ASSESSING THE IMPACT OF THE DODD–FRANK ACT FOUR YEARS LATER HEARING BEFORE THE COMMITTEE ON FINANCIAL SERVICES U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED THIRTEENTH CONGRESS SECOND SESSION JULY 23, 2014 Printed for the use of the Committee on Financial Services Serial No. 113–94 ( U.S. GOVERNMENT PUBLISHING OFFICE 91–158 PDF WASHINGTON : 2015 For sale by the Superintendent of Documents, U.S. Government Publishing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 18:50 Jun 05, 2015 Jkt 091158 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 K:\DOCS\91158.TXT TERRI HOUSE COMMITTEE ON FINANCIAL SERVICES JEB HENSARLING, Texas, Chairman GARY G. MILLER, California, Vice Chairman MAXINE WATERS, California, Ranking SPENCER BACHUS, Alabama, Chairman Member Emeritus CAROLYN B. MALONEY, New York PETER T. KING, New York NYDIA M. VELA´ ZQUEZ, New York EDWARD R. ROYCE, California BRAD SHERMAN, California FRANK D. LUCAS, Oklahoma GREGORY W. MEEKS, New York SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts SCOTT GARRETT, New Jersey RUBE´ N HINOJOSA, Texas RANDY NEUGEBAUER, Texas WM. LACY CLAY, Missouri PATRICK T. MCHENRY, North Carolina CAROLYN MCCARTHY, New York JOHN CAMPBELL, California STEPHEN F. LYNCH, Massachusetts MICHELE BACHMANN, Minnesota DAVID SCOTT, Georgia KEVIN McCARTHY, California AL GREEN, Texas STEVAN PEARCE, New Mexico EMANUEL CLEAVER, Missouri BILL POSEY, Florida GWEN MOORE, Wisconsin MICHAEL G. FITZPATRICK, Pennsylvania KEITH ELLISON, Minnesota LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado BLAINE LUETKEMEYER, Missouri JAMES A. HIMES, Connecticut BILL HUIZENGA, Michigan GARY C. PETERS, Michigan SEAN P. DUFFY, Wisconsin JOHN C. CARNEY, JR., Delaware ROBERT HURT, Virginia TERRI A. SEWELL, Alabama STEVE STIVERS, Ohio BILL FOSTER, Illinois STEPHEN LEE FINCHER, Tennessee DANIEL T. KILDEE, Michigan MARLIN A. STUTZMAN, Indiana PATRICK MURPHY, Florida MICK MULVANEY, South Carolina JOHN K. DELANEY, Maryland RANDY HULTGREN, Illinois KYRSTEN SINEMA, Arizona DENNIS A. ROSS, Florida JOYCE BEATTY, Ohio ROBERT PITTENGER, North Carolina DENNY HECK, Washington ANN WAGNER, Missouri STEVEN HORSFORD, Nevada ANDY BARR, Kentucky TOM COTTON, Arkansas KEITH J. ROTHFUS, Pennsylvania LUKE MESSER, Indiana SHANNON MCGAHN, Staff Director JAMES H. CLINGER, Chief Counsel (II) VerDate Nov 24 2008 18:50 Jun 05, 2015 Jkt 091158 PO 00000 Frm 00002 Fmt 5904 Sfmt 5904 K:\DOCS\91158.TXT TERRI C O N T E N T S Page Hearing held on: July 23, 2014 ..................................................................................................... 1 Appendix: July 23, 2014 ..................................................................................................... 79 WITNESSES WEDNESDAY, JULY 23, 2014 Carfang, Anthony J., Partner, Treasury Strategies, Inc. ..................................... 10 Deas, Thomas C., Jr., Vice President and Treasurer, FMC Corporation, on behalf of the Coalition for Derivatives End-Users ............................................ 14 Frank, Hon. Barney, former Member of Congress and former Chairman, House Committee on Financial Services ............................................................ 12 Kupiec, Paul H., Resident Scholar, the American Enterprise Institute ............. 16 Wilson, Dale, Chairman and Chief Executive Officer, First State Bank, on behalf of the Texas Bankers Association ........................................................... 9 APPENDIX Prepared statements: Carfang, Anthony J. ......................................................................................... 80 Deas, Thomas C., Jr. ........................................................................................ 91 Frank, Hon. Barney .......................................................................................... 97 Kupiec, Paul H. ................................................................................................. 105 Wilson, Dale ...................................................................................................... 141 ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD Hensarling, Hon. Jeb: Written statement of the National Association of REALTORS® ................. 148 Capito, Hon. Shelley Moore: ‘‘Impact of Federal Mortgage Rules on West Virginia’s Families’’ ............... 150 Hurt, Hon. Robert: Written statement of Mosaic Collateral Asset Management ........................ 153 Perlmutter, Hon. Ed: Wall Street Journal article entitled, ‘‘Wall Street Adapts to New Regu- latory Regime,’’ dated July 21, 2014 ........................................................... 