frank bill. they all have the problem. all the governments and of the relationship between privacy and freedom is a regulators are worried about the same thing. discussion that's going to be this has been a worldwide break ongoing. we hope you'll join us for a down of finance in the united states i do think i can fairly short reception afterwards. we hope you'll pick up a 50th say it's been in a league of anniversary copy of the national legislative changes. magazine. i want to say thank you to jim it deals one way or another in and shelby for being great partners not just in hosting us, but in very much developing this almost all the factors bearing program with us and being on relevant structural changes. passionate about these issues. i want to thank bob and my first of all, it deals friends at google. not just for sponsoring this, indirectly to reduce the risks but providing ewe tube videos and being passionate about these involved. issues. i want to thank our friends at c-span. senator, you're absolutely again, i want to join my thanks to david and crista, and correct. president bolger who traveled it making loans are the riskier for this. he has much to do and many thing in banks. demands on his schedule. it becomes riskier when they he wouldn't be here if this were not something he cares about lose credit controls. it shouldn't be all that risky. very personally. particularly to rebecca who but you're making sub prime changed her whole schedule and mortgages and farming them off now flies around with a 24-hour to other people is indeed

exceedingly risky proposition. flight to oslo. and to robert, but believe me put in a great deal of work before this panel ever met to make it such a success. so thank you all very much. [ applause ] look at other activities. dodd frank dealing with derivatives. everything is real vent. $700 trillion of derivatives outstanding in the world today. wow wonder if they're all directed towards some explicit protection against some explicit risk that can be dealt with by dritives or themselves kind of trading operation.

it does call upon simplification as possible. that's fiercely contested by the banks. but that can be done to the great mass of derivatives it will be a help. other institutional factor concerning what banks can do, not do is the restraint on coming up on c-span, a member of russia's democratic proprietary trading and opposition movement. she's talking about russia's ownership of hedge funds and presidential election and the equity funds. the kind of thing that has my future of democracy in russia name attached to it. under president putin. i would only say in that that's live at 3:00 p.m. connection that sometimes talked about as purely a risk factor. it is a risk factor. eastern. >> over the past year c-span's it's speculative trading. local content vehicle has taken its influence goes far beyond book tv and american history tv on the road from tampa to the particular risks involved in particular transactions. it's a cultural issue. savannah, charleston to knoxville, and last month in oklahoma city. hedge funds, equity funds and the crews have visited the places that define a city's proprietary trading itself heritage and literary life. necessarily involve the big june 2nd and 3rd watch for our banking conflict of interest

also continuously. special programming from wichita, kansas, on c-span2 and and traders get to be richly rewarded. that affects the corp. sigs practices and the culture of the c-span3. bank throughout leading to in my a senate banking sub committee held a hearing for view unnecessarily dangerous limiting support for financial institutions. among those testifying former behavior. the other part of dodd frank i federal reserve chairman paul volker. senator sherrod brown of ohio just mentioned because in a way chaired the two-hour hearing. it's the heart of it, dodd frank says no failing financial institution is going to be rescued. tlt be liquid dated, merged, sold, but the stockholders will be gone. creditors will be at risk the management will be gone. that's different obviously from what happened in 2008-2009 in the midst of the crisis that >> mr. volker nice to see you. raised all the questions about we have three panels today. too big to fail. there's lots of skepticism in i always give moderate short opening statements. the market as to you're aware. senator corker always gives

whatever the law says when push thoughtful and even shorter comes to shove, the government statements. we'll begin briefly with that. will act presumably against the law to continue rescuing with i wanted to help everybody involved in getting some government money. i think that skepticism is over excellent qualified individuals to discuss such an important but done but it's got to be dealt admittedly broad set of topics was not easy. with. and in the case of these big so i appreciate the cooperation of all of you who are major players in your own right banks, the failure and the throughout the financial system. management of the bank after the i'll keep my message brief. i've simply say it's vital we failure gets very complicated take the necessary steps sooner internationally. rather than later to end i just want to say that while government policies and support i'm obviously on the sidelines and encourage large complex here, i have been impressed by institutions. that's why today i'm introducing the amount of effort going on particularly between the fdic my legislation the safe banking and the uk authorities on this act that was known formerly as the brown kauffman bill and issue. amendment. i think the ideas today have where there's a meeting of minds traction on both sides of the aisle. the full committee's ranking member shelby voted against the near as i can see in the euro act in favor of brown kauffman zone generally. but getting that down in a very when it was an amendment to the complicated way so the

authorities can work together when you have an incipient dodd frank bill. failure is very important. >> thank you, mr. chairman, and i do think considerable progress dr. volker. is being made in that area. thank you for being here. so i will just stop there enjoyed talking to you prior to touching on some of the points and enjoyed reading your that i think are critical. testimony yesterday evening as >> thank you, chairman, volker it came in. i think we all agree that we need a safe banking system. we want one that also meets the very much. i'll take five minutes in needs of the 21st century questions. starting with the ranking member and we'll go from there. economy. you've often talked today about the moral hazard issue. congress has note dealt with the the pattern of government support for the largest gses. i know as a man who was under institutions for each greater risk taking. in december at that committee extreme stress during the early 80s and made a lot of tough decisions that has caused you to be highly honored by people all table sheilah behr told the across this country, he must subcommittee quote, it's look at amazement on u.s. important for the government to be sending all the right signals congress that fails to deal with that we do not view it as a good in and of itself to keep these an evident huge problem in our institutions alive just because country, but has lacked the courage to deal with that.

