Barney Frank

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. Madam Speaker, the gentleman from California still won't be forthright about this. The Republican-controlled House, chaired by Mr. Oxley in the committee, passed the bill that he objected to. He said I was successful in defeating it. No, I played a fairly minor role under Mr. DeLay and the Republican leadership. Mr. DeLay did not take advice from me. If Mr. DeLay took advice from me, he wouldn't have gone on the dance show. I would have advised him against it. The fact is that it was a Republican House that passed the bill the gentleman is denouncing, and I don't know why he keeps mentioning history and leaving that out until he has to be reminded. He did offer an amendment. He was overwhelmingly defeated. More than two-thirds of the Republicans voted against him. By the way, as to my own view, yes, in 2003 I said there was no problem. In 2004, after President Bush, while the Republicans controlled Congress and didn't hinder him, ordered Fannie Mae and Freddie Mac to increase their purchase of loans from people below the median, I changed my position. So I joined the Republican leadership of the House as a fairly minor player in supporting legislation. He was against it, and I would just make that point again.

Mr. FRANK of Massachusetts. If the gentleman would yield to me, I agree. As the gentleman knows, our bill does give the SEC the power we expect them to use to impose greater fiduciary responsibilities on these people. The consumer protection bureau will be a very powerful one. It will be dealing with financial products in the lending area and elsewhere. It was not intended to duplicate existing regulation. So, in fact, as the gentleman knows, we enhance the regulatory authority of those entities he mentioned, and there is no intention whatsoever, nor is there language, I believe, that would lead to duplicate supervision by the consumer protection bureau.

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. I yield myself the balance of my time.

Mr. FRANK of Massachusetts. I yield 1 minute to the Speaker of the House.

