relatively quick. >> i understand mr. secretary. i have limited time. let's speak about another ambition on the administration. again i am not going to adhere to your terminology or the gerrans terminology. what i see is a new government agency being proposed to approve consumer financial products. the cfpa. regulation in our country and part of the challenge is smarter regulation, not just more regulation. but i think if you look at credit products marketed to consumers, not just subprime, broader array of mortgage products and in the credit card area, beyond credit cards, too, there were a lot of examples of

practices that we should not -- >> i agree with you, mr. secretary. but the question is besides subprime mortgages, was it viewed as a central cause since you know the fed has already issued their final home mortgage disclosure rules under regulation "z," and so either, one, it's inadequate -- i guess i'm asking this question, why come up with an agency that has the power to ban or modify mortgages, ban or modify credit cards, ban or modify remittances, and i respectfully disagree with the chairman,. i mean, if credit cards and remittances were not a part of the central cause, why are they included in this legislation -- >> this is actually -- this is not an agency we're proposing to

give excessively broad scope. we're proposing to focus on the credit area particularly. it's a commission. a set of five commissioners appointed by the president, confirmed by the senate. not unelected bureaucrats and with authority that now exists in a bunch of other agencies. we want to put it in one place. >> the gentlewoman from new york is recognized for five minutes. >> welcome, mr. secretary, and thank you for your service. a ticking time bomb is the commercial mortgage loans, roughly $1 trillion will become due in the next couple of years, and the credit markets are totally frozen. i'm told they can't get refinancing anywhere. so we will be looking at bankruptcies and defaults that will have a terrible effect on the regional banks that have invested in commercial -- heavily in commercial mortgage

loans and community banks, not to mention the loss of jobs and commercial activity, and my question is that i'd like to know if you're putting some of your creative attention to this problem. i know that treasury came forward with a proposed guidance on residential-backed security, mortgage-backed securities that allowed them to restructure. as you know under current law the parties have to wait until a default is imminent before borrowers would put up new capital, and so -- and there has been some indication that treasury is looking at issuing administrative guidance that would temporarily ease these rules so that borrowers can proactively discuss possible loan modifications with those who service their loans in order to deal with these issues while there is still time to deal with them. and my question is are you looking at this? are you intending to put forward guidance? when can we expect this guidance, and what other steps

are you taking for this to prevent this ticking time bomb to our economy? >> we have not made a judgment on whether a guidance in that particular area is necessary or appropriate or possible, but someone would be happy to talk to you and your staff about in more detail. this is still a significant challenge for the u.s. financial system. we do have in place today though relatively creative, carefully designed programs to mitigate the effects. those pins pally are the program that allows us to give capital to community banks, a program we expanded and extended roughlily two or three months ago, and that's a very important thing to do. the second is a program we designed with the fed to provide financing to the markets that are central and important to commercial real estate financing. now, those are important programs. we think they could be helpful in this, but i think you're right to say this is still going to be a challenge for our economy, our financial system to work through. >> what is the problem with

giving the same treatment to commercial-backed securities that you gave to residential mortgage-backed securities? if this will help them refinance, we're -- and we're not talking about forcing them to modify or extend loans but simply allowing them to begin the dialogue to see if they can work this out. >> i understand why you're drawing attention to this issue and i commend you for doing it, but this is an enormously complicated set of issues, and it's something we have to work through very carefully. we'd be happy to talk to you and your staff about this in more deta detail. >> then secondly, when we talk about the consumer protection agency, which i totally and completely support, but i also support letting the agencies maintain these protections for consumers in these agencies. a great deal of how well an agency performs is who's in

charge, who's appointed, and often times there's a political agenda. we've seen very infective chairmen or commissions or whatever and others that really protected consumers. so i believe consumer protection is so important that we should have a check and balance and to give the example of the federal reserve that was so helpful to this congress in the passage of the credit cardholder's bill of rights, i truly believe momentum did not come to this effort until they came forward with a very well thought out rule that helped move the process forward. so it seems to me it would be counter active and put in jeopardy consumer protections to take away the right for other agencies that have the depth -- in depth understanding that it would take years for a new agency to learn to take that away from them and to also counter a situation where you may have an agency head who is not performing the way they should or carries a political

agenda. we've certainly seen that at the fda time and time again. >> i understand that concern. we thought about that a lot carefully. let me make the other case. if you give this agency only rule writing authority and no enforcement authority, it will be too weak and the rules won't be well-designed as i said because they're not responsible for enforcing. they won't have the incentive to design the rules carefully to meet the needs of both consumers and the basic realities of the way these businesses work. that's one reason. second reason is that right now -- what you have been proposing is you're leaving in place with a bunch of different people now enforcement authority that, frankly, was not well-used or deployed. it's in a bunch of different places now, and i think it's very hard to look at that system and say that it did anything close to an adequate job of what it was designed to do, so i think it's a hard case to make that enforcement will be as effective as it needs to be in the future if you leave it where it has been.

>> i would move the enforcement to the protection agency but allow the others to continue with their rule-making and their input into protecting consumers. >> you'd move enforcement and leave rule writing authority where it is? >> as a backup. as a backup. >> well, again, you know, as i say, we want to have a strong agency with the right balance between innovation and protection, and we'd be happy to work with you and your colleagues on how best to achieve that. >> the gentle lady's time has expired. >> thank you, mr. childreairman. mr. secretary, thank you for coming. earlier in the week chairman bernanke was here and we entered into a dialogue and he at the end stated when it comes to separating the financial products regulator from the primary regulator, he was oppo e opposed to that because he thought it bifurcated the regulatory process. i guess the first question, i'm

not trying to pit you two each against each other, why is he wrong and why are you right? >> well, as the chairman said, i think it's perfectly reasonable and understandable that the institution who is have this authority and have teams of dedicated, motivated, experienced people with that responsibility today, they are notthusiastic with giving up that authority. they are doing what they should. they are defending the traditional prerogatives of their agencies, and i think frankly all arguments need to be fuse e viewed through that basic prism. on the substance though these are very different types of responsibilities. prudential supervision is different from consumer protection, and i don't think -- again, we have had a running national experiment as a country living with them being done together in their existing basic framework, and that did not turb

o turn out so well for us. i don't think there is a plausible defense of maintaining that current system in place today, although i understand why people who still preside over those authorities are trying to make the case to preserve them. >> i think the question then, if you're going to have two different agencies, then what is the size of an agency that has to basically audit or oversee every financial institution in this country for their compliance and what does that cost and who is going to pay for that? >> important question, but let's just step back right now from where you began. as you said at the beginning, there are existing teams of examiners spread across bank supervisor agencies and in the ftc today with responsibility for consumer protection. so we'd like to take that

