended for up to 3 more years. Special illiquid funds may, if necessary, receive one 5-year extension and may

also continue to honor certain contractual commitments during the transition period. The purpose of this extended wind-down period is to minimize market disruption while still steadily moving firms away from the risks of the restricted activities.

The definition of ``illiquid funds'' set forth in subsection (h) paragraph (7) is meant to cover, in general, very illiquid private equity funds that have deployed capital to illiquid assets such as portfolio companies and real estate with a projected investment holding period of several years. The Board, in consultation with the SEC, should therefore adopt rules to define the contours of an illiquid fund as appropriate to capture the intent of the provision. To facilitate certainty in the market with respect to divestiture, the Board is to conduct a special expedited rulemaking regarding these conformance and wind-down periods. The Board is also to set capital rules and any additional restrictions to protect the banking entities and the U.S. financial system during this wind-down period.

We noted above that the purpose of section 620 is to review the long- term investments and other activities of banks. The concerns reflected in this section arise out of losses that have appeared in the long-term investment portfolios in traditional depository institutions.

Over time, various banking regulators have displayed expansive views and conflicting judgments about permissible investments for banking entities. Some of these activities, including particular trading strategies and investment assets, pose significant risks. While section 619 provides numerous restrictions to proprietary trading and relationships to hedge funds and private equity funds, it does not seek to significantly alter the traditional business of banking.

Section 620 is an attempt to reevaluate banking assets and strategies and see what types of restrictions are most appropriate. The Federal banking agencies should closely review the risks contained in the types of assets retained in the investment portfolio of depository institutions, as well as risks in affiliates' activities such as merchant banking. The review should dovetail with the determination of what constitutes ``high-risk assets'' and ``high risk trading strategies'' under paragraph (d)(2).

At this point, I yield to Senator Levin to discuss an issue that is of particular interest to him involving section 621's conflict of interest provisions.

I thank my colleague for his remarks and concur in all respects.

Mr. President, I rise to engage my colleagues, Senators Dodd and Levin, in a colloquy regarding some key aspects of our legislative intent behind sections 619 through 621, the Merkley-Levin rule on proprietary trading and conflicts of interest as included in the conference report.

First, I would like to clarify several issues surrounding the ``de minimis'' investment provisions in subsection (d)(4). These provisions complement subsection (d)(1)(G), which permits firms to offer hedge funds and private equity funds to clients. ``De minimis'' investments under paragraph (4) are intended to facilitate these offerings principally by allowing a firm to start new funds and to maintain coinvestments in funds, which help the firm align its interests with those of its clients. During the initial start-up period, during which time firms may maintain 100 percent ownership, the fund should be relatively small, but sufficient to effectively implement the investment strategy. After the start up period, a firm may keep an ongoing ``alignment of interest'' coinvestment at 3 percent of a fund. Our intent is not to allow for large, revolving ``seed'' funds to evade the strong restrictions on proprietary trading of this section, and regulators will need to be vigilant against such evasion. The aggregate of all seed and coinvestments should be immaterial to the banking entity, and never exceed 3 percent of a firm's Tier 1 capital.

Second, I would like to clarify the intent of subsection (f)'s provisions to prohibit banking entities from bailing out funds they manage, sponsor, or advise, as well as funds in which those funds invest. The ``permitted services'' provisions outlined in subsection (f) are intended to permit banks to maintain certain limited ``prime brokerage'' service relationships with unaffiliated funds in which a fund-of-funds that they manage invests, but are not intended to permit fund-of-fund structures to be used to weaken or undermine the prohibition on bailouts. Given the risk that a banking entity may want to bail out a failing fund directly or its investors, the ``permitted services'' exception must be implemented in a narrow, well-defined, and arms-length manner and regulators are not empowered to create loopholes allowing high-risk activities like leveraged securities lending or repurchase agreements. While we implement a number of legal restrictions designed to ensure that prime brokerage activities are not used to bail out a fund, we expect the regulators will nevertheless need to be vigilant.

Before I yield the floor to Senator Levin to discuss several additional items, let me say a word of thanks to my good friend, Chairman Dodd, for taking the time to join me in clarifying these provisions. I also honor him for his extraordinary leadership on the entire financial reform package. As a fellow member of the Banking Committee, it has been a privilege to work with him on the entire bill, and not just these critical provisions. I also would like to recognize Senator Levin, whose determined efforts with his Permanent Subcommittee on Investigations helped highlight the causes of the recent crisis, as well as the need for reform. It has been a privilege working with him on this provision.

Madam President, before my colleague leaves the floor, let me thank him as well. Of course, hope always springs eternal. The vote hasn't occurred yet, so we never know. We might get his vote yet.

I don't serve on the Agriculture Committee with him. Senator Chambliss was a very valued member of this conference. Obviously, a lot of work took place in the Agriculture Committee dealing with areas of the bill that he has spent several minutes talking about. He raises very good points. I would be the last person to suggest as a coauthor of the bill that we have crafted the perfect piece of legislation. As he points out, these are highly complicated areas. One of the reasons we tried not to write a series of regulations far beyond the competency of those of us in this Chamber is because it is complicated. Obviously, we have delegated the ultimate responsibility that we now have, which is to watch, the oversight, to the regulatory community, to make sure they do this right.

I pointed out yesterday, and he has pointed out again today, when we get into a situation such as this crisis, certain words become pejorative, and ``derivatives'' unfortunately has become that, and it shouldn't. These are very critical components for capital formation, job growth, and wealth in our country. Hedging against risk is absolutely essential. So they are vitally important elements in our economy. I hope people, when they hear the word ``derivative'' being spoken won't assume this is somehow a bad idea. One almost gets the sense that people feel that way. I don't at all.

I look forward in the coming weeks and months, as regulators begin to work with this bill if, in fact, it passes, that we will do that. A lot of the record has been established in this area, and through no small measure due to the Senator from Georgia, and I thank him for his work as well.

Madam President, I yield the floor.

Madam President, I note the absence of a quorum, and I ask that the time be equally divided on both sides.

Madam President, I thank my colleague from Alabama. Once again--I say this with the respect--I feel as if I am listening to the first speech back in November when I offered the original proposal of this bill and wonder if we have been in the same

Chamber and same city over the last several years.

I am not going to use the time between now and 11 a.m. when we are going to vote on the cloture motion. I will not go through the long list, page after page of amendments that were adopted as part of this bill offered by my good friends on the minority side.

We had 80 hearings held over 2 years, with countless efforts to reach out and bring in people. One can make a lot of accusations about the bill, but this was a very inclusive process. Half the amendments adopted on the floor in this Chamber during consideration of this legislation over 4 weeks were ones offered by the minority and were accepted and bipartisan amendments. There was never an alternative offered. There was never a substitute offered. It was a question of whether people wanted to amend this legislation.

It is not a perfect bill, I will be the first to admit. We do not know ultimately how well the ideas we incorporated will achieve the results we all desire. It will take the next economic crisis--as certainly it will come--to determine whether the provisions of this bill will provide this generation or the next generation of regulators with the tools necessary to minimize the effects of that crisis when it happens. But we believe we have done the best we could under the circumstances to see to it we never have another bailout of another major financial institution at taxpayer expense.

In fact, it was the Shelby-Dodd amendment adopted in this Chamber--it was the second amendment we considered--that actually completed the process of seeing to it there would be bankruptcy or resolution of financial institutions that got themselves into so much trouble that they put the entire system at risk. We set up an oversight council to make sure we could observe what was occurring not only here at home but around the globe--matters such as Greece or Spain that could put our economy at risk. So it isn't just one set of eyes but having those responsible for seeing to it that our economy remains safe and sound have the opportunity to provide the early warning that never occurred.

We didn't need a Pecora Commission to find out what was going wrong. We had mortgages being sold in this country to people who couldn't afford them, marketing them in a way that guaranteed failure, securitizing them so they could be paid and then skipping town in a sense. I didn't need to have hours of hearings to find out what was the cause of it. The question was, How do we try to put a system in place to minimize the future kind of risks our Nation would face. It wasn't just to deal with those who created the problem but, rather, to look ahead--not in a punitive way--and to set up an architecture and structure to allow us to get to that point where we could be confident we were addressing these issues.

Thirdly, of course, we tried to deal with exotic instruments that had caused so much of the difficulty. The derivatives market was a $90 billion market, and it mushroomed in less than a decade to $600 trillion, putting our Nation at risk because of a lack of transparency and accountability to determine what was occurring in those markets. To consider it a radical idea that we might want to have accountability and transparency I find remarkable considering what our country has been through.

Also, we provided a consumer protection bureau. What a radical idea that is--the idea that people who buy mortgages or have a student loan, a credit card, a car loan, might have someplace in this city that watches out for them so their jobs, their homes, their retirement accounts are not lost. So while this bureau is in place in this bill, the idea was at least to see to it that people, when they have the problems they have been through or are going through, someone is watching out for them.

We have a Consumer Product Safety Commission to address the purchase of a faulty product, but what happens when someone abuses or takes advantage, as happens in so many cases in financial areas? People should have a chance to have a redress of their grievance or to at least from the outset have an opportunity to address that before it becomes a broader problem.

So, Madam President, again, we have debated this now for 2 years and countless opportunities. We spent 4 weeks on the floor of this Chamber, amendments were offered, and never once--I guess on one occasion we had a supermajority vote. There was only one tabling motion I know of. I did everything I could to make this as inclusive a process as possible.

I understand some people don't like the bill. It saddens me, in a way, that it has once again become sort of a mindless partisan argument rather than talking about what we need to be doing. This is not the end of all of it, obviously. Oversight will be required, consultation in the coming weeks and months and years, to make this work well. But, Madam President, I can't imagine another process that has been as inclusive.

My colleagues will recall that almost 10 months, going on almost a year ago, I invited both Democrats and Republicans on the Banking Committee to assume responsibility for major sections of this bill, which they did do, by the way, and made a significant contribution to the product. So while I respect those who want to vote against the bill, and that is their right to do so, find some arguments based on the merits rather than arguing about whether there was a process that was inclusive or that allowed people the opportunity to be heard.

Again, we have the right to be heard, but we don't have the right necessarily to have our ideas become the law of the land. That is what a body like this is for.

So this is a major undertaking, one that is historic in its proportions, and it is an attempt to set in place a structure that will allow us to minimize problems in the future. I can't legislate integrity. I can't legislate wisdom. I can't legislate passion or competency. What we can do is to create the tools and the architecture that allow good people to do a good job on behalf of the American public. That is what a bill like this is designed to do.

I regret I can't give jobs back, restore foreclosed homes, or put retirement monies back into accounts. What I can do is to see to it that we never, ever again have to go through what this Nation has been through. That is what this effort has been about over the last several years, to try to create that structure, that architecture. It will be incumbent now on the present administration and those who follow to nominate good people to head up these operations, to attract good public servants who will fill the jobs of these various regulatory bodies to see to it that they do the work we all want them to do.

Again, I can't legislate that. I can merely create the opportunity for that kind of protection to occur--to modernize a financial system, to lead the world, if we can, in harmonizing rules so we don't have the kind of sovereign shopping that was going on with regulatory bodies, where major financial institutions would shop around the world as to the nation of least resistance or the regulator of least resistance.

