WASHINGTON, D.C. – U.S. Senator Susan Collins today spoke on the Senate floor regarding an amendment she has introduced to the financial regulatory reform legislation currently being considered by the Senate. The amendment, which is cosponsored by Senator Jeanne Shaheen (D-NH), would help prevent future economic crises by directing regulators to impose tough risk- and size-based capital standards on financial institutions. Senator Collins’ amendment has been endorsed by Sheila Bair, Chairman of the Federal Deposit Insurance Corporation (FDIC).
The full text of Senator Collins’ remarks is as follows:
“Mr. President, I rise today to speak on behalf of my amendment to direct regulators to impose tough risk-and sized-based capital standards on financial institutions as they grow in size, or engage in risky business practices. I am pleased to offer this amendment on behalf of Senator Shaheen and myself.
“Our amendment is aimed at addressing the “too big to fail” problem at the root of the current crisis by requiring financial firms to have adequate amounts of cash and other liquid assets to survive financial challenges without turning to the taxpayers for a bailout. It is critical to our ability to avoid future crises that this amendment be adopted.
“Mr. President, I am pleased that FDIC Chairman Sheila Bair has strongly endorsed our amendment. In a recent letter to me, Chairman Bair called the proposal “a critical element to ensure that U.S. financial institutions hold sufficient capital to absorb losses during future periods of financial stress. With new resolution authority, taxpayers will no longer bail out large financial institutions. This makes it imperative that they have sufficient capital to stand on their own in times of adversity.”
“Chairman Bair also noted the importance of ensuring that bank holding companies and large nonbanks are held to the same capital and risk standards that apply to insured banks, in order to protect against excessive leverage that could destabilize our financial system. As Chairman Bair put it, “the amendment accomplishes this goal simply and directly.”
“It makes no sense that the capital and risk standards for our nation’s largest financial institutions are more lenient than those that apply to smaller depository banks, when the failure of larger institutions is much more likely to have a broad economic impact. Yet, that is currently the case. We must give the regulators the tools – and the direction – to address this problem.
“If financial firms, including bank holding companies, were required to meet stronger capital standards, they would be far less likely to fail and to trigger the kind of cascade of economic harm that we have been experiencing since 2008.
“Our amendment directs federal regulators to impose minimum leverage and risk-based capital requirements on banks, bank holding companies, and non-bank financial firms identified by the new Financial Stability Oversight Council for supervision by the Federal Reserve. Neither current law nor the Senate Banking Committee bill requires regulators to adjust capital standards for risk factors as financial institutions grow in size or engage in risky practices.
“The current Senate financial regulatory reform bill also does not require regulators to apply minimum capital and risk measures across financial institutions as would be required by our amendment. As the FDIC Chairman Sheila Bair has noted about the financial crisis: “Far from being a source of strength to banks . . ., holding companies became a source of weakness requiring federal support . . . they cannot operate under consolidated capital requirements that are numerically lower and qualitatively less stringent than those that apply to insured banks.”
“Our amendment would tighten the standards that would apply to larger financial institutions by requiring them to meet, at a minimum, standards that already apply to small banks.
“Mr. President, I ask unanimous consent that Chairman Bair’s letter be placed in the record immediately following my remarks.
“I had the privilege of serving the people of Maine as a financial regulator for five years, about 20 years ago. This is an issue that I Care deeply about, and am committed to helping forge a solution to, so that never again can the problems and excesses of Wall Street have such dire consequences for Main Street.
“Increasing capital requirements as firms grow provides a disincentive to their becoming ‘too big to fail’ in the first place and ensures an adequate capital cushion in difficult economic times. By directing the regulators to establish capital standards that take size and risk into account, our amendment strengthens the economic foundation of large financial firms, increases oversight and accountability, and helps prevent the excesses that contributed to the deep recession that has cost millions of Americans their jobs.
“I urge my colleagues to support this amendment.”