expertise and put it in a single place, less defuiffused, and ha that entity be responsible for this important function. since i think overall supervision was inadequate, particularly over the nonbank sector. i'm not sure i can tell what you're going to need in terms of the overall resource envelope, but we can take advantage of the fact there are substantial existing resources today. they're just spread out in a place where they have not been optimally deployed. >> does it concern you though that -- when i read your legislation, i see the charge of that, and you spend a lot of time talking about this particular area in your recommendation. other areas are pretty short, but this area, and i think what begins to look like to me is that these products that could be approved that are going to be, quote, the optimum product

begins to look like government trying to limit the choices of the american people. in other words, this is kind of the optimum credit card, this is the optimum mortgage, this is the optimum car loan, and to me i don't see that as a role of the federal government, and so, you know, i think there's a difference between consumer protection and i think all of us are for that, and then there's the other piece of it which is product -- the government determining what products the american people get to look at. i'm going to be on the no category of the government telling us what kind of financial products we should have. >> generally i agree with you on that, and if we were proposing that, i would agree with your criticism and i would share it. but we're not proposing that. we're suggesting as part of a broad range of reforms, there should be a set of standardized, simple to understand, clear disclosured set of products that are available to consumers that

they can choose it avail themselves of or choose not to. make it very clear and explicit that we want banks and other institutions to have the ability to market other products to consumers. even as your colleagues said, there needs to be stronger protections in place against fraud in those types of products. we've got a relatively pro-choice proposal here, and by suggesting that firms should be marketing standardized, more simple with clear disclosure products we're not maturely limited choice. >> i think we all agree with the disclosure piece, but there's a lot of difference between good disclosure and the government picking the products and i think we have to be very careful of if this becomes an endorsement of the federal government of certain productings. . >> the gentlewoman from california. >> thank you very much, mr. chairman. mr. geithner, we certainly appreciate your presence here today, and i'd like to congratulate you on the strong

leadership that you're already providing for the consumer financial protection agency. i think it's very important. i'm absolutely dedicated to the proposition that we can do something for consumers. we held very important press conference led by our chairman just yesterday. i'm releasing an editorial today. when we're on recess my first town hall meeting will be on this issue, and i have -- i will plug it into stops that i will be making for speaking engagements in new jersey, tennessee, and georgia and some other places. so i believe that this is very important and, again, i appreciate the work that you are doing. many of our members are very appreciative of that and will be joining you in the efforts so, i won't talk about that anymore in my limited period of time. you know, i have to focus on what i can do for job creation. i don't have to tell you that the unemployment rate in minority communities, in poor

communities are double digit, have been for a long time, and when we see 14% and 15%, like in new york, you're really talking in some areas 35%, 4x%@@@@@@ @ well, the ppip program in particular is your latest effort. let me thank you for paying attention and including some minority firms in cooperation with some of the majority firms. i'm very pleased we got at least one firm that will be a main participant in the effort, and i'm very pleased that we have

identified and you have help to select through your work minority firms that can participate with majority firms. but in examining what the minority firms are doing, i'm finding that they are getting more fee-based work -- rather flat-fee work american percentages. we want our participation with our minority firms to make sure that they are earning, you know, credible amounts of money because this money goes back into these minority communities. if you would take a look at magic johnson, for example, and what he's been able to do showing people that you can go into minority communities, you can do business, you can make a profit, and you can create jobs. so we need a lot more of that, and i would like to commend to you our database, which we have been, i think, trying to share

with you so that you will have access to those firms that are very, very capable of providing mainstream services and not have to rely on small amounts that are allocated by some of these firms that they have joined up with. having said that, have you given more consideration to how you can involve women and minority-owned firms in this really, really lifetime opportunity that's been afforded through all the work that's going on with t.a.r.p.? >> we are giving more consideration to it. we haven't made a judgment yet whether we're going to allocate or appoint additional managers under this program but we will be reflecting on that as the program gets under way. i understand how important this is to you. thanks for highlighting the things we have already done. >> as i understand it, you will be involved very soon in another aspect of this work.

are you putting something out within the next few weeks relative to the ppip program still? >> well, we are not fully operational yet, so i think the next stage in particular is as these firms we have appointed go out and try to raise cap fal for the program -- i'd be happy to come up and spend time and talk to you and your staff about more details that are ahead. as i said, we're committed to trying to find ways to increase participation of small women, minority-owned businesses in these programs. we will look for ways to do more. >> i think we're referring to valuation agents my staff just said. that is something that i think is available now, and i don't know what has been done in making sure that you do the kind of acceptable outreach to include these firms. they're very capable, they're very competent. this sector of the minority

community is more prepared, more developed than a lot of our other sectors. that's why it's so important for them to participate so that they can help create these jobs and lead the communities. i thank you and i yield back the balance of my time. >> the gentleman from south carolina. then next the gentleman from west virginia. >> thank you, mr. chairman, thank you, mr. secretary, for being here and for your service to our nation. i'm from a small state and we have a lot of community bankers, a lot of the commerce and residential business is conducted by the community bankers in a very personal way. in a hearing last week we had a community banker who talked about a woman who had run into a bit of bad luck because her husband was very ill and she was able to go to her community banker and reshape temporarily her mortgage so that it could meet her needs. naturally, with the prospect of this consumer financial products commission and other

regulations, the community bankers and those of us living in states who are served principally by community bankers are very concerned that this flexibility this bank was able to show this individual would not be there for them. not only the flexibility, but the timeliness of this. what is your response to this kind of situation? >> i think you're right. what you described is one of the great strengths of your system. very important we preserve that. i don't think there's any credible risk, but this is in the hands of this committee in the congress. but i don't think there's any credible risk that in putting in place strong protection for consumers we'd be limiting credit or materially interfering with banks to work out those kind of things. and that is something we can achieve together. there's no risk as this takes shape that we reduce that kind of flexibility. >> but if we're going to talk about -- and i'd like to get an explanation of this and i appreciate your answer on this vanilla loan concept where everything has to have a plain

