 Well, thank you first of all and thank you for inviting me for an opportunity to speak to you I'm going to start out by first of all telling you very humbly. I'm only going to speak about the US I don't pretend to know things Speak about things that I don't know as much about it or Europe or so forth I do congratulate Ireland though. I understand that you celebrated a little bit earlier today on some very important economic events that were After many years of adjustment We're able to finally bring to a close and then a sense. That's what I'm going to speak about in terms of the United States and my issues with The issue of structure I should say It is important in the US and I know it's important globally But I think it's extremely important that we not Think we have everything solved when we've made certain changes and things are settling out When fundamental structural issues remain and that's really the theme that I'm going to talk about here It is a fact That in the United States is elsewhere But over several years preceding the economic crisis the US financial Safety net of deposit insurance that was in place then Federal Reserve lending and Treasury direct investment was expanded To include activities far beyond the core business of commercial banking The effect was to erode the very economic stability being sought by these tools More disturbing however is that the weakened financial structure and The crisis that followed these changes made it necessary for policy makers during a crisis to do whatever it takes To stabilize a system on the brink of collapse Within the boundaries of the safety net the government provided enormous amounts of money and guarantees and Arranged and finance numerous mergers and buyouts in the United States in its effort to save a struggling industry and a global economy It is no coincidence therefore that these events coincided with the evolution of an industry that is far more concentrated now or complex now and Government-dependent that at any time in recent history in 1990 for example the five largest US financial holding companies Controlled only 20% of the total industry assets Today that number is 55% and will likely increase and I know it is larger in Europe than that Ironically these events also have left the US economy increasingly vulnerable to the industry's mistakes For example the single largest financial holding company in the US Using international accounting standards now holds more than four trillion dollars of assets Which is the equivalent of 25% of our GDP The eight largest US global Systemically important banks or g-sibs hold in tandem nearly 15 trillion dollars of assets or the equivalent of 90% of our GDP Thus whether resolved under a bankruptcy or otherwise Problem institutions of this influence will have a systemic consequence and affect far more stock stakeholders than simply the firms and Their shareholders and their creditors The ability of ever more concentrated and complex financial firms to conduct a broad array of activities while the government Backstops their mistakes remains therefore a generous subsidy in the US Over time it most certainly undermines market discipline Distorts firm behavior and in the long term slows economic growth It protects some creditors and creates a moral hazard problem within the financial markets And it bestows a competitive advantage to one segment of the financial industry over another Thus the benefits that the economy might receive from subsidizing this banking structure are often outweighed by the negative effects That eventually are borne by other sectors of the economy and the public So it's with this in mind that I will briefly review some of the principal benefits That I think would likely throw from to a host of stakeholders If the safety net was scaled back in the United States and the structure of banking industry was rationalized around essential core functions So how would I do it very quickly? I Would begin by briefly defining this first commercial banking organizations that are afforded access to the safety net Would only be permitted to conduct the following types of activities commercial banking Which is the intermediation of short-term deposits to assets? Certain securities underwriting and advisory services asset wealth management other underwriting Market making broker dealer activities would be conducted outside the firm That hold a commercial banking charter and thus outside the safety net Second the so-called shadow banking system in the United States and It's use of bank-like funding to intermediate long-term assets would be reformed and subject to far greater market discipline itself So the proposal which is actually on the internet at the FDIC Recognizes that recent and proposed regulatory action such as the vocal rule Serve to lessen the moral hazard issues and the misaligned incentives that contributed to the recent financial crisis However while useful they do not fully separate the host of trading and market-making activities of broker dealers from the bank holding company and The overarching benefit of the safety net that flows to that The fundamental restructure I proposed would more fully address this problem It was separate complex financial firms along business lines and into separate corporate entities where directors have clear missions That are not confused It would unequivocally preclude bank holding companies from engaging in activities that are distorted when they receive Such subsidy coverage and would impede the use of excess leverage and the funding of such activities over time So in the end separating commercial banks and broker dealers would benefit all parties affected by the conduct of complex firms including the public the broader banking and financial industry institutional borrowers and The very firms that were at the center of the crisis While any reform involves trade-offs the benefits of subjecting a highly subsidized and artificially created system of complex firms To the forces of the market and away from government dependency. I think deserves a healthy discussion So let me let me just describe how I think the benefit would fall to each of the groups And I'm going to start with the finance with the financial conglomerates themselves the largest There is I think increasing evidence that the largest most complex firms would benefit from a structural changes outlined above These conglomerates control assets in the trillions of dollars as I noted and involve structures that include thousands of subsidiaries complex and varied activities with significant risk and hundreds of thousands of people firms with these characteristics Inevitably suffer serious financial setbacks as their leadership cannot manage their culture and because individuals within firm To easily circumvent overly complex and centralized control systems Managing them requires enormous amounts of information knowledge and skills to test any CEO's capacity to do so The constant drumbeat of scandal and mediocre performance of the past half decade Suggests that some financial firms have reached that point where they are too large and complicated to be led successfully Management this this economies appear to be overwhelming the economies of scope and scale