Mr. FRANK of Massachusetts. Mr. Speaker, to begin, I want to address the Members who are concerned that the interchange amendments will unduly affect smaller financial institutions. The interchange amendment wasn't part of the bill here. It was put in by a very heavy vote in the Senate, and the conference process means you compromise. There is in that amendment, as Senator Durbin put it in, an exemption for any fee setting by the Federal Reserve for smaller institutions. They then feared that they would be discriminated against, so we amended the amendment with the participation of the Senate, obviously. There are three provisions that protect the smaller institutions, community banks and credit unions. There is an antidiscrimination provision that says that merchants and retailers cannot refuse to accept a debit card. There can be no discrimination against small banks for their credit cards. The Federal Reserve, the instructions to the Federal Reserve, include making that antidiscrimination work, and we can guarantee people we will do it. So, yes, as the amendment passed the Senate, it said that these smaller institutions were exempt but that they might have suffered discrimination. They are protected in this bill. That's why, for instance, the small banks in Illinois have endorsed this bill. I also want to talk briefly about what has happened with the TARP. We had the two last Republican speakers. One hailed the CBO as an unassailable authority. Then the final speaker said it was hocus-pocus. It is apparently unassailable hocus-pocus, which I don't want to get into. It's too late at this time. This is how the TARP thing works. There are two parts to the TARP. The bill does say that repayments go to debt relief. There have been substantial repayments from the banks, and those go to debt relief. They are unaffected by the amendment. What the amendment says is there are still tens of billions of dollars of TARP money that could be committed. The amendment we adopted in conference says no more, that they cannot do that. That's where the savings comes. So the savings comes from not allowing additional TARP spending. You know about the Republicans with regard to cutting off TARP? They were for it before they were against it. They used to be all for cutting out the TARP until it came up here. Now, let me say I don't like that way to do it. I prefer what we had in our provision, which was to assess the Goldman Sachs, JPMorgan Chase, Mr. Paulson's hedge fund. That's the way we wanted to do it, but we couldn't get it through the Republicans in the Senate. So, first, Republicans in the Senate tell us, Don't do it. Then other Republicans in the Senate say, Why didn't you do it? So I'll make Members a pledge right now: The committee I chair will, I hope, bring out a bill that revives that assessment on the financial institutions above $50 billion and the hedge funds. So Members who missed it will get a chance to show us they really care. We will bring them there, and we will have that come forward. Now, I do want to talk a little bit about subprime lending and about the partial history we get. The fact is that the Republican Party controlled the House and the Senate from 1995 to 2006. During that period, they showed remarkable restraint. As eager as they were to restrain subprime lending and as passionate as they were to reform Fannie Mae and Freddie Mac, they didn't do it. That's a degree of abstinence unparalleled in political history. They were in charge. Whose fault was it? Apparently, it was our fault. It was my fault. As I said before, people have accused me of being this secret manipulator of Tom DeLay. Well, if that were the case, you wouldn't have cut taxes for very rich people. You wouldn't have gone to war in Iraq. As I said, if he were listening to me, he wouldn't have gotten on the dance show. So I don't take responsibility for Mr. DeLay. The Republican Party didn't do it. Now, the gentleman from California (Mr. Royce) said he tried in 2005. He had an amendment to the bill of Mr. Oxley. Mr. Oxley, the Republican chairman of the committee, brought out a bill. Mr. Royce didn't like it. He brought up his amendments. If no Democrat had voted either in committee or on the floor of the House on that bill, it would have looked exactly as it looked. The majority was Republican. So, apparently, the gentleman from California (Mr. Royce) wasn't able to persuade even a third of his fellow Republicans to vote with him. I'm sorry he wasn't able to do better. I'm not an expert in how to get Republicans to vote with you, so I can't offer him any help. Maybe he can find somebody who can teach him how to get better votes among Republicans, but it's not our fault that the Republican Party didn't do it. By the way, in 2003, I did say I didn't see a problem with Fannie Mae and Freddie Mac. Then, in 2004, President Bush said to Fannie Mae and Freddie Mac, I order you. He had the power and he used it. He used it to order them to increase their subprime lending purchases. By the way, he wasn't alone in that. A June 22 article from the Wall Street Journal quotes a Member of Congress, in 2005, at a hearing, saying, ``With the advent of subprime lending, countless families have now had their first opportunity to buy a home