1:11 PM EDT
Andy Barr, R-KY 6th

Mr. BARR. Mr. Speaker, I thank the gentleman from New Jersey, and I thank the gentleman from Massachusetts for his contribution to the debate. It gives us an opportunity to actually analyze what exactly we are talking about here.

We are not talking about the risky assets that were contributing factors to the financial crisis. If this were junk, as the gentleman from Massachusetts describes it to be, the default rate on CLOs would have been much higher over the last 20 years. But the default rate on CLOs over the last 20 years, including during the financial crisis, was less than half of 1 percent. Not one of the nearly 4,000 notes rated AAA or AA ever defaulted in CLOs.

Part of the reason for this strong, durable performance of CLOs is because CLOs are very different from the troubled assets that fueled the financial crisis. CLOs are distinct because, number one, they are based on diverse assets, commercial loans that are well diversified across the industry. These are solid, diversified loans, and they are typically secured loans.

Secondly, there is an alignment of interest between CLO investors and the CLO managers. The managers actually have skin in the game.

Finally, third, there are significantly greater transparency features to CLOs and disclosure since the commercial loans here, the secured commercial loans, are issued by companies that report financial information on a regular basis to investors, and they are required to provide regular financial reports with the SEC.

Now, with respect to the gentleman's claim that the CLO market is doing just great, there is a lot of misinformation about this. According to the Loan Syndication and Trading Association, U.S. banks hold an estimated $70 billion of CLO notes, which would have to be divested if we don't make the fix by July 21, 2015, and with the Fed's change a little bit later. But even the threat of such a divestiture roiled the CLO market in December and January before Congress took action.

So due primarily to uncertainty around the Volcker Rule in January 2014, U.S. CLO issuance dropped nearly 90 percent from the prior year, drying up access to credit. The only reason why the CLO market has recovered since January is because of this bill. It is because of the legislative action, the bipartisan efforts of this body.

Finally, I just would like to conclude by responding to the gentleman's assertion that a little limitation is good for the system--a little limitation is good for the system. Well, hear what a witness at our hearing about this issue said about this little limitation:

If you have a situation where the Volcker Rule basically impedes U.S. banks and some foreign banks from investing in CLOs, you can see their appetite reduced by 80 percent. They will just not participate in the CLO market.

Ultimately, that leads to our other point, in that we can see a significant cost to financing for U.S. companies. What happens when you see a significant cost to financing or decreased credit availability for companies? That means these companies that have over 5 million employees can't build new factories, they can't build new cellular networks, they can't expand, and they can't combine and merge to bigger, more resilient companies that can compete effectively on a global basis. It ultimately

would have a very destructive effect on U.S. companies.

So, Mr. Speaker, in sum, I will just bring it back to my home district. If a little limitation is good for the system, tell that to the 200 Kentuckians who now have jobs because of this innovative source and a responsible source of commercial credit in America.

[Time: 13:15]