We need to see to it that we have the unanimity or at least the harmonization of rules that will allow us to have a more orderly system in our globe because, as we have all painfully learned, matters that occur thousands of miles away can affect the economy in our own country.

So for all those reasons, Madam President, I thank my colleagues for their efforts over the last 2 years. I thank the leadership for providing the opportunity and time for us to do this in this Chamber. I thank my colleague in the House, Barney Frank, and his colleagues for the work in which they engaged in order to produce a bill there. We spent 2 weeks, some 70 hours of debating the conference report, where more amendments were adopted--again, offered by my colleagues, Republicans and Democrats--to make this as good a bill as we could in all of this.

So with that, Madam President, I will reserve some comments for later, but as we approach this vote in the next few minutes, I urge my colleagues to invoke cloture, to allow us to then have an up-or-down vote on this bill, and to do what we can to restore some trust and confidence and optimism for the American people. In the midst of the worst economic crisis in the lives of most Americans, this institution--the Senate--rose to the occasion and crafted a bill to address the financial

service structure of our Nation to once again give us the hope that we can see wealth created, jobs produced, and an economy that will offer opportunities for the next generation of Americans.

I urge my colleagues to support the cloture motion, and I urge them to support the bill when the vote occurs later today.

I yield the floor.

Madam President, I suggest the absence of a quorum, and I ask unanimous consent the time during the quorum be equally charged to both sides.

Madam President, I am about to propose a unanimous-consent request that has been agreed to by the respective leaders.

I ask unanimous consent that the postcloture time be considered expired at 2 p.m., with the time until then equally divided and controlled between Senators Dodd and Shelby or their designees; that during this period, if and when a budget point of order is raised against the conference report, then an applicable waiver of the point of order be considered made; that at 2 p.m., the Senate proceed to vote on the motion to waive the applicable budget point of order; that if the waiver is successful, without further intervening action or debate, the Senate vote on adoption of the conference report.

Madam President, pursuant to section 904 of the Congressional Budget Act of 1974 and the waiver provisions of applicable budget resolutions, I move to waive all applicable sections of that act and those budget resolutions for purposes of the pending conference report and ask for the yeas and nays.

Madam President, I see my colleague from Texas is seeking recognition. I wish to publicly thank her. She made a substantial contribution to this bill on several amendments that were adopted during debate on the floor. I thank her for them. They added to the value of the legislation. I am not sure what her comments will be right now, but I thank her for her contributions.

Madam President, my friend and colleague from Texas serves on the Banking Committee. I thank her and Senator Klobuchar. There was a series of amendments in which Senator Hutchison was involved. They added value to this bill, and I thank her for it.

I mentioned yesterday, as a relatively junior member of the Banking Committee, there was no Member of this Chamber who added as much to the bill as the Senator from Virginia. There are not words nor time for me to adequately express my gratitude for his involvement. Literally almost on an hourly basis, he was involved, along with Senator Corker of Tennessee. They spent hours on their own talking with other people about how to fashion two of the most critical titles of this bill. Let me express my gratitude once again to Senator Mark Warner of Virginia and thank him immensely for his contribution. He did a great job.

Madam President, I recognize my friend and colleague from Delaware.

Madam President, I thank my colleague from Delaware. He highlighted the difficulty in passing legislation. There are those who think it goes too far and those who think it does not go far enough. We do not write a bill on our own. There are 100 of us in this Chamber and 435 in the other. There are stakeholders, the administration--all sorts of people we deal with on these matters. What we try to do is fashion the best proposal we can that moves us forward and addresses the underlying causes, as we tried to with this bill.

I appreciate the Senator's points that were raised during the debate and discussion. We tried to accommodate them where we could in fashioning legislation. It is always a difficult process. You do not get to write your own bill. You can write your own bill and introduce it, but ultimately, for it to become law requires cooperation. We had that cooperation. I appreciate his involvement very much.

Madam President, my colleague talked about 41. There are a number of Republicans who played a very critical and supportive role on this bill. I do not want the record to persist in suggesting that was not the case. Even people on the other side who ended up not voting for the bill--at least have not so far--added substantially to the value of this bill. In some cases, they might not want to acknowledge that, but they did.

In the case of our two colleagues from Maine and our colleague from Massachusetts, they have taken an awful lot of abuse in the last number of weeks because they worked with us on the bill and made significant contributions. While they do not agree with every dotted ``i'' and crossed ``t,'' as I do not with this bill, they decided our country would be better off with the passage of this legislation than not.

I do not want the record to be uncorrected when it comes to the number of people, including those three in particular, who will, I presume, continue to take some abuse from others because they did not toe the party line, nor have they on repeated occasions. They have acted as U.S. Senators, which is our first responsibility. I know what that feels like. I have been there on numerous occasions in my 30 years. Several times, I was the only Democrat to vote with Republicans on substantive matters. It is a lonely moment. I can tell my colleague what happens. It is painful, and you get those long looks from your colleagues. It is uncomfortable, to put it mildly. I will also tell my colleague that some of the proudest moments a colleague will have when they serve here is when they make those decisions and do so for the right reasons.

While I am deeply grateful to my Democratic colleagues, many of whom had concerns about the bill, as my friend from Delaware did, and have been supportive all the way through, I guess there is a bit of the prodigal son--prodigal daughter in the case of our colleagues from Maine and prodigal son in the case of our colleague from Massachusetts--when they decided to stand up and help us get a bill done despite the criticism they have received. Everyone who has been supportive and helpful deserves credit, but I think those who were willing to take an awful lot of abuse in the process of doing so deserve commendation.

I did not want to let that number stand--41--because it implies somehow there were people on the other side who were not helpful, and they were, including people who did not vote for the bill who were helpful as well.

Madam President, I see our colleague from New Hampshire is here. I will save this for a later debate, but I know there is talk about changing the rules of the Senate because of the frustration Senators feel. I will make, in my waning hours here, as strong a plea as I can to not succumb to the temptation to change the institution because of the current frustrations people feel. There is a reason this institution exists and has the rules it does. All of us one day are in the minority or majority. The fact that some may abuse the rules, as has happened here without any question, ought not to be a justification for fundamentally changing them. There are ways to deal with the problem without losing the essence of the Senate. He is no longer with us, but my seatmate, Robert C. Byrd, would speak for hours on end about the importance of not letting the vagaries of the moment dictate the long-term interests of the institution.

I will leave that for another day, but I appreciate it.

My colleague from New Hampshire is here.

Madam President, briefly, I thank my colleague from New Hampshire. I see my other colleague from New Hampshire as well. It is a New Hampshire moment. I thank Senator Shaheen and our colleague from Maine, Senator Snowe, for working as they did on the community bank issues.

I was pleased, as I noted yesterday, that the Independent Community Bankers Association, while not endorsing the entire bill but specifically on their issues involving community banks expressed strong support for this bill and how much stronger these banks are today as a result of our efforts than would be the case if we were to defeat the legislation. Their ability to compete with these larger banks has been enhanced tremendously by what we have done in this bill. If these provisions were not adopted, they would be back in a situation where there would be significant disadvantages for them under the current law.

I am very grateful to Senator Shaheen and Senator Snowe and others who supported their efforts to strengthen the role of our community banks that play such a critical role. As the Senator from New Hampshire pointed out, they were never a source of the problems in the residential mortgage market at all. That deserves to be repeated over and over.

I thank the Senator for her comments.

I see my other colleagues here, including Senator Specter who wants to be heard, but I want to address my colleague from New Hampshire because we are both going to be walking out of this Chamber in about 5 months. I thank him for his work going back to 20-some-odd months ago when we were involved in the critical weeks and days in September and October. Judd Gregg was invaluable putting together a moment here while, not terribly popular, I think saved the economy and the country. I will not address all his concerns here. We have a different point of view on the issues he raised. They are not illegitimate issues. We think we addressed them properly. He has a different view, and I respect that. I appreciate his work and that of his staff on this bill. He made a significant contribution to this effort and I thank him for it.

I see my colleague from Pennsylvania here and I yield the floor.

Reserving the right to object, I want to be clear so my colleague will understand this. I had a sheet of paper in front of me-- I do not have it in front of me now--with the order of those who sought time. I want to be careful, as my colleague from Pennsylvania will understand. We are going to vote at 2 o'clock. I want to be sure I can accommodate my colleagues.

I know Senator Conrad, chairman of the Budget Committee, has to be heard and it is critical to me he be heard on the budget point of order.

Could you make it a little less than 20?

After 2 o'clock? Any point after----

Certainly I would have no objection to that whatsoever. Take some time at this juncture too, if you wish.

Again, let me reserve the right to object. I see the minority wants to check on such a request. I have no objection myself but obviously that is a matter--in fairness to the minority, we want to let them know of such a request. Here we are eating up time right now. I see my friend from North Dakota here as well. I am deeply grateful to the chairman of the Budget Committee.

Go ahead with that request. I am told it is OK.

I thank my colleague from Pennsylvania and the unknown persons in the cloakroom. Let the record show they acknowledged the Senator's request.

Mr. President, before my friend, the chairman of the Budget Committee, leaves, let me thank him immensely for his analysis of this issue. He has it, as we saw as well, exactly right. In fact, it is not only repaying 100 percent but with interest. There is an interest requirement, that if we borrow from the taxpayers in order to wind down substantially risky firms, then not only do you get paid back, but the interest on the cost of that money is also part of the deal. So it is 100 percent-plus coming back to the Treasury.

But his analysis and that of his committee--and there is no one who has been more disciplined or guarded about the budgetary process over the years we have served together, and so I appreciate the Senator's analysis of this particular point on the long-term deficit.

I commend the Senator for including the provisions he has and trying to build some discipline into the process of how we expend taxpayer moneys, collect taxes in the first place to pay for the needed expenditures of our government. So I thank the Senator for that.

I thank him for his comments as well about the bill and his support and also the substantive contributions the Senator from North Dakota has made, because one of the things we tried to be very careful about-- Jon Tester of Montana, who sits on the committee with me, has been very careful and been tremendously active in seeing to it that rural America is going to be well served by this legislation. And there are differences. It is not all Wall Street, New York, and major financial centers. The importance of the availability of credit in rural communities is critical, as my colleague from North Dakota has informed me over the years we have served together. That ability of a local farmer to borrow that money in the spring, to be able to pay back in the fall, at harvest time, has been essential, and knowing how difficult it has been throughout the country to have access to credit is essential.

So his contributions to the legislation make sure that what we do here is going to enhance the capability of rural America to not only come out of this crisis we are in but to prosper in the years ahead with this legislation. So beyond the budgetary considerations and the points of order before us, I thank him for his contributions to the substance of the bill, which has made it a far better bill to begin with.

I see my colleague from Oregon is here. I yield the floor.

Mr. President, I said so yesterday, and I will say it again: I thank Senator Merkley. I guess there are four new Members of the Senate serving on the Banking Committee. Senator Merkley, Senator Warner, Senator Tester, and Senator Bennet are all new Members of the Senate from their respective States of Oregon, Virginia, Montana, and Colorado. To be thrown into what has been the largest undertaking of the Banking Committee, certainly in my three decades here--and many have argued going back almost 100 years--was certainly an awful lot to ask.