or perhaps be given a second chance.'' Fail once. Get it again. The American Dream should never be limited to the well-offs or to those consumers fortunate enough to have access to prime rate loans. That is from the gentleman from Texas (Mr. Hensarling). So George Bush wasn't alone in that. Then 2007 came, and the Democrats took power. We passed a bill, for the first time in this House, to regulate Fannie Mae and Freddie Mac. Secretary Paulson liked the bill. He said it didn't go as far as he would have liked, but it was a good bill. In 2008, it finally passed, and Fannie Mae and Freddie Mac were put in a conservatorship. They were the first major institutions to be reformed. By the way, in 2007, in this House, we also passed a bill to control subprime lending. Now, the gentleman from Alabama had been the chairman of the subcommittee with jurisdiction over subprime lending during some of those Republican years, and he never produced a bill. He said it was our fault. He wrote us a letter--myself, Mr. Watt of North Carolina, and Mr. Miller of North Carolina--and we didn't tell him we'd vote for it. You know, I wish I could have it back. I wish I knew I was secretly in charge of the Republican agenda. I wish I knew they wouldn't do anything unless I said they could and that they would do something if I said they should, but no one told me. Where were they when I needed them to be more powerful? He didn't bring it forward. It wasn't my fault. The Republicans never checked with me as to what they were supposed to do. In 2007, we did pass such a bill to restrict subprime lending, and The Wall Street Journal attacked us. It said it was a ``Sarbanes- Oxley'' for housing. Sarbanes-Oxley is about as nasty as you can get in The Wall Street Journal, and here is what they said about subprime lending in 2007. So maybe that is why George Bush expanded subprime lending. The Wall Street Journal said in 2007, complaining about our bill, ``But for all the demonizing, about 80 percent of even subprime loans are being repaid on time and another 10 percent are only 30 days behind. Most of these new homeowners are low-income families, often minorities, who would otherwise not have qualified for a mortgage. In the name of consumer protection, Mr. Frank's legislation will ensure that far fewer of these loans are issued in the future.'' Yeah. Unfortunately, a couple of years too late, because we couldn't get that through. But the Wall Street Journal was right, we would limit them, but wrong, along with the gentleman from Texas (Mr. Hensarling) about the subprime loans. And I also wanted to do affordable rental housing, which that administration opposed. This bill has the biggest package of increased consumer protections in the history of America. And it doesn't ban products or ration products. It says there is going to have to be fair dealing. This bill says that there is a fiduciary responsibility on people selling products to individual investors for the first time. It gives the SEC the power to do it, and they are going to do it. This bill reforms the system, and I hope it is enacted. This conference report would not have been possible without the hard work of staff on both sides of the Capitol. I thank them for their efforts and submit the following list: Wall Street Reform--Staff House Financial Services Committee Jeanne Roslanowick Michael Beresik David Smith Adrianne Threatt Andrew Miller Daniel Meade Katheryn Rosen Kate Marks Kellie Larkin Tom Glassic Rick Maurano Tom Duncan Gail Laster Scott Olson Lawranne Stewart Jeff Riley Steve Hall Erika Jeffers Bill Zavarello Steve Adamske Elizabeth Esfahani Daniel McGlinchey Dennis Shaul Jim Segal Brendan Woodbury Patty Lord Lois Richerson Jean Carroll Kirk Schwarzbach Marcos Manosalvas Marcus Goodman Garett Rose Todd Harper Kathleen Mellody Jason Pitcock Charla Ouertatani Amanda Fischer Keo Chea Sanders Adu Hilary West Flavio Cumpiano Karl Haddeland Glen Sears Stephane LeBouder Office of Rep. Carolyn Maloney Kristin Richardson Office of Rep. Gregory Meeks Milan Dalal Office of Rep. Mary Jo Kilroy Noah Cuttler Office of Rep. Gary Peters Jonathan Smith House Agriculture Committee Clark Ogilvie House Budget Committee Greg Waring House Energy and Commerce Committee Phil Barnett Michelle Ash Anna Laitin House Judiciary Committee George Slover House Oversight and Government Reform Committee Mark Stephenson Adam Miles House Legislative Counsel Jim Wert Marshall Barksdale Brady Young Jim Grossman Senate Banking Committee Ed Silverman Amy Friend Jonathan Miller Dean Shahinian Julie Chon Charles Yi Marc Jarsulic Lynsey Graham Rea Catherine Galicia Matthew Green Deborah Katz Mark Jickling Donna Nordenberg Levon Bagramian Brian Filipowich Drew Colbert Misha Mintz-Roth Lisa Frumin William Fields Beth Cooper Colin McGinnis Neal Orringer Kirstin Brost Peter Bondi Sean Oblack Steve Gerenscer Dawn Ratliff Erika Lee Joslyn Hemler Caroline Cook Robert Courtney Abigail Dosoretz Senate Agriculture Committee Robert Holifield Brian Baenig Julie Anna Potts Pat McCarty George Wilder Matt Dunn Elizabeth Ritter Stephanie Mercier Anna Taylor Cory Claussen Senate Legislative Counsel Rob Grant Alison Wright Kim Albrecht-Taylor Colin Campbell Laura McNulty Ayoud Congressional Research Service Baird Webel

