WASHINGTON, D.C. —Following comments made by Acting Comptroller of the Currency John Walsh against implementing meaningful financial reforms enacted by Congress aimed at protecting American taxpayers, U.S. Sen. Sherrod Brown (D-OH) sent a letter today to Treasury Secretary Timothy Geithner urging a leadership change at the Office of the Comptroller of the Currency (OCC). The OCC is an independent bureau within the Treasury Department. Brown rebutted the flawed reasoning contained in Mr. Walsh’s recent comments that robust capital standards, as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act, would be harmful to the economy.
“I am troubled that Mr. Walsh—the person in charge of overseeing our largest banks—adheres to such deeply flawed beliefs. This is a threat to the stability of our financial system and our entire economy,” Brown said. “Wall Street nearly brought down our economy three years ago in part by gambling with other peoples’ money. Less debt and more equity will keep our banks on sound footing and ensure that credit is available to Main Street businesses and consumers. Mr. Walsh does not appear to understand this—and that is why he must be replaced as soon as possible.”
In a speech in London on Tuesday, Walsh argued against setting meaningful requirements for banks to fund themselves through equity, stating that “we are in danger of trying to squeeze too much risk and complexity out of banking as we institute reforms to address problems and abuses stemming from the last crisis.” Walsh quoted a 2007 study that concluded that “there is widespread agreement in the theoretical academic literature that the immediate effects of constraining capital standards are likely to be a reduction in total lending and accompanying increases in market loan rates and substitution away from lending to holding alternative assets.”
When the Federal Reserve announced the results of the second round of “stress tests” and their decision to allow the 19 largest banks to issue dividends, Brown called on the Federal Reserve and the Treasury Department to make the results public, and to ensure that banks are adequately capitalized to prevent another financial crisis. These letters and their responses can be viewed here, here, here, and here.
Brown’s full letter to Secretary Geithner is attached.