recession and get back on a growth path again.@@@@@@rr!, retailers and there's very little room when it comes to the retailers to negotiate these fees. approximately 2% of our purchases using credit cards are paid back to the credit card company in interchange fees and the retail establishments across america are very concerned about this because they have little or no voice in that. i'd like to ask two questions about interchange fees. first is a more general question

about what the treasury is doing, if anything, to look into the interchange fee system, but then in particular, since it turns out that the federal government is now accepting credit cards, it turns out there are over 200 federal entities that accept credit cards, amtrak, the postal service, the treasury's financial management services. it turns out that our government paid these credit card companies over $200 million in interchange fees to visa and mastercard in the fiscal year 2007. i repeatedly asked the credit card industry and the banks to demonstrate that the rates that they've established are legit in the, to process the card transactions and, unfortunately, they have not been able to provide any data or information to suggest that the amount charged even to the federal government represents a reasonable fee. in fact, the gao report on this recently said that the fms tried

to negotiate lower interchange fees with visa and mastercard and negotiations were not successful. in addition to the general questions of the fees on retail establishments across america. what is the status of your effort to make sure uncle sam isn't paying too much for the credit card companies for use of a credit card. >> this is a complicated question and to be honest with you, vint thought about this very much yet and i would be happy to spin time with you and your staff and taking a look at both questions you raise. i think you asked the gao to do a stud of one of these dimensions and we would look carefully at the conclusion of the study, but i'm happy to commit time on this and to see if there's something we can to to protect the government's interest and not just to reform what you just raise happened. >> i think with the establishment of t.a.r.p. under the previous administration and its continuance under this ad n administration there has been a shift of personnel within the

department treasury to deal with the obvious demands and the administrative demands and can you give me a general impression of whether or not this has created dislocations in other parts of the treasury that needs to be addressed and the payback on the t.a.r.p. funds is some indication that we maying getting out of this business and get back to business as normal. >> the way that the legislation was written to provide funding for the administrative resources required to run the programs and we've substantially increased resources using the authority to restaff the office of financial stability and we'll also have to increase as we proposed in the budget, the rest of the domestic finance staff because they've got this greatly expanded and much more complicated set of challenges in the range of policies including the one you just raised and we did announce the appointment of the new deputy assistant secretary for

the consumer policy issues in the financial sector. i do not believe we've had to devote resources from other parts of the government to these financial crisis imperatives on a scale that would jeopardize our capacity to carry out those broader responsibilities and we'll be very careful to avoid that risk, but there are parts of the treasury as i suggested where we think that we will need to have modest increases in baseline like in tax policy which is outside domestic finance and i think with that support, i think we'll be in a stronger position to meet these broader objectives, but my basic question is no, i am not concerned now that we'll have a substantial diversion of resources as important as the financial crisis is at the expense of other core priorities of the government. >> thank you, mr. chairman, mr. secretary, i want to follow up on the questions that senator

nelson asked to with regard to the decision of gm and chrysler to terminate dealerships. this decision has been perplexing to many of the automobile dealers in my state. everyone understands that gm and chrysler have to restructure and shed costs in order to survive. but the dealerships tell me that they pay for the cars, that they paid for the shipping and that they own their own showrooms. they pay for their sales people so they've raised the question of how does it save money for the automobile manufacturers to have fewer people promoting their products. could you shed some light on this for us? >> senator, excellent question, and i've spent this time. i've never run an automobile company -- >> until now. >> and i don't expect to be running one new, either, but

since i'm looking at this and i guess i would say, i'm not sure this would be convincing or per sways testify you, that i think of the broad consensus that people looked at what will be necessary to put these companies back on a better financial foundation, i think there is a very broad consensus that to do that they need to get the distribution costs down and the distribution system more efficient and that's why the companies at the center of their plans have proposed very substantial reduction in the number of dealers. now i know that i'm not sure that's persuasive, but my sense again in reading a bunch of -- and listening to a bunch of people who looked at them, and said this is an important part of that effort to get them down to a cost base that will allow them to be viable. it comes with enormous damage in those communities and it is a wrenching adjustment, but the reality is that these restructuring programs will

