Date: 2016-04-14
Speaker: MAXINE WATERS (democrat)
Chamber: H
State: California

Mr. Speaker. I yield myself such time as I may consume. I would like to take a moment and talk about why we created the FSOC and the OFR in the very first place since my Republican colleagues seem to think that more regulatory cooperation and the overseeing of our financial system is such a bad thing. Simply put. we created FSOC to look across regulatory silos and detect. prevent. and mitigate systemic risk in the U.S. financial system so that we would never again be caught off guard when major financial firms. like AIG. fail. Recall that AIG created an entire business model that was designed to avoid regulation. which sent its major operations and risky credit default swaps to the Londonbased unit. AIG Financial Products. which. in turn. was guaranteed by the U.S. parent company. What is more. AIG was allowed to select as a regulator the Office of Thrift Supervision. OTS. According to the Financial Crisis Inquiry Commission. which is the FCIC. the OTS failed to effectively exercise its authority over AIG and its affiliates. It lacked the capability to supervise an institution of the size and complexity of AIGs. It did not recognize the risk inherent in AIGs sales of credit default swaps. and it did not understand its responsibility to oversee the entire company. including AIG Financial Products. As we all know. this regulatory arbitrage ultimately spelled failure for AIG because its enormous sales of credit default swaps were made without putting up initial collateral. setting aside capital reserves. or hedging its exposurea profound failure in corporate governance. particularly in its risk management practices. In having just witnessed the takeover of Merrill Lynch by Bank of America and the bankruptcy of Lehman Brothers a mere 24 hours before. the U.S. Government stepped in and committed more than $180 billion to ensure that AIGs collapse didnt bring down the rest of the financial system to which it was so interconnected. From there. the Bush administration requested the authority to bail out the big banks. When the dust began to settle. Democrats in Congress worked to come up with a solution to eliminate this regulatory arbitrage and encourage our financial regulators to communicate with one another. Of course. the commonsense solution was to create a council on which each of our financial regulators had a voice and could meet to consider gaps between the agencies interconnectedness within the financial sector. This council would also hold each regulator accountable to how the regulators as a whole were mitigating systemic risk to our economy. To help inform and support the council. we created the Office of Financial Research to research and report on potential systemic risk to our economy. DoddFrank ensured that the council of the OFR and that Congress would all be focused on emerging threats to our economy and would never be caught unawares by another AIG. H.R. 3340. however. undermines these reforms. and it should be opposed. Mr. Speaker and Members. many of the Members on the opposite side of the aisle are talking about our oversight responsibility. but they dont even exercise oversight responsibility or get the regulators in and have a real discussion with them about how it all works. AIG was complicated. None of the Members of Congress really understood how it operated. how it was formed. how it was set up. and what it was doing. We have learned our lesson from AIG. and I hope that the Members of this Congress will not forget it. I reserve the balance of my time.