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Transcript by
Federal News Service
Washington, D.C.

FREDERICK KEMPE:  Hello, I’m Fred Kempe, president and CEO of the Atlantic Council.  And I’d like to offer you a very warm welcome – today, I would say a steamy sauna-like welcome – to tonight’s event with Sen. Christopher Dodd.

First of all, thank you Sen. Dodd.  I know you had some very important meetings.  And thank you that you could still make it here.  You actually will have a very receptive audience, because once we knew you were a little delayed, we opened some extra bottles of wine.  So it’s been flowing out there.

I’m especially pleased to welcome our chairman, Atlantic Council chairman, Sen. Chuck Hagel and other distinguished board members who are here today.  But before turning to Sen. Hagel to introduce Sen. Dodd, I just want to say how pleased we are to have been hosting the “Mapping the Economic Financial Future” series in partnership here with Deutsche Bank.  It’s been an outstanding series with everyone from two EU commissioners, the French finance minister Christine Lagarde, the World Bank president Bob Zoellick and we are looking forward to continuing this series now into its second year.

I do want to acknowledge our board member, Frank Kelly, and his colleague, Judy Winchester, who are joining us from Deutsche this evening.  As for Sen. Hagel, he needs no introduction in this town and certainly not in this room.  But as this is the Atlantic Council, I’ll introduce him anyway.  Well known for his legacy of bipartisanship, which is really the tradition that is behind the Atlantic Council – we often call ourselves radical centrists – he’s deeply respected in diplomatic, military and business circles and a lot of people don’t know all of his business background.

Prior to his election in the U.S. Senate, he was president of McCarthy & Company Investment Banking firm in Omaha, Nebraska, and in the 1980s co-founded Vanguard Cellular Systems – a great deal of financial, business experience, not just before the Senate but many of his boards now.

It’s appropriate that Sen. Hagel is on-hand tonight to introduce his longtime colleague Sen. Dodd.  Both senators served as senior members on the Banking Committee as well as the committee on foreign relations.  As I said earlier, both of them symbolize the Atlantic Council’s mission of constructive U.S. engagement in international affairs and particularly with our European partners.

In 2007, Senators Hagel and Dodd cosponsored legislation to revitalize and strengthen America’s infrastructure.  And we are here tonight three years later discussing Sen. Dodd’s ambitious efforts to restore stability to America’s financial infrastructure.  But, I think, as we all know, this is one of those things that you just can’t do outside of its global context.  So we’ll be talking about the bill but also its global context this evening.  Please join me in welcoming Sen. Hagel.  (Applause.)

CHUCK HAGEL:  Fred, thank you.  Good evening.  And I add my welcome as well and also thank you for accommodating schedules that I know are always a bit uncertain in this town.  I never miss an opportunity to introduce the chairman.  I always accommodate my schedules to a chairman and especially this chairman.  For some years, he was my chairman on the Banking Committee. 

And in the interest of full disclosure, which occasionally is relevant in this town, this senator, Chris Dodd, and I are very good friends and I admire him greatly.  I admire him not just because he’s very smart – and he has served our country for over 40 years.  When you add the 36 years in the Congress, 30 of those in the Senate; he served our country in the National Guard, the Army Reserves, Peace Corps, that’s a pretty good legacy to leave in government service.  And sometimes those other dimensions of his life get overlooked because he is such a overwhelmingly powerful chairman these days.

But when I have occasionally been asked about Chris Dodd, I have noted, yes, his expertise and his hard work and his experience and his leadership and in particular his bipartisanship – always willing to reach across the aisle and drive to a consensus.  After all, that’s what I think most of us believe we were sent to Washington to accomplish is fix the problems, is drive toward a consensus.

But I also have noted when I’m asked about Chris Dodd that he is one of the very few people in this town who has been in this town for as long as he’s been here – and with a rich family history of great contributions and service to our country – that he’s never lost his soul.  He is the same Irishman that he was when he started.  His hair is a little discolored but other than that, he is still Chris Dodd.  (Laughter.)

MR.     :  (Inaudible, off mike.)

MR. HAGEL:  I know.  And you can’t say that about everybody.  And I really mean that because he is that kind of an individual.

Now, before I ask him to join Fred Kempe in a session here this afternoon that I think will allow an opportunity for not only Chairman Dodd and all of you – dig a little deeper and wider into the financial regulatory reform bill that Chris Dodd shepherded through and led – it will also magnify an area that Fred Kempe noted that is important and was the essence and, of course, the central reason why this organization was formed almost 50 years ago.

The trans-Atlantic alliance’s common interest and those mutual interests that have anchored this relationship in a very historic and unique way since World War II – that is not just about security in the most defined security definition – NATO or missiles or missile defense – but economic security, which probably now plays more of a role than ever before.  It’s always been important.

But when you step back for a moment and you look at some of the international institutions that are reflected by the BASEL II accords, how that is affecting and will drive and will dictate much of our financial future, not just in the regulatory areas but in the investment and everything that touches our financial sector.  We are – just as we were after World War II and probably more so – more intertwined and interconnected than ever before.

One other piece of this – when you also look at the two largest economies in the world – the U.S. not the largest but the EU is the largest – the United States and the European Union represent the two largest economies in the world.  And when you start to really understand what that means for the world, it is not a zero-sum game for China or India or any other emerging economy or region of the world.  This is very, very important in the sense that where this goes and how we define rules and regulatory regimes and investment parameters and boundaries, and how we accommodate and cooperate, it’s complicated.

And so one of the reasons we started this series, in partnership with Deutsche Bank, was to try to get down into some of those complicated, relevant, critically important areas for our future and for the future of the world.  And that’s why we’ve had the variety of the speakers we’ve had.  And we are particularly pleased tonight to have Sen. Dodd for all the reasons you know, but also because when you add to his banking experience his foreign policy experience, his national security experience, all of the pieces as well as health care, his service on the health, education, labor and pension program, I don’t know of a member of Congress who has the more composite view and understanding and depth on this topic than Chris Dodd.

Ladies and gentlemen, the chairman of the Senate Banking Committee.  (Applause.)

SEN. CHRIS DODD (D-CT):  Well, if I had any sense, I’d just say thank you and sit down after that introduction.  It doesn’t get any better than that, Chuck, and I appreciate those remarks very, very much.  Fred, good to be with you again and see all of you out here on a hot Wednesday afternoon.  Thank you for coming.  I actually brought along some of the banking committee staff as well who can really answer questions, having been through the process.  So Julia, thank you for coming today and Sean (sp) as well.

Chuck, thanks for that introduction.  I always get nervous when introductions are actually longer than my remarks.

(Cross talk, laughter.)

SEN. DODD:  One of my favorite introductions ever given of someone in public life was given back in the early part of the 20th century.  William Howard Taft was, of course, the only American to ever have achieved the lofty status of being president of the United States and chief justice of the United States Supreme Court.  He had retired from public life and he was given a dinner at the Waldorf-Astoria, black-tie dinner. 

And the master of ceremonies was the United States senator from New York in those days, a guy named Chauncey Depew.  Chauncey thought of himself as a rather quick-witted gadfly and ready with a quip.  And he was introducing Taft that evening.

Taft, you may recall, not only had achieved great status in his public life but also was rather a giant of a figure physically.  He was about 6-foot-8 (inches), weighed close to 500 pounds.  He was a giant of a guy.