I have already pointed out the contribution Senator Warner has made to this bill. But I must say as well that Senator Bennet of Colorado has been invaluable in his contributions. I just mentioned Senator Tester a moment ago for his contribution on talking about rural America and the importance of those issues. And Senator Merkley, as a member of the committee, on matters we included here dealing particularly with the mortgage reforms, the underwriting standards, the protections people have to go through, and credit cards as well--we passed the credit card bill--again, it was Senator Jeff Merkley of Oregon who played a critical role in that whole debate not to mention, of course, working with Carl Levin, one of the more senior Members here, having served for many years in the Senate. But the Merkley-Levin, Levin- Merkley provisions in this bill have added substantial contributions to this effort. So I thank him for his contribution.

I see my colleague from North Dakota is here. I suggest the absence of a

quorum and ask unanimous consent that the time be equally divided among both sides.

I ask unanimous consent that the order for the quorum call be dispensed with.

Mr. President, we listened to Senator Conrad, the chairman of the Budget Committee, address the budget point of order. I urge my colleagues to waive the point of order.

We came up with an alternative offset in the conference committee, much at the insistence--and I thanked him for that--of Senator Brown of Massachusetts, looking for a better offset than the ones which were originally in the conference report. I know my colleague from Maine as well had reservations about what we originally included.

The offset here ends TARP, which I presume most people would welcome with open arms, saving us $11 billion by terminating it early, as well as then complying with the request by the chairperson of the Federal Deposit Insurance Corporation, Sheila Bair, to provide for additional assessments to meet the obligations of the FDIC and the insurance fund. Both of those items provide the necessary offsets to the cost of this bill.

The long-term deficit point of order is caused by the orderly liquidation authority for systemically significant financial institutions.

Let me note that this critically important aspect of the legislation was developed in very close cooperation with Senator Shelby in the Shelby-Dodd amendment. It also reflects the bipartisan cooperation of Senators Corker and Warner. The Shelby-Dodd amendment passed this body overwhelmingly with over 90 votes.

Even though the liquidation authority is the source of long-term budget costs, it is still 100 percent paid for. The Shelby-Dodd amendment and the Boxer amendment made sure that this would be the case. Let me repeat, the liquidation authority, which is the dominant source of the budget cost in the bill, is 100 percent paid for over time.

The only reason that the liquidation authority scores at all is because of timing. The FDIC may initially have to borrow funds from the Treasury in order to wind down the failed company and put it out of business. Because it will take time to liquidate a large, interconnected financial company, there is a lag between when the funds are borrowed and when they are repaid by the sale of the failed companies' assets, its creditors and assessments on the industry if necessary.

One more important point on budget scoring and the liquidation authority. CBO cannot factor in the costs to our nation of a failure to address the possibility of future bailouts. We have lived through that nightmare and it has cost our country dearly.

Now I would like to discuss the way in which we address the budget consequences of the legislation. In particular, I would like to respond to some comments that have been made about the provisions increasing the long-term minimum target for the FDIC and thereby strengthening the Deposit Insurance Fund, a goal that no one can credibly argue with in light of the recent crisis.

In fact, this provision is supported by FDIC Chairman Sheila Bair, and she has sent us a letter expressing her support. I will submit that for the Record at the end of this statement.

Some of my colleagues on the other side of the aisle have claimed that the use of the FDIC in this way is unprecedented and questioned how this could count as budget savings or offsets and at the same time preserve the funds for bank failures.

Let us clear up the misinformation. First, no FDIC funds are being spent on, or transferred to, other programs. Premiums paid by banks remain, as they have for over 75 years, in the FDIC fund solely to protect insured deposits.

And counting FDIC premiums as budget savings in legislation absolutely does have precedent. We have to look no further than relatively recent actions of Republican Congresses to find them.

Budget reconciliation legislation enacted in February 2006 and sponsored by my colleague from New Hampshire, who was then the Chairman of the Budget Committee, included FDIC reforms authored by my colleague from Alabama, who was then Chairman of the Banking Committee. Those provisions resulted in higher FDIC premiums, which CBO said yielded almost $2 billion in budget savings over 10 years.

So, my colleagues from New Hampshire and Alabama in fact relied on reforms to the Deposit Insurance Fund to obtain savings that CBO favorably scored.

And 10 years earlier, Congress attached to an omnibus spending bill enacted in September 1996 a provision calling for a special premium on thrifts to capitalize the FDIC's thrift insurance fund.

The appropriators in that earlier Republican Congress justified higher discretionary spending based partly on the budget savings scored by CBO for the FDIC assessment.

I would also like to respond to some comments that have been made about the treatment of TARP in this legislation.

We end TARP in the conference report. With the comprehensive financial reform put in place under this bill, we think it is the right time to bring TARP to a close, ending it earlier than had been planned. I think that is something everyone should be happy about. And ending TARP saves the government money. That is not just my conclusion. It is the conclusion of the Congressional Budget Office, $11 billion in savings.

It is true that the original TARP legislation passed as an emergency, its costs were declared an emergency when it passed, so rescinding those funds or ending the program now is ending spending that is considered ``emergency'' spending.

But the savings are no less real because of that. Interestingly, my Republican colleague who has raised the point of order offered an amendment in conference that would have rescinded stimulus funding to pay for this bill. Why is that relevant? Because the stimulus money was also designated as an emergency, so it would have received the same accounting treatment here in the Senate as TARP. Both were emergencies.

Both ending TARP early and rescinding stimulus funding would reduce the deficit, but the burden of cuts in stimulus funding would fall disproportionately on families and small businesses who have been victims of the economic fallout from the Wall Street crisis. Cutting such spending would be exactly the wrong thing to do as we try to get the economy back on track and people back to work.

The fact is that overall this bill does not do damage to our budgetary outlook.

It does make vital changes to make our financial system stronger and more stable and should be passed as soon as possible.

So I urge my colleagues to support a motion to waive the long-term deficit point of order.

Federal Deposit

Insurance Corporation,

Washington, DC, June 29, 2010.

Hon. Chris Dodd,

Chairman, Committee on Banking, U.S. Senate, Washington, DC.

Hon. Richard Shelby,

Ranking Minority Member, Committee on Banking, U.S. Senate,

Washington, DC.

Hon. Barney Frank,

Chairman, Committee on Financial Services, House of

Representatives, Washington, DC.

Hon. Spencer Bachus,

Ranking Minority Member, Committee on Financial Services,

House of Representatives, Washington, DC.

Dear Chairmen Dodd and Frank and Ranking Members Shelby and

Bachus: Thank you for your interest in our views regarding

increasing the Deposit Insurance Fund (DIF) ratio to 1.35.

Federal deposit insurance promotes public confidence in our

nation's banking system by providing a safe place for

consumers' funds. Deposit insurance has provided much needed

stability throughout this crisis. Moreover, insured deposits

provide banks with a stable and cost-effective source of

funds for lending in their communities. Importantly, the DIF

is funded by the insured banking industry.

A key measure of the strength of the insurance fund is the

reserve ratio, which is the amount in the DIF as a percentage

of the industry's estimated insured deposits. Current

law requires us to maintain a reserve ratio of at least 1.15

percent. One of the lessons learned from the current crisis

is that a minimum reserve ratio of 1.15 is insufficient to

avoid the need for pro-cyclical assessments in times of

stress. One of my first priorities when I assumed the

Chairmanship of the FDIC in June of 2006 was to begin

building our reserves. Regrettably, there was insufficient

time before the crisis hit. Indeed, we started this crisis

with a DIF reserve ratio of 1.22 percent (as of December 31,

2007). Beginning in mid-2008, as bank failures increased and

the insurance fund incurred losses, the Fund balance and

reserve ratio dropped precipitously. The reserve ratio became

negative in the third quarter of 2009 and hit a low of

negative 0.39 percent as of December 31, 2009. To date, we

have collected more than $65 billion in assessments, and are

projected to collect another $80 billion by 2016 to restore

the fund.

Given this experience, we believe it is clear that as the

economy strengthens and the banking system heals, the reserve

ratio needs to be increased. In fact, our Board has acted

through regulation to target the reserve ratio at 1.25

percent, and a further increase to 1.35 percent is consistent

with our view that the Fund should build up in good economic

times and be allowed to fall in poor economic times, while

maintaining relatively steady premiums throughout the

economic cycle, thereby reducing the procyclicality of the

assessment system.

Please let me know if you have any questions or would like

to discuss further.

Sincerely,

Sheila C. Bair.

I again urge my colleagues to vote to waive the budget point of order, and, of course, I urge them as well to support the legislation when that vote occurs.

intent behind sections 691-621

I thank the Senator, and I strongly concur with the intentions and interpretations set forth by the principal authors of these provisions, Senators Merkley and Levin, as reflecting the legislative intent of the conference committee. I thank Senators Merkley and Levin for their

leadership, which was so essential in achieving the conference report provisions governing proprietary trading and prohibiting conflicts of interest.

Assessing Individual Entities

Yes, that is correct. The language is not intended to reduce such charitable and educational activities that are legally required for tax-exempt, not-for-profit organizations that are so important to communities across the country. I thank the Senator for his continued help on these efforts.

section 603 trust companies

I would be glad to clarify the nature of trust companies subject to the moratorium under section 603(a). The moratorium applies to an institution that is directly or indirectly owned or controlled by a commercial firm that functions solely in a trust or fiduciary capacity and is exempt from the definition of a bank in the Bank Holding Company Act. It does not apply to a nondepository trust company that does not have FDIC insurance and that does not offer demand deposit accounts or other deposits that may be withdrawn by check or similar means for payment to third parties.

The Senator is correct. The council must consider a number of factors, including, for example, the extent of leverage, the extent and nature of off-balance-sheet exposures, and the nature, scope, size, scale, concentration, interconnectedness, and mix of the company's activities. Where a company is engaged only in traditional insurance activities, the council should also take into account the matters you raised.

Yes. The size of a financial company should not by itself be determinative.

Yes, I do not believe that the council should decide to designate an insurer simply based on whether the insurer would meet bank capital requirements.

Preemption Standard

I thank the Senator. As the Senator knows, his amendment received strong bipartisan support on the Senate floor and passed by a vote of 80 to 18. It was therefore a Senate priority to retain his provision in our negotiations with the House of Representatives.

The Senator is correct. That is why the conference report specifically cites the Barnett Bank of Marion County, N.A. v. Nelson, Florida Insurance Commissioner, 517 U.S. 25(1996) case. There should be no doubt that the legislation codifies the preemption standard stated by the U.S. Supreme Court in that case.

Madam President, I will take a few minutes, if I can, recognize myself for 10 minutes, if I may, and ask the Presiding Officer to notify me when that time has expired.

Madam President, I have great affection for my friend from Nebraska and I appreciate his comments about the bill. He wants to fix the bill. That is a noble goal. And the way to fix the bill, of course, is to begin debating the bill. So I am delighted to hear he would want to fix the bill. The problem I have is I cannot seem to get enough people on the other side to get us to the point where we might give them an opportunity to do exactly what they claim they want to do.

I am happy to yield, just for a second.

Kansas. Excuse me. I am sorry.

I apologize to my colleague.

But in basketball, you do very well, so it is OK.

Kansas, not Nebraska.

I thank my friend.

