Statement of
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation
On
Implementing the Dodd-Frank Wall Street Reform
And
Consumer Protection Act
Before the
Committee on Banking, Housing,
And
Urban Affairs, U.S. Senate
538 Dirksen Senate Office Building
September 30, 2010
Chairman Dodd, Ranking Member Shelby and members of the Committee, I appreciate
the opportunity to testify on the priorities of the Federal Deposit Insurance Corporation
(FDIC) for implementing the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the Dodd-Frank Act). I also want to thank the Committee members and
staff for their hard work to enact this landmark legislation. With new resolution powers
for non-bank financial companies, the establishment of the Financial Stability Oversight
Council and the creation of the Consumer Financial Protection Bureau (CFPB), the
Dodd-Frank Act provides financial regulators with the tools that are needed to protect
against future financial crises.
In addition to specific requirements to strengthen our financial system, there are
important areas where the Dodd-Frank Act establishes broad policy direction while
leaving the details of implementation to financial regulators. Implementing the Dodd-
Frank Act in a way that will enhance the stability of our financial system as Congress
intended, and not just as a regulatory compliance exercise, is a responsibility that the
FDIC views with utmost importance.
The Dodd-Frank Act assigns the FDIC a large number of responsibilities for
implementing reform. The FDIC is authorized to write 44 rulemakings – some of which
are discretionary – including 18 independent and 26 joint rulemakings, new or enhanced
enforcement authorities, new reporting requirements and numerous other actions.
Implementation will require extensive coordination among the regulatory agencies and
will fundamentally change the way we regulate large complex financial institutions.
It is imperative that regulators work together, with both speed and openness in the
implementation of the Dodd-Frank Act in order to dispel uncertainties and foster a
smooth transition by the industry. To achieve this end, the FDIC has already taken
several steps to enhance the transparency of our rulemaking process. First, we
announced that we would hold a series of public roundtables with external parties to
discuss particular aspects of implementation and to provide input on draft regulations to
carryout the Act. To date, we have held two roundtables. The first focused on the new
Sheila C. Bair, Chairman,
Federal Deposit Insurance Corporation
On
Implementing the Dodd-Frank Wall Street Reform
And
Consumer Protection Act
Before the
Committee on Banking, Housing,
And
Urban Affairs, U.S. Senate
538 Dirksen Senate Office Building
September 30, 2010
Chairman Dodd, Ranking Member Shelby and members of the Committee, I appreciate
the opportunity to testify on the priorities of the Federal Deposit Insurance Corporation
(FDIC) for implementing the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010 (the Dodd-Frank Act). I also want to thank the Committee members and
staff for their hard work to enact this landmark legislation. With new resolution powers
for non-bank financial companies, the establishment of the Financial Stability Oversight
Council and the creation of the Consumer Financial Protection Bureau (CFPB), the
Dodd-Frank Act provides financial regulators with the tools that are needed to protect
against future financial crises.
In addition to specific requirements to strengthen our financial system, there are
important areas where the Dodd-Frank Act establishes broad policy direction while
leaving the details of implementation to financial regulators. Implementing the Dodd-
Frank Act in a way that will enhance the stability of our financial system as Congress
intended, and not just as a regulatory compliance exercise, is a responsibility that the
FDIC views with utmost importance.
The Dodd-Frank Act assigns the FDIC a large number of responsibilities for
implementing reform. The FDIC is authorized to write 44 rulemakings – some of which
are discretionary – including 18 independent and 26 joint rulemakings, new or enhanced
enforcement authorities, new reporting requirements and numerous other actions.
Implementation will require extensive coordination among the regulatory agencies and
will fundamentally change the way we regulate large complex financial institutions.
It is imperative that regulators work together, with both speed and openness in the
implementation of the Dodd-Frank Act in order to dispel uncertainties and foster a
smooth transition by the industry. To achieve this end, the FDIC has already taken
several steps to enhance the transparency of our rulemaking process. First, we
announced that we would hold a series of public roundtables with external parties to
discuss particular aspects of implementation and to provide input on draft regulations to
carryout the Act. To date, we have held two roundtables. The first focused on the new
orderly liquidation authority provisions of the Dodd-Frank Act. The second roundtable
addressed the FDIC's current Deposit Insurance Fund (DIF) management and risk-
based assessment system and changes made by the Dodd-Frank Act. Information on
our roundtables is posted on our public website.