Anyway, Chauncey Depew completed the introduction of Taft to this very distinguished audience by saying, it now gives me a great deal of pleasure to introduce to you a man who is both pregnant with integrity and pregnant with courage.  Well, of course, the crowd roared its approval, gave Taft a standing ovation.  Taft slowly made his way to the podium, waited for the audience to be reseated, the noise to subside.  And turned to the audience and said, if it is a girl, I shall call her integrity.  And if it is a boy, I shall call him courage.  But if, as I suspect, it is nothing more than gas, I shall call it Chauncey Depew and all this.  (Laughter.) 

So I hear all these wonderful introductions here by my former colleague here and what a pleasure it is, Chuck, to be with you.  And I know there’s an expectation at gatherings like this when colleagues get together that we have an obligatory response or obligation to say kind things about each other.  But I truly miss Chuck Hagel.  We served on the Banking Committee together, and just a remarkable member.

I remember the very first day we met was the very first day you arrived in the Senate.  I went to your office that day and got very excited about you coming, because I had read some of your comments and thoughts about internationalization.  And while there was a lot of talk about new members coming and whether or not they’d be understanding of the importance of international organizations, the important role they could play in strengthening our own security interests.  I was particularly interested in this new senator from the Midwest who had already embraced and shared those views as a candidate.  And in elections where those always aren’t the kind of subject matters you expect to hear an office, any office, let alone the Senate.  So from the very first day I met Chuck Hagel, I’ve been impressed. 

And never decreased and not a deprecation of your commitment to these issues – it’s not just when you gather at an event like this but going back to the days in your own state.  So we miss you.  And I appreciate very much what you’re doing.  And the Atlantic Council has a wonderful reputation.  I’m honored you’ve asked me to come here today.

You’ve made the job difficult because I know Fred and the staff said we’d like you to keep this to two or three minutes.  And we’re talking about a 2300-page bill that took some two years to navigate through.  And if you’d told me at the outset what I’d have to go through to get here, I would have had a good laugh and suggest you not even try to produce this legislation.

But for the crisis, this never would have happened.  Candidly, people have been talking about reforming the financial structures of our country for decades.  But there’s never been the energy behind it.  Things seemed to be working rather well.  Profits were being made.  Why would you bother sitting around and trying to reorganize the deck chairs, in a sense, in the midst of what appeared to be a strong economy with people making untold wealth as a result of the existing structures?

So obviously, when things began to collapse as they did – in fact, earlier than people wanted to admit – we went through a whole almost year and a half trying to get people’s attention on the issue of the residential mortgage crisis in the latter part of ’06 and through all of ’07.  As I became chairman of the committee for the first time in January of ’07, literally held, I think, over 80 hearings in one year just on that subject matter almost alone to try and raise the level of awareness and attention.  People offering predictions of what would happen with the number of foreclosures in the country, and I remember they were being ridiculed with some of the numbers that they were suggesting.  I suspect in retrospect, ridicule was not a bad idea because they were way underestimating the magnitude of the problem as it would emerge.

Anyway, it gave us the energy to get behind all of this.  I was looking back and the date of April of ’09, obviously, when the G-20 met.  When I met with the president in January of ’09 as the new president, along with Barney Frank and the economic team as it was in the White House in those days, the request was can you have a bill ready for the April ’09 summit meeting of the G-20?  I think we said yes, which was even ludicrous when you think of it now that a year and a half later we finally ended up producing a piece of legislation in this area.

But it has been – and I won’t – maybe through the question period – share with you just the difficulties of going through this.  But it is the Senate, in a sense, at its best.  I appreciate what Barney went through in the House.  We went through a process on the floor of the Senate of some 60 amendments were offered over a four-week period.  Only one amendment was tabled.  Only one required a 60-vote majority, unprecedented in these days when everything seems to require supermajorities.

In the conference, which was conducted on C-SPAN from gavel to gavel, went on for eight days, including one all-night session, 179 amendments were debated and discussed in that process to produce a product.  We had to go back into the conference again because of objections to the pay-fors in the bill by three House – Senate members who we hoped would support the legislation but couldn’t with those particular pay-fors.  So we had the unprecedented action of going back in again to come up with an alternative pay-for for the bill.  And then finally achieving the passage of the legislation.

Now, a lot of work is not done.  This is just the beginning.  And I think it’s important as we talk about this – there’s a tendency to sort of talk about this legislation as the final product.  I think, in fact, when the Securities and Exchange Act was passed, I think the bill was seven pages long.  And obviously, when Joseph P. Kennedy became the chairman of the SEC, the work was then to fill this out, to begin the process, hire staff, put people together and to try to formulate the rules and regulations that would guide the securities industry.

In many ways, I found the criticism of this legislation because we didn’t deal with every proposed regulation rather surprising that someone would even raise that concern.  Imagine the competency of 535 members of Congress trying to write regulations in this area.  Clearly, that’s the responsibility now of the designated regulators and others who will be responsible for putting together the proposed regulation for comment period and the like to respond to.

But the work needs to be done, obviously, the people hired and others to establish all of that.  I couldn’t legislate that, insist upon it.  What we did insist upon in this bill is exactly what brings us here together for today.  And that is the understanding that we are very much – and I hardly need to say it to this audience; you wouldn’t be here or be involved in the Atlantic Council – if you didn’t deeply appreciate the interconnectedness of our economy and obviously what happens not only in the Atlantic community but also globally.

I remember a few years ago, when you had a very small market in Shanghai, it had about the volume of 5 percent of the New York Stock Exchange, which declined by 12 points one day.  And within 24 hours every other market around the globe reacted to this relatively small market in Shanghai.  And so if there is any doubt in anyone’s mind about the globalization of financial services, it should have ended on that day.  And obviously the events this spring in Greece and elsewhere highlight the importance of this metastisizing effect, the viral effect, that can occur across the globe.

The debate is over as to whether or not we’re in a global economy with dependency on each other and the events that occur in relatively small countries that can have profound effects, obviously, on the financial stability of all of us.

So it was critically important in this bill – and in section after section after section of this bill, are the requirements that we work internationally.  In fact, a lot of this bill follows exactly what the principles were outlined in 2008 by the G-20, where they adopted those principles.

And if you track what we did in the bill and track it next to the principles outlined by the G-20, you’ll find that very much we follow them very much almost to the letter.  So if you’re looking for any model of our legislation, it is in fact the principles laid out by the G-20.

So, from the very outset, certainly as chairman of this committee and I think our staff as well and others, we’re very much aware of the idea of developing something here that would allow for integration.

Now, from a parochial standpoint, again, we are – financial services is a critical industry for the United States.  And I for one did not want to see my nation and country begin to reduce its financial role in the world.  And so it was critically important that we move on this legislation, as long as it took, and to get it right and get it done.  Otherwise a vacuum would be filled by others.  And I’m not sure where that was going to take us.

Now, I quickly add, obviously, the importance of developing, then, the cooperation or the harmonization of principles.  There are a lot of different models you can use for financial reform.  We chose the one we have here today with you but there are others.  And Europe certainly has demonstrated a variety of different models.  And there are different circumstances, obviously, within the European community.