Anyway, my point is, we want to get to the bill. And whether it is my Senator friend from Kansas or Nebraska, we want to get to the bill, if we can. That is all this is about now. I am going to talk about the bill a bit here in the brief moments I have before we actually get to the vote this afternoon on this matter.

The American public is sitting there in sort of stunned disbelief. Here we all acknowledge this huge problem that needs to be addressed for the 8.5 million people who have lost their job, the 7 million who have lost their homes, their retirement income. We know from all of the statistics what this financial crisis has caused.

Over the last year and a half, we have been busy trying to come up with the answers on how to solve this problem in the future. Here we are, with about 14 weeks left to go before the close of this Congress, with a bill on the floor of the Senate that we put together over many weeks and months--on a bipartisan basis, I might add. Here it is, Madam President. Now we are being told, despite the fact that 58 of us believe we ought to at least begin the debate--I am not asking anyone to vote for the bill. I am not asking you to vote for an amendment on the bill. All I am asking you is, Can we begin discussing this bill here? It is the job of this body to do so.

So I am delighted to receive all the lectures I have received from people from about whether they like the bill or do not like the bill or what they want to add to it or subtract from it, and that is all very interesting conversation. But the fact is, until we actually move to the bill--which will be the matter once again before us this afternoon--all that talk is nothing but talk.

If you have an idea on what you want to change in this bill, tell me about it. But, more importantly, let's debate it, discuss it, and then vote on whether to add it to this piece of legislation, or to take anything out you wish to take out as well. But I cannot even begin that process if, in fact, you continue to object to us getting to a debate.

So that is what this is all about.

I guess it does not pay to get your hopes up in this town, but I was still disappointed yesterday when we ended up coming up short with the votes necessary to proceed to the bill.

To be honest, I am still mystified by the reaction of our colleagues. Yes, we have heard all the rhetoric from the minority leadership. We have seen the thundering horde of Wall Street lobbyists descending on this community, having been paid millions of dollars to do everything they can to stop this, including the motion to even proceed to debating the bill. They had a victory yesterday. Congratulations to the Wall Street lobbyists. You had a great day yesterday. The American people do not even have a chance to hear a bill discussed that might avoid the kind of catastrophe that has befallen them over this past year and a half.

And, yes, we are all familiar with political considerations that seem as inevitable as the sunrise in this community. But still, I cannot bring myself to believe that every single member of the minority caucus wants to stand with the large Wall Street financial institutions that are the major objectors to this bill going forward.

This morning, as Goldman Sachs executives were testifying--including this afternoon--before a Senate committee, we all got another chance to understand why they feel so deeply wronged by this legislation.

As Frank Rich said in the New York Times this weekend--and I quote him--

[S]omething is fundamentally amiss in a financial culture

that thrives on ``products'' that create nothing and produce

nothing except new ways to make bigger bets and stack the

deck in favor of the house.

Our prosperity in the country was built on the hard work of generations of Americans. It was grown in the cornfields of Nebraska and Kansas, engineered in the laboratories of Massachusetts, forged in the foundries of Chicago, and manufactured, if I may say so, in textile plants such as in my home State of Connecticut.

It is deeply ingrained in the American ethos that, in this land of great opportunity, you build wealth by creating something: an idea, a product, a service.

This economic crisis was not caused by the creators, the producers, the small businesses, and the working men and women who abide by that guiding principle. It was caused by some on Wall Street who wanted to get rich without contributing a thing, by executives who simply come up with ways to circulate money around in a large circle, taking a piece for themselves every time that circle spins.

Operating in the shadows of our economic structures, in the places where regulators were not equipped to do their job, firms such as Goldman Sachs found ways to game the financial system, reaping unheard of profits and rewarding their executives with huge bonuses.

Understand exactly what these bankers were doing. They were not just trying to predict the future; they were betting on the failure of the mortgage market, a failure they themselves were in a position to cause.

Earlier this month, National Public Radio and the nonprofit journalistic organization ProPublica reported on another firm, a hedge fund named Magnetar. This hedge fund, according to the report, saw the housing market begin to decline in the year 2005, bought up enormous amounts of doomed bonds composed of bad mortgages--thus, keeping the market artificially inflated--and then made huge bets on the failure of the very bonds they had bought, now knowing how worthless they were.

Thanks to this scheme, the housing bubble grew bigger and collapsed harder. Magnetar walked away with billions of dollars in profits. Other institutions saw an opportunity to run the same scheme. The American people ended up paying the price, of course, as we all painfully are aware.

I am the chairman of the Banking Committee. I believe in the vibrant financial sector of our Nation. Small businesses need capital and credit. There are many honest people on Wall Street who, I believe, have helped others to build wealth in our country. So the problem is not that these executives got rich without contributing to America. The problem is that these executives got rich betting against America. They did it in secret where no one could see what they were doing, let alone stop them, until it was too late. They took outrageous risks with money that did not belong to them because they could, in their view. By the time anyone realized what was going on, they had managed to destroy much of the prosperity Americans had built over the course of generations.

Maybe I am naive, but I do not believe any Senator wants to be on their side in this debate. And do you know what. I have seen firsthand that there are Republicans who deeply want to get to this bill and get it done. That is why the legislation we want to bring to the floor reflects broad bipartisan agreement. This bill was not written by this Senator alone or a handful of Democrats on the committee. This bill was written in large part with the cooperation of my colleagues, both Democrats and Republicans.

The bill creates an early warning system so we can see and stop the next wave of dangerous financial products and practices before it threatens the economic stability of our Nation. It brings derivatives out of the shadows and into the sunlight so that Wall Street is held accountable for its actions. And finally, it puts a cop on the consumer protection beat so Americans can make smart decisions based on full information when they are planning for their financial futures and those of their families.

To listen to the minority leader, the main point of contention, over the last week or so, the reason he has given for his caucus to try and kill this bill as a bloc, is a disagreement over the provisions of our bill that end too-big-to-fail bailouts.

But I have to tell you, I do not believe that is the case. No fair reading of this bill allows you to claim with a straight face that it perpetuates taxpayer bailouts. It is not true. I have debunked that idea before on this floor, and I will do it again.

The morning after the minority leader made that claim, McClatchy Newspapers wrote:

McConnell--

Speaking of the minority leader--

had accused Dodd of drafting partisan legislation, even

though the Banking Committee chairman has worked for roughly

half a year with key Senate Republicans and incorporated many

of their ideas into his bill. McConnell also said the bill

continues controversial bank bailouts, but it doesn't.

If you do not believe the press reports, here is what our friend, the head of the FDIC, Sheila Bair, had to say. She, as I said, is the head of that organization, the Federal Deposit Insurance Organization-- former legal counsel to the minority leader Bob Dole, a Republican in good standing, I might add, as well. She shuts down, by the way, failed banks for a living. She is a Republican. She said:

The status quo is bailouts. That's what we have now. If you

don't do anything, you are going to keep having bailouts.

Further, talking about our bill, she said:

It makes [bailouts] impossible, and it should.

Sheila Bair says:

We worked really hard to squeeze bailout language out of

this bill. The construct is you can't bail out an individual

institution--you just can't do it.

Madam President, I will speak a little bit more. I know my other colleagues will want to be heard. I ask unanimous consent for 2 additional minutes, if I can.

How in the world the minority leader can come up with that argument does not make any sense at all. He quoted, of course, from the infamous Frank Luntz memo. The memo, of course, by Frank Luntz was written before the bill was written. Frank Luntz's political memo said the following:

The single best way to kill any legislation is to link it

to the Big Bank Bailout.

So he provided political recommendations and strategies even before this bill was written. The memo, of course, confirms that because of the date of it. So no matter what he wrote, that was going to be their political argument here. So the minority leader blindly followed the political memo here: Make that argument. Whether it is true is irrelevant, just say it often enough. And the old adage goes: If you repeat it often enough, people will begin to believe it, despite what the facts are. So again, that is the language of others.

But let me, if I can--because sometimes talking about it is not enough--let me quote from sections of the bill.

Section 204 of the bill says:

(1) Creditors and shareholders will bear the losses in the

financial company;

(2) Management responsible for the condition of the

financial company will not be retained.

Let me translate: You get fired.

(3) The Corporation and other appropriate agencies will

take all steps necessary and appropriate to assure that all

parties, including management and third parties, having

responsibility for the condition of the financial company

bear losses consistent with their responsibility, including

actions for damages, restitution, and recoupment of

compensation and other gains not compatible with such

responsibility.

Section 206 of the bill:

In taking action against this title, the (FDIC) shall

determine that such action is necessary for the purposes of

the financial stability of the United States, and not for the

purposes of preserving the covered financial company; ensure

that the shareholders of covered financial company do not

receive payment until after all other claims and the Fund are

fully paid; ensure that unsecured creditors bear losses in

accordance with the priority of claim provisions in section

210; ensure that management responsible for the failed

condition of the covered financial company is removed--

Again, fired, if you didn't understand those words--

and not take an equity interest in or become a shareholder of

any covered financial company or any covered subsidiary.

Lastly:

Notwithstanding any other provision of law, the

Corporation, as receiver for a covered financial company,

shall succeed by operation of law to the rights, titles,

powers, and privileges described in subparagraph (A), and

shall terminate all rights and claims that the stockholders

and creditors of the covered financial company may have

against the assets of the covered financial company or the

Corporation arising out of their status as stockholders or

creditors, except for the right to payment, resolution, or

other satisfaction of their claims as permitted under this

section. The Corporation shall ensure that shareholders and

unsecured creditors bear losses consistent with the priority

of claims provisions under this section.

We seem to agree on the problem, and we seem to agree on how to solve it. So, again, I quote from the legislation.

Let's get to this bill. We have written the provisions that stop too big to fail forever. There are other very important provisions in this bill that deserve consideration.

Again, I am not asking anyone to vote for the bill at this juncture or to vote for the amendments that come up. For the life of me, I don't know how we explain to anyone in this country, in light of what we have been through, that we can't even begin the debate and the discussion.

By the way, no two Senators are going to write this bill. There are 100 of us who serve here, and every single Member of this body has a right to offer amendments and be heard. As chairman of the committee, I will insist upon that. Every Member who has an idea and has an amendment will be heard. But, please, let's get to it.

With that, I yield the floor and note the absence of a quorum.

Madam President, I am told there are others who want to be heard, so I would at this juncture note the absence of a quorum.

Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

I see my friend and colleague from Oregon. I will yield 10 minutes to the Senator from Oregon.

Madam President, I yield 5 minutes to our colleague from Washington.

Let me thank my colleague from the State of Washington. I appreciate very much her comments and her leadership.

I see my friend, Senator Brownback, as well. Madam President, I ask unanimous consent that the last 7\1/2\ minutes be reserved for myself before the vote. Is that the correct time; 7 or 7\1/2\ minutes? 7\1/2\ minutes.

I thank the Senator from Arizona. My intention was--let me say a couple of things.

I have reserved the last 7\1/2\ minutes. I think otherwise we might run out of time, I say to my friend from Arizona. I will just take 1 minute, if I may.

I want to tell him and say this to him. I have been here 30 years. I have chaired bills on the floor. I never chaired a committee before 36 months ago when I became chairman of the Banking Committee under our system. But I want to say this to my friend from Arizona and I want him to convey this to his colleagues through this vehicle: I would never deprive another Senator of the opportunity to offer amendments on the floor. I revere this body. I began my service in this body sitting on those steps over there as a page. And how the Senate works is because we all participate in the debate.

