Edward E. Kaufman

Mr. President, I ask to speak as in morning business.

Mr. President, I love the Senate. It is not always a beautiful thing, and surely it is not a picture of a well-oiled machine, but years ago I found a home here. As my colleagues know, I first came to the Senate in 1973 as an aide to a young man who had won a stunning and very improbable election against a respected incumbent. At that campaign victory party 38 years ago--I can remember it as if it was yesterday--I thought to myself I would never again believe that anything is impossible.

In the intervening 37 years I have seen a lot of campaigns. I never saw one that was as big an upset as Joe

Biden's. When I started working for Joe Biden that year, I told the DuPont Company--that is where I worked--I would take a 1-year leave of absence. I stayed for 22 years.

I will soon be leaving the Senate. I am grateful beyond words to have gone through much of Joe Biden's Senate career as his chief of staff and observed his career firsthand. I can say if my Senate career had ended then, if I had not been called on to serve as his successor, that experience, helping to represent Delawareans and fighting for the values that Joe Biden and I shared, would have been more than fulfilling enough. I would have been happy.

I thank our leader, Harry Reid, who is most responsible for the most historic, productive Congress since FDR. I thank my committee chairs. They have been great to me: Pat Leahy, John Kerry, Carl Levin, and Joe Lieberman. I especially want to thank my senior Delaware colleague, Senator Carper, for whom I have the greatest respect and who has helped me tremendously during my last 2 years in all manner of issues. I know I am going to alienate some of my Senators, but he is without a doubt the best senior Senator in the entire Senate.

After almost four decades, I think I finally got used to the unpredictable rhythms of the Senate. In the short time since I was sworn in last January, the Senate has seen heated debate over a basic principle under which this body functions--the filibuster. All Members are frustrated with the slower pace, and they are right to be frustrated when good bills, important bills that promise to help millions of Americans, are blocked for the wrong reasons.

But rule changes should be considered in the light of the fact, which we all know, that the Senate is not the House of Representatives. It serves a very different constitutional purpose, and the existence of the filibuster remains important to ensuring the balanced government the Framers envisioned.

Indeed, the history of the Senate is that of a struggle between compromise and intransigence. But this is the place where we protect political minorities. This is the place where we make sure the fast train of the majority doesn't overrun the minority. While I think there are changes, and good changes, that are being considered, I do think the filibuster should remain at 60 votes because during the long struggle in the Senate, certain traditions have been adhered to by Members on both sides of the aisle. Whenever anyone moves to change one of those traditions in a way that may diminish the comity under which this body must function, I believe they should do it very carefully. I know my colleagues will do that.

Regardless, I continue to have faith that out of the debates in the Senate, the fights we are having now, out of the frustrations of some of the intransigence of others, we will eventually find our way toward the next great compromises we need to solve many of our problems, compromises that will keep America great.

I am incredibly proud of the opportunity I have had to work on important issues during the brief service I have had in the Senate. I feel especially privileged to have served in this historic Congress, when there were so many great challenges facing this country. I have been hanging out in this place since 1973. There has not been another Congress like the 111th, one where we have dealt with more issues. During my first month in office, more than 700,000 Americans lost their jobs on the heels of the economic collapse in late 2008.

People are wondering why are people upset? How soon they forget. Less than 2 years ago, 700,000 people lost their jobs in a month, and it was not the first month and it was not the last month. Action by the Federal Government to stop further decline was critical--and we acted. I am proud of my vote on the American Recovery and Reinvestment Act. I believe the ARRA worked to arrest the financial free fall to jump-start the economy--and if I had another hour and a half, I would show my charts and graphs to demonstrate it.

All across Delaware I have seen the benefits of this law--the investments in infrastructure and education and new technologies for our future, and I met with the people whose jobs were saved, literally met with the people whose jobs were saved or who found new employment that flowed from these investments.

We succeeded in passing many other initiatives to foster growth and to bring much needed help to those who have been hit hardest by the recession, which was my No. 1 job in the Senate. As Senator Carper knows, it is all about jobs, jobs, jobs. We actually did a great many things that I firmly believe helped make us a stronger country.

As you know, as you grow older you realize that life is not about what you accomplish or about winning. It is about having tried, and I feel good that I tried my very best.

I was so pleased to work with Senators Leahy and Grassley on the Fraud Enforcement and Recovery Act, to chair oversight hearings in the Judiciary Committee on law enforcement efforts to pursue financial fraud associated with the financial crisis, and to sit with my friend, Senator Carl Levin, as he and the Permanent Subcommittee on Investigations held hearings on financial fraud. I was honored to be a part, as were all of my colleagues, of two Supreme Court confirmation hearings for Justices Sotomayor and Elena Kagan.

