Deputy Secretary Neal S. Wolin Remarks at Georgetown University McDonough School of Business

Thank you, Mark, for that kind introduction. I'm delighted to be here. I'd like to thank Dean Daly for organizing this conference and for giving me the opportunity to speak to you today about financial reform implementation. The financial crisis was caused not by one gap or breakdown in our system, but by many. Firms took on risks they did not fully understand. Regulators did not make full use of the authority they had to protect consumers and limit excessive risk. Loopholes allowed large parts of the financial industry to operate without oversight, transparency, or restraint. Policymakers were too slow to fix a broken system. These failures brought our economy to the brink of collapse. President Obama came into office determined not just to repair the damage, but to fix the system that allowed these failures to have such devastating consequences. Earlier this year, the President signed into law the most sweeping financial reforms since the Great Depression. The Dodd-Frank Act addresses the core problems that led to this crisis. The Act builds a stronger financial system by addressing major gaps and weaknesses in regulation. It puts in place buffers and safeguards to reduce the chance that another generation will have to go through a crisis of similar magnitude. It protects taxpayers from bailouts. It brings fairness and transparency to consumers of financial services. And it lays the foundation for a financial system that is pro-investment and pro-growth. But the work is far from done. Enacting this law was just the beginning. We have now begun the difficult and complex process of implementation, and today I'd like to discuss some of our accomplishments and our next steps. Before I describe how we are implementing the Act, I want to detail the broad principles guiding our efforts. First, we are moving as quickly and as carefully as we can. Wherever possible, we are quickly providing clarity to the public and the markets. But the task we face cannot be achieved overnight. We have to write new rules in some of the most complex areas of finance; consolidate authority spread across multiple agencies; set up new institutions for consumer protection and for addressing systemic risks; and negotiate with countries around the world. In getting this done, we are making sure to get it right. Second, we are conducting this process out in the open, bringing full transparency to implementation activities. As we write new rules, we will consult with a broad range of groups and individuals. And as we seek their input, the American people will be able to see who is at the table. Draft rules will be published. Everyone will be able to comment. And those comments will be publicly available. Treasury will disclose the topics of meetings on Dodd-Frank implementation and the names of the attendees. Third, wherever possible, we will streamline and simplify government regulation. Over the years, our financial system has accumulated layers upon layers of rules, which can be overwhelming. That is why alongside our efforts to strengthen and improve protections through the system, we will avoid duplication and seek to eliminate rules that do not work. Fourth, we will create a more coordinated regulatory process. Ahead of this crisis, gaps and inconsistencies between regulators proved to be a major failure. Gaps allowed risks to grow unattended and inconsistencies allowed an overall race to the bottom. Better coordination will help prevent a recurrence. Fifth, we will create a level playing field. A level playing field must exist not just between banks and non-banks here in the United States, but also between major financial institutions globally. We are setting high standards at home while working tirelessly to persuade the international community to follow our lead. Sixth, we will protect the freedom for innovation that is absolutely necessary for growth. Our system allowed too much room for abuse and excessive risk. But as we put in place rules to correct for those mistakes, we have to achieve a careful balance and safeguard the freedom for competition and innovation that are essential for growth. Seventh, we are keeping Congress fully informed of our progress on a regular basis. Guided by these principles, we have made significant progress in the months since enactment. I'd like to update you on a few of the institutions at the heart of this legislation – the Financial Stability Oversight Council, the Office of Financial Research, and the Consumer Financial Protection Bureau. Before the Dodd-Frank Act, there was no single government entity charged with monitoring and responding to risk across the financial system. Gaps and inconsistencies led to regulatory arbitrage, and some of the largest, most interconnected firms were able to escape meaningful supervision. The Act creates the Financial Stability Oversight Council, requiring it to identify risks to financial stability, respond to any emerging threats in the system and promote market discipline. The Act also provides the Council with a leading role in several important regulatory decisions, including which nonbank financial institutions and financial market utilities will be designated as systemically important and what heightened prudential standards should be applied to those firms. The Council's success in carrying out these critical functions will depend on its ability to act in a collaborative manner. While each member agency is responsible for a specific part of the financial sector or for certain aspects of its functioning, the Act holds the Council and its members collectively accountable for maintaining stability across the financial system. Accordingly, the Council must adopt an approach that preserves the independence of regulators to fulfill their individual responsibilities while maximizing the coordination required for the Council to achieve its broader mission of financial stability. As Chair of the Council, Treasury moved quickly to convene the Council earlier this month, ahead of the date required by the Act. At this first meeting, Council members engaged on important substantive issues. They requested public input on the criteria the Council should use to designate systemically important nonbank financial companies for Federal Reserve supervision. They requested public comment on the Council's study on the