I know there are those who have this concern and fear. Obviously, you do not have unlimited debate forever. But the point is, amendments ought to be offered. I have colleagues on my side, politically, of the aisle who want to make this bill stronger, in their views. I know there are people who think I have gone too far with the bill and want to water it down a bit. That debate can only occur if we are on the bill. But I want my colleague to know, as one of the leaders of the minority, that I would never deprive another colleague of the opportunity to be heard, offer their amendment and their thoughts in that process.

Secondly, on the too big to fail, this goes back and forth. Senator Shelby and I have worked on this. I see the possibility that--if there are some workability amendments that tighten that up, I am all for that. Senator Boxer of California has an amendment that would say that nothing in this bill can ever allow taxpayer money to be used. I am for that amendment. I don't know how many different ways we can say it. I think all of us agree we don't want to see our country go through that again. So the only limitations here are, do we think we are finding additional language here that will satisfy us that we have done the job we think we have intended to do? Senator Shelby and I talked about how to do this. Again, if that is the holdup, that should not hold us up because we are both committed to that.

Thirdly, I want to say that there is a document circulating with some ideas of a Republican alternative that includes getting into the government-sponsored enterprises. I say to my friend, it is a huge issue, the GSEs. It is not just Fannie and Freddie; there are others. It needs a lot of work.

But this proposal I have read--and it is not legislative language--a lot of it, I don't have any problem whatsoever. I am not sure who the author of this is, but it has been circulated. Again, I am not endorsing everything here because it is just a concept, but if that is an amendment, the better part of what I have seen, about 90 percent of what I have seen here, I have no problem with at all. That can be an amendment included as part of our bill. But, again, I have to get to it. The difficult problem I have is everybody is coming with things they would like to add to or subtract from the bill, but, as my colleague knows, having been a leader around here for a long time, you have to get to the product. That is my frustration here.

Lastly, I am not going to bore him with too much detail here, but in section 1027--and I won't read all of it--the last lines on limitations, because of

the concerns people have about dentists or other people being drawn into our consumer protection section say:

Notwithstanding subparagraph (B), the Bureau may not

exercise any rulemaking, supervisory, enforcement, or other

authority under this title with respect to a merchant,

retailer, or seller of nonfinancial goods or services that is

not engaged significantly in offering or providing consumer

financial products or services.

And, again, to insulate against the very worry you would have, and others have talked about, the NFNIB, someone who has four installment payments--it may be your local grocer, people who show up and buy food and do not pay for it, but usually at the end of the month or the end of 6 months, you have to be in the business of financial services or products to be affected by the legislation.

Now, again, I know there are Members who have problems with that part of the bill. People on my side who want to strengthen it think I have not gone far enough on the bill. One of the difficult jobs is trying to reconcile differences that exist. But I cannot even begin to do so if we cannot even talk about it.

So that is my frustration as the chairman of a committee, trying to get us to a point where all of us want to be, I am sure. We do not want to leave here having said we did not really deal with this problem that everyone in the country--I know, Arizona, what you have been through in your housing issues is staggering. Florida, California, Arizona, I think Nevada probably rank in the most difficult States where housing prices have declined and foreclosures have occurred.

I know my friend from Arizona feels as strongly about this as I do. But I assure him, I will not deprive anybody of an amendment to be offered at all in the process. Secondly, we will try the workability issues on too big to fail and, again, language we have worked on on the consumer protection, and we think we took care of those dentists and others who were worried about it.

But, again, others may have amendments and ideas. I will have to consider them on the Senate floor, and all of us will have to vote on them. But I appreciate him giving me a little time to express my thought.

Mr. President, let me thank the distinguished Republican leader for his comments. Part of what he just said is worthy of note. This institution suffers. We operate on unanimous consent. That is the way it works. And inherent in unanimous consent is trust. It is the only way this institution has ever operated.

There has been, I think we would all have to acknowledge, a breakdown for a lot of different reasons. We have to get back to it. This is an opportunity to do that.

Senator Shelby and I have a very good working relationship. We trust each other. We talk to each other. We spent an hour together. We are meeting again at 5:00, after this vote today, to talk about one way or the other where the bill is. There has to be a return to that comity and understanding, while we have differences of opinion.

If the American people believe we cannot trust each other, when I say I will--I was asked at our conference lunch, again, the very question that my colleague from Arizona raised: Will I be allowed to offer an amendment, Senator Dodd? Absolutely, you will.

So it is a concern I know that everybody has about whether they can be heard on these matters. I would never,

as a person who reveres this institution, want to deprive anybody of an opportunity to be heard on a matter as important as this.

We have amendments I know are offered. I heard them--the cosponsors-- one Senator today listed the cosponsors of an amendment he wants to offer. There are more Republicans than Democrats on the amendment dealing with the Federal Reserve System. I have some concerns about that amendment. But the fact is, it has bipartisan support for an amendment they want to offer. There are a lot of these ideas. I know within the Republican circle there are divisions as well as to what ought to be in this bill. We have them on our side as well. It is not as if there is some bright line here, and there is one solid thought process over here, and an alternative one over here. We have about as many different views on this bill as there may be Members in this body.

But all I ask for is to get to this bill. Let's get to this debate. Again, the leader got up and said this was a partisan bill. I have worked very hard to avoid that. Back in November when I introduced the bill, there were objections on the minority side as well as on the majority side. We put it aside. We have spent from November up until just a few days ago trying to put a product together that would reflect all of this different thinking. It is a vastly different bill from the one I introduced in November. I know it is not yet to everyone's satisfaction, but we need to debate this bill, in my view.

It will take a long time. This is not going to be a short debate. I know that. But we need to allocate the time talking about what is in the bill or not in the bill rather than questioning each other's motives as to why we are not on the bill, it seems to me.

So my plea is, again, as Senator Shelby has said, I think we are about 80 percent in agreement. I believe that to be the case. If we are 80 percent in agreement, that ought to be enough of a basis upon which to move forward. If we were all in disagreement about everything, well, I might still believe we ought to debate it. So, again, I see my colleague--I realize he has to go, and we are going to vote in a couple of minutes. But I thank him for spending the time with me and to hear me out on these points. I am grateful to him for that.

Mr. President, those are sort of the points that I intended to make in these closing minutes of this discussion, once again. We had it yesterday, and here we are again this afternoon. With all of the things that people are going through in the country, it seems to me, again, this bill, which has been the product of a year and a half of work-- this was not drafted over a weekend or some short period of time trying to reflect the interests of my colleagues--is deserving of our consideration.

I am not asking to vote for this with this next vote. No one will be asked to vote for this. No one will be asked to vote for any of the various amendments I am sure will be offered, and I will welcome, as part of this debate, and that Senator Shelby and I as managers of the bill will consider them.

All we are being asked to do, in the next 7 minutes or less, is to give this product a chance to be discussed. This product reflects a year and a half of effort to answer the question: What went wrong that caused our economy and our Nation to go through the worst economic crisis since the early part of the last century? That is a legitimate question being asked. What are the gaps? What steps are we taking to fill in those gaps? Are there cops on the beat to protect us? Do they have the authority and the resources to do the job? Is there an early warning system? These are all issues upon which I suspect, based on my conversations over a year and a half--or more than that now--on which we have a lot of agreement.

I do not know of anyone in this Chamber who wants to support a bill that does not end too big to fail. If they exist, I have not heard their voices. I do not think there is anyone here who does not believe we should not have an early warning system so we can identify problems before they become the large ones that cost us as much as it has over the last year and a half.

I think all of us--I have heard my colleagues say they are for a consumer protection agency. I believe them. We have a consumer protection agency in this bill. There is a debate about how much authority we want to give them, the interface, the interaction with prudential regulators. Those are all arguments within the context of whether we ought to have a consumer protection agency.

There is not a position over here that I know of--maybe some have it--that they are just flatout against a consumer protection agency. Senator Shelby has told me, and others on the Banking Committee: We are for a consumer protection agency. They have differences about what ought to happen within that. That is the purpose for having the debate. We are told again, we heard it a moment ago: We ought to have the bright sunshine on derivatives, these exotic instruments that were used, went from $91 billion in 1998, to close to $600 trillion--that is with a T--11 years later.

That shadow economy contributed significantly to what we went through. Based on what I have heard, everyone thinks we ought to do something about that and not leave the situation as it is today, as it was 18 months ago, because nothing has changed since then, putting our Nation at risk once again. So we agree on that as well.

Let's have transparency. Let's have accountability. There are differences; I would be naive and foolish to suggest otherwise. But everyone seems to agree we ought to do something about it. So if we look at the major thrust of our bill--end too big to fail; set up an early warning system to avoid the problems we saw in the past; deal with these exotic instruments out there and have some agency that at long last might keep an eye out for the average citizen in this country, that watches their credit cards, their mortgages, and so many other financial activities they engaged in that became deceptive and fraudulent, that they suffered terribly.

So we all agree on the basic goals outlined in this bill. Differences exist, at least in one or two of the years. Too big to fail, I do not think there is any real disagreement. I do not think there is any disagreement on the early warning system, as I have heard the debate. The differences exist in what happens inside the consumer protection agency and what happens in the area of the shadow economy and dealing with the derivatives and other items, but not whether we want to do something.

So that is what we ought to be doing.

I ask unanimous consent for 30 additional seconds.

We have spent the last day debating whether we ought to have this. Let's vote to invoke cloture and begin the long debate we need to have. I urge my colleagues to do so.

Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Madam President, I ask unanimous consent to speak for 8 minutes.

If the Chair will notify me when I have reached 7\1/2\ minutes so I may come to a blazing close.

Madam President, it has been over 2 years since Bear Stearns failed. It has been over 18 months since Wall Street collapsed and the economy teetered on the brink of depression. It has been almost a year since the administration offered a detailed proposal to reform Wall Street. It has been 4 months since the House passed its version of Wall Street reform. Yet, unfortunately, the minority party, the Republicans in the Senate, still want to delay any Wall Street reform. They want to put off Wall Street reform for another day.

Yesterday, the Republicans in the Senate had a chance to vote to end their filibuster on Wall Street reform so that we could start to debate this issue and consider amendments from both sides of the aisle, almost the way we remember learning about the Senate in school: a real place where there is a real debate, differences of opinion, votes, winners, losers--an amazing concept. We don't see much of it anymore, do we?

There are a lot of empty chairs here. There is very little actual debate leading to a vote. So yesterday we said to the Republicans: After all this time since this started, after 2 years since Bear Stearns failed and all we have been through, isn't it about time for us to roll up our sleeves and get down to work? Shouldn't we bring some reform and transparency to Wall Street so we don't have to go through this ever again? Wall Street got away with murder and the taxpayers ended up holding the bag, remember?

The previous administration asked us to send almost $800 billion to Wall Street to save the institutions that made some of the greediest, stupidest decisions in the history of American business. I was in those meetings. I can remember sobering moments--I will bet the chairman of the Banking Committee can remember them as well--when the Treasury Secretary, Mr. Paulson, and the Chairman of the Federal Reserve, Mr. Bernanke, looked us in the eye and said: If we don't put $85 billion in AIG today, it will fail and the American economy will fail with it. It takes your breath away. We do a lot of important things here but nothing like that. Then, it wasn't 2 weeks later that they came back and said: It is not enough. We need up to $800 billion to buy toxic assets with something called TARP.