Unfortunately in an environment in which the safety net protects these firms from outright failure There is limited outside discipline or other mechanisms to right-size the firms and as a result market inefficiencies multiply So confining the safety net and statutorily separating activities along business lines would make the largest financial conglomerates more manageable It will enhance the market row and discipline behavior It would require simpler and more reliable control systems and should management fail on its job The firms could be resolved more successfully No firm can survive incompetent management. However, those firms where a competent CEO It is his or her span of control is consistent with the demands of the day are far more likely to achieve consistent performance over time The market in its pricing of these firms also seem to be signaling this conclusion Some of the largest banks have earned poorly over the past decade as they have dealt with the host of asset and performance problems Some of the largest most complex firms are trading at a discount from book value Suggesting that the market is not confident in their future performance Market analysts are publishing reports suggesting the value of some of these companies would be greater if they were broken up Should the performance of these largest firms continue to show Substantive results Market pressure to simplify their structure will almost certainly increase as we're witnessing in the United States at least There is of course strong disagreement with this view from those managing these largest firms Understandably, but nevertheless their firms performance through the crisis and its aftermath and their reliance on the safety net raised Legitimate questions as to the role of such conglomerates in the future What about the industrial companies that they sub that they lend to or that rely on them? It is argued often The large industrial companies require large highly complex financial firms to meet their global credit needs Having single banking firm as its resource and its resources immediately available to meet global payments and credit requirements Is an invaluable resource it is said at least This argument continues that financial conglomerates also serve the role of counterparting for hedging transactions or interest swaps to assure Reliable cash flows to industrial companies However, the chart titled consolidation of the credit channel, which I have in your hand in your handout Shows how overstated the story is In 1984 the aggregate distribution of assets among four size groups of US banks ranging from less than a billion dollars To more than a hundred billion dollars was nearly equally aligned Some differences, but much closer than People realized this changed dramatically over the next three decades to where the overwhelming control of resources now lies with the fewest megabanks To suggest that this redistribution of assets among domestic Financial firms has served a greater international competitive purpose or enhanced individual economic interest is to deny the events of the last five years in my opinion and Private many of the CEOs of these industrial companies indicate that they do not want to be dependent on a single banking firm for all their Financing needs They are aware that during the crisis credit lines were too often polled without regard to the need or length of the credit relationship in The United States the Alliance for American manufacturing has noted that commercial and industrial loans declined from 1.6 trillion in 2008 to 1.2 trillion in 2011 and it suggests that this represents not only a decline in demand But also a significant decline in the supply of credit And reporting this figure the Alliance added that before the advent of the conglomerate financial firms and their control of such vast resources Capital markets were the servants of manufacturing companies Whereas today they are the masters The fact that one industry is so widely expressing its frustration. I think is worth taking note of Economic theory and practice Suggested institutional borrowers and businesses benefit from a highly competitive market For decades in the United States at least a decentralized commercial banking system provided payment services and Individual or syndicated credit services to industrial companies with vast global operations Investment banks successfully provided to these same firms underwriting and market-making services Engaged in trading activities all without the safety net subsidizing their operations by the way These activities were also conducted with far fewer conflicts of interest than witnessed since the merging of commercial banking and broker dealer activities inside the safety net in the United States beginning at the in the 90s Given the experience and market evidence following from the most recent crisis There is a strong case that the business and institutional client would benefit from a less subsidized and more competitive More specialized more market-driven structure than that which brought forward the Great Recession Let me talk about the independent broker dealers and enhanced competition that I'm talking about We are also often told that it was not the largest banks that caused the crisis in the United States But broker dealers or monoline firms In my opinion such a statement ignores a great deal about commercial bank activities leading up to that crisis in 1999 with the passage of what was known as the Graham leach Bliley Act in the United States Commercial banks were formally permitted to expand into activities traditionally conducted by broker dealers And they're able to do so without having to relinquish any of their access to the public safety net This provided them a significant competitive advantage That cannot be overstated US broker dealers could not successfully compete with complex banks that due to the safety net had almost Unlimited access to low-cost funds and the ability to rely on extreme leverage to expand their balance sheets Knowing this investment houses opposed repeal of the gliss of the so-called Glass-Steagall Act which separated commercial banking from investment broker dealer Activities when it was first discussed. They were adamantly opposed Now partly because they knew what would happen as a result However, once the bill once they were merged under the law And it was enacted the competitive advantage that the safety net offered were so significant that firms outside the safety net Were compelled to give with get within it to survive They gained access either by merging into a commercial bank or by increasing their risk profile using more volatile funding and increased leverage just as the commercial banks and They began to get what was known as an implied safety net too big to fail firms like Bear Stearns Merrill Lynch and Lehman Brothers Chose the latter option in their ultimately failed effort to stay relevant They issued significant amounts of short-term liabilities such as repose the fund longer-term assets and Because financial regulations were changed to enable them to access short-term sources of funds They became commercial banks in practice Leveraging their balance sheets and intermediating short-term liabilities and