Volcker Rule's limitations on proprietary trading at certain financial institutions. Members also released an integrated roadmap for implementing the Dodd-Frank Act that reflects the priorities of the various regulatory agencies. And they adopted bylaws and a transparency policy. On November 23, the Council is scheduled to have its second meeting. I expect that the Council will continue its work on systemic risk and discuss the criteria for designating systemic non-bank financial institutions and financial market utilities. I also expect that the Council will make further progress on decisions about its operations, including budget, staffing, and organizational structure. Now, to constrain systemic risk effectively, the Council and its members must be able to monitor systemic risk effectively. Doing that requires improvements in financial reporting and analytical capacity in the regulatory community. That is why, alongside establishing the Council, the Dodd-Frank Act also established the Office of Financial Research. In the decades leading up to this crisis, financial reporting failed to adapt to an ever evolving financial system. Both supervisors and market participants lacked data on the buildup of risk, particularly in rapidly growing areas such as the so-called "shadow banking system." And when the crisis hit, policymakers and investors had inadequate information about the interconnectedness of firms and associated risks. The OFR was created to address the critical need of regulators, policymakers, and industry for data that are better, more useful, and more reliable. The OFR's capacity to organize and analyze data will also help the Council make more informed decisions about potential threats to the financial system. In order to accomplish this goal, the OFR is working with regulators and industry, laying the groundwork to standardize financial reporting and develop reference data that will identify and describe financial contracts and institutions. Data standardization will provide for more consistent and complete reporting, making the data available to decision makers easier to obtain, digest, and utilize. Over the coming weeks and months, the OFR will begin to define a set of standards for reporting of financial transaction and position data. The OFR will collaborate with the financial industry, data experts, and regulators to develop an approach to standardization that works for everyone. The OFR must not duplicate existing government data collection efforts or impose unnecessary burdens. That is why we are working with the regulators to catalogue carefully the data they already collect to ensure the OFR relies on their data whenever possible. The OFR is also exploring ways that it could act as a central warehouse of data for the regulatory community, which could generate efficiencies and interagency cooperation. We have seen before how standardization can help markets run more efficiently. CUSIP codes for securities and SWIFT bank identification codes are good examples of the benefits of standardization. Introduced in the 1960s, CUSIP codes reduced paper, processing times, and human error associated with stock market trades. They also helped facilitate automated trade execution, a reduction in paperwork backlogs and increased efficiency and precision of settlement. Similarly, SWIFT's bank identification codes facilitate efficient transmission of funds across the globe. Standardizing the way that entities, instruments, and transactions are identified not only reduces costs, it allows for more meaningful identification of risks – both at the firm level and system wide. The development of new data standards is only a foundational element of the OFR's goals. The true measure of standardization's success will be in how it facilitates more robust and sophisticated analysis of the financial system, both for the government and the private sector. For example, more consistent and complete reporting of derivatives will make it easier to track how they redistribute risk through the system. Data standards will make it easier for individual firms to assess their own risks and will improve discipline by giving market participants better information on what individual firms are doing. Beyond establishing standards, the OFR is also required to develop and publish key reference data that will describe financial institutions and contracts. Regulators and supervisors as well as private firms and investors rely on such reference data to analyze risk. The OFR is beginning the effort to put all of this in place. To help the Council fulfill this potential, the Dodd-Frank Act mandates that the OFR establish a Research and Analysis Center. Although no analytic effort, no matter how thoughtful, can anticipate all risks, the OFR can help identify undue concentrations of risk and ensure that when the next crisis begins to emerge, the government will have better information and analytical tools to respond appropriately. As we work to establish the OFR, we are committed to protecting private information and trade secrets. The Act provides strict protections for data security and confidentiality, and we take seriously our obligation to implement these safeguards fully. In the coming months, our OFR team will be developing confidentiality policies and procedures for the OFR and its data centers that meet the highest data security standards. While the Council and the Office of Financial Research are designed to help us monitor and address risk in the broader financial system, the Consumer Financial Protection Bureau was created to address a specific gap in our regulatory structure – the need for a single agency dedicated to consumer protection. The CFPB, an independent agency within the Federal Reserve System, will have the sole mission to ensure transparency in consumer financial products and services and protect consumers from abuse and deception. The CFPB will consolidate existing rulemaking authorities for consumer financial products and services. It will consolidate agencies' existing functions for supervising the largest banking institutions for compliance with consumer financial protection laws. And it will supervise the consumer financial services activities of many non-bank financial firms that sell consumer financial services – an entirely new federal function. The Act charges the Secretary of Treasury with standing up the CFPB. Under his leadership we set up