Trey Hollingsworth: “I am pleased to rise in support of this legislation because I think it addresses a fundamental flaw in how we have…”

“I am pleased to rise in support of this legislation because I think it addresses a fundamental flaw in how we have looked at operational risk capital. Fundamentally, we want banks to hold capital necessary for the risks they are taking today and the likely risks that they may incur losses into the future. By purely looking backwards, we are driving down the Interstate in the financial system driving by looking in the rearview mirror only. That is a terrible mistake by only looking at past risks instead of the risks they have today. If we want to encourage institutions to become less risky, then we need to ensure that they can reduce the amount of capital buffer if they are doing less risky activities. This is basically incentivizing the right behavior. If we continue to say to institutions: You are going to be penalized for the past irrespective of what you may be doing today, irrespective of the less risk you may be taking into the future, then we are essentially providing them no incentive to become less risky. I think the lesson after 2008 is making sure that we allow the free markets and institutions to act with the right incentives, not the wrong incentives. We want them to become less risky over time by their own decisions and by their own elections.…”