I’ve thought over and over again in the last year-and-a-half, in thinking about the harmonization, particularly within the Atlantic community, of the great question that Henry Kissinger asked some years ago when he posed the question:  If I want to reach Europe, who do I call?  In a sense, in talking about financial services, that’s a very legitimate question as we gather here today.

Again, you have a common currency, but, obviously, very different sets of circumstances operating within the European community.  And, obviously, it’s important in the recent news, obviously, with the stress tests and the financial institutions as well as the stabilization plan that was enacted.  Good news seems to be emerging.  But obviously a lot needs to be done.  We need to go a long way before you’re going to have that entire sense of confidence that this is all going to work well.

It will be critically important with the G-20 meeting coming up this fall in South Korea that we begin aggressively to move on developing the relationship.  In a sense the G-20 has taken over.  In many ways, obviously, Basel, the IMF in the past have played critical roles.  But today the G-20, stepping up as it did in its suggestion in 2008 and then 2009, in April, establishing the principles, that they intend to play a very important role.  And I think it will be critically important that we be engaged with the G-20.

So I’ve asked my staff and others to see whether or not we could be present in that November 11th meeting in South Korea to begin to talk about how we work together.  I was in London a few weeks ago.  We intend on having staff go over to meet with others to see if we can’t begin to make sure that harmonization occurs on these basic principles without anticipating, necessarily, the exact same points or processes that we’ve adopted in this legislation.

So it becomes very, very important in all of this that that be achieved.  Now, again, I don’t know – I don’t want to take a lot of time here in terms of going through the details of all of this and what we’ve done.  But the four things I tried to do with this legislation that were – I think we achieved – and, obviously, who inhabits these offices, who gets hired to run them, what Congresses do to conduct oversight; I’ve already scheduled two hearings in March to bring the respective regulators before the banking committee so they can start to outline exactly what steps they’ll be taking in order to develop the regulations and respond to the mandates in the legislation.

But, ultimately, it will depend upon the leadership as well; as I retire in January from the Senate, that the next chairman, whether it’s Tim Johnson or Dick Shelby of Alabama, that they’ll begin to aggressively pursue the kind of oversight that needs to be done to make sure that people are moving in the right direction.  I couldn’t legislate that.  I can’t legislate competency or commitment to these issues.  That obviously depends upon administrations and leadership in Congress to pursue those efforts.

But the four things we tried to do was, one, first of all, to end the notion that there would ever again be a paycheck or a check written by the American taxpayer to bail out a financial institution through its own fault for getting into trouble.  And I think we’ve done that with titles one and two in the bill, the resolution authority, the assumption that people go into bancruptcy if they get themselves in trouble.

There are legitimate issues about large, interconnected, multinational corporations and how that will work.  And, candidly, we don’t have all of the answers on that one and that’s going to require effort.  I presume somebody might have asked that question here today and how we plan on dealing with that.  I thought about it a lot, but, obviously, I couldn’t wait until the international community came up with an answer to all of that to delay moving forward with its legislation.

I think we had a window to operate in this bill and we came precariously close to losing it.  In fact, I never had a single vote I could lose.  Despite all of those amendments, I never had one vote to give in the Senate.  I had to get to 60.  Just by those 230 different amendments over various weeks, the wrong vote on any one of those efforts here that would have lost one vote either to the left or the right ideologically would have caused the bill to fail.  And so it was extremely difficult to navigate that minefield legislatively to produce this bill.

But clearly that was a common goal:  to end that too-big-to-fail concept.  Secondly was to try and create the oversight to have this, what we call this oversight council made up of the various regulatory bodies as well as the Fed, to bring a multiple set of eyes to looking at both institutions as well as products as well as what’s going on globally so that when problems emerge, as they certainly will here, that we can get in front of them before they end up, again, like metastisizing or becoming far greater than they (honestly ?) had to be.  So that is a very important feature of the bill.

Consumer protection was very important.  From the very outset, the first meeting I ever had in the Oval Office with the president, I felt consumer protection had to be a first order of business.  Now, why do I say that to you?

What worried me deeply is the lack of trust in the financial services sector and the financial services architecture.  I remember once a number of years ago meeting with the head of a sovereign wealth fund.  And I asked him why he parked as much of his nation’s hard-earned resources in the United States.

And I’ll never forget the answer he gave me:  two answers.  He said, one, you Americans are very good at making money.  He said, number two, he said, you’re very safe.  He said, I’ve never lost a moment’s sleep worrying about whether or not the system would collapse or be unfair.  I’ve made bad bets; I’ve lost money.  That’s not what I’m suggesting to you.  I’ve just always had a great deal of confidence in the structures of your financial services area.  And, frankly, that structure was damaged – terribly damaged.  And that trust and confidence, I think, in our system had evaporated dramatically, both here at home and elsewhere.

So it’s tremendously important to restore that level of trust, that when you deposit that paycheck, you buy a stock, you purchase an insurance policy, you take out a mortgage that you have no right to expect in certain areas that you’re going to be rewarded for that behavior but in others you ought to feel secure that those activities are going to be protected.

And so it was tremendously important to me that, at the outset, that we bill the institution capacity to give consumers of financial services a heightened degree of confidence about the financial system in this country.  And it ought not to be antagonistic to the prudential responsibility of the safety and soundness of rules that are critically important as well.

Yeah, there will be some tension; there is nothing wrong with that.  But you ought to be able to accommodate both the consumer interest as well as a prudential interest when it comes to financial institutions.  So that was a second or third tremendously important area of all of this.

And then, lastly, in a sense, was to try and get your arms around the subject matter without worrying about whether some 22-year-old who was an idiot savant or something who can come up and design some very creative new concept that would somehow escape the normal regulatory process to cover the shadow banking, the system, in a sense, for lack of a better description.

And we’ve tried to do that in this legislation, to reach out, to say that if you’re engaged and are involved principally as a financial institution then you’re going to be subjected to rules and regulations here.

Small banks did very well in the bill.  And, again, we’re overbanked, in my view, in the United States – but nonetheless to see to it that they would be treated fairly in the process so as not to be disadvantaged by larger institutions.  And while the ABA was not enthusiastic about the bill, the ICBA – the Independent Community Bankers – were on the provisions dealing with the banks themselves.

So those are the four major goals that we tried to achieve with the legislation.  And I think we’ve come as well as you could expect given the difficulties in dealing with as many different disparate views and interests.  There are over a thousand lobbyists that were hired in this town to try and do what they could to undercut the legislation – obviously a lot of different views.

I was highly criticized by my friends on the left because we weren’t doing enough and others on the right who thought we were going too far in the process.  And the fact that I was being criticized by both makes me feel I sort of hit the sweet spot in all of this, in a way, if you could emerge with that kind of criticism.

Anyways, that’s more than the three or four minutes, Fred and Chuck, that you wanted to hear about all of this.  But I look forward to your questions and, again, believe that your interest in bringing people together to talk about this harmonization effort and to get us working all in the same direction ont eh same principles here will be critical.

We went through a period of what was called, obviously, regulatory arbitrage.  Again, the AIG example is the one that comes to mind to most people, seeking out the OTS as a regulator of choice for a lot of different reasons, not necessarily the best of ones.  And to avoid that, again, we’ve tried to make sure in this legislation we’d minimize that from happening.