they are big. your congressmens about the i was thinking we read a lot of skepticism might be overdone materials getting ready for this about the view of government hearing and certainly appreciate stepping in legally or not, what the witnesses that have come. the most dangerous thing that a should regulators do to send bank does is make a loan. messages to the markets that these institution wills not be at the end of the day without propped up especially when the institutions have an advantage in the money markets? sunday underwriting all the things we do here don't make a >> the first point i want to lot of sense. i sure thank you for your make is when you're talking about the biggest commercial testimony. i look forward to hearing it banking institutions, you have a orally and the questions and we're honored to have you later. degree of regulation, you have the proposals on proprietary >> thank you. thank you senator corker. >> thank you, mr. chairman. trading hedge funds, equity funds and derivatives and better very briefly welcome it's so capital standards. good to have you, mr. vehicler to minimize the chance that and for your leadership in those biggest institutions are really going to get in trouble to the point that they need to helping us establish the concept be rescued. but they do need to be, they are that there needs to be a on the brink of failure or firewall between banking actually failing, the law activities and hedge fund style provides authority, i understand active tis by banks in order to create a safer and sounder in this case the fdic that has banking system. certainly look forward to your experience in this area will act comments. >> thank you. as a conservator or liquid dater

our first panelist tonight i don't normally do cliches, she a of that institution will sufficient authority to keep the man that needs no introduction. institution running in essential i thank you so much is mr. ways in the short run so that volker. he has dedicated his life to there's a continuity in the making sure the american banking marketplace and they're not spreading contagious kind of system is safe and sound. panic or connections because the fdic will have the authority, sufficient authority to keep it operating in the short run in areas that are essential. i think that is possible. you have the floor. but as i've said before to make >> thank you for holding this that effective, i think for some hearing. we are kind of in midstream on of these biggest institutions that have very substantial banking reform and banking regulation. i think this is a good time to operations overseas, those operations tend to be centered review where we are and where we in the uk. are going. so i think you do want to get so it is a use yfl service. consistency between the uk and i know in writing to the u.s. authorities and you also have the provision in the law panelists you raised a series of for so-called living wills. questions. i won't try to answer them all.

banking has changed a lot in the where the banks should organize themselves in a way that makes past 20 years. it easier to break them up. it's changed very broadly from than is the case now. that will be a continuing a -- it concentrated on supervisory challenge to make sure the banks are properly relationships with its customers creating these so-called living in very important ways. it's moved generally towards a much more transaction oriented wills. >> thank you. bloomberg has released a study recently that the banking sector is becoming larger, more center. concentrated. they said having grown seven times faster than gdp since the it's a lot more opaque, very beginning of the financial crisis. its growth has been son sen traited in the largest banks. the top ten banks in the u.s. complicated. grew from 68% of all bank assets for a while it was thought with all the wisdom and engineering in 2006 to 77% of all u.s. bank and expertise brought to the table banking would be if not assets in 2010. are -- based upon these numbers fail safe, safer. and no, no sort of end in sight it turned out to be an illusion to this that i can see, do when we had the great break you -- are the regulators doing down. enough?

should -- how concerned should we be in fkt it's a continuing increase in concentration? >> i think it has obviously been as far as raising capital a great increase in requirements, better supervision concentration. most of it took place before all that kind of thing is 2006. >> right. >> it took lace in the 90s and important. i do think we need some early part of the century. structural changes. it was aided and abetted by the they resolve around this issue too big to fail. the moral hazard that was involved and is involved if the government is bailing out end of glass see gel. failing financial institutions and particularly banks. yesterday i was in the federal big banks. reserve, that time banks could not branch outside the home through a lot of the structural states. changes which are inimportanted the united states has one of the most decentralized banking basically many the dodd frank system. bill. i don't think there's been any sst suddeny from a decentralized legislation in other countries as comprehensive as the dodd system to a concentrated system. which i think is unfortunately. in the midst of the crisis it got worse. how do deal with that you may

have people on this panel that are much more aggressive than i. i don't know how to break up these banks very easily. but some of the things reduced trading will reduce the overall size of the bank, reasonably. some of the restraints on derivatives will reduce their offbalance sheet liabilities, significantly. they are modest steps. there is a provision of the law that cannot grow beyond certain limits by americaer or acquisition. there are some limits here. but if you say, you ask me if i prefer a banking system with less concentration, i would. i think we can live more or less with what we have. >> thank you, mr. chairman. >> thank you, mr. chairman and dr. volker. thanks for being here. i've read some of the comments that you made spfkly about the volker rule. i know we had a chance to talk

