BigNews.Biz - Jun 10,2012 - Shelby: Bank Regulators Must Protect Taxpayers
U.S. Senator Richard Shelby (R-Ala.), ranking Republican on the Committee on Banking, Housing and Urban Affairs, made the following statement at a hearing on financial reform and the effectiveness of banking regulators in fostering the safety and soundness of the financial system:
Statement of Senator Richard C. Shelby
Committee on Banking, Housing and Urban Affairs
“Thank you, Mr. Chairman.
“The Committee will hear from the financial regulators who supervise our nation’s banks. The safety and soundness of our banking system depends on their efforts.
“It was not so long ago, however, that our banking system began to collapse, notwithstanding the presence of a large and vigorous regulatory structure. Hence, it is critical that this Committee conduct rigorous oversight to ensure that the financial regulators do not repeat the mistakes of the past.
“As the primary regulator of national banks, the OCC is responsible for ensuring the safety and soundness of the largest banks. This means that the OCC supervises JPMorgan Chase, whose recent $2+ billion trading loss has been in the news. Because taxpayers guarantee JPMorgan’s deposits, the American public has a right to know whether these trades threatened, or could have threatened, the solvency of the bank.
“In addition, this Committee has an obligation to determine whether this loss reveals any operational or regulatory weakness that could cause more serious problems in the future. Next week, JPMorgan’s CEO, Jamie Dimon, will appear before this Committee to explain his bank’s actions.
“Today, I would like to hear the OCC’s views on what happened at JPMorgan. In particular, the Comptroller should give us his assessment of whether these trades ever threatened the safety and soundness of one of our nation’s largest banks.
“Banks are in the business of taking risks, and losses are an inescapable part of risk taking. Job creation and economic growth depend on banks taking such risks. It is the job of regulators, however, to prevent banks from taking risks that expose taxpayers.
“Some have used JPMorgan’s loss as an opportunity to argue for a stronger implementation of the Volcker rule. No matter where you stand on the Volcker rule, this argument is a bit premature. Most importantly, was the OCC’s current authority sufficient to prevent these trades from putting taxpayers at risk? If so, did the OCC properly use its authority? I look forward to hearing the Comptroller’s answers to these questions.
“Also with us today is the Acting Chairman of the FDIC.
“We have been told that Dodd-Frank will prevent future taxpayer bailouts and that insolvent financial institutions will be allowed to fail. Yet, under the FDIC’s plan for implementing Dodd-Frank’s resolution authority, short-term creditors would still be bailed out. The lesson we all should have learned from the TARP bailouts is that creditors of a failed firm should bear its losses.
“Today, I hope Acting Chairman Gruenberg can reassure this Committee that the FDIC’s resolution authority will not institutionalize government bailouts. Regrettably, the FDIC is not the only regulator