Well, let me tell my colleagues, I am a liberal arts lawyer. I have spent a lifetime in politics. I can't really start

quibbling and arguing about puts and calls and derivatives and CDOs and all the rest of it. At some point, you take the word of the people who are in charge, and I voted for it. The alternative was unthinkable.

So where are we today? Sadly, some of those same firms we rescued with taxpayers' dollars sent us a thank-you card which had a postscript that said: Incidentally, we have just declared that we are going to give one another $10 million bonuses for our wisdom. How do you buy that? How do you sell it to the American people?

So we have come here with the leadership of Senator Dodd on the Banking Committee and Senator Lincoln on the Agriculture Committee, which has a piece of this, and said: We are going to change this story. We are going to have more accountability, we are going to have more transparency, and, frankly, we are going to put a cop on the beat when it comes to Wall Street. We are going to make sure they don't get involved in this mess again.

I don't often come to the floor to plug a book, but I am going to: Michael Lewis, ``The Big Short.'' I recommend it if you can stand it. He tells the inside story of what happened on Wall Street. These so- called great, wise men didn't know what they were doing other than making a lot more money every single day. They were building this house of cards, and eventually it fell. He tells the story about the folks who profited when it fell. They were completely out of favor for years. People said: Shorting the housing market? Are you crazy? There is no way to go but up when it comes to housing. Well, they made a lot of money, shorting the market, and the folks who came up with these crazy vehicles to package all these mortgages left us and America holding the bag.

This recession we are in took $16 trillion to $17 trillion out of the American economy. I don't need to tell anybody about it. If you look at your savings account before and after, you know what I am talking about--savings, retirement, the business down the street that closed, the neighbor who lost his job. You know the story, as we all do. It took $16 trillion to $17 trillion. That is more than the total value of all of the goods and services produced in the United States of America in any year--the total value--yanked out of the economy because of the stupidity of these folks.

Now we come before the Senate and say: Do you want to risk going through that again? Shouldn't we learn something in the process here that avoids that problem? The Republicans yesterday said: No, thanks. We don't care to vote on this.

Well, in an hour they are going to have another chance. I hope they have come to their senses. I hope the people they represent have led them to their senses. We have given them ample opportunity, and will, to offer their amendments. Let's hear their ideas. I am going to be open to them. I certainly don't want to water down this bill. I think it is a good bill. I want to try to make it stronger. If they want to water it down, we will have a vote, debate and vote, almost like the U.S. Senate. It will be amazing.

There is a second provision in here for consumer financial protection. Right now, strung out across our government are all of these agencies that are supposed to be watching out for us. We have agencies that make sure the toaster you bought over the weekend doesn't explode, catch fire, and burn down your house. We expect that, don't we? That is the Consumer Product Safety Commission. But we don't have an agency that makes sure the mortgage you signed doesn't explode and you lose your house. That is what happened: stuck in mortgage provisions.

Have you ever been through a real estate closing? There is a stack of pages turned at the corner; sign as fast as you can; at the end of 15 or 20 minutes, you have writer's cramp; a check; a key to the house, and you are out the door. Oh, you didn't check that line, the middle of the page, the 35th document that you signed? It had a prepayment penalty in there for your mortgage. Prepayment penalty, so what? Well, it just says that when the interest rate goes up, you can't refinance it. Oh, I didn't know that. Of course you didn't. Lawyers don't catch those things.

So we want to create the strongest consumer financial protection law in the history of the United States not to create a massive agency--it won't be--but to empower consumers so that when you sit down at that closing or you decide to take out a credit card or a student loan or an auto loan, you know what you are getting into. The basics are in front of you in plain English. Wall Street hates this idea like the Devil hates holy water. The notion that there would be some agency there looking over their shoulder sends fear into their hearts. I think it is a good idea. If someone wants to come here and debate it, I am ready, but I think we ought to have a debate. What are the Republicans afraid of?

Let me go to my blazing close.

Let me just say that at the end of the day--currently, lobbyists are being paid $120,000 a day by Wall Street to stop this bill. So far, they have Republicans on their side and they have been successful. In an hour, I hope that all changes. Let them join us in a bipartisan effort to make this economy stronger, make the rules work for average people, and to put some protection in there for the consumers of America.

I yield the floor.

I announce that the Senator from Indiana (Mr. Bayh) is necessarily absent.

Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. President, again today, for the second day in a row, we have failed to break the Republican filibuster on the Wall Street reform bill. The votes are very clear. With one or two Democrats out-- one who is opposed to breaking the filibuster and the other absent-- there was not a single Republican vote in support of moving to the debate on the Wall Street reform bill.

Tomorrow, there will be another opportunity, and it appears the other side, the Republican side, of the aisle is deciding they do not want to debate this issue. The Senate as an institution is designed to give people a chance to express themselves, both by votes and amendments they might offer. That is what we have offered.

It is interesting to me, this bill which is before us, the Restoring American Financial Stability Act--I am just checking on how many pages it is; we count pages around here now--is 1,400 pages. OK. And I am not being critical of the size of this bill. It is a big challenge to make sure we pass the laws that are necessary to promote financial stability.

But it was not but a few months ago that the Republicans were arguing that the health care reform bill was so big that we had to have it right out here in front of us and we should not be negotiating behind closed doors with secret negotiations on the bill; it ought to be right here on the Senate floor; let's have the amendments. Now comes this bill on Wall Street reform, and the Republican position is exactly the opposite. They say: We do not want to have an amendment process on the floor; we want you to agree ahead of time behind closed doors on what the bill is going to say. I do not know if they have noted the inconsistency of their position, but it is fairly clear.

I think they probably have some good ideas to change this bill. I am anxious to see their amendments. I think we have some good ideas to improve the bill. I would like to offer a few amendments. It is almost sounding

like the U.S. Senate, isn't it--amendments on a bill and votes and speeches and debate. It really sounds like the good old days here. But we do not have the good old days anymore. We just lurch from one vote to an empty floor to the next vote to an empty floor to the next vote. People who are following this debate on the outside have to be wondering what we are trying to achieve.

Unfortunately, for some, what they are trying to achieve is absolutely nothing. They want to stop the Senate from acting. They believe it is in their best political interest--maybe in the best interest of the country, from their point of view--that we do nothing.

How could you take that position when it comes to Wall Street after what we have been through as a nation? How could you take the position that we should do nothing when it comes to the Wall Street banks and financial institutions? These banks and financial institutions got away with murder when it came to corrupting our economy and leading us into the most painful recession in modern memory. How could you take the position, as some Republicans have, that we should not debate or vote on a bill to try to avoid that catastrophe from recurring? That, to me, is so basic and fundamental.

It strikes me that the American people have it right. They understand what we have been through. They understand that after the great minds of Wall Street made the greatest mistakes in modern economic history, they came whining and crying to the Federal Treasury to bail them out. They asked for hundreds of billions of dollars from hard-working families across America to get through their individual economic crises at their banks and their financial institutions. I will concede that I voted for that idea because the alternative was a disaster in our economy.

Well, after sending the money to Wall Street, they showed their gratitude by giving one another bonuses, multimillion-dollar bonuses, for their bone-headed stupidity that led us into this mess and then deciding that once they were solvent again and moving forward, they would stop loaning money to businesses across America that are trying to survive and get out of this recession. It is the ultimate in irresponsibility, and it is what we have come to expect from some of the people on Wall Street.

I mentioned earlier that many of us have been reading this book, ``The Big Short'' by Michael Lewis. He tells the story of how we got into this mess, how these people dreamed up ways to create these financial instruments, which almost defy description, where they would take thousands of mortgages from all around the United States and package them into a little bundle and put some code name on them that only the insiders could understand and then decide to sell them in pieces--tranches, they called them. And they were betting that the value of real estate would continue to go up and the default rate would not. They guessed wrong on both accounts. The default rate on these rotten mortgages increased and the underlying value of the homes and businesses and other entities began to decline and the bottom fell out. Lewis tells the story about those who saw it coming and ended up making a lot of money because they shorted the market, as they say. They guessed that the real estate bubble was going to burst. How many more times do we need to go through that as a nation before we change the rules on Wall Street in terms of their conduct and what they can do?

We think it is time. This bill is a product of the Senate Banking Committee and a lot of hard work. Senator Dodd, the Democratic chairman of the committee, met for several months with the Republican Senator who ranks No. 1 on that committee, Richard Shelby of Alabama, and they could not reach an agreement. Senator Dodd then said, I will meet with Senator Corker of Tennessee, also on the committee, and sadly that didn't result in an agreement either. Then Senator Dodd said, Let's have a hearing and let's put this bill right on the table and let people offer amendments to it. The Republicans prepared over 400 amendments to this bill, and when Senator Dodd convened the committee, they refused to call up a single one of them--not one of them--to be put on this bill or voted on.

So the bill comes to the floor in that situation and the Republicans refuse to let us move forward. That is because under the Senate rules we need 60 votes. We only have 59 on a good day here, and we clearly need Republican help to move this bill forward. They have decided as a party caucus to stand by Wall Street and to stand against reform. I don't understand it. I can't imagine that they are hearing anything that is different than what I hear when I go home. When I go home, basically people tell me that they believe it is time for accountability from the banks and the speculators on Wall Street and they believe we ought to do it now. They want to see us put a cop on the beat. They want to see the government keeping an eye on these big financial institutions, establishing standards of conduct, establishing margin requirements so we know they are not overextended again as they were leading into this recession, and they want to make sure we are doing something that is going to avoid a replay of what we have just been through.

There is another aspect of this bill. When I spoke to one of the Republicans during the vote today, I said to him: What is the problem here? Why aren't you joining us in this Wall Street reform? Don't you hear the same things at home that we do?

He said: My big concern is the consumer financial protection agency in here.

Well, I am the wrong person to raise that issue with, because I happen to believe in it. We have created safety standards for the inspection of certain products across America. When you buy toys for your kids during the holidays, you want to make sure they don't have lead paint on them or tiny pieces the kids might ingest and choke on. The Consumer Product Safety Commission is supposed to watch out for those sorts of things, and they do. But when it comes to our financial instruments that we have as part of our daily lives, there is no real watchdog. I am talking about mortgages on our homes and credit card agreements, student loans, automobile loans, retirement plans, things that make a big difference in our lives and that can go bad and cost us dearly. This bill sets up within the Federal Reserve an agency for consumer financial protection. It will be the strongest consumer financial protection law in the history of the United States, and it isn't a massive bureaucracy. What it basically does is empower consumers across the country so that when they sit down to sign an agreement, the basics are explained to them. It also puts that watchdog in place to keep an eye on those banks when they start sneaking in new terminology, these tricks and traps that can explode on you at a later date. That is the part this one Republican Senator said has to go. We don't want this consumer financial protection.

Well, the Senator may not want it; the banks don't want it either. They don't want someone looking over their shoulder, but I think the American people not only want it, they deserve it after what we have been through.

I was standing in the airport in Chicago on Monday on my way out here and a fellow came up to me, a businessman in Chicago, and said: Oh, what a coincidence. I am on my way out to see you.