leave the country with many, many more dealers than would have existed in the absence of these programs. the balance comes -- the balance perfect, but i think my sense of looking at it is that this is a necessary part of looking at this to get to a path where they don't need the government. >> was the decision to reduce dealerships made by the manufacturers or was it imposed upon them by the auto industry task force? >> it was not imposed by the auto industry task force and it was a gesture made by those boards of directors and the management about what was a critical part of a restructuring plan. >> thank you. i'd like now to turn to the issue of financial regulatory reform. i introduced a bill in march to create a council of regulators to act as the systemic risk monitor. i know the other model for that is to have the federal reserve

assume responsibility. i think there's widespread consensus that we do need to have a systemic risk monitored so that someone or some entity is looking across the financial system and identifying high-risk practices, policies or products. and regulatory black holes so we don't have the problem of credit default swaps or the next product that comes along. the reason that i support the council is i believe there's value in bringing many perspectives to the table and many areas of expertise. the fed, frankly has its hands full. there are also issues about congressional oversight. we want the federal reserve to be independent in order to set monetary policy.

if it's also going to be the systemic risk monitor, there's going to have to be more congressional oversight of these operations. so tell me, i know you don't want to precede the president in announcing his plan, but discuss with me the pros and cons of the two approaches. >> well, should i begin by saying, that although i will not get ahead of the president, that we share many of the objectives that you laid out. i think a necessary part of the solution for the u.s. financial system will be a more effective body to bring together the responsible, supervisory agencies alongside the fed to make sure we're looking across the system as a whole, that we're keeping abreast in the change of the structure of the systems so we can better limit

risks in the system and i think the council has a lot of merits in that context and i don't believe it's desirable for us to concentrate our authority for dealing with a future in one part of our complicated governmental structure. so although we're going to propose some important streamlining consolidation and simplification of the oversight regime, we're not going to propose to concentrate our authority for systemic issues in only one place, it's too complicated to do that. the really important thing is that we have effective oversight in the core institutions that are critical to the system that we bring critical markets like derivatives under an effective framework of oversight and protections there, that we have much better enforcement and tougher rules for enforcement of consumer protection and we have better tools for managing future crises and we're going to have to have tougher constraints on risk taking involving better constraints on leverage and capital so that you have thicker

shock absorbers and thicker cushions against future crises. the system is more robust to potential failure and those are the systems in our approach and we'll have the concerns and objectives that you laid out in the recommendations. >> thank you. >> thank you, mr. chairman. i don't want to beat this horse, but i will just say this, and i like you. there's an overwhelming attitude in this country that bigger is better, and i think what we're allowing gm and chrysler to do by closing down these small dealerships is putting all of the forces into a few big dealerships because number one, they're easier to deal with a few people than it is a lot and number two, it will reduce competition and i'll tell you, if the dealership's making money i don't see any criteria for shutting them down and that's my only editorial comment and i only other thing to keep in mind

is in rural america it's a heck of a lot different than it is in urban america. you shut down some of the small dealerships and small towns that gm is making money off of, it will have an incredible impact on the economy. that's all, and i know you aren't making the decisions, but if you can pass that along to the powers that be, i would appreciate it. >> message heard and received. >> thank you. >> chairman bernanke talked about restoring fiscal balance. could you just comment on that and where you see us going over the next few years assuming the economy gets turned around. >> it is critically important for this country. it's central to the prospects for recovery that we put in place a framework that gives confidence to americans and investors around the world and that we'll have the ability and the will and ability to bring our fiscal deficits down over the medium term. that's yet president in his initial budget laid a path for dramatic reductions in the

deficit that would bring them down over a fife-year period to a level at which the overall debt burden is no longer growing and will start to come down. >> just heard the debt would triple over ten years not more than a half hour ago. >> in the administration during a period where we had an extraordinary accomplished record of fiscal discipline, produced surpluses, helped bring down interest rates and helped lay the foundation for not just a strong dollar, but an incredibly long period of private investment growth and productivity growth. so i am a deep believer in, and have deep conviction in the central importance of fiscal responsibility for this country. now we started this year in the worst financial crisis in decades and because of that crisis and the damage done to the financial system, we had to do with the congress extraordinary things and those by necessity, produced a short-term temper increase in our deficits. there was no path through this crisis that did not involve some