vanilla sort of look to it, mortgage products are one of the things that was talked about. it seems to me we could be limiting some flexibility for our community bankers and then you get into things like car loans where they're 5% or 6% or 0% down or $1,500 incentives s this product safety commission going to be able to move fast enough to oversee in and is this the kind of thing they will be overseeing? >> i'm glad you raised this again because it's very important. again, what we're proposing is that banks be required to offer the standardized, simple, easily understood, clear disclosure product. but they can also offer a range of other existing products that can be tailored to meet specific needs of families and businesses and -- >> but the regulation of those products does fall within that consumer product -- >> again, we're pretty clear in the language we put out in our draft proposal. obviously, we were happy to look for ways to make that clear and

better, but we're largely going to rely on disclosure and penalties against fraud to provide the protections against the risk that future innovation in these areas imperils the system, but i think that in this area we very much share your objective in trying to make sure we're preserving the ka pass car competition and products and innovation and products. that's one of our great strengths of our system, we just let it get too far from any basic sense of gravity. we need to bring that balance back a little bit. i very much share the objective of preserving competition. >> i think naturally and you mentioned this in your opening statement, that a lot of the problems is really not in the bank sector. it was in the nonbank sector and the community bankers and other bankers of this ilk are getting the broad brush painted against them not only in negative publicity associated with what's

happened, but also as we come in to regulate, overregulate and make it a one size fits all sort of policy that it ends up gutting i think a lot of what goes on in a day-to-day life of a community banker and other small bankers. >> i think you're absolutely right. let me say for the record, we have a system which has 8,000 small community banks as a core part of our system. it's a great strength of our system. many of those institutions were dramatically more prudent than their larger competitors. that's a good thing about our system, but -- and you're also right to point out one of the challenges they faced was we had a system that allow nonbanks to compete with them without the same standards. that was not so good for them, required many of them if they wanted to compete to lower they're standards. that's something we have to prevent. that's why we need a level playing field and single point

of accountability. i think the thrust of this will be very helpful for banks reducing the risk in the future they're going to be faced with that kind of competitive pressure solely produced by the ability to evade the kind of protections congress legislates. >> the gentleman from north carolina. >> thank you, mr. chairman. secretary geithner, in my opening statement i unequivocally made it clear to everybody that i am a strong supporter of the consumer protection agency, one with equally robust mission and authority as the safety and soundness and prudential regulation authority that other agencies have, and no less subject to being second guessed or having their actions vetoed. so i'm starting from that proposition. i'm not debating that philosophical thing anymore, but i'm not closing my mind to

concerns that are raised and i want to say that to my committee members and to the industry and to the other regulators. three things i want to ask you about which i think have some merit that have been raised and ask you and others if they care to to work with me on. one of those you addressed in your opening statement, which was the examination authority, and the question i want to ask is will you work with me and us and whoever else wants to work on it to make sure that the consumer protection examinations are coordinated with the prudential examination so that we don't end up with duplicative examiners in there at different

times and overburden the regulated institutions, the ones that are already regulated. if you can tell me that yes or no, that would be helpful. >> absolutely, and i think we can do better than that. we're proposing to put the prudential supervisor on the board of -- >> that's the second -- that's actually the second part of it here. the resolution of potential conflicts when, although i have asked multiple people to tell me what those conflicts are and i have yet to find any real credible one that is don't either fall into consumer protection or clearly into safety and soundness in which case a clear articulation of the authorities would suffice, but my question is will you work with me to make sure that when there is some kind of conflict,

there is an appeal or review mechanism. i thought it was going to be in the financial services oversight council, but i have reviewed what you all sent over in the last few days and i don't see it particularly addressed there, and i want to make sure that we get that clearly articulated somewhere that everybody gets coordinated or reviewed if there is a real conflict, not a contrived one. will you work with me on that? >> absolutely, and what we propose to do is to have two levels. one is at the level of the board of this new agency where we have representatives of the supervisors there on the board. that would help, but also at the level of this broader financial services oversight council. >> third question that i think is a legitimate question, although i think it's a red herring, and i think we ought to completely eliminate it as an issue, will you work with me to

make sure that there is no presumption of liability for products that are issued that are not the so-called plain vanilla products? the argument i've heard, which i keep hearing over and over again, is if you have a plain vanilla product and we issue something else, somebody is going to sue us because we issued something. will you work with me to make sure that there is no presumption against nonplain vanilla products that would create any kind of legal liability just because you created or offered some other product. that's i think the same question that was raised in a different form. >> yes. >> okay. all right. now that i have those three things -- >> i was going to qualify it a little bit but i understand your

objective. >> those three things clarified, i'm sure there are multiple others, but those at least seem to me to have some degree of validity, and i think we can do all of those three things without in any way compromising the authority or subjugating this new agency to somebody else. i yield back and thank the chairman for his time. >> i would just say the gentleman speaks for me and i think the great majority on our side for that. the gentleman from california. >> thank you. i was just going to go back to an issue where the chairman said he was going to correct the record. i don't think there was anything in the record there to correct. the chairman said that i had -- that the majority of the members had voted against my legislation that the fed, the federal reserve, wanted, and, indeed, that's true. most of the members. that's what i said, most of the members had voted against that in the house. the chairman said the bill did

not go out of the senate. that's true. in a straight party-line vote in the senate, it did go out of committee, but it couldn't get off of the floor on a 55-45 split in the senate, although i do remember at the time the speeches given by chuck hagel who was the author on the senate side of the fed's bill and the speech given by john mccain in support and the speech on the floor given by chris dodd in opposition to it. so i just want to again confirm that, yes, indeed, the federal reserve and the treasury as a matter of fact supported that legislation and the@@@@@@@ i@ @s

affordable housing goals. and as a result hud came out with the idea of zero down payment loans. that would be an anathema to safety and soundness, but no skin in the game, zero down payment loans. hud came up with the idea of allowing them to arbitrage. it was allowed to happen and the amendment to try to do something about it and allow the regulator to step in and regulate for a systemic risk was blocked. when it came to the idea of meeting those affordable housing goals by doing $1 trillion in subprime, that was encouraged, not by the safety and soundness regulators. for them they saw in 2004, 2005, 2006, as they came up here and advised us against this, they saw where this was headed, and

so did treasury. so now we're in the process of trying to look at the problems that are in the past but not repeating those problems in the future, and that is why i think it is important at the end of the day that the regulator for safety and soundness be able to trump these other missions. fannie and freddie became the most powerful influence or lobby up here, and as you know, i have supported a federal insurance charter for some time, and i would like to talk about another issue here. i was concerned about the aig problem and not being able to get our hands around the information, and i think you were, too. we've talked about that. as you have laid out your regulatory reform proposal, there are several problems with the current balkanized state-based system. it hampers u.s. competitiveness.