163 (III) VerDate Nov 24 2008 18:50 Jun 05, 2015 Jkt 091158 PO 00000 Frm 00003 Fmt 5904 Sfmt 5904 K:\DOCS\91158.TXT TERRI VerDate Nov 24 2008 18:50 Jun 05, 2015 Jkt 091158 PO 00000 Frm 00004 Fmt 5904 Sfmt 5904 K:\DOCS\91158.TXT TERRI ASSESSING THE IMPACT OF THE DODD–FRANK ACT FOUR YEARS LATER Wednesday, July 23, 2014 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. The committee met, pursuant to notice, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. Members present: Representatives Hensarling, Royce, Lucas, Capito, Garrett, Neugebauer, McHenry, Bachmann, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, Cotton, Rothfus, Messer; Waters, Maloney, Velazquez, Sher- man, Meeks, Capuano, Hinojosa, Clay, McCarthy of New York, Lynch, Scott, Green, Cleaver, Moore, Ellison, Perlmutter, Himes, Carney, Sewell, Foster, Kildee, Delaney, Sinema, Beatty, and Horsford. Chairman HENSARLING. The committee will come to order. Without objection, the Chair is authorized to declare a recess of the committee at any time. This hearing occurs 2 days after the fourth anniversary of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Today, we will examine its impact on our capital markets and the American economy and our citizens more generally. I now rec- ognize myself for 41⁄2 minutes for an opening statement. Dodd-Frank has always been based upon a false premise that somehow deregulation or lack of regulation led us into the crisis. However, in the decade leading up to the crisis, studies have shown that the regulatory burden on the financial services industry actu- ally increased. There were few industries that were more highly regulated: FDICIA, FIRREA, Sarbanes-Oxley, the list goes on. We hear a lot about Wall Street greed. I could not agree more. I am just curious at what point was there not greed on Wall Street. So I am won- dering how that could necessarily be the determining factor. What I do know is that affordable housing goals of Fannie Mae and Freddie Mac on steroids and other policies helped incent, ca- jole, and mandate financial institutions into loaning money to peo- ple to buy homes who ultimately could not afford to keep them. My Democratic colleagues at the time said, ‘‘Let’s roll the dice on housing.’’ They did. And the economy imploded. It wasn’t deregula- tion. It was bad regulation that helped lead us into this crisis. (1) VerDate Nov 24 2008 18:50 Jun 05, 2015 Jkt 091158 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\91158.TXT TERRI 2 And so, if you get the wrong diagnosis, you get the wrong rem- edy. Dodd-Frank has been the wrong remedy, adding incomprehen- sible complexity to incomprehensible complexity. Now, frequently in Washington—I say frequently, but regret- tably, it is the rule as opposed to the exception—laws are evaluated by their advertised benefits, not by their actual benefits or actual cost. So at the time Dodd-Frank was passed, we were told it would ‘‘lift the economy,’’ ‘‘end too-big-to-fail,’’ ‘‘end bailouts,’’ ‘‘increase fi- nancial stability,’’ and, ‘‘increase investment and entrepreneur- ship.’’ And instead, what have we learned? We have learned that it is now official that we are in the slowest, weakest recovery in the his- tory of the Nation: tens of millions of our countrymen are now un- employed or underemployed; there has been negative economic growth in the last quarter; business startups are at a 20-year low; and 1 out of 7 people are dependent upon food stamps. Again, increasing entrepreneurship, I don’t think so. Ending too- big-to-fail, we have had this debate before. We had it yesterday. We will have it today. We will have it tomorrow. Dodd-Frank codified too-big-to-fail into law, and it is now demonstrable 4 years later that the big banks have gotten bigger and the small banks have gotten fewer. Financial stability, I suppose that is a debatable proposition. Fi- nancial stability is now defined by the unelected and unaccountable bureaucrats. I don’t know if you increase concentration, though, in our larger financial institutions, whether one can say we have achieved finan- cial stability. But what I do know is that it comes at an incredible cost. Thanks to Dodd-Frank, it is now harder for low- and moderate- income Americans to buy a home. Again, thanks to Dodd-Frank, there are fewer community banks serving the needs of small busi- nesses and families. Thanks to Dodd-Frank, Main Street businesses and farmers faced higher costs in managing their risk and producing their prod- ucts, which is impacting every single American at their kitchen table. Thanks to Dodd-Frank’s Volcker Rule, our capital markets are less liquid than before, making it more expensive for