longer-term assets Given these structural changes, it should surprise no one that when the crisis occurred It was necessary also to bail out these firms greatly expanding the explicit Use of the government safety net so it went from implicit to explicit as many in the market thought it would and bet accordingly If commercial banking and its safety net were unquestionably separated from investment and broker dealer activities Independent broker dealers would again compete for capital and business clients within an open market Investment banks could provide non-subsidized underwriting Trading and market-making services and these activities would be conducted with far fewer conflicts of interest Then it's currently being experienced Prior to the ability of these two Industries to merge no market in the world was more innovative and competitive than that of the United States With its specialized loan and capitalized capital markets and if an individual firms could succeed and they could fail and did Without bringing the entire financial system down It was in practice a financial model that provided better outcomes than we have experienced since that time as Witness recently What about the broader banking industry in the United States and the so-called regulatory burden that seems to be growing by the day? Well, it's just a fact that following each crisis new laws and regulation Inevitably follow and this most recent crisis is no exception The so-called Dodd-Frank Act in the United States subjects the banking industry to hundreds of pages of laws Requiring thousands of pages of rules and I'm involved in the writing of those rules and it is thousands of pages of rules These laws and regulations operate as a fixed cost for all financial firms No matter the size of the firm rules must be read and implemented Staff must be trained and lawyers must be consulted to assure proper compliance as With any set of fixed costs their averages decline as these costs are allocated over more assets Thus the advent of substantial new regulations with their high fixed cost Encourage the process of consolidation as firms must manage costs down So it becomes its own catalysts towards ever larger firms as firms Consolidate and some become too important to fail They also receive an advantage to fund assets with far greater amounts of debt and at a lower cost than that available to other Regional or community banks in the United States at least for example the leverage ratio The ratio of tangible capital to total tangible assets for the eight largest banks in the US at the end of the second quarter of 2013 was four point three percent using international accounting standards This is approximately half the tangible capital to assets among other US banks and the sheet that has the yellow columns Demonstrate that if you and you can look at it at your leisure, but it's pretty striking in Targeting a specific expected return on equity ROE Therefore the ability to hold half as much capital against the cost of deposits or borrowed funds results in significant pricing advantage In the composition for loans Comparing ROEs among banks it should surprise no one that the ROE for the largest banks in the US at least Even with their current issues of fines and penalties is higher than banks not considered too big to fail This disadvantage makes it proportionally more difficult to attract capital to banks not geared towards consolidation So it becomes its own self-fulfilling prophecy Thus pulling back the safety net to commercial banking activities Could have several beneficial effects for regional and smaller banks in the US It would reduce the need for ever more complicated and inverted and some regulation that raised the cost of doing business and courage for their industry Consolidation it would reduce the perception that some banks cannot be successfully allowed to fail Which enhances their access to lower cost of capital and provides them a competitive the edge in pricing products And finally it returns to shareholders the returns to shareholders would be determined by market performance and less by regulatory circumstance What about the public well that's the final area I want to talk about Rationalizing the financial industry structure would serve the interests of the public again in my opinion While industry structure would serve and while while the safety nets extension to an ever-wider array of activities Which encourages excessive leverage and unmanaged assets played a central role in the last crisis When the leverage boom ended at that period and the world discovered that there wasn't enough bank capital to absorb Unexpected losses these large Complex and highly leveraged firm broader economic system to the brink of collapse globally as Result governments were required to commit trillions of dollars of public resources as they struggled to stabilize global Global banks and economies and certainly I know you realize that Even these efforts could not prevent the loss of millions of jobs and the onset of the Great Recession globally The u.s. Has a long history in which its financial structure included firms ranging from many large commercial banks to medium and small banks and Independent investment houses serving a broad range of customers with varying credit funding requirements This decentralized structure contrasts with today's small number of large financial firms Which too often becomes single points of failure as we recently experienced In a private capital financial system, there always will be business cycles business failures and financial losses When financial resources are concentrated in only a few protected firms the impact of any one failure is almost necessarily systemic and sometimes as we've seen catastrophic Rationalizing the structure won't end failure nor should it not in a capital system But it will make failure more manageable and less likely to become catastrophic and that's in the public interest Adam Smith and his wealth of nations recognized this more than 200 years ago and argued as many argue today Who are decentralized less concentrated and less government dependent banking system? So let me conclude and then I'll be happy to take questions or comments in the quest to improve financial industry stability behavior and performance It is unfortunate that we choose complicated administration over structural change It is the financial structure that is inherently unstable yet It remains mostly unchanged from that which existed prior to the crisis. It's even more concentrated The safety net and its subsidy have expanded in scope actually Firms have grown larger and more complex the issue of single point of failure and its effect on the economy has increased in prominence and the competitive Inequities that follow from these circumstances remains mostly unaddressed We share a common goal To have a system where financial firms are well run and successful where the market and customers drive behavior and enhance performance And where financial returns are competitive reliable and therefore able to attract capital In my opinion, it's time to change the current structure to achieve the common goal So I will conclude with that and now I'm happy to take questions or comments if you care to