it lacks a centralized regulator with the ability to look at the entire u.s. market. as we are working to streamline and consolidate regulatory authority in the insurance portion of our financial system, it appears we may be taking a step back in the banking sector, especially with respect to the consumer financial protection agency. within your cfpa proposal, you call for creating a floor for consumer protection which would allow state consumer laws to go over the top of the national standard. bearing in mind what has happened in our insurance market where we have 50 different sets of rules, 50 different regulatory approaches, are you concerned the negative consequences that have arisen in the insurance market could be replicated in the banking sector with this approach and would it not make sense to set a ceiling as well as a floor so there is some consistency nationwide? >> i understand the concern

you're rayiising, and it's difficult to get the balance perfect. what we laid out was our best judgment, again how to make sure you have stronger more uniform protections at the national level without depriving states of the ability to go beyond that, but i understand that concern. again, we thought we got the balance right, but this is an issue, a very complicated issue. this committee spent a lot of time on these issues in the past on the preemption area and we're happy to work with you and think how best to get a better balance. >> i appreciate it, and one last point before my time expires, would you concur on the thought about fannie and freddie, some of the points that i made in terms of the systemic risk that they pose to the system. >> there's no doubt we as a country let fannie and freddie pose a huge risk t would have been good if we figured out a way to avoid that earlier, and that mistake should underpin much of what we do in think being how to create a more

stable system. >> thank you. >> we have a couple more. we'll start a 1:00 with the next panel. what i plan to do is with regard to the questioning, pick up where we left off for the second panel. member who have already asked of the secretary will go to members who haven't asked. plus, and i talked to the ranking member, we did have a time for the secretary -- we would have had more time but 56 procedural votes preempted him. they weren't all procedural, but they were all silly. what we will do is in september when we come back, one of the first things we will have is a full session of several hours with the secretary, and so we can -- so we will get back to that because we're going to lose him. >> thank you, mr. chairman. >> and i will now recognize five minutes the gentleman of north carolina, mr. miller, if you would like to take the time or wait. let me take the gentleman from

texas, the gentleman from california is right, but again let's be clear, we are not at the old hud situation. in 2007 this committee passed a bill that included some of the things that had been not in the previous bill approved by secretary paulson, president bush, mr. lockhart, so we are not now in a situation where the old rules apply. the new rules do apply. there still have to be further changes but we're not in the old situation. gentleman from texas. >> thank you, mr. chairman, and thank you for the clarification as well. mr. secretary, welcome again. it's always a treat to hear you. i was very impressed with your opening statement. i have been visited by many community bankers, as has been the case with many colleagues, and one of the concerns expressed is a desire not to pay for the sins of others.

they can clearly say this in a literal sense. they don't want their premiums to escalate because of those who engaged in 327s, 228s, prepayment penalty coincided with teaser rates and many others, products that they were not purveying. can you give a word please such that they will be comforted in knowing they won't way for tpay sins of others. i thi >> i think they have a point. i think as commissioner bair has laid out and we are supportive of this, i think we have to move to a point where the basic cost of the failures of the system in the future are shared a bit more fairly. i think that's an important thing, but, yes, i share that commitment. >> i would dearly like to work with you on making sure that they have the level of comfort that i think they richly deserve given they were not a part of

the concerns that we're trying to address today. next point, you indicated that penalties against fraud would be one of the means by which going forward hopefully we would deter some of the products or the behavior that we saw. if you would, give a bit of clarity to that phrase, penalties against fraud. will there be civil as well as penal actions or are we talking civil only? >> i probably can't do that justice today, but again happy to spend some time working through those issues. again, i think the basic principle is it's not enough to have standards. it's not enough to have rules. it's not enough to state protections. they have to be enforced, and fraud, there has to be consequences and we need to make sure the framework in place today provides enough deterrence

against those kind of practices re-emerging. that's the objective we're working towards. lots of ways to do that. happy to spend time talking about how best to do it. >> thank you. and i would like to share a thought with you as i complete my moment. i understand that we have two classes of consumers. we have those who actually consume or deal with the products that are being purveyed and then you have another class, the folk who work at minimum wage which just went up today to i think $7.25 an hour, but who suffer because others make unwise choices. they end up losing jobs. we have seen how connected the economy is, how interconnected the world is, and by virtue of this, i care about those consumers who make $7.25 an hour. i care about not only fannie mae and freddie mac that we've su s

discussed today, but our fannie and uncle freddie mac, people who have real lives that are being impacted by those who made bad choices. so i'm here to let you know that i want to work with you, but my fannie mae and freddie mac including at least two classes of fannies and freddies. thank you and i'll yield back, mr. chairman. mr. chairman, i did an unusual thing, i yield back time. >> i appreciate that. i recognize the gentleman from new jersey. >> thank you. before i begin, will you work with mr. watt on all these issues? >> i will work with the chairman, the committee -- >> i was being emphatic about it. it was an attempt at humor. thank you. >> translator: nev >> never mind. go ahead. >> thanks. who do we trust, who do we

believe with regard to the fed and your position here -- >> you can believe him and believe me. we have a difference. it doesn't mean that -- >> right, right. one of your comments though was sort of intriguing. you stayed you understood what they were saying and doing and one of your comments was what they were doing was the right thick. they are defending the prerogatives of their agency basically and you're nodding your head and she can't write that down but that's a yes, right? >> they're defending the people who have worked on these issues over time and speaking in favor of preserving the traditional prerogatives of their agency. it happens all the time. >> my concern there is it really puts us in a hard situation when agencies come before us if that's the understanding that the agencies are going to come from as president-elects from defending the prerogatives of their agencies whether it's the fed or one of the regulators or whether it's the treasury. if they're doing it not for the good necessarily of the economy, but defending their prerogatives, you can understand where that raised a red flag

when i heard that. >> i think inherent in your job is to think about how to make those choices. >> and to consider the source. >> no doubt about it. absolutely. >> going to mr. watts' question, you said you would work with him with regard to three issues. one of the issue is his example of someone coming in for a vanilla product and getting a more complicated product and his concern is if that more complicated product isn't right for me, do i have the right to sue the bank that gave me this more complicated are du ed prod. he said he opened you would work with him. >> can i say how i thought about this? in trying to make sure we have better protections against fraud and in trying to make sure it's possible that people can be able to see, for example, a 30-year fiked rate mortgage alongside a suite of other mortgage practice