I had the distinct honor, and it is a true honor, of serving on the Foreign Relations Committee with Chairman John Kerry and ranked member Dick Lugar, as well as on the Armed Services Committee with Chairman Levin and Senator John McCain.

I made two trips to Israel and the Middle East, three trips to Afghanistan and Pakistan, and four trips to Iraq in the last 18 months. I know a number of things: No. 1, we must build our civilian capability for engaging in counterinsurgency, and in this Congress we passed legislation to enhance civil-military unity of effort through joint training at Camp Atterbury.

Along with Senator Brownback, I cofounded the Senate Caucus on Global Internet Freedom to promote greater access to freedom of expression and freedom of press online.

I also highlight the importance of U.S. public diplomacy efforts, especially international broadcasting. As you know, I served on the board for 13 years--there is nothing more important in our battle than international broadcasting and public diplomacy. I sought to raise the awareness of the limitations on press freedom in countries such as China and Iran through the passage of resolutions and have coauthored legislation funding the development of Internet censorship circumvention technology in Iran--getting around the jamming that Iran is doing to deny its citizens the right to get information on the Internet.

I have also had the privilege of working to promote science, technology, engineering, and mathematics, or STEM, education during my time in the Senate. As a former engineer, I know firsthand the importance of STEM education.

I spent much of my career in government service, and I decided early in my term to come to the Senate floor each week and recognize the contribution made to this country by our Federal employees. I honored 100 great Federal employees from this desk, sharing their stories and accomplishments with my colleagues and the American people, and I am very pleased that Senator Warner from Virginia is going to be taking that on when I leave. I could not have left it to a better person.

Last but not least, I have tried my hardest to be a voice for the average investor and to work for financial accountability and stability so our economy can thrive. That is what it is about. We can't thrive if we don't have credibility in the markets. I offered legislation with my good friend, Senator Johnny Isakson, to curb abusive short selling. I gave a number of speeches on this floor, from this desk, calling for the Securities and Exchange Commission to conduct a comprehensive review of equity market structure and high-frequency trading and to advance reforms that promote clear and transparent markets--not always clear and transparent to everybody listening. As I said from the floor dozens of times, it is critical that we preserve the credibility of our markets, one of our Nation's crown jewels, if our grandchildren are to live in the most economically powerful country in the world.

Finally, I repeatedly highlighted from the Senate floor the importance

of the problem of too big to fail in the financial reform debate, working with my good friend, Senator Sherrod Brown, to offer the Brown- Kaufman amendment. We made the good fight but, again, trying was better than succeeding--not better but the alternative to succeeding, and I thank every Senator who voted for that amendment. I am proud of that. While our amendment was not agreed to, I will ever be proud of the opportunity to work with Senator Chris Dodd and participate in Senate debate on financial reform.

I could not have achieved anything--and I genuinely mean anything-- during my term without the help and hard work of my excellent staff. I spoke early this week about the staff. They are vital to our work. I am going to tell you as someone who spent years delivering staff work and now someone who has been a consumer, I am more impressed than ever with my staff, and with Senate staffs and the job they do.

I want the American people to understand that one of the reasons I love the Senate is because it is filled with intelligent, hard-working people who are passionate about serving this country. This goes for Members and staff alike. The Senate is a magnet for those who feel called to public service. It is the destiny for countless improbable journeys. Our constitutional Framers would have been relieved to see this noble experiment working, to know that in the Senate today serve a farmer from Big Sandy, a realtor from Cobb County, a mayor from Lincoln, a former Army Ranger from Cranston, a social worker from Baltimore, and a doctor from Casper.

All of them are here for the same reason as the other Senators-- because they love this country and their communities dearly and want to give back. Their paths to public service may have been different in their first steps just like mine was, but they converged here and this is what continues to sustain my faith in the Senate.

Here this leg in my improbable journey comes to an end. Although I leave the Senate as a Member, I will not be leaving the Senate behind. I will continue to teach about the institution to my students and encourage them to pursue their own path to public service. I will continue to speak out on issues that I worked on here because that important work, as always, goes on.