temporary short-term increase in borrowing, but at the time we proposed that, again, the president proposed and he acknowledged that we'll have to bring those deficits down over time and that's something that we'll have to do with the congress and it will be difficult to do, and it's going to be important to do because we'll find the recovery will be weaker. private investment will be weaker. interest rates will be higher unless we're able to convince people that we'll have the will and the ability to do that. >> okay. too big to fail. it can't be an option in any industry, and i think we may be there in energy. we may be there in food systems and we're absolutely there in the banking industry. >> right. >> how do we fix it? do we fix it with regulation? how do we fix it? >> i would mention a few things and that will be at the core of what the president lays out soon. first, you have to have better design, tougher constraints on leverage, on risk taking in the

core@@@@@@@ comments that allow us to deal with the failure of a large institution like aig. i would make one observation, senator, to show how complex this is, it is not just the size and size is not the most important factor. it's the role the firm plays in the system, how connected it is, you've had in this crisis which are not the largest institutions in the world present risk of catastrophic damage because of how interconnected they are. so better capital applied across

the system to limit scaled leverage, much better oversight and shock absorbers to limit the risk of the damage caused by failure and better resolution tools. >> neil said that the big guys had an advantage over the community banks in particular because of their access to credit due mainly to t.a.r.p., i would imagine. do you think they have an unfair advantage? and -- >> i don't we have 9,000 banks in this country. i expect that ten years from now, we'll still have a financial system and it's very important that we have a financial system that has thousands and thousands of small banks across the country. it makes our system more resilient and stronger. and one of importance of the

reforms is to make sure the larger institutions have constraints on leverage that are appropriate given the scale and risk. that will help offset some of the potential concerns you raised about level the playing field for community banks. >> thank you very much. mr. secretary, i was glad the president announced his supports for the concept for financial product safety commission and i think the agency that tries to protect consumers from predatory traps a good idea. could have spared us some of the problems we're currently going through with pre-penalty payment on mortgages, for example. in a way that is the easy part of my question. the tougher part gets to the heart of the issue. and the heart of the issue would be an interest rate charge. is there too much -- an interest rate that is too high in america? do we have an obligation as a country to say that certain levels of interest rates aren

con shunable, illegal, unacceptable? i put in a bill to put the rate at 36%. i thought that was so high that we would be just fine. if you wanted to start a snake farm, you should put in a bill and watch what crawls under the door. the folks that came in from title loans and payday loans could sit and say to me with a straight face, senator, you're going to put us out of business. 36% puts you out of business? yes. i ask them how much do you charge for the loans? oh, somewhere between 58% and 800%. people used to go to prison, they called it juice in the old days when people were engaged in that sort of thing in the back alleys, now it is acceptable, legal in this country. is there -- should there be a consideration about limiting interest rates charged for certain products in america?

>> senator, i believe that we have to have a much stronger such of protections for consumers, particularly in the area of financial products that involve debt and credit. those where the failures were most stark. it will require more than institutional charpg changes. it doesn't -- it may be necessary but it's not sufficient for that. i think we need to have stronger protections. i think the credit card reform bill is a good step but not a sufficient step. we will propose a necessary set of stronger protections. now, i understand your -- the reason why you're supportive of a cap on interest rates and you've been exposed to a lot of the concerns on the other side of that in terms of whether that would have unintended effects in terms of denying people rights to credit. it's hard to make the case for why some of those products are necessary and desirable. but i do not believe those caps

are necessary part of a strong credible consumer protection reg when i set out the proposals talk about whether they go far enough. >> if we can't sell the notion of a usery cap, shouldn't we prevail -- credit unions have been coming to me saying, we're different, we're not greedy like banks, we're trying to serve our group of people that we loan to them. shouldn't we be talking about making credit available to the poor people who are lured in to these pay day loans and title loans, have credit available in lower amounts at reasonable interest rates so they are not exploited? i don't thing think we can continue to look the other way. but perhaps the banks bear some responsibility here. if we're going to have credit

available for people who are truly struggling in this economy, why do we throw them to the wolves with the payday loans and title loans. >> i agree, people believe that an important part of the solution is to make sure all of our citizens feel they have the capacity to be part of the broader financial system that has these protections. one step towards the objective you laid out is to make sure that they have bank accounts, have a relationship to allow them to access credit, on forms which are less vulnerable. the president's nominee for is siftant, michael barr spent his life's work on these kind of questions, one of the more thoughtful people in the country thinking on how to bring about reform in those areas. >> mr. chairman, mr. secretary another issue that keeps coming

