Congressman Cleaver Speaks to Key National Opinion Leaders Regarding Financial Sector and the Economy

"The Future of Financial Services and Insurance: Risk and Regulation at Home and Abroad" will be broadcast live here.

Today, Congressman Cleaver will join National Journal for a robust discussion about globalization and its impact on the financial sector and the economy. Following his remarks, Congressman Cleaver will be interviewed by Ron Fournier, Senior Political Columnist and Editorial Director for National Journal. Senator Richard Shelby, Chairman of the United States Senate Committee on Banking, Housing, and Urban Affairs, also spoke at this event. Congressman Cleaver will discuss the health of the economy and the financial system; how can government best mitigate risk; what effect has Dodd-Frank and other related financial services legislation had on the sector, among other important issues. His remarks, as drafted for delivery, are below.

The situation in Baltimore is not unique to Baltimore; we have seen that play out many times before. The problem is that we really neither talk about how we can improve race relations, nor do we do anything about it, and sometimes we talk about it and talking about it isn't doing anything about it. I think it is really dangerous, no matter what your views are, it is a dangerous situation and it can impact the economics of this country and this community, particularly the insurance community. All you have to do is look at the flames rising above two different sectors of Baltimore to realize, when the smoke settles there will be an economic crisis in those neighborhoods.

I've been going down to Ferguson for the last three years, long before the crisis hit. Ferguson is a city that has grown old but it hasn't grown up. As a result, we see the tragedy that has played out and it is an embarrassment, not just for Missouri.  When you look across the country it is an embarrassment for all of us.  It ought to be something that we should be able to get a little bit better at than we have gotten in over 300 years. I think that there can be no gathering of people, with good will and who love this country, without considering to do a little bit more than to discuss what is going on. Maybe we need to do some things about it. When invited to speak today, I was asked to address the health of the economy and the financial system; the effect Dodd-Frank has had on the financial sector, and how can government best ensure the resilience of the U.S. financial system and the economy?

These are very important questions, to be sure. But I fear they may lead us to the wrong answers. In truth, we must ask ourselves—how does a law affect the American people? Does it protect and preserve? Does it restrict and restrain? Are we better off living under the protection of this law than without it?

The financial crisis caused incalculable, widespread human suffering that impacted millions of Americans – and continues to this day.  All told, it cost our nation more than $13 trillion in economic growth and $16 trillion in household wealth.

Nearly 9 million jobs were destroyed as the unemployment rate doubled. Foreclosures displaced more than 11 million Americans, which contributed to a decline in home values of more than 30 percent. Even in a room such as this, where many of us are blessed beyond measure, we all felt the blows, and many of us know some who are still recovering from the damage.

After the worst of the crisis subsided, it became clear that a massive reform of our nation's financial system was necessary to reset the economy and prevent a future crisis.

Dodd-Frank accomplished that goal: providing accountability, transparency, and creating a stable financial system essential to grow the economy and create jobs. I believe this law goes a long way toward restoring responsibility and accountability in our financial system. I voted for it. I support it. I want to protect it. But I have watched the way it and other laws have been implemented, and when and where I have taken issue with it, I have taken initiative. I will continue to do so.

Perhaps the major issue in financial reform has been how to address the systemic fragility that was revealed by the crisis. Dodd-Frank creates a new regulatory umbrella group chaired by the Treasury Secretary—the Financial Stability Oversight Council—with authority to designate certain financial firms as "systemically significant" and subjecting them to increased prudential regulation, including limits on leverage, heightened capital standards, and restrictions on certain forms of risky trading. These firms will also be subject to a special resolution process similar to that used in the past to address failing depository institutions. Of course, there are three large insurance companies that have been designated as a systemically important financial institution (SIFIs). That may be a true four letter word in this room.

The U.S. insurance industry is of course primarily regulated by the states. However, the consequences of the crash revealed the extent to which our U.S. financial regulatory framework had allowed for supervisory gaps to grow.  There was simply no single regulator responsible for understanding and supervising the enterprise as a whole.

To be sure, the insurance industry plays a major role in the U.S. economy. In 2012, insurance premiums in the life and health and property and casualty sectors totaled more than $1.1 trillion. U.S. insurers continue to show resilience in the aftermath of the financial crisis. While the United States remains the world's largest insurance market by premium volume, its share has declined both as a percentage of domestic GDP and as a percentage of worldwide market share. Life and health insurance sector premiums grew consistently from 2010 to 2012, and there was high growth in the annuity business and moderate growth in the life and accident and health businesses. U.S. insurer investment portfolios include short-term commercial paper, asset-backed securities, and other financial instruments. Some insurers are also significant participants in the derivatives and securities lending markets.

One bipartisan solution is to develop regulations, oversight and capital requirements that are graduated and tailored to the types of risks that these firms would pose to the financial system. There has been a growing consensus that while additional regulation is appropriate, it will need to be tailored to suit the business models and operations of nonbank entities. For example, my colleague, Chairman Leutkemeyer and I wrote to the Federal Reserve Board regarding implementation of S. 2270, the Insurance Capital Standards Clarification Act. As supporters of this law, we urged the Federal Reserve to avoid using Basel bank-centric capital framework for insurers. A capital regime, we wrote, should take into account the unique characteristics of the insurance business model, including accounting systems, insurer liabilities, valuation standards, and hold-to-maturity practices. We urged Chair Yellen to ensure that no policy principles are agreed to internationally that would restrict the ability to implement the legislation in accordance with the intent of Congress. This is but one example of a growing list of bipartisan efforts I am working to achieve.

As a former Mayor, I know firsthand the importance of remaining competitive or risking the loss of jobs and industry. I know the balancing act one must attempt to protect citizens and to promote prosperity. I have long believed we have to continue to implement Dodd-Frank capably, carefully, and with great consideration of the many American households in my district, Missouri's Fifth, and around the country, who suffered as a result of falling asset prices, tightening credit, and increasing unemployment.

As legislators, regulators, and other policymakers continue to evaluate capital, risk, and solvency standards, let's agree on a few principles. Let's do our best to understand risk not just in theory, but in practice. Let's not be afraid of regulation or reform, but let us approach them both regularly and reasonably. And let's be ready to cooperate and coordinate on all levels—House and Senate, Democratic and Republican, national and international, regulatory and legislative, and so on and so forth.

Thank you.

Emanuel Cleaver, II is the U.S. Representative for Missouri's Fifth Congressional District, which includes Kansas City, Independence, Lee's Summit, Raytown, Grandview, Sugar Creek, Blue Springs, Grain Valley, Oak Grove, North Kansas City, Gladstone, Claycomo, and all of Ray, Lafayette, and Saline Counties. He is a member of the exclusive House Financial Services Committee, the Ranking Member of the Subcommittee on Housing and Insurance, and also a Senior Whip of the Democratic Caucus. A high-resolution photo of Congressman Cleaver is available here.