I love the Senate, and I will always cherish the unlikely opportunity I had to serve Delaware as its Senator. With deep gratitude to those who worked with me and stood by me through my journey--to my staff, to my colleagues, to my wife Lynn, to our children, grandchildren--with great appreciation to former Governor Ruth Ann Minner and the people of Delaware for the responsibility they gave me, and with optimism and faith in the future of the Senate and this great Nation, for the last time, I yield the floor.

Mr. President, since last February, I have spoken at great length on what I viewed and continue to view as the key issue in financial reform that of too big to fail. As my colleagues know, I sponsored legislation with Senator Brown and others that would have placed strict limits on the size and riskiness of megabanks, but that did not pass. Instead, Congress placed its faith in regulators to set appropriate prudential standards for these institutions.

The issue of too big to fail has therefore not gone away with the passage of the landmark Dodd-Frank bill. It remains the most pressing issue for regulators and for all of us. As Fed Chairman Ben Bernanke stated recently in testimony before the Financial Crisis Inquiry Commission: ``If the crisis has a single lesson, it is that the too- big-to-fail problem must be solved.''

Given that, financial regulations being developed nationally and internationally will be judged by one critical standard: do they address the core problem of too big to fail? This will be my last Senate speech on this issue, and I will be focusing on whether the recent rules coming out of Basel, Switzerland and that will be considered in the upcoming G20 meeting in Seoul meet this standard.

The oversight body of the Basel Committee on Bank Supervision recently came to agreement on a core pillar of the Basel III framework of bank capital and liquidity standards. The agreement comes approximately 2 years after the original onslaught of the financial crisis and only a couple of months after the passage of a landmark financial reform bill in this Congress. This represents a rather quick turnaround for complex and oftentimes fractious international negotiations on financial regulation.

The new Basel III agreement also effectively increases the amount of common equity that banks must hold as a percentage of their risk weighted assets from 2 percent to 7 percent. Importantly, this change not only raises the international bar on the amount of capital that banks hold, but also the quality of the capital that they hold that is, more of their capital will need to be held in the form of common equity and retained earnings. In addition, this minimum risk-weighted capital ratio would also be supplemented for the first time on an international level by a leverage limit of 3 percent, a ratio that reflects the amount of capital that a bank holds relative to the size of its assets.

While I commend the committee on its efficiency and for producing a proposal that significantly strengthens existing international capital standards, I see several problems and flaws with regard to both the design and implementation of these rules.

First, the standards are still too weak and will take way too long to be implemented. Even with the greater focus on high-quality equity capital, large U.S. bank holding companies are generally already well above the Basel III standards, which they will not have to comply with until 2019. And while the introduction of a leverage ratio has been hailed as a major achievement, it is subject to a long test and implementation period and is set at such a low level as to be mere window dressing. In fact, it would still permit financial institutions to leverage their balance sheets more than 33 times over their capital base, which is well above the gross leverage level at Lehman before it went into bankruptcy.

Second, given the weakness of the leverage ratio, it is even more incumbent on negotiators to go back to the drawing board on the flawed risk-based standards of Basel II. In short, determinations on capital adequacy under the Basel rules will continue to be dependent on arbitrary risk weights, the judgments of rating agencies and the banks' own internal models. Instead of correcting the fundamental flaws of Basel II, Basel III continues to walk on its Achilles heel.

The final financial reform bill partially addresses this problem by removing all references to credit rating agency ratings in Federal regulations. But since the Basel regulatory capital rules depend heavily on credit rating agency determinations, U.S. regulators are currently struggling to find a viable alternative. This is no doubt a tough task given that the use of ratings is at least as pervasive in the world of financial markets as it is in the world of financial regulations.

Third, the Basel Committee punts on a global liquidity standard. With all the focus on capital requirements, it is easy to forget that liquidity rules are at least as important, if not more so. After all, Lehman Brothers was deemed adequately capitalized only days before a run on the firm evaporated its liquidity. Other institutions that were reportedly adequately capitalized also had fatal or near-fatal experiences due to liquidity runs.

The Basel Committee initially proposed a fairly robust liquidity proposal late last year. Under it, banks would be subject to a liquidity coverage ratio, LCR, requiring them to hold enough high grade liquid assets to cover potential cash needs over a 30-day period. They would also be subject to a net stable funding ratio, NSFR, requiring them to have sufficient sources of stable funding based upon the overall liquidity profile of their assets. Such a standard would help limit overreliance on unstable wholesale financing sources, a cause of the financial crisis that I will discuss in greater detail later in this speech. Unfortunately, in the face of a vocal industry backlash, the committee watered down the proposals in July and has further backtracked on these standards in its most recent release. Both are also subject to a long ``observation period.'' In fact, the actual standards on the LCR and NSFR, which are likely to be much weaker than the initial proposals, will not be introduced until 2015 and 2018, respectively.