ducts, we want to make sure they have the ability to choose a five-year adjustable rate mortgage, too, without presumption as he said it that they would be vulnerable to challenge for offering products other than the vanilla product. that i agree with. >> what about the flip side? what if an individual comes into the bank and the bank has these more esoteric practice duct and they don't offer it to the client. does that client have a right to go back to the bank and saying this bank is profiling me -- >> that doesn't worry me that mu much. in our business that consumer can go to another institution and say i like that -- >> it should trouble you. we have heard a lot of discussion about predatory lending. so many times they say there should be other products that individuals should be entitled to, but they're just not to offered those and all they're

offered are the much higher rate products. >> very unlikely i think that would come with an institution that chose on its own only to offer 30-year fixed rate mortgages, but it's possible, but i think it's unlikely. >> on the wind down authority i have hearted different stories. let me go to the source. on the winding down authority, the chairman made a comment i agree with completely. he said if we identify who the tier one companies are, what did he say the other day, and we shouldn't have a pre-existing list because if you do, then he said you only exacerbate the problem of too big to fail. i agree with that. under the proposal it seems as though you're beginning to identify them by person parameters. wouldn't that cause a problem, and the second question, maybe you can get back to me, will the assessments only be on tier one, and if the answer is yes, will that be potentially harmful to

those companies that the remaining companies if the assessment is too large because you only have a small group. respond to the question if you can. >> let me do the first part of the question. on the first part, here is our basic challenge. we believe, and i think there's a strong case for this, that the largest institutions that present these unique risks to the stability of our system, they need to have more conservative constraints on capital and leverage. they need to be holding more resources against the risk of loss so that we are less vulnerable to the few tower to t the mistakes they made. you have to be able to apply differentially different charges. we, of course, deeply understand the moral hazard risks that we live with today and that come with variance in this stuff. we will work with -- >> if i'm going to do two more.

the gentleman from georgia. >> thank you, mr. chairman. mr. geithner, welcome again. i want to ask you specifically in terms of would you not commit to at least having someone on your staff that is dedicated to increasing the participation of african-american owned firms, management asset firms, other firms so that they can get business in the financial sector as we move in this area? >> i think i can do better than that in the sense that i'd be happy to designate to you the principle senate confirm ed person in the treasury. part of whose responsibility will be to continue to make sure we're looking for opportunities to increase participation of again small women-owned,

minority-owned businesses this these programs. again, we have been pretty careful and pretty effective in expanding those opportunities. happy to work with you on ways we can do better. jo because there are many, many well-qualified minority-owned firms who if we don't make a special effort, a special effort to make sure they have the opportunity to compete and if it doesn't come from the top, it just doesn't get done. so i would appreciate it and i know this committee would appreciate your work on that area. now, another area that i'm vitally concerned about, and that is many or shall we say some in the banking industry it cements to me are reverting back to some of the very practices that got us into this mess. i'm sure you're familiar with the reports that have come out of now the huge multimillion

dollar, billion dollar compensation packages, bonuses that really got us into some of this. and they're going right back to it. what can you do about that? >> we did not believe we can go back to the set of practices and compensation that prevailed over the last decade and that's why we proposed well-designed but very important reforms in the compensation area, and that's why it's very important you're moving very quickly as a committee to consider those reforms, just next week, i believe, but it's important that we do this in the con tech text broader regulatory reform. it's not going to be enough to bring about better incentives for compensation. we have to put more restraints on risk taking, require firms to hold greater cushions against loss.

>> we continue to get complaints from some in the banking industry with certain practices. we have the consumer protection agency, which we are pushing, which unfortunately some are fighting very hard, and yet they're not doing the basic things that need to be done. they're not lending. what can you do to increase pressure on our banks to lend? >> let me just say two things in response to that. one is the most -- there's basically two core strategies you can do that would be helpful. one is to make sure that banks who need capital have access to capital. that is critical. without that you will have further reduction in lending capacity. the second is to make sure our broader credit markets are working better.

we have done a lot of things in both those areas, but i think those are the most important things we can do. i think it's important given what is a cumulative effect by a bunch of judgments by bank is s a -- across the country, that they earn back the trust of the american people. i think it's important to them they earn back that basic trust and confidence. >> there's another growing practice that is happening in our financial sector and some banks, not all, but we've gotten reports where banks will in our rush to allow banks to do a multiplicity of services and products in which they've encouraged individuals to open up their savings account at this bank, open up their checking account at this banken and if ty need a loan that they would take that at the bank, but what

happens is that often times, and it's particularly now when there's pressure on consumers out there to -- and they're on the margins where that's banks would go in and if they are a week or two late on their payment for a loan, they would go in and take that individual's savings without our knowledge and apply it to that. >> the gentleman's time is expired. the gentleman from delaware. >> thank you, mr. chairman. mr. secretary, it has been stated perhaps by you but i know by others that various financial entities in this country seem to be country seem to be relatively free or flexibility in selecting their regulators, if you will. it's a little beyond the purview of us here. but i mean, you're talking about everything from state regulators to the fed, occ, fdic, ots or whatever. and i would think that the -- that the regulator would be

dictated by how they're structured. what are they doing that allows them to be able to select their regulator. how great a problem is that in terms of the force mechanisms we're concerned about? >> let me give you some of the examples of that. countrywide and wamu were banks found the strictures of booegs being banks inconvenient, shifted their charter to a thrift charter and were able to take advantage of what in retrospect could only be judged as lower standards of enforcement. and they grew dramatically at a more rapid pace after they made that more basic switch. that's one example. but there are others in our system, too. >> should we be looking at legislation to change that? we proposed at the centerpiece

of our legislation that we eliminate the thrift charter and combine federal responsibility for these bank-like entities into one place. >> and you think that will solve not all the problems, but a lot of the problems? >> not all, but in the banking area, that difference between the thrift and the bank charter as it was enforced -- now, you know, there's hundreds of well run thrifts across the country. but there were, unfortunately, a few very big examples that caused a lot of damage where effectively people would go from one system to a stronger to a weaker system, grow market share, took themselves to the edge of the abyss because of that and that's something we have to prevent. >> changing subjects, on the consumer financial protection agency, and this may be in some of your writing, you're submitting a lot of writing, sometimes i think in your spare time you wrote the health care and energy bill and a few things. i haven't had a chance to read it all, but -- >> i would have to rule that out

due to the witness' character. >> my question is, how do you view how this would be structured? how big would it be? would there be all sets of reductions in employment in the various agencies that are now regulating if it were to occur? how do you foresee that? maybe that's not thought out carefully yet, but -- >> there's a whole range of design questions we have to work through. but again, there is a substantial body of existing examiners who now do the consumer protection spread across our multitude of bank regulator. and idealy what we do is take advantage of that expertise in shaping the workforce of this new agency. that would be the ideal thing. it would not be sensible not to do that. and i think that as a result, the amount of employment in what will be bank supervisors with a narrow responsibility for safety