up is regulatory shopping. in other words financial instituti institutions will figure out which regulator gives them the most advantages. i saw this on the state level 20 years ago where we would have a financial institution come in and threaten to switch to a federal charter because our audits were too tough or our consumer protections were too strong. i don't think that it's a coincidence that aig bought a small federally chartered threat or established a small federally chartered thrift in order to get on the regulation on the office of thrift supervision ots. which is generally viewed as being a weaker regulator than the comptroller of the currency. are you looking, as part of your

reforms, on combining the ots with the occ? that's what my bill does to me, i think it's a brilliant idea and needs to be done. >> senator, you're absolutely right, one of things that help produced this crisis was in our country, we allowed people to choose the regulator. to put risk in areas where it would be least well regulated. that level of unevenness proved tragically damaging to the stability of our system. fixing that will be critically important. as part of that we're looking at the areas in our system where we're most vulnerable to that kind of shopping for regulators. you pointed out one exam. . it is one of the more compelling examples of weakness in our system. just to say we're looking beyond in that, of course we're looking at that. we know it's something we need to do globally too.

to make sure we're not vulnerable in the future, to risks just moving offshore to other areas where it could present a bigger risk to the system. more evenly enforced across the u.s. financial system and bring the world to the higher standards as well. >> you also made an excellent point where you talked about the excessive leverage in the system. i think when bear stearns failed its leverage ratio was 30-1. something that a small community bank or a credit union never would have been allowed to have under our regulatory process. so i hope as you look at this issue that we're going to be establishing safety and soundness requirements regardless of the type of institution. it seems to me that bear stearns, the large investment

banks, all of which have disappeared, been acquired or no longer exist, should have been required to meet the same kinds of capital requirements and leverage ratios that we would impose upon a community bank or a credit union. >> senator, i have a lot of sympathy for that view. i think that again, center piece of what we need to do for the country is to make sure there are more conservative better design constraints on leverage applied across the core institutions that play a critical role in how the markets function, both in normal times and in distress. in the united states we were fortunate to have across the banking system a very simple easily enforceable crude constraint on leverage. for that reason, in many ways our financial troubles today are much less acute than there are for countries around the world where that kind of constraint did not exist. banking assets in our country

today are one times gpd. two and eight times gdp across europe, in part because they did not have in place that kind of simple crude constraint on leverage. we want to have, thicker shock absorbers in the system, thicker cushions of capital against risk that are more simple and evenly enforced and that they dampen future crises whether that amplify them. these are things -- very complicated things, we want to get them right. we'll go through a very careful process to bring experts together in thinking about what the right mix of those constraints are so that we have them in place before we start to see the seeds of the next boom. >> if you haven't already looked at them, i would encourage you to look at the canadian and the

australian twin peaks system which i think also have benefits to them. canada has not had the kind of financial crisis that we've had. and it's very interesting the differences in their regulatory structure, their mortgage lending, their tax deductions. it's fascinating to look at and look at the results. my time has expired so i'm going to submit to the record with the chairman's permission some questions on our debt level because i wasn't able to get to that important issue today. >> senator collins your question will be submitted to the secretary. the last question will come from senator tester. >> thanks, mr. chairman, the congressional oversight issue to state this morning, state ago digsal stress tests may be necessary, what are your -- due

to certain economic conditions. what are the thoughts on that? >> i'll look at it and read it when they did it, but i did see some of the initial coverage of the report. i think i should say two things. the process was designed by the federal reserve. it was a very conservative test and i want to cite one example. people have focused on the unemployment assumptions in the initial scenarios, those were not the binding constraint. the loss estimates the fed used for its estimate were more conservative than the worst two-year period in the great depression, when unemployment was in the high 20s and 30s for a period of time. knows were the tests that were the constraints, most important part of the test. the idea was a reasonably conservative and the best test of that, in the wake of the conclusion of those results, we've seen a very, very

substantial amount of equity come back into the financial system because it provided a level of clarity and exposure. i think that's a good test. markets don't get everything right. and we're still going through a deep recession and we're at the early stage of repair and recovery. and risks ahead. i think it's helped improving confidence in the system. >> the administration you've referenced several times is going to be sending out a plan to congress on modernization of regulation of our financial markets. will there be a recommendation for freddie mac and fannie mae? >> the future of the gses, including fannie and freddie is an important challenge for us, but we're not going to recommend in our initial