Deputy Secretary Neal Wolin Remarks before the Financial Ind

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Deputy Secretary Neal Wolin Remarks before the Financial Industry Regulatory Authority's Annual Conference
Baltimore, MD
As Prepared for Delivery
Thanks very much for that kind introduction. It's a pleasure to be here this morning.
Just under a year ago, in the wake of the worst financial crisis since the Great Depression, President Obama put forward a comprehensive, detailed proposal to reform financial regulation.
The proposal was designed to address the key causes of the crisis; to lay the foundation for a safer, more stable financial system; and to make sure that the financial system works for American families and small businesses, not just for the largest financial firms.
Last December, under the leadership of Chairman Frank, the House passed a strong bill, substantially consistent with the President's plan. And last week, under the leadership of Chairman Dodd, despite formidable procedural obstacles, the Senate passed its own bill – also strong, and also substantially consistent with what the President put forward.
There is plenty of work left to do. The House and Senate bills, while both strong and broadly consistent, have their differences. Those differences will have to be reconciled in conference in the coming weeks.
But while there may be uncertainty about the ultimate fate or form of one particular provision or another, the mystery is for the most part gone. The parameters of the ultimate financial reform bill are largely set.
So I'd like to start by walking through, briefly, some of the key elements of the House and Senate bills – those places where it is now clear, I think, what the final financial reform bill will accomplish.
When the President signs a financial reform bill, it will put an end the corrosive, costly problem of "Too Big to Fail." Under both the House and Senate bills, the federal government will get the tools to shut down large, failing financial firms in an orderly way – without putting the rest of the financial system or the taxpayers at risk.
The effect of those provisions is plain: in the future, no firm will be insulated from the consequences of its actions, no firm will be protected from failure, and taxpayers will not foot the bill for Wall Street's mistakes. Future Administrations will never again be forced to choose between bailouts and economic collapse.
When the President signs a financial reform bill, there will be – for the first time – a single agency dedicated to consumer financial protection.
Today, seven different federal agencies have authority to write rules for consumer financial products and services, enforce the rules, or both. But none of them sees consumer financial protection as its top priority. And large parts of the consumer financial marketplace still operate without meaningful federal oversight.
And as anyone knows who has ever tried to cut through the jungle of mortgage disclosure forms, or discovered that the interest rates on their credit card balance went up retroactively, the current approach to consumer financial protection is utterly inadequate.
This failed, fragmented system will be substantially consolidated into one independent consumer financial protection agency with a clear mission: to promote transparency and consumer choice and to prevent abusive and deceptive practices.
When the President signs financial reform, the multi-trillion dollar derivatives market will be brought under a sensible, thorough regulatory regime.
Businesses large and small depend on the smooth functioning of the derivatives markets. But today, the market for derivatives operates largely in the shadows.
Instead of the opaque, unregulated market we have today, both the House and Senate bills provide for strong regulation and transparency for all derivatives. Standardized derivatives will be centrally cleared and traded. Over the counter derivative dealers and all other major OTC market participants will be subject to strong prudential standards and regulation. And the SEC and CFTC will have full enforcement authority, to monitor markets, set position limits and take action against manipulation and abuse.
By bringing the derivatives markets out of the shadows, reform will benefit those businesses that use derivatives to manage their real risks. That's good for every farmer and every manufacturer that uses derivatives the way they were meant to be used. And it's good for all of us who have a stake in the basic stability of the financial system.
When the President signs financial reform, those firms that pose the most risk will be subject to tighter, tougher regulation – regardless of their corporate form;
advisers to hedge funds will have to register with the SEC for the first time, bringing transparency and oversight to these unregulated financial firms;
securitizers of mortgage- or other asset-backed securities will be required to have skin in the game and to disclose the loans that make up those securities;
shareholders will have a say in the compensation of senior executives at the companies they own;
the SEC will have the explicit authority to prohibit or limit the use of mandatory binding arbitration agreements.
These reforms are long overdue. These reforms are important. And looking at the House and the Senate bills today, I think we can say with confidence that these reforms – along with many others – are moving swiftly towards enactment. When the President signs financial reform, he will sign a bill that is comprehensive, far-reaching, and that addresses the core causes of the financial crisis.
All that said, there are still real issues at stake in the conference process. Financial reform is complex. The details matter. And so, as conferees begin the process of reconciling the remaining differences in the two bills, we will continue to fight for the strongest financial reform bill possible. And we will oppose any attempts by particular interests to use the conference process as an opportunity to weaken the final bill.
Just a few examples:
First, we remain focused on an issue that I know is of particular relevance to many of you here: fiduciary duty. We believe that retail brokers offering investment advice should be subject to the same fiduciary standard of care as investment advisors, and we will work to include that provision in the final bill. Clients receiving investment advice don't distinguish between broker-dealers and investment advisors and neither should the law.
I want to commend FINRA for its leadership on this issue. Rick [Ketchum], I know that you have been an outspoken advocate not only for harmonizing the standard of care but for taking additional measures to ensure that firms live up to that standard in practice.
Second, we oppose efforts to weaken the consumer protection agency – including, in particular, the carve-out for auto dealers.
Despite the fact that the auto dealers originate almost eighty percent of the auto loans in this country – and despite the fact that, after homes, automobile purchases are the most significant financial investments most American families make – the dealer-lenders have lobbied vigorously for a carve-out.
Following the lead of our colleagues at the Defense Department, who have expressed particular concern over the unscrupulous auto lending practices targeted at service-members, we will fight hard on this front. The issue is simple: We have no interest in interfering with car dealers' ability to sell cars. But where car dealers act like banks or like other non-bank financial companies, they should be subject to the same consistent rules of the road. American families and Americans serving in uniform deserve nothing less.
Third, we will work hard to include the so-called "Volcker Rule" provisions, which would protect taxpayers and depositors by separating "proprietary trading" from the business of banking – and, in addition, would limit the size of financial firms by preventing acquisitions that would result in a concentration of more than ten percent of the liabilities in the financial system. Fourth, we will advocate for inclusion of the strong rules on conflicts of interest and transparency at Credit Rating Agencies.
And fifth, with respect to resolution authority, we will seek to ensure that there are sensible safeguards in place to prevent resolution authority from being used unless absolutely necessary – but that regulators retain the ability to act swiftly and effectively in times of crisis, to protect taxpayers and to minimize the risk of panic or contagion.
These are just a few of the issues that Chairman Dodd, Chairman Frank and their fellow conferees will likely consider in the coming weeks. These issues matter, and the Administration intends to remain deeply engaged through the remainder of the legislative process.
We take nothing for granted. But it's important recognize just how far we have come. While serious work remains to be done, both houses have already risen to the moment and – with the tremendous leadership of Chairmen Frank and Dodd– have passed the most far-reaching financial regulatory reforms in generations.
Congress is now in the homestretch. Nearly two years after irresponsible risk-taking and lax oversight brought our financial system to the edge of catastrophic collapse, the President looks forward to signing a strong, comprehensive financial reform bill.
Thank you.
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