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Becky Quick: Joining us right now is Rob Nichols, President and COO of the Financial Services Forum. Rob, are you ready to join the fight?

Rob Nichols: Well, actually, we share a different view. We're not fighting the President on reform. We're actually trying to achieve reform. We would like to see bipartisan reform; we would like to see bipartisan reform this year. And this is a point we've been making for the better part of two years since we faced this very painful capital and credit market turmoil. Just by way of example, the Financial Services Forum has been running pro-reform ads for months in publications inside Washington.  

Becky Quick: So you like the bill the way it stands?

Rob Nichols: There are some pieces of the bill that we like, I'm going to point out a couple, and then there are a couple areas that I think require a little bit of focus. 

Joe Kernan: Philip Morris used to run anti-cigarette ads, too.

Rob Nichols: That's an interesting comparison, one I don't share. But, so, let’s talk about a couple of things, important deficiencies that are addressed in this bill. One is, we need to end, perhaps the biggest problem with our supervisory architecture right now, is that we don't have a mechanism to wind down a large institution, resolution authority, wind down authority, a living will, what have you, whatever you want to call it. This is a huge deficiency in our supervisory architecture, we need to address it.  We need to be able to take down an institution in a non-chaotic way that doesn't put taxpayer money on the hook and have a degree of global coordination. 

Becky Quick: So you like resolution authority?

Rob Nichols: Number two, it's important that we have systemic supervision. We have someone looking out over the entire financial system and not just specific legal entities 

Becky Quick: So you like the Fed having systemic overview  – 

Rob Nichols: We think there is important rationale; we think it makes a lot of sense to be the Fed right now, both bills, the House and the Senate bills have a counsel of regulators serving that role, that could work too. 

Becky Quick: I’m trying to rush you because I want to get to where you disagree. 

Joe Kernan: Yes, lets get to the sexy part.  

Rob Nichols: OK, so anyways, systemic supervision, resolution authority critically important. Some areas that I think require additional focus, I'll just touch on a couple: Number one, what happened in the Ag Committee yesterday - so to have derivatives, the large U.S. financial institutions have to spin out their derivatives operations entirely, I think that can have long term negative effects. Number two, the idea of the Volcker rule, put aside the fact, as we did in our last time we visited, whether or not the trading caused the crisis. I would passionately argue that it did not. When talking about the Volcker rule, I’ll point out a couple of things- we've had early indications that the Eurozone are not going to have a complimentary public policy outcome. So if we stop these institutions from engaging in these activities- asset management, hedge fund, PE, trading, etc - we are kind of unilaterally disarming compared to other regions of the world. Secondly, the whole idea of this process, this reduce risk, that is the goal of regulatory modernization, lets reduce risk, take risk out of the system. However, if we stop these banks from doing these activities, which are going to be the most highly regulated entities going forward, and we put them in these far less regulated institutions, that just seems that we are introducing risk. 

Becky Quick: Well the derivatives are supposed to reduce risk unless you use them improperly, in which case they could completely over-- 

Rob Nichols: No, I was talking about the Volcker Rule.  But your point on derivatives, there is already going to be more clearing, more reporting, more transparency. But to have this spin off, and taken out completely, does not make sense.  Two U.S. Senators -- let me continue -- two U.S Senators yesterday offered a bill, I have not even read the full text yet, to cap the size of certain institutions. My point is, when you add up these -- you know, limiting the activities, the size, the scope, spinning off derivatives unit altogether, we're starting to talk about some fundamental shifts with regard to the U.S. financial sector as it pertains to our global counterparts. We need to be thoughtful, we think about this. 

Becky Quick: We just heard from Bob Brusca the other day, and he thinks this is a completely toothless bill. That even if everything that has been talked about, passes, he still thinks this is caving and this is being thrown in the briar patch. 

Rob Nichols:  I don't know that gentleman. I don't think he's read the bill. There's some really important elements of this bill, in terms of modernizing our supervisory architecture. And then there are areas that I would just depart from this view. 

Carl Quintanilla: You would agree it's on its way to passage, though, right?

Rob Nichols:  It appears that way.  Right now, there is some great and very important indications that the bipartisan talks have been coming back, that is something that we think is critically important.

Carl Quintanilla: Yesterday, Floyd Norris in The Times argued that maybe the industry should have played ball a little earlier the way Big Pharma did with health care, just so you could debate it on your own terms. Was it a mistake to be a little more resistant in the early going?

Rob Nichols: I fundamentally disagree with that premise. I think we’ve been, many elements in the industry have been pro reform. We have been talking about the need to get the details right. We have been talking about the need to fix the insufficiencies in our supervisory architecture for the better part of two years. Now, I agree the industry does not speak with one voice and there are differing views on specific elements of the industry. And one last thing just to touch on too, which is critically important, and hasn't gotten a lot of attention, we need to get the issue of preemption right. Right now in the bill, there's language pertaining to whether or not the individual states can -- whether or not we have one strong national standard with regard to consumer protections, which we think is very important, to have a very strong national standard versus having the ability for 51 state attorney generals to layer an additional-- 

Carl Quintanilla: Like insurance, where there is a patchwork. 

Joe Kernan: Did the SEC get it right with Goldman? 

Rob Nichols:  I am certainly not going to comment 

Joe Kernan: They are in Financial Services Forum, I guess are they a member? 

Rob Nichols: They are, yes, absolutely 

Joe Kernan: So you are saying- 

Rob Nichols: My rule, we don’t comment on specific-

Joe Kernan: Rule, what rule?

Carl Quintanilla: It’s called the Nichols rule.

Rob Nichols:  I’m not going to comment on those allegations.

Joe Kernan: Does it seem to rise to the level of fraud?

Rob Nichols:  Joe, dear friends, I am not going to comment.

Joe Kernan: What’s your middle name?

Rob Nichols:  Stanley.

Joe Kernan: I got that. Alright you gave me your middle name. Thank you. Thank you.

Carl Quintanilla: Hard hitting interview.

Joe Kernan: Yeah exactly… middle name. Well, I mean we have to ask, right?

Rob Nichols: I understand.

Carl Quintanilla: Was it good or -- okay.

Becky Quick: Do you expect to see more, is there a concern that more cases will come across the industry?

Rob Nichols:  I don't know, but I’ll tell you, what we think is most important right now is to get this regulatory modernization done.  We’d like to get it done this year, we would like to get the details right, and the fact that we're pointing out areas of focus, area of concern, does not mean we're anti-reform. We're passionately pro reform, but we need to get the details right. This will have long lasting impacts for decades to come with regard to how our economy can perform. One thing that I did notice in the snippets that the White House has released with regard to President Obama's comment about the need for a thriving free market and the need for a thriving financial services industry.. that's right! I mean, the financial services industry serves as intermediary between savings and risk capital. So we need to get this balance right, and by way of background, on Sarbanes Oxley, that very important corporate governance piece of legislation, had one provision in it that perhaps if they would have put a little more focus on it at the time, section 404, we wouldn't have had four or five years of clean up. And then there's a resounding consensus: “yeah, I think we kind of goofed that one little detail.” Let's not have that happen here in financial sector modernization. Let's get the details right.

Becky Quick: Rob, thank you for coming in. We appreciate it.