The FDIC is also disclosing on our website the names and affiliations of private sector
individuals who meet with senior FDIC officials to discuss how the FDIC should interpret
or implement provisions of the Dodd-Frank Act that are subject to independent or joint
rulemaking. Moreover, in addition to the longstanding practice of publishing public
comments on our website that are received through our rulemaking process, we are
encouraging general input from the public on how the FDIC should implement the new
law. The comments already received have been published on our website and we will
continue this practice in advance of formal rulemaking.
Implementation of Dodd-Frank
The recent financial crisis exposed the short-comings of the current regulatory regime
for addressing large, non-bank financial companies that posed systemic risk.
Specifically, the government was forced to either prop up a failing institution with
expensive bailouts or allow a disorderly liquidation through the normal bankruptcy
process. The bankruptcy of Lehman Brothers triggered a liquidity crisis that led to the
bailout of AIG and massive public assistance to most major U.S. banking organizations.
An orderly closure and liquidation is essential if we are to prevent such crises from
occurring in the future. Many provisions of the Dodd-Frank Act are designed to reduce
risk to the financial system and economy by enhancing the supervision of large non-
financial companies or by facilitating their orderly closing and liquidation in the event of
failure. The Dodd-Frank Act provides a new comprehensive regulatory regime that,
coupled with higher capital standards, is designed to reduce risk in both individual firms
and the wider financial system. Further, in order to reduce risk in the system to
reasonable levels, it must be made clear to these companies that their financial folly
could result in losses to shareholders and bondholders and in the dismissal of their
senior managers.
My testimony reviews the top priorities of the FDIC in implementing the Dodd-Frank Act,
which include: resolution plan requirements and orderly liquidation authority, systemic
risk oversight, capital and liquidity requirements, and consumer protection. In addition, I
will discuss other important implementation issues with respect to reliance on credit
rating agencies, back-up examination and enforcement authorities, supervision of state
chartered thrifts and changes to the deposit insurance system that should smooth the
effect of economic cycles on IDIs by maintaining steady assessment rates and allowing
the FDIC to maintain a positive fund balance during a financial crisis.
Orderly Liquidation Authority and Resolution Plans
The new resolution plan requirements and orderly liquidation authority are fundamental
tools necessary to close large, systemically important financial companies and end "Too
addressed the FDIC's current Deposit Insurance Fund (DIF) management and risk-
based assessment system and changes made by the Dodd-Frank Act. Information on
our roundtables is posted on our public website.
The FDIC is also disclosing on our website the names and affiliations of private sector
individuals who meet with senior FDIC officials to discuss how the FDIC should interpret
or implement provisions of the Dodd-Frank Act that are subject to independent or joint
rulemaking. Moreover, in addition to the longstanding practice of publishing public
comments on our website that are received through our rulemaking process, we are
encouraging general input from the public on how the FDIC should implement the new
law. The comments already received have been published on our website and we will
continue this practice in advance of formal rulemaking.
Implementation of Dodd-Frank
The recent financial crisis exposed the short-comings of the current regulatory regime
for addressing large, non-bank financial companies that posed systemic risk.
Specifically, the government was forced to either prop up a failing institution with
expensive bailouts or allow a disorderly liquidation through the normal bankruptcy
process. The bankruptcy of Lehman Brothers triggered a liquidity crisis that led to the
bailout of AIG and massive public assistance to most major U.S. banking organizations.
An orderly closure and liquidation is essential if we are to prevent such crises from
occurring in the future. Many provisions of the Dodd-Frank Act are designed to reduce
risk to the financial system and economy by enhancing the supervision of large non-
financial companies or by facilitating their orderly closing and liquidation in the event of
failure. The Dodd-Frank Act provides a new comprehensive regulatory regime that,
coupled with higher capital standards, is designed to reduce risk in both individual firms
and the wider financial system. Further, in order to reduce risk in the system to
reasonable levels, it must be made clear to these companies that their financial folly
could result in losses to shareholders and bondholders and in the dismissal of their
senior managers.
My testimony reviews the top priorities of the FDIC in implementing the Dodd-Frank Act,
which include: resolution plan requirements and orderly liquidation authority, systemic
risk oversight, capital and liquidity requirements, and consumer protection. In addition, I
will discuss other important implementation issues with respect to reliance on credit
rating agencies, back-up examination and enforcement authorities, supervision of state
chartered thrifts and changes to the deposit insurance system that should smooth the
effect of economic cycles on IDIs by maintaining steady assessment rates and allowing
the FDIC to maintain a positive fund balance during a financial crisis.
Orderly Liquidation Authority and Resolution Plans
The new resolution plan requirements and orderly liquidation authority are fundamental
tools necessary to close large, systemically important financial companies and end "Too