I said: Good.

He said: I am here so that we can exempt our business from the Consumer Financial Protection Agency.

I said: Save the money on the airfare, because I am not voting that way. I don't think we ought to start carving out all of the different special interests and business groups that want to come here and say we are the good guys, we are not the cause of the problem. The fact is if they are, in fact, good guys and good gals, if they are honest in their dealings, if they are treating customers honestly, if they are conscientious and ethical, what are they worried about? This is an agency we have created to go after the bottom feeders, the predators who are out there taking advantage of consumers in the name of consumer credit.

This has happened so many times in the time I have served in Congress, where you come in and say, We want to protect consumers from the worst in the financial industry, and the big banks come in and say, Oh, no, it is just a foot in the door. Pretty soon

they will be looking at us too, and they stop any kind of basic surveillance.

Right now in Illinois--in fact, a couple of blocks from where I live in Springfield, IL--are a couple of operations that take this to the extreme--Payday Loans, Title Loans, Same Day Loans. It is an outrage. It is an outrage that my State lets them get away with it. They have tried to tighten up the law a couple of times, but these folks are slippery. They find a way around it. They charge outrageous interest rates. They are rolling over these debts time and time again until these people are absolutely out of luck. They have nowhere to turn.

I introduced a bill, a cap on interest rates, a usury bill, and I said if you want to meet every creepy, crawly, slimy reptile in the financial industry, introduce a usury bill, and they will all slide under your door to come in and meet with you and tell you how you just don't understand. Yes, they will say to me, it is 108 percent a year annual interest, but it is not what you think it is. It is what I believe it is, and it is a rip-off of consumers that has to come to an end. I am joining with Senator Kay Hagan of North Carolina to put an end to some of these business operations. I don't think they do any good for America.

It has been about 10 years ago now that Senator Jim Talent, a Republican from Missouri, put an amendment on a bill that didn't attract much attention. The amendment he put on exempted military families from being business clients of these payday loan operations. Why would he exempt military families? Because the Pentagon had reported to him that in many military installations around the United States, soldiers--Air Force, others--were borrowing money from these fly-by-night operations, couldn't pay it back, and got so deeply in debt they had to be discharged from the service. Men and women trained in our military, because of the debt they had incurred as a result of these rotten operations, fly-by-night operations, had to leave the military service, and the Pentagon was saying to this Senator and others, We invested a lot of money training that person and now they are gone.

So we said 10 years ago that we were going to provide that these payday loan operations could not lend money to military families, and it passed and became the law. Well, if we are protecting military families and our national interests, why aren't we protecting all families? That is my point of view. I think Senator Kay Hagan of North Carolina shares that point of view and I want to make sure we move forward on that. I also want to make sure interest rates are regulated. There is a limit to how much should be charged. There are people who exceed that limit and take advantage of those. Those are the kinds of things that are at issue here.

So this week, if you tried to follow what is going on in the Senate, sometimes there has been a big yawn, because the floor is empty. No one is here, because we are lurching to the next filibuster vote. We are going to ask the Republicans again tomorrow: Now is it possible for us to bring up this bill, a bill that will put consumers in control when it comes to some of the most basic decisions they have to make? Now is it time to have strict new regulations to stop Wall Street gambling from happening again in our financial sector? Now is it time to make sure that the agreements we enter into are in plain, understandable English?

Now is the time to end taxpayer bailouts once and for all. Banks and financial institutions, not American taxpayers, should foot the bill for their own mistakes. If the Republicans object to that, offer an amendment. Stand up here and say, I think we ought to be ready to bail them out.

I don't think they will. Also, it is time for consumers to have the information they need to compare rates so they can make the financial choices that are right for them and their families.

American voters get it overwhelmingly. They want us to pass this bill. But the Wall Street lobbyists get it too. This morning an analyst came forward and said the Wall Street firms are spending $120,000 every day on Capitol Hill for lobbyists. They are working the phones. They are working the corridors. They are doing everything they can to kill this bill. These special interest groups have a lot at stake here. If we do, in fact, come through with this reform, the party is going to be over at some of these banks and they know it, so they are fighting it tooth and nail. If we have a consumer financial protection agency, they are going to change the way they do business. They won't make as much money. They are going to be held to honest standards and they don't like it. So they are spending a fortune begging the Republicans to continue this filibuster to stop the Wall Street reform. I hope a few Republicans will break ranks and join us. If they do, I think many others will follow, but it will take a few courageous, forward-looking people to step up and say, That is enough. Two filibusters in a week is enough.

By Wednesday--by tomorrow--if we can get three or four Republicans to step up, we can start an honest, bipartisan debate that leads to the kinds of reforms we need to make our economy stronger, create more jobs, and protect American taxpayers from ever being soaked again for another bailout.

Mr. President, I yield the floor and suggest the absence of a quorum.

Madam President, let me begin, first of all, by complimenting my colleague from Kansas, who has been indefatigable in the argument and the cause that he was espousing just now. He has talked to all of us about this problem, and he has made it very clear this shouldn't be an intention within this legislation. We shouldn't be trying to expand the reach of a bill--that was supposed to deal with Wall Street--all the way to our local car dealers on Main Street. I appreciate the fact that sometimes legislation sweeps with too broad a brush, but this is something we can fix and we need to fix it.

In fact, it is not just the auto dealers. The National Federation of Independent Businesses, which bills itself as the voice of small business, and frequently does represent small business causes, has written a letter to us, on April 26, describing this unduly large reach of the legislation before us.

Madam President, I ask unanimous consent to have printed in the Record at the conclusion of my remarks the letter I have just referred to.

Madam President, another word about what is said in this letter. They point out the fact that the consumer protection part of the legislation goes far beyond protecting consumers from Wall Street. It essentially goes to anybody who lends money on an installment basis where you have more than four installment payments. Let me quote from the letter.

NFIB is concerned about the overly broad reach of the new

Consumer Financial Protection Bureau. Providing consumers

with clear and accurate financial information is an important

goal, but because of the reach of the Bureau's authority many

small businesses will find themselves subject to its

regulations. In addition to the many new and duplicative

regulatory burdens placed on community banks, the Bureau is

charged with regulating any retailer or merchant that

finances a purchase subject to a financing charge or written

payment plan with more than four payments. Many small

business retailers and merchants--such as medical

professionals, hardware, electronics, and jewelry stores--

struggling through the current economic climate would be

subject to these new regulations.

These small businesses had nothing to do with the Wall

Street meltdown and should not be faced with onerous new and

duplicative regulations because of a problem that they did

not cause.

The first concern I have with this legislation is this overbreadth in the consumer protections. Wall Street can take care of itself. It's fine to provide protections against Wall Street, but surely we can reach an agreement that we don't intend this legislation to reach into Main Street, to the extent it does. I would urge my colleagues to listen to the concerns expressed by the NFIB and let's try to deal with those concerns in a way that would enable us to be more supportive of the legislation.

The second point I would like to make has to do with the so-called too big to fail or taxpayer bailouts. There are different ways of talking about this. I find it interesting that some of my colleagues have apparently a great reverence for a pollster and wordsmith by the name of Frank Luntz. Frank Luntz is a person whom I know, and he is very good with words. He is a good pollster and so on. At one time, he apparently wrote a memo that suggested that one way to attack a bill such as the bill that is before us--I think my colleague, the chairman of the committee, has noted this memo was written by Luntz before there even was a bill--was to use bailout language. I haven't seen the memo, but I understand that is what it said.

No. 2, Republicans have used this bailout language; therefore, No. 3, we are blindly following Luntz. Well, if I suggested that to my professor in philosophy 101, I would get flunked out of the course for the basic failure in logic. This is a logic fallacy--something followed something else; therefore, it was because of it. The law that is the famous saying--post hoc ergo propter hoc--obviously, a fallacy.

So I defend those of my colleagues who have used language that may be somewhat similar to Luntz on the basis that just because they used the language didn't mean that Luntz caused them to use it. It may be Luntz figured out the same thing the rest of us figured out--this bill does not end taxpayer bailouts. That is the problem. Taxpayers are still on the hook.

I can understand the sensitivity of those who helped to write the bill who are subject to the criticism in this language. But the solution to it is obvious: Get the taxpayers out of this so they are no longer on the hook for any bailouts and then the argument will not last anymore, whether Luntz likes it or not. That could be done through a

process of negotiation. The bill was supposed to stop additional taxpayer liability. Let's make sure it does.

In this regard, I have to object a little to some of the pejorative language used by some Democratic Senators.

We have rhetoric about Republicans' motives. I am not going to suggest which Senators are talking about it, but one of them spoke specifically with respect to the Republican leader by name.

When you are questioning the motives of someone, suggesting the only reason they did it is because they read somebody's memo or because some lobbyist from Wall Street has been visiting them or suggesting it was because of campaign contributions, that gets very close to a violation of Senate rules. Senators can take responsible positions on bills irrespective of what a lobbyist might have said or somebody might have written in a memorandum.

I would like to have an honest debate about the bill rather than suggesting the motivations of Senators with respect to the positions they have taken.

One of my colleagues--in fact, it was the Senator from Illinois-- asked the question, with regard to the vote we are about to take here, What are Republicans afraid of? In effect, are we afraid of going to the bill and then having votes on amendments? Let me answer that question very specifically.

One thing at least I am concerned about is that we will not get to have votes on amendments. We were promised, in the health care debate, this 2,400- or 2,700-page bill, that we would get lots of amendments to try to deal with the concerns we had. I believe it was seven--after seven amendments, once the leader got his 60 votes, there were no more votes. There was no more amendment process. There was no more debate. At that point, cloture was filed, the vote was taken, and he had his 60 votes. End of discussion.

There is nothing to suggest that if we go to this bill, we are going to have a fair amendment process. If that were made very clear by the majority leader, by the distinguished chairman of the committee, and Republicans had some sense that we would fare better than we did during the health care debate, then that would be one thing. But with the experience of the health care debate behind us, I think you can understand why we would be a little bit wary of ``just trust us, go to the bill, and we will let you have all the amendments you want to try to fix the bill.'' That is the first point.

Let me get back just a little bit to this issue about the bailout because I made an assertion and I need to back it up.

I really don't think any of us want to continue to have taxpayers on the hook. But this is complicated, and it may well be that the continuing authority, for example, of the FDIC that is specifically written into the legislation, while not intended to result in taxpayers being on the hook, it nevertheless does.

Let me refer to a couple of articles. One is by a visiting professor, a Georgetown University business school professor, Phillip Swagel. The head of the article is ``Yes, It's a Bailout Bill.'' He says:

. . . [T]he discretion given to the government in the

Senate proposal opens the door to undesirable actions such as

allowing the administration to write checks to favored

parties. This concern is not theoretical: such mischief took

place in the bankruptcies of Chrysler and General Motors, as

the two auto companies were used as conduits to transfer

billions of dollars from TARP to the president's political

supporters.

He is talking there about labor unions.

A better approach would be a resolution regime centered on

bankruptcy.

There is a lot of debate about exactly how to do this liquidation process, unwinding process, quasi-bankruptcy process, and so on. There are a lot of good arguments. It is difficult to do, and I appreciate that the chairman of the Banking Committee has had to deal with a lot of different ideas from different Senators about how to do it, as well as a lot of columnists, and so on.