But there is the danger of sovereign arbitrage, in a sense, that nationstates or others may decide to become those safe harbors where you can park and not have to face any of the kind of restrictions that we’ve talked about in this legislation.  It will be critically important that the major industrialized nations of the world come together so we don’t have these silly arguments about racing to the bottom.

As I recall, in January of ’07, how many times did I hear that if we didn’t deregulate more everyone was going to go to London?  And I think many people in London heard the same arguments:  Everyone is going to race to the United States.  And that kind of argument you don’t hear much anymore.  So making sure we establish those principles globally among responsible nations could minimize other nation-states deciding to take advantage of all of this to create safe harbors for those who weren’t necessarily doing the best practices when it comes to financial services.

That’s a tall order and obviously a lot more needs to be done to achieve that.  But we need to begin to work, principally, as you pointed out, Fred, with our major partners in the European community.  And I’m determined to do what I can over the coming months here before my retirement and thereafter contribute to that goal.  So I thank you all very much for inviting me with you today.  (Applause.)

I can’t believe you’re still back – (inaudible).  The same people have been covering this stuff for years now.  (Laughter.)  (Inaudible, off mike.)

MR. KEMPE:  Well, that’s why we’re going to get you to say something totally new.


MR. KEMPE:  Thank you very much, Senator.  Those were terrific opening remarks.  And you actually hit on some of the subjects that we will attempt to drill down a little bit further in my first couple of questions; and then I’ll turn to the audience.  I see a lot of people who really know their stuff out there.  So I’ll try to get you as quickly as possible.

I think the first thing – and you did talk about how one really couldn’t wait for the world; one had to move ahead.  But you also talked about some of the concerns you have with that.  This is national legislation in a situation that’s, by its definition, global.

So I guess my question is, you touched on this a little bit; I wonder if you can drill down a little bit further on what you see as the greatest challenges in making the U.S. legislation work across national boundaries.  You know, where are the areas that you are most concerned about and feel that national legislation just doesn’t go far enough?

SEN. DODD:  Well, I think in the obvious areas:  in the derivative areas and so forth that are complicated.  And, again, I think it’s going to be very important.  There is where you have to have some of that shopping going on.  At Accenture I was able to establish some commonality and principles on dealing with that.  I think we could do a great deal.

I didn’t mention this as much as I should have:  The whole notion of having an addition to the – sort of trying to get your arms around the – again, one thing I want you to try to do with this is – and, again, this is an impossible balance to strike.  But the point is, one, you want to make sure that you’ve got a responsible regulatory structure.  That’s critical, not just from the perspective of whether or not people are going to be protected from fraud and abuse.  But the financial services sector needs that to succeed.

The other part of this is to make sure you’re not strangling innovation and creativity.  It’s been a hallmark of our success.  And that’s the other side.  I’ve often looked at that – (dear Lord ?), there’s a piece of nouveau art or whatever.  It almost looks Stalinist.  Outside of the Federal Trade Commission there are those wonderful pieces of statuary.  It’s, I think, a farmer, it looks like, holding back this very powerful horse.  You’re not quite sure who is winning.  Is the farmer going to control the horse or is the horse going to run away.

And so you keep on looking every day if I can detect who’s winning in that particular piece of statuary.  In a sense, I suppose that’s symbolic of what you’re trying to do here.  You want to have that robust horse that wants to move and be aggressive.  But you also want to make sure you’re not going to get run wild and end up destroying the system.

So in the area of so-called exotic instruments, in a way, it was very important that we get as much transparency as possible.  Remember, we talked about an over-the-counter derivatives market that went from somewhere around $100 billion to 600 trillion in a space of about a decade – exploded.

And, again, within the European community and ourselves, there are some differences – not much on clearing.  We went through this battle in court.  I had wonderful support of committee members:  People like Mark Warner were tremendously helpful and important along with Bob Corker, who did a lot of work. 

Jack Reed and Judd Greg spent a lot of time – I asked them specifically; I tried to have teams on the committee because the subject matter was just too complicated for one chairman or one staff to try and divide.  In fact, our staff was divided up in teams for over a year just focusing on various aspects of the bill.

But Judd Greg and Jack Reed worked on the derivatives section for weeks on end.  And they – the one issue they could not resolve and come together on – we might have had a different result in the bill – was over the issue of mandatory exchanges.  And it was just – it went back and forth.  And, again, there is a difference.  In the European community they’re not inclined to have mandatory exchanges.  We ended up with them, in a sense, in our bill.

And so those – that’s the one area.  There may be others, Fred, that will come up but, in my view, that’s the one area that I think we’re going to have – would be the hardest one to kind of get our arms around.  But I hope we can because it’s one that I think offers as much potential harm as well if we don’t here – and the temptation to race to the bottom if we don’t get a commonality.

MR. KEMPE:  I’m sorry.  I didn’t mean to interrupt.  On that issues, mandatory exchanges, what would you hope to see from European legislation?

SEN. DODD:  Well, again, this is on the parochial side:  I’d like to see them do what we’re doing.  I think we did the right thing and it makes some sense.  And obviously, there are one-offs and so forth that you don’t want to – this isn’t – I mean, there are obviously examples but we don’t need to have that in every case. 

We tried to incorporate that as well, to be practical.  You know, those of you who watch this process know what we went through as well.  There was not only a debate within the committee; there were campaigns going on, there were primaries occurring, there were other committees that had jurisdiction – and those who were covering this thing know exactly what I’m talking about, day to day. 

So it made it – navigating those waters to produce the result.  And I think we ended up in a good place with it, and I would hope that the European community would join us because this is the area, in my view, that could run wild on you.  And you need to be in a position, it seems to me, to be able to have, again, that commonality of interest. 

MR. KEMPE:  And by “run wild,” we’re talking about a regulatory arbitrage of people seeking –

SEN. DODD:  Sure.

MR. KEMPE:  Question on – there’s the global aspect of this, there’s the midterm election aspect of this.  You talked about the fact that you weren’t about to go through and decide everything in how it was going to be regulated and this bill couldn’t do it. 

So by our estimates – and tip of the hat to our global business economics program here, which is run by Alexei Monsarrat, which is actually trying to do some interesting work on how we do get the U.S. and Europe together, and then the rest of the world is also an issue.

But according to what we’re looking at, we’re looking at their 243 rulemaking requirements; 67 studies required by 11 government agencies going forward; the time – this could take six months to three years.

The question off of this is, are you concerned with the intent of Dodd-Frank over time could be changed and what area in particular might you worry about, given a significant shift in midterm elections? 

SEN. DODD:  Well, of course I worry about it.  I mean, I think that – again, as I said earlier, it was beyond the competency, really, that it’s unrealistic.  Again, when I saw the articles being written about it, I wondered, what were they thinking?  I mean, to say, when the Securities Exchange Act was written, these were small bills.  I mean, it was, again, the responsibility of those who came after to fill in. 

I have a lot of respect for my colleagues but financial services has never been a strong point.  I say that politely.  In the years past – and Chuck will recall this as well – when you come out of a committee structure of, say, the foreign relations committee or the armed services committee, every one of our colleagues, I think, at one point or another, thinks they should be or could be secretary of state or secretary of defense or whatever else.