a staff implementation team with a clear division of responsibilities right after enactment. Elizabeth Warren, as Special Advisor to the Secretary, is leading Treasury's effort to build the CFPB. The CFPB implementation team has working groups focused on setting up key functions of the bureau such as research and supervision of financial institutions. Other working groups are focused on building the CFPB's supporting infrastructure, from procurement and budgeting to human resources and legal services. The Secretary has designated July 21, 2011, as the date on which the CFPB will assume existing authorities of seven federal agencies, and we have made substantial progress preparing the CFPB to incorporate staff and assume authorities from those agencies. We have begun planning and preparations for certain rules mandated by the Dodd-Frank Act so the CFPB can meet statutory deadlines. We are working with the agencies that will transfer rulemaking authority to coordinate and ensure a smooth transfer. For instance, we are coordinating fulfillment of certain rule writing mandates under the Dodd-Frank Act with the Federal Reserve Board to speed clarity for the market and meet statutory deadlines. We are also hard at work to ensure a smooth transfer of consumer compliance supervision for banks, thrifts, and credit unions with assets exceeding $10 billion. Senior experts in consumer compliance supervision of large banks – detailed to Treasury from the banking agencies – are laying plans for staffing, training, and information systems. We will make sure to coordinate examination schedules with prudential regulators to avoid unnecessary burden. Finally, let me say a few words about global coordination with respect to financial reform. For reform to work, we need to establish a level playing field – not just between banks and non-banks here in the United States – but also among our financial institutions and those in Europe, Japan, China, and emerging markets, who are all competing to finance global growth. During the response to the financial crisis, the G-20 emerged as the premier forum of international economic cooperation, and it has remained critically important as countries across the globe have begun to design and implement their reforms. Since the first Leaders' summit held in Washington in November 2008, G-20 members, working in conjunction with the Financial Stability Board and the Basel Committee on Banking Supervision and other standard setting bodies, have catalyzed wide ranging reforms. These reforms are strengthening regulation, improving transparency and accountability, and reinforcing international cooperation. This past weekend, G-20 finance ministers met in Korea and reaffirmed their commitment to the international financial reform agenda. The G-20 agenda has focused on a strong agreement on bank capital, resolution frameworks in the G-20 nations, the problem of "too big to fail," and greater transparency in over-the-counter derivatives markets. Leaders have committed to bring standardized OTC derivatives trades onto organized trading platforms, where appropriate, and to ensure that all standardized contracts are cleared through central counterparties. Leaders have also called for all OTC contracts to be reported to trade repositories, so that supervisors can better monitor systemic risks. And further work continues to ensure that central counterparties and trade repositories are well-regulated and supervised globally. Additionally, G-20 Leaders have committed to strengthen the transparency, regulation and oversight of hedge funds in an internationally consistent and non-discriminatory fashion. The Dodd-Frank Act fulfills our G-20 commitments in this area in several ways. The Act imposes reporting requirements on funds and prudential standards on those funds that are deemed systemically significant. It extends U.S. investment advisor registration to advisors of hedge funds and other private pools of capital, including private equity funds. And it imposes the same rules for U.S. investment advisors as foreign fund managers. In Europe, Member States are close to reaching an agreement on legislation that strengthens and standardizes regulation of hedge funds across the EU, although significant uncertainty still surrounds the treatment of non-EU managers and funds. We believe it is critical that any agreement be non-discriminatory, as agreed by the G-20, and maintain a level playing field for both third country funds and fund managers. Beyond the G-20, we are working through forums such as the Financial Stability Board and the Basel Committee on Banking Supervision. In September, international regulators released a new agreement on minimum capital standards. The Basel III agreement will require any bank, whether based in London, New York, or Tokyo, to hold more and higher quality capital against the kinds of risky products and activities that caused such damage two years ago. It will also require banks to meet new international requirements on maximum leverage and minimum liquidity. Secretary Geithner and many others in the U.S. government have been working hard with our international partners to coordinate global reforms. I look forward to continuing this effort next month, when I travel to Europe to explain how Dodd-Frank fulfills our commitment to the G-20 agenda and to continue our work towards strong international standards. This economic crisis was caused by fundamental failures in our financial system. And over the past few years, those failures have cost us dearly – millions of lost jobs, trillions in lost savings, thousands of failed businesses, homes foreclosed, retirements delayed, educations deferred. Financial reform addresses those failures so no future generation has to pay such a price. But it also rebuilds our financial system so that it can once again be an engine for economic growth. For much of the last century our financial system was the envy of the world. From London to Shanghai, it was analyzed and even emulated for its creativity and efficiency in finding innovative ways to channel savings towards credit and capital, not just for the biggest companies but also for the individual entrepreneurs who had a good idea and a solid plan. The Dodd-Frank Act and its successful implementation will help ensure that our financial system becomes safer, stronger and, just as in the past century, the world leader. Thank you very much.