Mr. FRANK of Massachusetts. Mr. Speaker, producing this legislation has been one of the most impressive team efforts in which I have ever participated, and an indispensable member of the team going back to the early part of this century and his concern for mortgage lending and fairness in the rules is the gentleman from North Carolina (Mr. Watt) to whom I yield 3 minutes.

Mr. FRANK of Massachusetts. I would just say to the gentleman from New Jersey, I can only judge by what I see. When the House voted on this bill last December, the minority had certain amendments made in order by the rules, not as many as they would have liked or as I would have liked, but in the end they had the motion to recommit, over which they had complete editorial control. The motion to recommit on this version of this bill that passed the House last December from the minority said no regulation, no reform of regulation. It had one provision. It said kill everything in the bill. It didn't say do it differently. It didn't amend it. It didn't change it. It said do not change anything. Do not reform anything except end the TARP, which thanks to the Senate we are now doing in this bill. So I can only judge by what I see. When the gentleman says that, when the minority had a chance to offer their own version of this, they offered a version that said no, no reform, no change, no regulation, leave the status quo.

Mr. FRANK of Massachusetts. We do want to make sure it's an informed choice, and we're going to work on financial literacy. But, no, it is not our intention to deny anybody that choice.

Mr. FRANK of Massachusetts. If the gentleman would yield, the answer is absolutely. He has crafted this very well with our cooperation, and he has stated this completely accurately.

Mr. FRANK of Massachusetts. I yield 3\1/2\ minutes to the gentleman from Illinois (Mr. Gutierrez), who's the chairman of the Financial Institution Subcommittee and has done a great deal of work to improve our financial situation through this bill.

Mr. FRANK of Massachusetts. Mr. Speaker, pursuant to House Resolution 1490, I call up the conference report on the bill (H.R. 4173) to provide for financial regulatory reform, to protect consumers and investors, to enhance Federal understanding of insurance issues, to regulate the over-the-counter derivatives markets, and for other purposes, and ask for its immediate consideration.

Mr. FRANK of Massachusetts. I yield 2 minutes to the gentleman from Florida (Mr. Hastings).

Mr. FRANK of Massachusetts. I yield 1 minute to the gentleman from Georgia (Mr. Barrow).

Mr. FRANK of Massachusetts. Mr. Speaker, at the outset I ask unanimous consent that all Members have 5 legislative days in which to revise and extend their remarks on this matter.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 13 minutes of my time to the gentleman from Minnesota (Mr. Peterson), the chairman of the Agriculture Committee, our co-conferee, and ask unanimous consent that he control that time.

Mr. FRANK of Massachusetts. If the gentlewoman would yield. The answer is a resounding yes. And I certainly have been following her leadership in trying to make sure that these programs do more than many of them have done. So the answer to her question is yes. Nothing new can be started after June 25, but it does not reach back and strangle in the cradle those programs that were under way. I confirm that the conference report would not prevent adjusting resources between already initiated programs based on their effectiveness.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield 1 minute to the gentleman from Maryland (Mr. Hoyer), the majority leader.

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself 15 seconds to correct the gentleman. We have not created a consumer bureau under the Federal Reserve. It will be housed in the Federal Reserve. The Federal Reserve will have no ability to interfere. Some on the other side wish it would. But it will be a fully independent consumer bureau. It will get its mail at the Federal Reserve, but nobody there will be able to open it. I now yield 4 minutes to the gentleman from Pennsylvania (Mr. Kanjorski), one of the leaders in putting together this bill in the area specifically of investor protection. (Mr. KANJORSKI asked and was given permission to revise and extend his remarks.)

Mr. FRANK of Massachusetts. I yield 1\1/2\ minutes to a very diligent member of our committee who has fought hard for the manufacturing interests of this country, the gentleman from Michigan (Mr. Peters).

Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as I may consume to correct a very incomplete picture that was just given. The gentleman keeps quoting that one section. I'm astonished-- astonished--that he quotes it so blatantly out of context. Yes, there are powers that are given. Clearly, in the bill, it is only once the entity has been put into receivership on its way to liquidation. The gentleman from Alabama has several times today talked about the powers as if they were just randomly given. I will be distributing the entirety of this, and it is the most distorted picture of a bill I have seen. The title, by the way, is headed: Orderly Liquidation of Current Financial Companies. The purpose of this title is to provide the necessary authority to liquidate failing financial companies. Again, I am astonished that he would not give the Members the full picture that comes as part of a subtitle that reads: Funding for Orderly Liquidation.

Mr. FRANK of Massachusetts. I yield an additional 15 seconds to the gentleman.

Mr. FRANK of Massachusetts. Yes.