When you come out of the Banking Committee, historically, and you go to the floor of the Senate with a bill, usually the only question I ever got was, is it okay?  (Laughter.)  It was usually – you know, the subject matter was so esoteric, not normally in the – the normal jargon or discourse of a – that’s not to be disrespectful of my colleagues.  It’s just a fact. 

But all of a sudden, everyone became sort of an expert in this area.  But nonetheless, despite their interest in the subject matter, trying to do this and write this when you’re dealing with the political whims of the hour back and forth on things, it would be highly dangerous for us. 

And these are nuanced areas that require a lot more thought than you could possibly begin to expect in a legislative debate of this size and magnitude.  So it just by absolute necessity has to be deferred to those who will spend the time and effort to think through these things carefully, so it’s not done based on some emotional whim.

I remember a good number of my colleagues wanted to just beat the hell out of Wall Street.  They would have been happier with a bill that was just punitive.  There was a constituency for that; a stupid, idiotic idea, but nonetheless, one that people felt that would be satisfactory if we did that. 

I kept on saying – or others would say to me, why are you bothering with this financial – we had nothing to do with the problem.  Well, I wasn’t writing a bill, really, to deal with those who caused a problem.  We’re trying to create a 21st-century architecture that could become a model globally for us to deal intelligently with each other on financial services.  And it wasn’t about penalizing one group over another, but to think it through as best we could and as comprehensive a way as we could, to deal with these issues.

So a lot will happen.  There will be another economic crisis, I guarantee you.  And the question is, have we built in the structures that will allow us to respond to it intelligently?  Basically, we went for about 60 or 70 years handling things pretty well.  I always felt the three greatest accomplishments of the Depression era were the establishment of the Securities and Exchange Commission, the establishment of the Federal Deposit Insurance Corporation and, for its time, Glass-Steagall.  That made a huge difference in creating that level of stability. 

Now, Glass-Steagall obviously had to change.  I mean, I was part of that vote that occurred years ago when we changed a lot of Glass-Steagall.  Did it; it was a 90-some-odd votes.  It wasn’t much of a debate to do it at the time.  And I think it would be idiotic to go back and entirely try to establish Glass-Steagall again, sort of denying everything that’s occurred in the country and the world since then.

So this is going to be the great challenge.  And whether or not you get the right people to run these agencies – and maybe the more important and difficult question:  In the middle levels of these regulatory bodies, can you get good people to take these jobs and stay with them?  And recognizing that they can’t even begin to compete or have anything close to the remuneration you could get in the private sector.

Interestingly, you’ll see that there’s very little of that concern in the Justice Department.  People are excited about getting a job to work at the Justice Department and wear it as a great badge of honor.  State Department, same thing; Defense Department. 

Why can’t we create that same sense of honor of serving?  There’s mindless stuff that goes on and too many public debates about these bureaucrats out there, and then you wonder why people – talented people – aren’t necessarily seeking a career in serving at the SEC or the FDIC or others.  So we need to get over this, in a way, to track good people who’ll be there for their careers, become knowledgeable, smart about how to understand the private sector and markets in the country and the world in which they live.

So it’s a challenge.  It’s the part I couldn’t write in the bill, but I worry about very, very much.  And look, obviously, with time to go – and again, the studies weren’t just – you know, I heard some of these people talk about it; they haven’t read the bill.  They don’t even know what they’re talking about. 

Virtually in every one of those is a requirement that you – (inaudible).  The rating agencies – a study.  Of course it’s a study!  Because frankly, every year-and-a-half, no one could really figure out how the hell to deal with it.  There were those who wanted to just get rid of them, but if you’re a small, public company, you know, having some ability to do due diligence to find out is very difficult. 

So I don’t disagree that rating agencies were a problem, but I could never listen to so many people on this, and how do you finance it, how do you run it in a way that brings some sense to all of it?

We came up with the idea of providing a safe harbor for them for litigation, if in fact, they would do due diligence or contract it out so that it actually was more than just relying on the customer’s information as to whether or not they were triple A or double A or whatever else.

Al Franken, a good friend and colleague, came up with an idea that I voted against because I didn’t understand how it would work.  Sort of a “Wheel of Fortune” approach that you would sort of spin a wheel and, based on – you’d choose a rating agency based on what came up.  Well, you know, companies are different, rating agencies are competent or less competent or small or larger.

So we ended up adopting Al’s language but we also said, look, we haven’t been able to figure this one out but we want an answer.  So take a year – whatever it was; a year or two; I forget the timeframe – and come back.  If you can’t come up with a better idea, then do this one, I guess.  But try another – my hope is they’ll end up with a better idea but nonetheless, come up with it.

So there’s a study but with a goal in mind of trying to come back with an idea in rating agencies that’ll make some sense.  I’m just sorry we couldn’t come up with a good answer ourselves, despite a lot of effort to do so.  And in case after case, that’s in the bill.

MR. KEMPE:  This is enormously valuable insight and this is really the reason we want these kinds of sessions, to let us into what you’re thinking about while you’re doing this.  And I don’t want to belabor this one point and I’m going to go to the audience after this question, but back to the question of – you need some implementing legislation after midterm elections.

SEN. DODD:  Yeah.

MR. KEMPE:  What specific area are you most worried about, given the possibility of a shift in the sentiment?

SEN. DODD:  Well, I worry about in the derivatives area because again, it brought a lot of – there was a lot of effort in that area.  And again, I appreciate – you know, some of the end users, I think, were taken advantage of, in a sense, by some of the larger financial institutions because I think had the institutions – financial institutions come and lobbied on the issue, it wouldn’t have been as successful. 

Well, by getting an end user to come and knock on your door, it’s that old manufacturer back in the – whether it’s John Deere or someone else, it’s a lot more persuasive to someone politically than having this environment we’re in.

So I’m worried about people still wanting to kick that door down and I worry about, given, again, the exposure that can happen in that area.  So that’s one area I worry about in terms of what could happen. 

Beyond that, obviously, in terms of SEC powers, I can’t imagine.  I think the consumer protection stuff – again, I think – I’ll just tell you a quick story.  And again, I’m probably saying more than I should up here.  But I remember speaking about a year ago to the Financial Services Roundtable.  It’s 13 people around the table; good people; friends.  I’ve known them all for years.  I’ve worked with them.

I went in – this was long before we had a bill.  I was just trying to think about – we’d had a lot of memos together about various ideas.  And I went in fully prepared to run a talk about derivatives and these other rather esoteric, not terribly common subject matters for discussion.  But one I anticipated, given the audience, would be what they’d want to ask me about because it had most to do, it seemed to me, with the financial success of their operations. 

Spent the hour-and-a-half and the only two questions were about executive compensation and consumer protection.  (Chuckles.)  I remember walking out of the meeting thinking what in the world is that all about?  Executive compensation was a – I mean, good lord.  With all of the things we’re dealing with here, that was the major subject? 

And then consumer protection – why is this such a threat?  The idea that someone is actually going to keep an eye out to make sure that we don’t end up as we did with no under-riding standards and people being lured into mortgages they couldn’t afford – and I’m not excusing the borrower, obviously, but nonetheless, I think all of us appreciate that isn’t exactly a level playing field when it comes to that person in the room anxious to move into a home, buy that cottage. 