about this. >> i'm glad somebody read those comments. >> yes, sir. i read them all the time. what's happened here is there's been consensus around the fact that prop trading is out the door. that's one of the major contributions that you have made to this debate. what's happening as the regulators wrestle with this and some of the regulators have differing agendas than others, there really has been attempts by some to really do away with market making itself. i think you've had some comments about that. i wonder if in front of this committee you might dif rirnt between the two. it's my sense you had no intentions to do away with legitimate market making. but prop trading was the focus of what you were trying to do. >> that is correct. i'm not involved obviously in writing the rules. i'm sure it got very complex. maybe an effort to try to identify particular transactions

in a way that is difficult unless you're sitting on the trading desk. i think can be identifiable. my view all along has been two things. one i think it is important that the management of the banks, that includes not only chief executive officer, but directors of these banks do understand what the law says. the law says no proprietary trading. now all bans unless they're totally irresponsible, i don't think these big banks are totally irresponsible will have strong controls on their trading desks. they don't want rogue traders sitting around jeopardizing billions of dollars of their capital. they will have i'm sure rather detailed controls on their traders. and what's important is that those controls take account of the fact that no longer should there be proprietary trading in a special proprietary desk.

and no longer should the traders on the market making desk be taking proprietary risks under the disguise of market making. i think that can be identified as a problem by adequate so-called metrics afterwards. you look at the size of the trading relative to the size to have position, you look at the volatility, you look at measures like value at risk and whether they are narrow for a trading operation or very broad, which suggests a proprietary trading operation. if you see those telltale sign there's no question the regulator ought to get in there to supervisor it. or to go in there and raise questions with the board of directors. whether the bank is sufficiently charged with what the law says. >> we've looked at some of the rules. by the way, i've always understood that what you

intended was to keep banks from being involved in prop trading. but legitimate market making was something you thought they should continue to do. some of the rules that are being created. there's one rule yesterday where the regulator is saying if you engage in market making and you make any profit on it. then it's really prop trading. i don't know many institutions that are involved in businesses where they can only lose money. you would consider that i assume to be an overreach or not what was intended. >> it's nonsense. >> nonsense. >> you can make money on market making. certainly make money on responding to customer requests. until recently, you know, prop trading in banks is a recent te nom non. banks didn't do that historically. somehow they didn't go out of existence. proprietary trading is not a

necessary ingredient of bank profits. it's very toll tile ingredient of bank profits. i read i think it's appropriate, but all the money that was made on trading in this century by banks up until 2007 disappeared in 2008. which gives you a sense that this is not a risk free business. so an institution that would hold a very small of inventory, a very small amount that was legitimately held for their customers' use, you think that is a legitimate thing for banks to be involved in. i appreciate you saying that. i wish that you can sit down with the federal reserve and some of these other institutions and cause them to very simply lay out what it was that you intended when you began this procession because i think they are making it overly comp kalted. i think a lot of institutions are in a place right now where they have no idea where the ticker's going where they want to end up.

>> i don't want to get involved in the detail, regulatory processes. i've had enough of that in my lifetime. the general principal that you describe i believe is consistency with my position. you emphasize a small position. i always wonder what does a market as so predictable as christmas sales and do you really need a big inventory. you say small inventory. i sometimes wonder if they want to be prepared for market making and customer trading. why don't they have that in a short position. the customer may want to sell. they don't have a balanced position it seems to me and the position is very unbalanced to raise a question. >> thank you so much. i wish i had more time to talk with you and mopefully we'll do that in person in my office or your office soon. thanks a lot.

>> thank you. i thought i'd ask about a couple issues that have been raised in the context of the volker rule. one argument that has been made is it will result in decreased liquidity in the trading world and that would be a very bad thing is that an issue? is that a problem? >> i do not think it's a problem. the markets seem to become very liquid before the crisis. there were complaints that the markets were too liquid and it was hard to make money in very liquid markets. you would not have had all these sub prime mortgages tied up and cmos if they weren't so easily

traded. these are long-term obligations. you should be prepared to keep it for a while. that would be the normal banking reaction. if you think it can trade it tomorrow at no loss, then its becomes a trading proposition. if the markets are too liquid, it can give rise to behavior that is not very useful in terms of the basic business of banking or finance markets generally. i'm not alone in this thinking at all, obviously. there's a big movement in europe to tax transactions to make the market less liquid. the fullest analysis i know of this is by the chief english regulator that examined this pro and con very carefully and came to the conclusion that beyond a

certain point highly liquid markets are not many the public interest. it's a matter of obviously you want to be able to buy and sell reasonably. that does not mean you have to be able to buy and sell a security ten minutes after you bought it at no risk. >> another issue is that the volker rule creates a handicap for american financial institutions vis-a-vis european financial institutions. any insights on that issue? >> well, when i sat at this table many times when i was chairman of the federal reserve, the complaint that i would hear all the time was american banks are at a disadvantage to foreign banks because they're too slow. and we want to be big like japanese banks. that was the favorite example that was taken.

we want to be big like japanese banks we're at a disadvantage and we have to