But it is a fact that under the existing legislation, there is still liability for taxpayers here that concerns some of us. We would like to see a genuine discussion about taking that out. If it is a concern of all of us and we all agree that should not be, let's have a little good faith here and get it out before we come to the floor and have to try an amendment where there are 41 Republicans, 59 people who organize with Democrats, and we are not at all assured of being able to get it out of the bill.

Here is another article. It is in the National Review Online, April 26. The article is entitled ``The Case Against the Dodd Bill.'' They make several points in here, but one of them is this resolution authority.

But the resolution authority designed by the Dodd bill

might actually create more moral hazard than it would

eliminate, because it would give the FDIC too much

flexibility in how it resolves a failed firm.

It goes on to say:

As structured, this authority would allow the Government to

bail out nonbank creditors, and worse, to play favorites

among them, just as we saw when the Obama administration

gift-wrapped large stakes in the automakers for its union

allies at the expense of secured creditors.

My point here is simply that there are a lot of people who have looked at this and have come to the conclusion, as I have, that the bill is not tightly enough written; that, as written, it has too much in it that would allow various Federal entities, including the FDIC, pretty unlimited authority to use taxpayer money to resolve or liquidate or deal with companies that are deemed necessary to deal with. I won't say ``too big to fail'' because allegedly we are eliminating that.

Surely we can get together and try to resolve this issue in a way that leaves no doubt that the ultimate conclusion is there is no more taxpayer liability. I think we would all like to see that. It is a legitimate debate to have, and I don't think we should criticize those of us who are raising these questions as somehow doing so because some lobbyist told us to. I don't care about the lobbyist or Wall Street here. What I care about is my constituent taxpayers being on the hook for a bailout of one of these entities or the creditors of these entities or the shareholders of these entities.

This is the final point I wish to make. This is like the Sherlock Holmes story of the dog that didn't bark. There is something missing from this legislation. If you look through the entire bill--and probably the biggest reason for the failure of our financial system was the fact that Fannie Mae and Freddie Mac were allowed to go whole hog, take on a bunch of bad loans, and end up with an implicit guarantee that ultimately became an explicit guarantee by the taxpayers of America. You won't find any resolution of that problem in this bill.

Why is it that, when everybody knows this problem began with a lot of loans being made to people who could not afford them--those loans then being acquired by Fannie and Freddie and then sold off in fancy, esoteric instruments on the market here--why is it that there is nothing in here about the risk of Fannie and Freddie and the risk they still pose? It is way north, apparently, of $400 billion--I have heard in the trillions of dollars--and this would be a taxpayer liability. If that is the case, shouldn't we be focusing reform on the entities that actually created the problem, Fannie Mae and Freddie Mac? Why isn't that being done?

The former chairman of the Banking Committee has explained. The Senator from Alabama, when he was chairman of the committee, tried to get more regulatory authority over Fannie and Freddie. Members of the then-minority, now-majority party stopped him and said: No, we don't need any more regulatory authority. I especially remember a quote from the chairman of the House banking committee that was especially colorful in this regard, that he thought we could give them a little bit more latitude here, that he didn't think any more regulation was necessary.

So the question is, If we knew there was a big problem a-brewing here, we didn't do anything about it at the time and after the fact discovered, of course, that is exactly what the problem was, why wouldn't we want to make sure that it will never happen again and that we somehow resolve the problem?

One of the answers given is that it is an awfully big problem to try to tackle. This is an awfully big bill. If we can reach into Main Street, to your local car dealer or dentist because your kid's orthodontia takes more than 4 months to pay on installments, surely we can

deal with Fannie and Freddie, the biggest culprits of all in this deal. Why aren't Fannie and Freddie dealt with here? Let's not think we will do that next time. I think it is pretty clear that whatever we do here, we are probably going to be stuck with for a long time, and the failure to deal with this is a glaring omission in the legislation.

Nor do I think that if we grant the motion to proceed to the bill and one of us offers an amendment to cover Fannie and Freddie, that it would fare too well in this body. I will not specifically ask the chairman of the committee or anybody else whether they would support such an amendment, but the reality is that it is unlikely this body would actually regulate Fannie and Freddie. That is a reason why some of us oppose the legislation.

Unless there is some ability to negotiate something in advance of the bill actually coming to the floor, with very little likelihood that it would be done on the floor, it seems to me that this is another reason why those of us who have opposed cloture have every basis for coming here and saying that until we get some satisfaction, some suggestion that this problem is going to be dealt with, why would we want to proceed to legislation which obviously isn't even going to fix the biggest part of the problem that was created in the first place? That is a third reason why I think at least up to now Republicans have said we are not prepared to go to this legislation.

Exhibit 1

National Federation

of Independent Business,

Washington, DC, April 26, 2010.

Dear Senator: On behalf of the National Federation of

Independent Business (NFIB), the nation's leading small

business advocacy organization, we urge the Senate to vote

against cloture on the motion to proceed to S. 3217, the

Restoring American Financial Stability Act of 2010. The

current bill is too far reaching and imposes major new costs

on small businesses.

After the near collapse of many financial firms and the

impact this had on the overall economy, small business

recognizes the need to ensure that our laws address the

problems that can arise from such excess and to protect the

broader economy from the failures of one sector. But these

changes to financial services industry should be focused on

the specific problems caused by Wall Street and the lessons

learned from these events. New laws that target industries

and businesses on Main Street that did not create the problem

would not solve the problems and potentially creates new

ones.

NFIB is concerned about the overly broad reach of the new

Consumer Financial Protection Bureau. Providing consumers

with clear and accurate financial information is an important

goal, but because of the reach of the Bureau's authority many

small businesses will find themselves subject to its

regulations. In addition to the many new and duplicative

regulatory burdens placed on community banks, the Bureau is

charged with regulating any retailer or merchant that

finances a purchase subject to a financing charge or a

written payment plan with more than four payments. Many small

business retailers and merchants--such as medical

professionals, hardware, electronics, and jewelry stores--

struggling through the current economic climate would be

subject to these new regulations.

These small businesses had nothing to do with the Wall

Street meltdown and should not be faced with onerous new and

duplicative regulations because of a problem they did not

cause. Further, as the most recent NFIB Small Business

Economic Trends (SBET) survey shows, small businesses

continue to struggle with lost sales and such regulations

could make these problems worse--stifling any potential small

business recovery. Placing more restrictions on the ability

to attract and keep customers to small businesses will

inhibit a strong recovery.

NFIB also has concerns with a provision in the bill that

reduces the pool of angel investors that can provide start-up

capital or invest in a small business. The provision sets

higher wage and asset minimum requirements on angel

investors, thus eliminating many highly qualified angel

investors from providing needed financing. This provision

would hamper the entrepreneurial opportunities for angel

investment opportunities for many small and start-up

businesses, thus adding another road block to finding

alternative capital financing when bank lending and other

sources of financing remains hard to get in this economy.

Small business still has not recovered from the economic

downturn and has paid the price for the bad decisions and

subsequent bailout of many large financial institutions.

Addressing problems in the financial services sector makes

sense, but such regulations should not overreach to include

small business or leave small business owners paying for the

excess of companies deemed too big to fail.

Thank you for taking into consideration our concerns, and

we ask the Senate to oppose the motion to proceed to the

current bill.

Sincerely,

Susan Eckerly,

Senior Vice President,

Public Policy.

Mr. President, might I inquire how much is remaining on our side?

There is 10\1/2\ minutes on our side? I will yield to the chairman of the committee for a moment.

What I might do is yield the floor and reserve the remainder of the Republican time. In that way, if one of my colleagues comes and I have to leave, that time will be remaining.

If I may respond very briefly, I appreciate the Senator's comments. I am sure the chairman would acknowledge the basis for some Republican concerns about the ability to offer, not an unlimited number of amendments for the purpose of filibustering the bill, but, rather, enough to try to solve what are perceived to be the problems of the bill.

Part of the problem is a lack of trust. There are some on the Democratic side who have said they believe the intent of the Republican leadership, or Republicans, is to filibuster this bill so there would be no bill. It is hard to prove a negative, but I do not know how many times Leader McConnell and I or Ranking Member Shelby have said that is not our intention. Everybody acknowledges that there is work to be done in the regulatory regimes that govern the trade in these very esoteric instruments, the derivatives and others, and regulating financial institutions and dealing with the problem when some of them become financially troubled. Everybody acknowledges the need to do that.

I firmly believe at the end of the day there will be legislation passed that deals with that. I do not think there is anything the minority could do, even if it wanted to, to stop legislation from ultimately passing. So to those colleagues on the other side who believe it is the Republicans' intent to stop the legislation, to have no legislation, all I can say is, yet one more time, that is not true.

I do not know of a single Republican who believes that, of a single Republican who does not want to see legislation. Nor do I believe this is analogous to health care in that there was a strictly partisan approach taken there. The lines were drawn, and we do not have to debate how we got there. The reality was, at the end of the day, Republicans were trying to do everything we could to stop the legislation, and the majority did everything within its power to ultimately get it passed.

That is not the same situation I see with this bill because, first of all, I think Members are a little closer than was the case on health care. Secondly, there has been at least a negotiating process between the chairman and the ranking member and others that has suggested ways to at least approach some of these problems.

Republicans are suffering under no illusions that with a 59-to-41 Senate lineup we should get 100 percent of the way or even 60 or 50 percent of the way. Senator Shelby has made it clear he understands he needs to compromise because the majority has more votes than the minority does, but to try to get at least a proportional or representative sample of Republican ideas in here.

Moreover, as my colleagues' conversations just revealed, there is a lot of overlap in intent. I do not think we intend the bill to reach into Main Street to the degree that some of us are concerned it still does. I do not think there is the intention to see taxpayers still on the hook to the extent some of us think the bill still does. And to the extent the chairman of the committee says there have to be ways to ensure that does not happen, and we can do that, I accept what he says in good faith. I also accept in good faith his view that amendments, within reason, should not be limited.

Again, there is no intent on the Republican side to filibuster the bill to prevent a vote from ever occurring. I do not think we would have that ability even if we wanted to do that. So we have to get over this problem of trust. Another way to do that is to lead by beginning to make a difference in the way that the--not the legislation is discussed, but the Senators are discussed, the motivations for different Senators.

It would be easy to come to the floor and talk about motivations. It would also be wrong. I think the leaders in the debate, starting with the leadership and then the chairman and ranking of the committee and on down, perhaps have had some responsibility to take the lead in making sure in the discussions on the merits of the bill--when I raise a particular issue, as the chairman just did, to say: Well, let me go to the language and see if I think we do have it already covered, rather than: I know why you are saying that, Senator from Arizona. You have some ill motive. The Senator would not say that. So perhaps we can begin to reach a better sense of trust where we can begin to work through these things in a much more constructive way by taking the leadership and getting a more civil conversation.

When I say that, I point to nobody in particular as in violation but rather point to myself and the other leadership as the place to start with setting that tone. All of these things could begin to build the trust that might enable us to begin to engage each other.

How time flies when you are having fun.

And to conclude a process that will be constructive and helpful to the American people.

The following Senator is necessarily absent: the Senator from Utah (Mr. Bennett).