And the person across the table from me – in fact, I remember the brokers had a website up.  And the first line of the brokers – to the brokers advising was, convince the borrower you are their financial advisor.  (Chuckles.)  You know, you’re anything but their financial advisor.  But you’re that elderly person sitting across the table that has lived in the house for 30 years and you’ve got $4,000 in credit card debt.  And someone says, you know what you need to do?  You need to get a new mortgage on this house.

And all of a sudden, that person – as we had when that woman testifying before us – after 30 years, widowed, worked for the Postal Service of Chicago for 30 years; lost her home because some jerk came in and convinced her in order to, then – and of course, the securitization stuff meant he was out of the deal.  In about eight or 10 weeks, the bank was.  And some poor person ended up buying that security out there and it was worthless along the way.  And you just had the domino effect of the process.

So what’s wrong?  What is the great fear about having somebody that’s watching out for those interests?  To me, the least radical idea of all in all of this – after all we’ve been through in the loss of confidence on the base of consumers – to put something in.  I’m pleased to say that in looking over G-20 principles, by the way, adopted in 2009, the consumer protection is one.  And watching the European community begin to respond in the area of consumer protection – I applaud what they’re doing.  I think it’s something that’s worthwhile.

But I worry about that because again, there was a sort of mindless opposition to the creation of this independent body that would sit there and try and keep an eye out for those issues.

MR. KEMPE:  Thank you very much, Senator.
SEN. DODD:  Long answers.  I apologize.

MR. KEMPE:  No, they’re very good answers.  Let me turn to the audience and see – please?  And if you could identify yourself as well after you ask your question.

Q:  Hi, I’m Toshio – (inaudible) – with the Asahi – (inaudible).  It’s a Japanese newspaper.  I’ve asked questions specifically on international implementation of the Volcker Rule.  That was the area where the many senators showed their concern during the conference committee, whether or not the Volcker could be implemented internationally.  And such countries such as Canada are very reluctant to implement those domestically.  What’s your expectation toward the G-20 countries to implement the rule?

MR. KEMPE:  So implementation of the Volcker Rule.

Q:  Volcker Rule, yes. 

SEN. DODD:  Well, again, maybe that should have been an area – I’ve been trying to think of these things that you mentioned whether there are problems that have existed.  A lot of resistance to that as there was in the 7/16 section we talked earlier about.  And again, I – you know, Paul Volcker, I thought, very early on when he came and testified before the Banking Committee the very first time over a year ago, I think it was, one of the very first things he called for.  Nobody paid a lot of attention that day but he called for dealing with proprietary trading. 

And there was a discussion about it – I guess that day or so – was it March or April of 2009?  And then it sort of disappeared.  I must say, it didn’t really come back up again until, I know, one day I got a call from the White House and they said, what are you doing with this?  And I said, well – this is rather late in the game, by the way, that this came up.  And my response was, well, let’s take a look.  But Paul Volcker came up and testified.  But it wasn’t a great hearing because it was rather vague as to what ought to be done or how you could do it.  But we tried.

And again, I think the basic point that – particularly with ensured deposits, that those resources were to be put in play on behalf of the proprietary interests.  Obviously, most people don’t have a problem with that idea. 

What I objected to, I think, is that, again, it was so restrictive that as you began to think about it, there are certain areas where, obviously, proprietary trading is critical for a financial institution.  And so trying to find that space where that can happen.

Now, again, whether or not – again, and I don’t expect this bill to survive as it’s written forever.  I think there’ll be efforts to reach accommodation, as I presume there will be internationally. 

And whether or not you’re talking about de minimis rules and so forth and what percentage of resources could be used for proprietary trading – we settled, I think, on 3 percent.  There were those who wanted 10; some wanted one. 

How did I get to three?  Because that’s how I got to 60 votes.  (Laughter.)  I’d love to tell you it was some logarithm that came up with this idea but, you know, I’m shopping.  And where were my tipping points on all of this?  And three was the right answer.  So I’d love to tell you it was some brilliant conclusion based on scientific study.  (Chuckles.)  That’s how we ended up there.

MR. KEMPE:  (Chuckles.)  Thank you.  Please?  By the way, while it’s going to the questioner, a proprietary question:  I was in Davos World Economic Forum when this first came out.  And I talked to a finance minister from a friendly country and said, so what do you think of this?  And it was a most interesting response because it was, well, the U.S. must do what’s in its interests and we will do what’s in our interest.

And in a way, it underscores the problem of this, in general.  You’re trying to create a global model but if you impose something on U.S. banks that isn’t imposed on international banks, you could actually hurt them enormously in terms of their competitiveness globally.

SEN. DODD:  Well, again, and those are the things you’re going to have to work with as you go through all of this, and that’s the challenge that we have and that’s why it’s important that you have forums like this and effort be made.

And why I hope – you know, you get a lot of this talk about, I’m going to repeal all of this, and deal with this.  That’s great news.  I mean, one thing the financial services community wanted – and they were absolutely right in all of this – and they’re looking for as much certainty as you can get.  It’s very important that you feel that.  And again, it’s impossible to have it perfectly, but it’s very – well, what are the rules?  Tell me what the rules are so we can operate in that.  And obviously, as you point out, and I acknowledge, there’s a lot of work to be done now between this bill and actually regulations. 

And I think, again, responsible people understand that.  I think the last thing they would have liked is for me to try to write – (chuckles) – what the rules should be in a number of these areas.  That would have been a nightmare, I think, for most people if that had been the goal.

And so it will be important, again, to strike this balance.  And my guess is that there’ll be some effort and there should be in time.  The last thing I would suggest to you is that we’ve written the perfect piece of legislation.  Again, through that process of proposing regulations and commentary period and so forth, that there’ll be some different conclusions reached about this.  And my hope, again, in the sense of cooperation and it needs to be ongoing. 

My hope is – and I think there’s been some discussion of this – that there ought to be a permanent establishment.  And I would suggest over the next few years, almost on a six-month basis or quarterly basis, within the G-20, made up of principals in the financial regulatory area, to be meeting with great regulatory – not waiting or hoping you get invited to the next one – so that you honestly have that kind of, exactly this kind of conversation occurring about how do you resolve those differences?  And what is the right answer to that? 

Because you’re going to have to have it, in a sense.  Now, you can’t count on maybe the midterm elections, electing a bunch of people who want to get rid of it and then the next election someone brings it back again.  I mean, what kind of idiocy is that?

MR. KEMPE:  Where do you do it, G-20?

SEN. DODD:  I think G-20 is doing well.  I mean, I think they’re demonstrating some real leadership in all of this.  I think there’s a lot of respect for what they’re doing, so I’m comfortable with that.  But I think it’s – but I think you do need to formalize some permanent thing.  This is not going to, probably not going to end with this bill. 

It’s an ongoing issue; it’s a dynamic process.  And to the extent that you’re able to establish something like that, I think it’s critical.  In fact, I can’t imagine doing it without doing something like that.

MR. KEMPE:  Thank you, Senator.  Question?

Q:  Robert Sherretta with International Investor.  First of all, we’d like to commend you for your efforts.  But we’re worried about your absence.  You mentioned these regulations are going to take a few years to put into effect.  And Richard Shelby has come out and said some pretty harsh things about this legislation before it was enacted.  What do you think the future holds if we have such a chairman in the future?