Instead of waiting on uncertain and delayed Basel rules, U.S. regulators can set their own liquidity rules and/or use new powers granted by Dodd-Frank to place basic limits on the use of short-term debt, including repos, by systemically significant financial institutions. In the years prior to the crisis, the repo market morphed from a means for money-center banks to use high-quality collateral like Treasurys to secure overnight liquidity to being a convenient way for banks to finance the booming securitization machine. Unfortunately, the use of repos and other forms of short-term borrowing to finance massive inventories of illiquid structured securities backed by dubious collateral led to serious structural weaknesses at the heart of our financial system. Placing basic limits on this practice would add greater stability to our financial system. Indeed, if financial institutions had to use more expensive longer term funding to finance risky assets, we would likely see fewer risky and needlessly complex financial assets being created. As a recent study by the Bank of International Settlements shows, the effect of higher capital and liquidity requirements will likely strengthen financial stability without hindering economic growth.

Finally, the Basel Committee has yet to specifically address the problem of too big to fail. Although the committee notes that systemically significant banks should have ``loss absorbing capacity'' that goes beyond these basic standards, it has yet to provide much in the way of details of what this will entail. Ultimately, systemically important banks might need to hold some combination of the following: additional capital; contingent capital that converts from debt to equity when overall capital levels drop below a minimum threshold; and so-called bail-in debt that would subject holders of the debt to an expedited cram-down in cases where the institution was distressed. Presently, concepts such as contingent capital and bail-in debt, neither of which is a high-quality form of capital, raise more questions than answers with regard to how expensive a form of capital they would be and how they would work in practice. Indeed, the Basel Committee itself continues to explore these issues as reflected by a recent consultative document. And while the committee calls for a ``well integrated approach'' on the supervision of systemically significant institutions, it seems more likely that the regulation of these firms will differ depending on national jurisdictions.

Under the new financial reform law, the Federal Reserve must set capital and other prudential standards that

are more stringent for systemically risky institutions than they are for other financial institutions. It can also set graduated capital requirements that rise as banks and other financial institutions grow bigger and more complex. In addition, the Fed can set countercyclical capital rules that require banks to build up capital buffers during a bubble. While the Basel agreement also calls for such countercyclical rules, national regulators will have great discretion on when and how to implement them.

But to truly address too big to fail, regulators will ultimately need to limit the size, complexity, and riskiness of megabanks. The final financial reform bill has a number of provisions that have the promise of doing this, if regulators avail themselves of them. For example, the final bill's inclusion of the Kanjorski provision will give regulators the explicit authority to break up megabanks that pose a ``grave threat'' to financial stability. In addition, the requirement that systemically significant firms develop ``living wills'' allows regulators eventually to force an institution to shed assets if it fails to submit a credible resolution plan. Because resolution authority does not work for global mega-banks sprawled across many borders, I believe it will be imperative for regulators to use these powers.

I hope we ultimately take heed of the lesson that Chairman Bernanke identified. While the Basel III framework will be useful in setting minimum international standards, U.S. and other national regulators will need to go far beyond it to address the problem of too big to fail. Of course, I would have preferred to have solved this problem by drawing simple statutory lines, such as those put forward in the Brown- Kaufman amendment. The Dodd-Frank bill instead takes a different tack, leaving critical decisions in the hands of the regulators. Its ultimate success or failure will therefore depend on the actions and follow through of these regulators for many years to come.

As I have said before, Congress has an important role to play in overseeing the enormous regulatory process that will ensue following the bill's enactment. The American people, for that matter, must stay focused on these issues, if just to help ensure that Congress indeed will fulfill its oversight duty and its duty to intervene if the regulators fail. Although I will be leaving the Senate in November, I will be watching to see if the regulators have learned the lesson to which Chairman Bernanke refers and are willing to take the tough steps to solve the too big to fail problem.

Mr. President, while a U.S. Senator I have traveled to the Middle East three times, visiting Israel each time and the West Bank twice. My travels through the region also included four visits to Iraq, as well as visits to Saudi Arabia, Lebanon, Egypt, Syria, Turkey, and Kuwait. What I have seen in those trips gives me a certain amount of qualified optimism different than any I have had in my 37 years following the Arab-Israeli peace process.

This morning, I shared my thoughts with the organization J Street, and I ask unanimous consent that they be printed in the Record.