and soundness would be reduced. >> is it your view that every new product that a bank would issue, a change in a credit card, whatever, maybe would have to go through an approval process for this consumer protection agency? >> absolutely not. >> and how will they determine whether they have to go through it or not? in your view, what is going to be the methodology for determining what needs to be submitted and what doesn't? >> we don't envision that process. the core of our proposal is to say we put our broad standards and principals that should govern broad practices that should happen in this the area. there's a lot of stuff that happened both in the mortgage area and credit card business. we build on that basic model. what we really want to do is, just to make sure that consumers have the ability to take advantage of a more standardized easier to understand product even as they contemplate a range

of other different sets of choices, that's the basic thrust of our proposal. >> as you know, some of the existing regulators are not totally happy with this change, shall we say. what is -- in my judgment, they're starting to do a lot better than they did before and i'll be the first to agree with you, that there were serious problems, but the credit card business in the fed is starting to do a much better job. but what is your response to them? i wonder about giving up the expertise. >> we worry about taking advantage of that. it didn't service well enough. la;;;;;;;n7o'm'm']'m$$(tutu.8

>> the hearing is about to convene. none of the witnesses has had their appearances change drastically in the past few minutes, so you probably got enough pictures. the photographers will do what they just did. and we will begin the hearing. let me apologize in chans advance about the votes. we will get in the opening statements, some questions. at some point there will be votes as a practical matter. but we have had a great deal to do here and i apologize to everybody for the inconvenience. the only thing worse i think would have been not to have tried and we will proceed. and we will start with the chairman of the federal reserve, mr. bernanke. whom i caught unaware and i

apologize. >> thank you, mr. chairman. i appreciate the opportunity to discuss ways the u.s. financial regulatory system can be enhanced. the financial crisis for the past two years has had diverse causes, including both private sector and regulatory failure toes identify and manage risks, but also gaps and weaknesses in the regulatory structure itself. this experience clearly demonstrates that the united states needs a comprehensive and multi facetted strategy, both to help prevent financial crisis and to prit gate the financial crisis that may occur. that strategy must include sustained efforts to make more effective use of existing authorities. it invites action by the congress to fill existing gaps and regulation, remove imp impediments to consolidated oversight of institutions and provide what's necessary to cope with financial problems that do arise. in keeps with the community's interests today, i'd like to

identify the keep elements that i believe should be part of that agenda. first, all systemically important financial institutions should be subject to effective consolidated supervision and to tougher standards for capital@@@ titutions. third, better and more formal mechanisms should be established to help identify, monitor and address emerging or systemic

risks across the financial system as a whole including gaps in regulatory and supervisory coverage that could prevent risk. a federal reserve board sees the development of a council to provide oversight of the financial system. the expertise and the members of such a council, each with different primary responsibilities, could be of great value in developing a systemwide perspective. fourth, to help address the too big to fail problem and mitigate moral hazard, a new resolution process for systemically important nonbank financial firms is needed. such a process would allow the government to wind down a doubled, systemically important firm in an orderly manner that avoids major disruption is to the broader system and the economy. importantly, this process should allow the government to impose hair cuts on creditors and shareholders of the firm when consistent with the overarching goal of protecting the system and the broader economy. fifth, ensuring that the

financial infrastructure supporting key structures can with stand and not contribute to the too big to fail problem and systemic risks. reform should ensure that all systemically important payment clearing arrangements are subject to prudential standards. comprehensive reform and financial regulation should address other important issues, as well, including the needs of enhanced protections in their financial dealings and for improvement international korpd nation. let me end by noting that there are many possible ways to organize or to reorganize the regulatory structure. none will be perfect and each will have advantages and disadvantages. however, one criteria that i would suggest is the basic principal of accountability. collective bodies of regulators is to produce collective services, such as identifying

risks, coordinating responses, recommending actions for regulatory gaps. but when it comes to specific regulatory actions or supervisory junlts judgments, collective investigationry making can mean no one owns the decisions and line res blurred achieving an effective mix with an eye toward relevant institutionalan incentives is critical to reform. thank you again for the opportunity to testify in these for not important matters. the federal reserve looks forward to working with the congress and administration to achieve meaningful regulatory we form to strengthen our financial system and reduce the probability and severity of future crises. >> chairman frank, members of the committee, that you can for holding this hearing and for the opportunity to give our views on financial regulation.

the issues before the community are as challenging as any that we face since the days of great depression. we are emerging from a credit crisis that has greatly harmed the american economy. homes have been lost, jobs have been lost, retirement and investment accounts have plummeted in value. the proposals by the administration to fix the problems that cause this crisis are both thoughtful and comprehensive. regulatory gaps in the financial system were a cause for the crisis. differences in regulating capital, leverage and financial sfrumzs as well as protecting consumers. reforms are needed to close these gaps. at the same time, we must recognize that many of the problems involve financial firms that were already subject to extensive regulation. therefore, we need robust and credibility mechanisms to ensure all players actively monitor and control risk taking. we must impose greater market on

institutions. there will always be winners and losers. when firms are no longer viability, they should fail. efforts to prevent them from failing ultimately distort market mechanism, including the incentive to compete and allocate resources to the most efficient players. unfortunately, the actions taken during the past year have reinforced the idea that some financial organizations are simply too big to fail. in too big to fail, we senate a practical, effective and highly credible mechanism for the orderly complex institutions that is similar to the process of fdic insured banks. when the fdic closes a bank, shareholders and creditors take the first loss. we're talking about a process where the failed bank is closed, where the shareholders and creditors typically suffer severe losses, where the market is replace and assets of the institution is sold off. the process is harsh, as it

should be. it is not a bailout. it quickly reallocates assets back into the private sector and into the hands of management. it sends a strong message to the environment that investors and creditors face losses when an institution fails, as they should. we also believe institutions should be subject to investments and reduce taxpayer exposure. i'm very pleased that president obama said he supports the idea of assessments earlier this week. funds raised to assessment should be kept in reserve to provide working capital for the resolution of large financial organizations to further prevent taxpayers from losses. in addition to a credibility resolution process, we need a better structure for supervising institutions and we need a framework that proactively separates risk from reduction. the new council should address such issues as excessive

