Letter Opposing the "Restoring American Financial Stability Act of 2010" (RAFSA), in its Current Form

March 22, 2010

The Honorable Christopher Dodd

Chairman

Committee on Banking, Housing and
Urban Affairs

Washington, DC 20510

The Honorable Richard Shelby
Ranking Member
Committee on Banking, Housing and Urban Affairs
United States Senate United States Senate
Washington, DC 20510

Dear Chairman Dodd and Ranking Member Shelby:

The U.S. Chamber of Commerce, the world's largest business federation, representing more than three million business and organizations of every size, sector, and region, opposes the "Restoring American Financial Stability Act of 2010" (RAFSA), in its current form, because it fails to achieve the meaningful financial regulatory reform necessary to ensure productive capital markets and to fuel long-term economic growth and job creation.

The financial crisis has highlighted problems that have existed within the U.S. financial system for quite some time. Before the crisis erupted, the Chamber called for a broad-based overhaul of the U.S. financial regulatory system as a means to increase the efficiency of capital markets and provide businesses with the opportunity to grow and expand. The Chamber was not alone in pointing to the fact that a patchwork system of regulation creates inefficient capital markets and thwarts the ability of the economy to grow.

While the Chamber supports the intent of RAFSA to reform the financial regulatory system, we believe that the positive elements of RAFSA are significantly outweighed by provisions that would only magnify and exacerbate flaws within the existing regulatory structure and hamper the growth of the economy. The Chamber has concerns with the following provisions:

I. Consumer Protection
While the Chamber appreciates the Chairman's efforts to revise the consumer protection title, we remain strongly opposed to the creation of a new regulator with unchecked and unprecedented power that bifurcates the regulation of products from that of the safety and soundness of the institutions that offer them.

The Bureau of Consumer Financial Protection would have overly broad and vague regulatory authority, duplicate existing consumer protection laws, and lead to a confusing and complex maze of conflicting and overlapping regulation. These would both increase the uncertainty and costs associated with lending, reducing the availability and affordability of credit for consumers and small businesses when they can least afford it.

The Chamber urges the Committee to work towards a bipartisan solution that will enhance consumer protections, simplify disclosures for consumers, and ensure robust enforcement against predatory and fraudulent acts and practices.

II. Derivatives
Throughout this process, the Chamber has advocated for derivatives regulatory reform that enhances the transparency and stability of the derivatives markets while upholding the ability for corporate end-users to access the over-the-counter markets affordably. Unfortunately, the Chamber believes Title VII does not strike the right balance, and it would jeopardize responsible risk management practices within companies across the country.

The Chamber urges the Committee to provide a strong clear exemption from central clearing and bilateral margining for end-users. The exemption should acknowledge that businesses hedging risk do not threaten the stability of the financial system and should not be forced to post cash collateral that would otherwise be used to grow the business, make productive investments, and create jobs.

III. Corporate Governance
The Chamber opposes the inclusion of the corporate governance provisions in RAFSA as embodied in Title IX, subtitles E and G. Corporate governance has traditionally been within the purview of state law and allowed shareholders and directors to determine the best governance structures for a company. The governance provisions of RAFSA would federalize corporate law, place large activist investors at the head of the line and allow them to use governance procedures as a means to gain leverage and advance agendas wholly unconnected to the management of a company. This one-size-fits-all approach would distract directors from managing a company, lessen shareholders voice in proposals and director elections, and continue to disenfranchise retail shareholders.

IV. Systemic Risk and Resolution Authority
a. Systemic Risk Council, Duplicative Regulation and "Too Big to Fail"

The Chamber supports the formation of a Council, made up of functional regulators, the Federal Reserve, and the Treasury Department, to monitor systemic risk. Greater access to comprehensive market and industry information would assist the Council in identifying emerging threats to America's financial stability. The Chamber also believes that functional regulators, rather than the Federal Reserve, should play the predominant role in ensuring greater oversight over the activities of large, non-bank financial institutions.

A "one-size-fits-all" approach will not produce more effective oversight. In this regard, the Chamber opposes bank-like regulation for large, non-bank institutions. Shoehorning non-bank institutions into a banking regulatory framework would disrupt how these institutions compete in and out of their industry. Instead, an institution's functional regulator should have authority to set heightened standards that provide appropriate safeguards yet support the various business models of non-bank institutions.

RAFSA also preserves the "too big to fail" concept to the detriment of all market participants. Designating firms for special prudential regulation will inevitably create a list of "too big to fail" institutions. Some companies would become safer bets than others and receive funding and other advantages. This would simply recreate the GSE problem on a broader scale.

Regulators should have appropriate tools to address systemically risky activities, including setting capital and liquidity standards. However, the Chamber opposes actions that would place a government imposed ceiling on the growth of U.S. companies. Placing a defined or arbitrary cap on the size of U.S. businesses would deter the growth of domestic companies and decrease America's economic competitiveness in relation to foreign markets.

b. Potential Regulation of Non-Financial Companies
Many companies use financing arms to finance purchases of the products they produce and sell, or own banks to reduce operational costs. These are important functions for main-line companies in a 21st century economy.

While the Chamber believes that systemic risk monitoring is an important step moving forward, we oppose setting duplicative standards for holding companies and subsidiaries, including the requirement to have finance subsidiaries of industrial companies regulated like depository institutions with the corresponding restrictions. Greater coordination among regulators should result in regulatory, oversight, and examination processes that are streamlined to avoid duplication – not a new two-tiered system of standards. Such a result would adversely impact economic growth and job creation.

c. Resolution Authority
The goal of enhanced resolution authority should be to accelerate the orderly dissolution of failing firms, not to sustain them. With the right tools, the Chamber believes institutions can be allowed to fail without threatening the overall stability of our markets. No company should operate on the expectation that they will receive financial assistance if they get into trouble. This resolution authority must set clear and specific guidelines that provide predictability and transparency for all market participants. Ultimately, the existing bankruptcy process, with its predictable rules, should be relied on to the greatest extent possible. By supporting a weakened company with government cash infusions for up to two or three years, the government would create competitive inequities in the marketplace. The Chamber also opposes taxing competitors to keep a failing firm in business. Healthy companies that weather tough economic times should not have to pay for the government's costs of keeping a failing competitor in operation.

d. The Volcker Rule
The Chamber believes that the intent of the proposed Volcker rule to stabilize the financial sector is a good one. However, the rule itself may be too restrictive for a growing economy and the prohibition of certain activities by financial institutions may place U.S. capital markets at a distinct competitive disadvantage. Accordingly, the Chamber suggests that other pro-growth tools be used by regulators, such as heightened capital requirements and liquidity standards, to achieve the intent of the Volcker Rule.

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While the Chamber has significant concerns regarding RAFSA and opposes it in its current form, we look forward to working with members of the Committee to improve this legislation.

Sincerely,

R. Bruce Josten

Cc: The Members of the Committee of Banking, Housing and Urban Affairs