SEN. DODD:  Well, again, I’ve listened to these – first of all, I’m not dying – (laughter).  I will be around.  Someone asked me the other day if I had any second thoughts about retiring.  I said the only second thoughts I’ve had is to how impressed I was with my first thought about retiring and all of this.  I’ve enjoyed the 36 years immensely, but it’s time to move on.  By the way, there’s some terrific people coming along.  And I really mean this.  I mentioned Mark Warner to you. 

Again, a fellow I like, Michael Bennet, has a race in Colorado; I hope he does well there.  But people like Jon Tester, Jeff Merkley did a lot of hard work on this bill, sitting on the Banking Committee.  Tim Johnson, Jack Reed is tremendously talented and hardworking.  So you know, I feel pretty good.  We’ve got Bob Corker, who is good.  And we worked together.  It didn’t work out as well as either one of us would have liked, in the end, but nonetheless, he’s knowledgeable, cares about the issues.  So you know, I feel pretty good. 

I hear a lot of this talk and it’s more political talk, I think, than anything else.  I can’t imagine coming in – that’s not to say you wouldn’t want to change some things or work on some things.  But to listen to some of the talk – what are you going back to, the status quo, where we were?  You really want to put us back in the situation where the only alternative is to watch someone, you know, fold the tent. 

I mean, you ever want to see a Lehman Brothers situation again?  What a disaster that was for the country and for the people who work in that firm and others, where those are your alternatives – either pumping $180 billion to AIG or shutting down a fine operation that could have otherwise been preserved.  That’s what you want?  To go back to that day and then ask the American taxpayer to write a check, not for $700 billion, but more like what the stabilization program was in Europe:  $1 trillion the next time. 

You really want to go back to that?  And that’s what you’re going to suggest?  I’m hard-pressed to see that’s the case.  You asked a good question a minute ago and I missed, maybe, thinking of it when I was just responding to this point. 

One area that needs some work in the bill is the bankruptcy area because in the titles I and II, the resolution mechanism, the bankruptcy – bankruptcy law is designed, basically, to take an individual company down.  It doesn’t take – how you deal with a highly interconnected company is far more complicated.  And candidly, the bankruptcy laws today don’t accommodate that very well. 

And I’ve talked with Sen. Leahy and others about this, that that’s really an issue they need to grapple with, and pretty quickly.  I’m not anticipating that’ll necessarily happen in the short term, but it could happen soon.  Who knows what occurs?  And you want to be able to have an apparatus in place that allows for the orderly process of bankruptcy to occur.  And right now, I think you’d have a problem with a highly interconnected company achieving that.

MR. KEMPE:  Right now, you don’t think the FDIC has a plan where you would work together with international supervisory institutions if you had an insolvent international bank, multinational bank?

SEN. DODD:  I think if you resolve – resolution process, I think, could occur.  But you realize that, you know, the preferred option is bankruptcy.  We want to make this – we’re trying to convince institutions how serious this is and that that’s the preferred choice.  You put us at risk systemically, here. 

You put the entire system at risk, here, and you’re coming down; we want you to know what sort of a price you’re going to pay for doing that.  So that’s a tough message.  Resolution is an alternative and the steps you go through to work through resolution.  I think the resolution path probably needs some tinkering and working on, but I feel more confident about a resolution process than I do the bankruptcy process right now.

MR. KEMPE:  Yeah.  Questions?  One here and one, great, thanks.  Let me take one here and then there.

SEN. DODD:  How are we doing time-wise?

MR. KEMPE:  We’ve got about 10 more minutes.

SEN. DODD:  Okay.

Q:  Hi, Mr. Chairman.  Brian Chide (sp) with Platts.  I just was wondering if you could expand on what you said earlier, regarding your fears, or what you indicated that your fears that the derivatives section might be watered down.  Do you feel that there’s going to be a push for more exemptions from clearing?

SEN. DODD:  Yeah, that could happen.  There was an effort.  You know, you sort of watch the process and again, it’s an area where most people don’t really understand it very well and yet it’s a very lucrative area.  I mean, obviously, you’ve seen what’s happened over the last few years.  And given the combination of being highly lucrative and highly complex, that’s usually a pretty good environment for people – (chuckles) – pulling off some stuff. 

So it’s an area where, if you ask me, it’s an area where I would see where there’s that much at stake and some changes here can mean an awful lot – (audio break) – and I understand.  But I think we’re in a better place as a result of what we’ve done.  But I realize it’s one that’s in some jeopardy.

MR. KEMPE:  Let me take the last two questions and bring them home to you.  And then I may pile on with one.  Please.

Q:  Eva Lippmann (sp), Austrian Embassy.  First of all, let me thank you for your interesting remarks, Mr. Chairman.  I’m interested, actually, in the bank levy or bank fee, I guess, or we also noted it was one of the points that you needed the 60 votes on, so that’s why it fell out of the act.

SEN. DODD:  You’re talking about the ex ante fund that was up?

Q:  No, actually, I mean, first of all, it was the proposal of Mr. President Obama in February, I guess, with the financial responsibility fee.  Then you had the whole process on the G-20, kind of, the bank levy.  And now the discussion is going on in some parts of Europe, if it’s going to be introduced or not. 

And as far as I know, in the regulation package it was, kind of, a pay for the vote.  So do you see in the near future, let’s say – I don’t know if the deficit commission comes up in December with some proposal, then it’s coming up again – or is it totally dead now, so just that we have, kind of, an idea?  Thank you.

SEN. DODD:  Well, I don’t always –

MR. KEMPE:  Do you want me to pick up the last two, or –

SEN. DODD:  Yeah, go ahead.

MR. KEMPE:  You know, just pick up the last two and then you can take them as a group.

SEN. DODD:  Yeah, okay.

MR. KEMPE:  I think there was one here?  Yeah, please.

Q:  Hannah Northey with Argus Media.  I was wondering if you could tell us the status of the technical corrections bill and what areas of financial reform that bill might address.

SEN. DODD:  Okay.  What else?

MR. KEMPE:  I want to ask about Basel III, but I’ll let these two go first and we’ll go –

SEN. DODD:  Well, let me – on technical corrections, historically, any bill of this size, you’d normally expect a technical corrections bill.  And I suspect people are looking at it right down to determine whether or not you need one.  I’m not going to be surprised if we don’t, given the size and magnitude of the bill.  But normally it is that, technical.  I mean, I’m not anticipating, all of the sudden, them to rewrite sections of the bill because they don’t particularly like them at this point. 

That’s not going to be the case.  So we’re going to be looking at it with a rather, rather narrow scope on that.  But I’m not even sure that’s necessary at this point.  I’m just assuming it will be.  And again, I don’t have an answer to that question yet.  I don’t think, Julie, do we know the answer to that question yet?

MS.    :  (Off mike, inaudible.)

SEN. DODD:  So it may not come up between now and – it wouldn’t be necessarily coming up between now, or even on a lame duck, necessarily, right?  Yeah.  So just stay tuned on that one, I would tell you.  And on the issue of valuations or assessments, again, let me – first of all, I think we did a pretty good job, in the bill – if I take advantage of your question to, kind of, maybe expand it a little bit more than just the question you asked – there was the debate about the ex ante fund. 
This was, by the way, this was an idea that was brought by the Republicans on the committee, to establish the ex ante fund up front.  So that there was a way – in fact, the House, you may recall, had $150 billion, which was probably a more realistic number.  If you started talking about the thoughtful winding-down of a major, or major companies, that kind of resource capacity might have been necessary.