coverage, regulatory council would give the necessary perspective to loot our financial system wholistically. finally, the fdic looks at consumer protection agencies. this would help eliminate between bank and nonbank providers by setting strong consistent across the board standards. since most of the consumer product practices the rise to the credit crisis, focusing on nonbank examination and enforcement is essential for dealing with the most practices that consumers face. the administration would be more effective if it included oversight and a strict consumer compliance oversight for banks. as both a bank regulator and insures, i'm very excited about taking enforcement away from bank regulators. it would disrupt consumer

oversight protection of banks and address the current lack of nonbank supervisor. consumer protection and risk supervisor are actually two sides of the same coin. splitting the two would impair access to critical information and staff expertise and likely create unintended consequences. combining the unequivocal prospect of an orderly closing, a strong supervisory structure and cost reductions will go a long way to fixing the problems of the last several years and to assuring that future problems can be handled without cost to the taxpayer. >> thank you very much. and our next presenter will be the honorable john c. dugan, office of the comptroller of the currency. >> thank you, mr. kanjorski. ranking member bachus, members of the community, i welcome the opportunity to discuss the regulation of financial services. the occ supports many elements

of the proposal including the establishment of a council of financial regulators to identify and monitor systemic risk. we believe that having a centralized and formalized mechanism for gathering and sharing systemically significant information and making recommendations individual regulators makes good sense. we also support enhanced authority to resolve systemically different financial firms. the fdic currently has broad authority to resolve systemically significant banks in an orderly manner, but no comparable resolution authority exists for systemically significant holding companies of either banks or nonbanks. the proposal would appropriately extend resolution authority like the fdic to such companies. we also believe it would be appropriate to designate the federal reserve board as the consolidated supervisor of all systemically significant financial firms. the board plays this role with respect to the largest bank holding companies. in the financial crisis of the

last two years, the absence of a comparable authority with respect to large securities and insurance firms prove to be an enormous problem. the proposal would fill this gap by extending the federal reserve holding company regulation to such firms. however, one aspect of this part of the proposal goes much too far, which is the grant to grant broad new authority of the federal reserve to override the banking supervisor on standard examination and enforcement applicable to the bank. such override power would undermine the authority and the accountability of the banking supervisor. we also support the imposition of more stringent capital and liquidity standards on systemically significant firms. this would help address the heightened risk to the system and mitigate the competitive advantage they could realize from being designated as systemically significant. and we support the proposal to effectively merge the otf into

the occ with a phaseout. however, it is critical that the resulting agency be independent from the treasury department and the administration to the same extent that the occ and otf are currently independent. finally, we support enhanced consumer protection standards for service providers and believe an independent agency like the propose fca could achieve that goal. however, we have significant concerns with some elements of the proposed fda. semester stemming from its consolidation of all financial consumer protection, rule writing, examination and enforcement in one agency, which would completely and inappropriately divorce all these functions from the comparable safety and soundness functions of the federal banking agencies. i believe it makes sense to consolidate all consumer protection rule writing in a single agency with the rules applying to all financial providers of a product, both

bank and nonbank, but we believe the rules must be uniform and that banking supervisors must have meaningful input into formulates these rules. unfortunately, the proposed fca falls short on both counts. first, the rules would not be uniform because the proposal would expressly authorize states to adopt different rules for all financial firms, including national banks, by appealing the federal preemphasize that has allowed national banks to operate under uniform frl standards. this repeal of the uniform frl standards option is a radical change that would make it far more difficult and costly for national banks to provide financial services to consumers in different states having different rules and these costs will ultimately be born by the consumer. the change will also undermine the national banking charter and the dual banking system that has served us very well for nearly 150 years in which national

banks operate under uniform federal rules and states are free to experiment with different rules the for banks they charter. second, the banks do not require a meaningful input because in the event of any disputes, the proposed cfpa would always win. that should be changed by allowing more banking supervisors on the board of the cfpa and by providing a formal mechanism for banking supervisor input into cfpa rule making. finally, the cfpa should not take examination and enforcement responsibilities away from the banking agencies. the current banking regime works well where the integration of consumer appliance and safety and soundness provides real benefits for real function. real life examples demonstrates how this works. to the stend extent this works for consumer protection, the

fundamental problem has been with the lack of timely and strong rules, which the cfpa would address and not the enforcement of those rules. moreover, moving these bank supervisory functions to the cfpa would only distract it from its most important and daunting implementation challenge, establishing an effective examination and enforcement regime for the shadow banking system of the tuns of thousands of nonbank providers that are currently unregulated or lightly regulated, like the nonbank mortgage brokers and originators that were at the heart of the subprime mortgage problem. cfpa's resources should be focused on this fundamental regulatory gap rather than on already regulated depository institutions. thank you very much. >> thank you very much. our next presenter will be mr. john e. bowman, acting director, office of thrift supervision. >> good afternoon, mr. can jorsky, ranking member bachus and members of the committee.

thank you for the opportunity to testify today on the administration's proposal for financial regulatory reform at the conserumer production agencr otherwise weakened this nation's financial system. in my review, the solutions to these real problems fall into three categories. number one, protect consumers. one federal agency whose central mission is the regulation of financial products should establish the rules and standards for all consumer

financial products. this structure would replace the current myriad of agencies with fragmented authority and the lack of singular accountability. for entities engaged in consumer lending that are not insured with xofttory snugdzs, also examination and enforcement authority. number two, establish from regulation by closing gaps. these gaps became enormous points of vulnerability in the system and were sxloided with serious consequences. all the all entities that offer financial products and consumers are subject to the same consumer protection rules and considerations and vigorous examination and enforcement so that unregulated entities should not gain a competitive advantage over their more regulated counterparts. third, create the ability to supervisor and resolve

systemically important firms. no provider of financial products should be too big to fail. achieving through size and complexity and implicit federal backing to prevent its collapse and there by gaining an unfair advantage over its more vum nerble competitors. enterprises that are strong, industrius, well managed and efficient and prosper. those that fall short, struggle or fail and other stronger ender prizes take their places. enterprises that become treated as too big too fail subvert the system. when the government is forced to prop up failing, systemically important companies, it is in essence supporting poor performance and creating a moral hazard. if the legislative effort

accomplishes they threes operatives, it will have accomplished a great deal and in my view, the reformed effort will be a ringing success. thank you for the opportunity to be here today. we look forward to continuing to work with the member of this committee and others to create a service of financial services regulators to promote regulatory ability for the nation and i'd be happy to answer your question. >> thank you very much, mr. bowman. now we'll hear from mr. joseph a. smith jr., north carolina commissioner of banks on behalf of state bank supervisors. >> thank you, sir. members of the committee, good afternoon. my name is joseph a. smith jr. i'm north carolina commissioner of banks and chairman of the conference of bank supervisors. thank you for providing testimony today on the administration's plan for financial regulatory reform. csbs amraudz this committee for the time and energy put into this clalg and jurntd taking.

