Last summer, the President signed into law a comprehensive set of reforms to the financial system.
These reforms were enacted in the wake of a devastating financial crisis.
That crisis was brought about by fundamental failures in our financial system.
The failures were many and they were varied.
In the years leading up to the crisis, firms took on risks they did not fully understand and used legislative loopholes to operate some businesses without oversight, transparency, or restraint.
Profits and compensation were all too often tied to short-term gains without proper consideration of long-term consequences.
Across the country, many Americans took on more debt than they could afford, and many firms encouraged them to do just that.
In Washington, regulators did not make full use of the authority they had to protect consumers and limit excessive risk.
And policymakers were too slow to fix a broken system.
The crisis erased trillions of dollars of wealth, put Americans out of work across the country, and shook the foundations of our entire economy.
And the crisis exposed the fundamental flaws in our financial system.
In the aftermath, the President was determined to reform that system.
There was no alternative to reform. Not only our economy but also the lives and livelihoods of tens of millions of American families were devastated by the crisis. And it was manifestly clear that the financial system that led us to the edge of the abyss was broken and needed to be fixed.
The system we had favored short-term gains for individual firms over the stability and growth of the economy as a whole. The system we had was weak and susceptible to crisis. And the system we had left taxpayers to save it in times of trouble.
We had no choice but to build a better, stronger system.
That’s why we proposed, Congress passed, and the President signed into law a sweeping set of reforms to do just that.
The Dodd-Frank Act creates a comprehensive and robust regulatory framework. The statute creates a structure for the government to monitor and respond to systemic risk. It makes clear that no firm will be considered “too big to fail.” It requires regulators to impose heightened prudential standards on large, interconnected financial firms. It provides for the comprehensive regulation of the derivatives markets for the first time. And the statute establishes a single agency dedicated to protecting consumers.
For the past nine months, we have been hard at work implementing these and many other critical reforms contained in Dodd-Frank.
Regulators are moving quickly but carefully. We are seeking public input. And we are focused on getting the details right.
In doing so, we are also making sure that our efforts are well-coordinated.
Our financial regulatory system is built on the independence of regulators, and given the importance of Dodd-Frank implementation, independent regulators will have different views on complicated issues – working through differences is an important part of getting the substance right.
At the same time, Dodd-Frank forces regulators, more than ever before, to work together to close gaps in regulation and to prevent breakdowns in coordination – this is a central change brought about by the law. Beyond joint rules and consultation required on specific rulemakings, we have been and will continue working together where issues cut across multiple agencies, to make the pieces of reform fit together in a sensible, coherent way.
As we proceed, however, there are many critics who are attempting to slow down or defund implementation, or who seek to repeal the statute entirely.
I want to remind them that in the absence of the proper protections – in effect, in the absence of the protections that this legislation puts in place – our system descended into a crisis that had tremendous costs to businesses, to the economy, and to the American people.
If we had not moved to reform the system, we would find ourselves still exposed to a cycle of collapses and crises, with potentially devastating repercussions for the nation.
We can’t afford to let that happen. The price of reform is a small one compared to the cost of crisis.
We must invest now in building a strong, stable system. There is no responsible alternative, because if we don’t invest in reform now, we run the unacceptable risk that we will pay dearly later – in jobs, in lost wealth, in foreclosed homes, and in the soundness and security of our entire economy.
You here at ICBA know that as well as anyone.
As community bankers, you understand the devastation of the financial crisis. You know the families who have lost their homes. You know the small business owners who have closed up shop. And many of you – like those businesses – have suffered from the effects of a financial crisis that you did not cause. (continued)