Mr. FRANK of Massachusetts. I yield the gentleman 15 additional seconds. And the gentleman is absolutely right. We do differentiate between end users and others. The marginal requirements are not on end users. They are only on the financial and major swap participants. And they are permissive. They are not mandatory, and they are going to be done, I think, with an appropriate touch. U.S. Senate, Washington, DC, June 30, 2010. Hon. Chairman Barney Frank, Financial Services Committee, House of Representatives, Rayburn House Office Building, Washington, DC. Hon. Chairman Collin Peterson, Committee on Agriculture, House of Representatives, Longworth House Office Building, Washington, DC. Dear Chairmen Frank and Peterson: Whether swaps are used by an airline hedging its fuel costs or a global manufacturing company hedging interest rate risk, derivatives are an important tool businesses use to manage costs and market volatility. This legislation will preserve that tool. Regulators, namely the Commodity Futures Trading Commission (CFTC), the Securities and Exchange Commission (SEC), and the prudential regulators, must not make hedging so costly it becomes prohibitively expensive for end users to manage their risk. This letter seeks to provide some additional background on legislative intent on some, but not all, of the various sections of Title VII of H.R. 4173, the Dodd-Frank Act. The legislation does not authorize the regulators to impose margin on end users, those exempt entities that use swaps to hedge or mitigate commercial risk. If regulators raise the costs of end user transactions, they may create more risk. It is imperative that the regulators do not unnecessarily divert working capital from our economy into margin accounts, in a way that would discourage hedging by end users or impair economic growth. Again, Congress clearly stated in this bill that the margin and capital requirements are not to be imposed on end users, nor can the regulators require clearing for end user trades. Regulators are charged with establishing rules for the capital requirements, as well as the margin requirements for all uncleared trades, but rules may not be set in a way that requires the imposition of margin requirements on the end user side of a lawful transaction. In cases where a Swap Dealer enters into an uncleared swap with an end user, margin on the dealer side of the transaction should reflect the counterparty risk of the transaction. Congress strongly encourages regulators to establish margin requirements for such swaps or security-based swaps in a manner that is consistent with the Congressional intent to protect end users from burdensome costs. In harmonizing the different approaches taken by the House and Senate in their respective derivatives titles, a number of provisions were deleted by the Conference Committee to avoid redundancy and to streamline the regulatory framework. However, a consistent Congressional directive throughout all drafts of this legislation, and in Congressional debate, has been to protect end users from burdensome costs associated with margin requirements and mandatory clearing. Accordingly, changes made in Conference to the section of the bill regulating capital and margin requirements for Swap Dealers and Major Swap Participants should not be construed as changing this important Congressional interest in protecting end users. In fact, the House offer amending the capital and margin provisions of Sections 731 and 764 expressly stated that the strike to the base text was made ``to eliminate redundancy.'' Capital and margin standards should be set to mitigate risk in our financial system, not punish those who are trying to hedge their own commercial risk. Congress recognized that the individualized credit arrangements worked out between counterparties in a bilateral transaction can be important components of business risk management. That is why Congress specifically mandates that regulators permit the use of non-cash collateral for counterparty arrangements with Swap Dealers and Major Swap Participants to permit flexibility. Mitigating risk is one of the most important reasons for passing this legislation. Congress determined that clearing is at the heart of reform--bringing transactions and counterparties into a robust, conservative and transparent risk management framework. Congress also acknowledged that clearing may not be suitable for every transaction or every counterparty. End users who hedge their risks may find it challenging to use a standard derivative contracts to exactly match up their risks with counterparties willing to purchase their specific exposures. Standardized derivative contracts may not be suitable for every transaction. Congress recognized that imposing the clearing and exchange trading requirement on commercial end-users could raise transaction costs where there is a substantial public interest in keeping such costs low (i.e., to provide consumers with stable, low prices, promote investment, and create jobs.) Congress recognized this concern and created a robust end user clearing exemption for those entities that are using the swaps market to hedge or mitigate commercial risk. These entities could be anything ranging from car companies to airlines or energy companies who produce and distribute power to farm machinery manufacturers. They also include captive finance affiliates, finance arms that are hedging in support of manufacturing or other commercial companies. The end user exemption also may apply to our smaller financial entities-- credit unions, community banks, and farm credit institutions. These entities did not get us into this crisis and should not