FROM: COMMODITY FUTURES TRADING COMMISSION
Statement of Chairman Gary Gensler before the Financial Stability Oversight Council
December 9, 2013
I want to thank Secretary Lew for his kind words.
Five years ago when President-elect Obama asked me to serve, the economy was in a free fall. Americans were paying for the crisis with their jobs, their pensions and their homes.
Our financial system and our financial regulatory system had failed the American public.
Since then, the dedicated staffs of the Financial Stability Oversight Council’s (FSOC) member agencies have been hard at work to ensure finance better serves the economy.
Finance is but one part of our interconnected economy. The vast majority of opportunity, growth and innovation are outside of finance. In fact, 94 percent of private sector jobs are not in finance.
Finance best serves the economy when markets operate under common-sense rules of the road.
President Roosevelt understood this when he, along with Congress, transformed markets. Their reforms – enhancing transparency, access, and competition in the futures and securities markets and overhauling the nation’s banking laws – established the foundation for the U.S. economic growth engine for decades.
Five years ago President Obama and Congress faced similar challenges in the aftermath of this era’s financial crisis – how to modernize finance’s rules of the road so they work best for the public.
Through Dodd-Frank reforms, many of which now have been implemented by FSOC member agencies, much progress has been made.
First, at the heart of reform is ensuring that the largest financial institutions in our free-market system have the freedom to fail. That was true for my dad’s small family business in Baltimore. Nobody would have bailed him out if he didn’t make payroll each Friday.
That’s why I was pleased last month when Moody’s removed the uplift in credit ratings of the largest bank holding companies that had come from perceived government support. This is a real testament to the work of the Federal Deposit Insurance Corporation and the Federal Reserve, under the leadership of Chairmen Martin Gruenberg and Ben Bernanke and Governor Daniel Tarullo.
Second, due to the U.S. banking regulators working hand-in-hand with international regulators, tougher capital and liquidity standards are becoming a reality. Further, annual stress tests of large banks determine if capital levels are sufficient.
Third, we now have an agency – with the energetic leadership of Richard Cordray – whose key mission is ensuring consumers are protected from predatory lending practices and get a fair deal on financial products from mortgages to credit cards.
Fourth, thanks to the leadership of Chairs Mary Schapiro and Mary Jo White at the Securities and Exchange Commission (SEC), we now have real transparency into the hedge fund world and are addressing the risks of potential runs on money market funds.
Fifth, the swaps market, which was at the heart of the crisis, has been completely transformed. Bright lights of transparency now are shining on the $380 trillion market. The public can see the price and volume of every transaction, like a modern-day tickertape. Regulated trading platforms are trading a quarter of a trillion dollars in swaps each day. And more than 70 percent of the interest rate swaps market is now in central clearing – lowering risk and bringing access to everyone wishing to compete.
Sixth, each of us has been vigorous cops on the beat going after bad actors in the markets. The CFTC, working with the Department of Justice and the SEC, exposed the pervasive rigging of interest rate benchmarks and changed the entire public debate regarding LIBOR and other benchmarks.
I particularly want to thank the members of this council for the strong public policy statements included in the FSOC annual report calling for international regulators and market participants to find and transition to a replacement for LIBOR.
Lastly, is the benefit of this council. Through the leadership of Secretaries Geithner and Lew, and the collaboration of everyone around this table, we have become a real deliberative body. We have enhanced the lines of communication between the agencies, whether it’s the day to day assessing of risks in our financial system or working through the reform agenda. This week, for example, the Volcker Rule will be finalized based on our collaborative work.
Taken as a whole, the Dodd-Frank common-sense rules of the road have been truly transformative. These reforms are helping finance better serve the rest of the economy.
Once again, I want to thank all of you. It has been a real honor to serve with each of you on this council. It’s also an honor to share my last FSOC meeting with my fellow outgoing council member and seatmate, Ben Bernanke.