The Senate bill, it was about $50 billion we were talking about.  But what started out as, I thought, a rather creative idea to minimize taxpayer exposure for this – so it was an assessment made on the largest financial institutions to put that money aside in order to accommodate those concerns, should you be faced with them – became, all the sudden – they described it as a bailout fund on the taxpayer. 

So the very people who advocated it became its harshest critics.  And so in the first amendment we dealt with on the floor of the Senate, or the second one, was to eliminate it and then to have the back-end approach on this, that if the assets of the institution are inadequate and so forth, as a last resort you would go back to the institutions to raise assessments in order to pay for the orderly winding-down of a large, systemically risk institution. 

And that’s where – on the assessments themselves, of course, you know we raised and made permanent the $250,000 in the insurance fund, or the FDIC.  And again, I think that was understandable.  That was necessary that we went back, actually.  We put that as part of the bill I wrote, back in the fall of ’08, with the emergency economic stabilization bill that was necessary, as you may recall, back in those days. 

And again, we’ve allowed for these assessments to be graduated.  And this is one of the things the ICBA and the smaller banks like, that they weren’t being, sort of, overly charged for those costs.  I know people have asked about – there’s been talk that the administration’s raised, and others, about a bank tax and so forth.  You know, again, I’m not – this is a Max Baucus question, chairman of the finance committee. 

I don’t see it.  I mean, I’d hesitate to have you people right that in the press because I’m not in a position to know specifically.  But the mood we’re in right now, look:  You’ve got September coming up.  We’re going to leave here the day after tomorrow for a month.  We come back.  Between Labor Day, Jewish holidays, Columbus Day, the election cycle, I mean, this is going to be a rather abbreviated session.  Anything of any controversy is not going anywhere.  If it is, sort of, a must-pass thing, you know. 

And believe me, this would be highly controversial subject matter.  So 36 years of congressional experience tells me not much happens in these days leading up to an election.  And even lame ducks I get nervous about the sessions.  I remember, back in the ’80s, we had one over a gasoline tax.  And we were there till Christmas Eve and nothing ever happened.  And so I’m skeptical about whether or not much can even get done in that post-election period, particularly if we end up.  As I anticipate, we may have a smaller majority in the Senate and a different outcome in the House. 

The Republicans aren’t going to be overly enthusiastic to allow us to legislate much, knowing that on January 3 they’re going to have a different makeup in the place.  And so it gets hard, in the Senate, particularly, where supermajorities become necessary to get much done.

MR. KEMPE:  Well, the thing I’m happy about there is, the Atlantic Council always likes to move markets.  And Dodd says, no bank tax –

SEN. DODD:  I know, I get – that’s why I hesitate to say that.  (Laughter.)  My great friend Al Hunt, by the way –

MR. KEMPE:  And my former boss Al Hunt.

SEN. DODD:  Oh, I love Al Hunt.  And Al Hunt was interviewing me one day, just a general conversation, he said.  I’m the new chairman of the Banking Committee.  Oh, I’ll fend Al off.  How bad could the questions be from your old friend in the press?  And we got down to the question – I mean, the question came up to whether or not they were going to nationalize banks.  You may recall, this was back a year-and-a-half ago. 

So Al says to me, what do you think?  He said, you think they’ll nationalize the banks?  I said, no, I can’t see that’s going to happen.  I mean, there’s not much appetite for that.  It wouldn’t make a lot of sense. 

But could it happen, he said.  I said, well, yeah, I guess.  Anything could happen.  (Laughter.)  But sheesh, I mean, I never knew I could move markets.  I sat there watching my TV screen just – (chuckles) – chairman of Banking Committee says they’re going to nationalize the banks.  So I’ve learned to try to be careful about this.  Now, don’t do that to me, Fred, for Christ’s sake.  (Chuckles.)

MR. KEMPE:  I just dropped bank futures for some –

SEN. DODD:  Yeah, I know.  Now you know how dizzying it was.  (Chuckles.)

MR. KEMPE:  Now, the last thing I should do is end this session on a Basel – something that sounds as arcane as Basel III, but I’m going to anyway.  And then we’ll end.  But the reason is, I think you and Congressman Frank are holding hearings on this in September.  You’re planning to.  Yes, no?

SEN. DODD:  Yes.  I am, anyway.

MR. KEMPE:  Some people are worried that the new rules would force banks to double their capital levels.  I guess the banking industry worries; you know, fragile recovery anyway.  So I guess two questions.  First of all, what’s your view on it?  But the other is, do banks have the capacity to accommodate new capital rules without it hitting into the recovery?

SEN. DODD:  Well, look.  Again, I want to thank Susan Collins.  Susan, my colleague from Maine, was very critical in this area.  She was the one who, along with Sheila Bair and others, worked on some language.  It required some more work.  I thought we had a better proposal and I say that respectfully of what was in the House.  The House had a number – what was it, 14 or something – I think, on capital.  And I think we’re on a better place on this. 

But clearly, recall, I mean, one of the concerns people had is inadequate capitalization.  Leverage issues were also at stake.  So it’s not an illegitimate question.  Obviously, we’re sensitive about it.  What does it mean?  And we’ve got to try to work together on it.  But I hope we can have some, again, flexibility in all of this. 

It is an issue.  It’s not the only issue, in my view, in determining whether or not an institution poses systemic risk.  I think it would be – you can imagine what people would be saying about this in light of what we’d been through, had we not had any, offered any language at all on requirements. 

So again, I think it’s – (audio break) – such as you raised a moment ago, Fred, that really will require, again, why you seed some of that ongoing, permanent dialogue and conversation about this.  So that we don’t end up with a lot of finger-pointing going on and ending up with very disparate, kind of, rules and principles that’ll make this even more confusing.  But again, I think you’d be hard-pressed. 

I mean, if I’ve heard Richard Shelby say anything, over the two and a half years that I’ve sat next to him on that committee, day in and day out, it’s capital status, capital, capital, capital – over and over and over again.  So again, I think it’s one of these areas where you’ll find, probably, a lot of common interest that we want to have adequate standards here that will not pose the kind of risks that we’ve been through.

MR. KEMPE:  Well, in thanking you, first of all, it’s just terrific that you took the time to come here.  I know you were under a lot of time pressure today.  It’s terrific the audience stayed and waited and I’m sure that they feel as –

SEN. DODD:  How do you leave this room?  You can’t get out.  (Laughter.)

MR. KEMPE:  You noticed.  You noticed the –

SEN. DODD:  Talk about a captive audience.  (Chuckles.)

MR. KEMPE:  And we locked the doors too.  But this has been terrific insight.  It is, no doubt, historic legislation.  But also, I think, what you hit on is that it’s a beginning of a process rather than the end of the process.  And a lot of this process is going to be trans-Atlantic and it’s going to be global. 

And so we at the Atlantic Council want to take the work that you’ve done and you talked about it as a global model.  That’s an interesting question.  And so, you know, will it translate into that?  If so, in what areas?  If not, in what areas?  And then how does one actually bring all this together?  But on behalf of the audience, the Atlantic Council, Sen. Hagel, I just want to thank you for taking the time to be here.

SEN. DODD:  Thank you very, very much.  (Applause.)



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