be punished for Wall Street's excesses. They help to finance jobs and provide lending for communities all across this nation. That is why Congress provided regulators the authority to exempt these institutions. This is also why we narrowed the scope of the Swap Dealer and Major Swap Participant definitions. We should not inadvertently pull in entities that are appropriately managing their risk. In implementing the Swap Dealer and Major Swap Participant provisions, Congress expects the regulators to maintain through rulemaking that the definition of Major Swap Participant does not capture companies simply because they use swaps to hedge risk in their ordinary course of business. Congress does not intend to regulate end-users as Major Swap Participants or Swap Dealers just because they use swaps to hedge or manage the commercial risks associated with their business. For example, the Major Swap Participant and Swap Dealer definitions are not intended to include an electric or gas utility that purchases commodities that are used either as a source of fuel to produce electricity or to supply gas to retail customers and that uses swaps to hedge or manage the commercial risks associated with its business. Congress incorporated a de minimis exception to the Swap Dealer definition to ensure that smaller institutions that are responsibly managing their commercial risk are not inadvertently pulled into additional regulation. Just as Congress has heard the end user community, regulators must carefully take into consideration the impact of regulation and capital and margin on these entities. It is also imperative that regulators do not assume that all over-the-counter transactions share the same risk profile. While uncleared swaps should be looked at closely, regulators must carefully analyze the risk associated with cleared and uncleared swaps and apply that analysis when setting capital standards for Swap Dealers and Major Swap Participants. As regulators set capital and margin standards on Swap Dealers or Major Swap Participants, they must set the appropriate standards relative to the risks associated with trading. Regulators must carefully consider the potential burdens that Swap Dealers and Major Swap Participants may impose on end user counterparties--especially if those requirements will discourage the use of swaps by end users or harm economic growth. Regulators should seek to impose margins to the extent they are necessary to ensure the safety and soundness of the Swap Dealers and Major Swap Participants. Congress determined that end users must be empowered in their counterparty relationships, especially relationships with swap dealers. This is why Congress explicitly gave to end users the option to clear swaps contracts, the option to choose their clearinghouse or clearing agency, and the option to segregate margin with an independent 3rd party custodian. In implementing the derivatives title, Congress encourages the CFTC to clarify through rulemaking that the exclusion from the definition of swap for ``any sale of a nonfinancial commodity or security for deferred shipment or delivery, so long as the transaction is intended to be physically settled'' is intended to be consistent with the forward contract exclusion that is currently in the Commodity Exchange Act and the CFTC's established policy and orders on this subject, including situations where commercial parties agree to ``book-out'' their physical delivery obligations under a forward contract. Congress recognized that the capital and margin requirements in this bill could have an impact on swaps contracts currently in existence. For this reason, we provided legal certainty to those contracts currently in existence, providing that no contract could be terminated, renegotiated, modified, amended, or supplemented (unless otherwise specified in the contract) based on the implementation of any requirement in this Act, including requirements on Swap Dealers and Major Swap Participants. It is imperative that we provide certainty to these existing contracts for the sake of our economy and financial system. Regulators must carefully follow Congressional intent in implementing this bill. While Congress may not have the expertise to set specific standards, we have laid out our criteria and guidelines for implementing reform. It is imperative that these standards are not punitive to the end users, that we encourage the management of commercial risk, and that we build a strong but responsive framework for regulating the derivatives market. Sincerely, Chairman Christopher Dodd, Senate Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Chairman Blanche Lincoln, Senate Committee on Agriculture, Nutrition, and Forestry, U.S. Senate.

Mr. FRANK of Massachusetts. Mr. Speaker, to begin, I want to yield for a colloquy 3 minutes to one of the leaders in the House and certainly in our committee in forging this particular legislation and in fighting to make sure that fairness is done throughout all of our efforts, the gentlewoman from California (Ms. Waters).

Mr. FRANK of Massachusetts

Mr. FRANK of Massachusetts. If the gentleman would yield, he's completely correct. The Federal Reserve has the mandate under this, which originated in the Senate, to write those rules. We intend to make sure those rules protect a number of things: smaller financial institutions from being discriminated against since they're exempt from the regulation, State benefit programs, and these. So the gentleman is absolutely correct, and I can assure him that I expect the Federal Reserve to honor that. And if there is any question about it, I am sure we will be able to make sure that it happens.