seen so far. the attempts to address capital markets and their role as the “ financial foundation for main street, ” appear to place a much higher value on rhetoric than on substance and necessary reform. as a nation, we have violated the central tenants of any successful system. we have seen the formation of a powerful group of financial firms. we have inadvertently granted them implied guarantees and favors, and we have suffered the consequences. we must correct these violations. we must reinvigorate fair competition within our system in a culture of business ethics that operates under the rule of law. when we do this, we will not eliminate the small businesses ’ need for capital, but we will make access to capital once again earned, as it should be. the inevitable crisis the banking system has gone through an unprecedented era of change starting in the 1980s when lawmakers began removing the roadblocks to interstate banking. this evolution continued to pick up speed in the years that followed through a number of legislative moves that validated the creation of ever larger banks. the scope of activities continued to grow through the 1990s and by the end of the decade we saw the merger between citicorp and travelers group. that merger required the divestiture of certain activities, but this became unnecessary with the passage of the gramm - leach - bliley act. the legislation allowed a single financial company to engage in commercial banking, investment banking, insurance underwriting and brokerage. this expansion of activities, some argued, created a stronger system overall because the institutions were more diversified. for example, rather than being entirely reliant on a single community or industry, such as real estate, a stronger system was being created because banks were serving a broader nationwide base. a downturn in a single market would be offset by stability in other areas. although this new era of finance was widely supported, a critical ingredient was missing on the road to expansion and innovation : a framework that would limit dangerous excesses or the development of perverse incentives. undoubtedly, the most important omission was a way to deal with the larger firms that were using the new growth opportunities to become “ too big to fail ( tbtf ). ” although banking legislation in 1991 specifically tried to limit the federal deposit insurance corporation ’ s ( fdic ) ability to protect failing banks and their creditors, regulators could make an exception for large institutions whose failure might pose a threat to the economy or to financial stability. as a result, tbtf was embedded in our

’ s condition and the amount of leverage. not only do these firms get to use more debt, but the debt is cheaper. this framework has failed to serve us well. during the recent financial crisis, losses quickly depleted the capital of these large, over - leveraged companies. as expected, these firms were rescued using government funds from the troubled asset relief program ( tarp ). the result was an immediate reduction in lending to main street, as the financial institutions tried to rebuild their capital. although these institutions have raised substantial amounts of new capital, much of it has been used to repay the tarp funds instead of supporting new lending. in other words, i suggest that our economy would be better served by a more diverse financial system. certainly community and regional banking organizations were hurt by the financial crisis and recession and many of these firms are facing large losses associated with problems in commercial real estate and other lending areas. but despite these problems, many smaller banks have continued to lend. in 2009, 45 percent of banks with assets under $ 1 billion increased their business lending. policy changes all of these events bring us to where we are today, talking about the lack of credit availability for main street. the good news, such as it is, is that the market is slowly correcting, and credit growth is or will begin flowing to main street, providing job growth and economic recovery. however, it will not be rapid or easy. the fact is that main street will not prosper without a healthy financial system. we will not have a healthy financial system now or in the future without making fundamental changes that reverse the wrong - headed incentives, change behavior and reinforce the structure of our financial system. these changes must be made so that the largest firms no longer have the incentive to take too much risk and gain a competitive funding advantage over smaller ones. credit must be allocated efficiently and equitably based on prospective economic value. without these changes, this crisis will be remembered only in textbooks and then we will go through it all again. as steps toward avoiding this outcome and to assure a more consistent allocation to main street, i have three recommendations. first, we must enable capitalism to work and reduce the incentive of our largest financial institutions to take on too much risk by allowing them to fail in an orderly manner. this can be accomplished, but to do so, we must have a credible resolution process that forces shareholders, responsible senior management, and creditors to incur loss if the company takes on excessive risk and