we look forward to congress and the administration to look forward to a plan that makes meaningful and sustainable solutions for the way our financial system serves the public. my statement today reflects the perspective of commissioners and deputy commissioners from around the country and i would like to thank them for their efforts in helping to put them together. our major concern is that the legacy of this criessy could be in a consolidated industry that is too close to the government and too distant from consumers and the needs of its communities. that may not be the result. to avoid that outcome, congress needs to realize the regulatory incentives and end too big to fail. we believe many of the administration's plans would advance these goals. they conclude the continuation for state chartered banks, a comprehensive approach to consumer protection and the recognition of the importance of

state law and state law enforcement and accomplishing consumer protection. however, we also have some concerns. in our view, the administration's plan inadequately addresses the systemic risks imposed by large financial institutions. my testimony today will discuss these issues. we support this agency in concept and we support its goals. restoring public confidence in this financial system is a necessary objective. consumer protection standards for all product providers such as those to be promulgated by the agency are an important step in that direction. any proposal to create a federal consumer protection agency must conserve for the state the ability to set higher, stronger consumer protection standards. we are pleased to see that the administration's proposal as well as hr 3126 does just that, explicitly providing the

consumer protection standards institutes a floor for state action. we believe that the new agency's activities would be more effective if focused on standard setting and rule making. as part of this, we support the agency having broad data and information gathering authority. we believe the agency's advicetory functioning should be a backup funding. we believe believe the agency's enforcement authorities should be a back stop to the primary authority of state and federal prudential regulators and law enforcement. as part of this timely coordination information sharing among federal and state authorities would be absolutely critical. we do not believe that systemically important significant institutions should be too big to fail. there should be a clearly defined regulation seen for these institutions that allows them to fail. every type of institution must have a clear path for resolution. we believe the fdic is the best choice as receiver or conservator for any type of financial institution. it is an independent agency with

demonstrated resolution competent. for systemically significant institutions, the regulatory regime should be severe meaning tougher capital, prompt standards and it must protect taxpayers from liability. we applaud the administration for its prompt regulation. we now look forward to the members of this committee to bring your specialized knowledge and regulatory experience to this. a safer, sounder financial system and stable access to credit for all sectors of the economy. we look forward to working with you on this legislation to reduce systemic risks, preserve the unique fairness of our financial system and enhance coordination to create a seamless network for all industrial participants. thank you again for the

opportunity to share this testimony today. >> thank you, mr. smith. now we'll hear from mr. sherman of california for five minutes. >> thank you, mr. chairman. first to the cfpa, the consumer agency. i would hope that we would not interfere with the relationship between attorneys and the cpas and the clients that they advise. this relationship has traditionally been regulated by the states. when attorneys and cpas act within the scope of their profession, it would seem unnecessary to have yet another consumer agency since they are bound by fiduciary duties and censures. but my comments don't apply when those professionals decide to become investment brokers or step outside of their traditional roles. also as to the consumer agency and the chairman and i had a colloquy on this. we should be creating a regulatory agency that enforces

the law, not a law writing agency and i hope that we're able to craft the language to make that clear. otherwise, we will be taking this committee out of the consumer protection business and punting that to the unelected. mr. konjorski focused on credit rating agencies. i focused a little different than the chairman in that it's, to me, not who pays the credit rating agency, but who selects the credit rating agency. imagine a baseball league where the umpire is selected by the home team. even if the league paid the umpire's fee, if the umpire's selected by the home team, you're going to influence the outcome. i'll be introducing legislation to have a credit rating agencies selected at random from a qualified panel. as to derivatives, we are told that even over-the-counter

derivatives without hedging any risks that they have in their business. so one wonders when we need counterderivatives involved when one of the parties is hedging a legitimate business risk when there's no societal purpose. why expose our economy to these systemic risks? chairman bernanke, if the chairman appoints all your residential governors, i don't know why banks who are serving on the fed and indirectly the fom cancer when the pharmaceutical companies don't get to name the people who sit on the fda, the bar association doesn't pick the lawyers. we have a system of democracy where you elect a president and

he appoints governmental officers. mr. bowman, you seem to suggest and i hope you'll expand for the record that perhaps we should break up those institutions that are too systemically important to fail or too big to fail rather than sit around, see if they go under and then break them up. i don't know if that was your suggestion. if so, it is remarkable to have somebody in the executive branch be so bold. chairman bernanke, you have the power under -- i want to focus on bailout authority. you have powers under 13.3 that are unlimited in terms of dollar amounts. i remember once i asked you whether you would accept a $14 trillion limit. it was a facetious question to which i got an interesting answer. but you have limited 13.3 to close to zero risk transactions and i applaud you for that modest interpretation of your authority. in one area of his presentation

on an issue where you agree with the secretary of the treasury, he talked about resolution authority and he says, any cost to the taxpayer from the use of this resolution authority will be recovered through expo facto assessments on large financial firms. so his vision of resolution authority is that there will be cost to the taxpayer. and the question is, if we continue to have 13.3 as authority for the fed, would it be unduly burdensome on those of you in the bailout business or the systemic business or whatever to put a half trillion dollar limit on any additional permanent t.a.r.p. authority that we create in this statute? >> thank you. on the president's question, the regional president, we do not support presidential appointment of the reserve bank of presidents. we're in a situation now where we need to increase our

consistency of enforcement and oversight, where we need to coordinate across the system, and i think creating 12 new presidential appointees, 19 presidential appointees around the fomc table will create a more diffuse and surgicalized system. so i wouldn't be in favor of that. on 13.3, my answer to your facetious question was also facetious. we recognize the need to be very careful in the use of this authority. and in particular, if the -- if this congress puts together a resolution authority that can address the problem of failing firm, then i would certainly be open, in fact, quite eager to subordinate the 13.3 authority to the request of the requirement of the resolver. >> having your authority limited by another part of the executive branch is, if you could just address the question, do you want unlimited new t.a.r.p. authority?

>> we need the -- we are currently, as you know, winding down our 13.3 program. so i don't anticipate that we'll be approaching the previous peaks. i can't anticipate what kinds of situations might arise in the future. >> and so you might need unlimited authority to deal with them. thank you. >> the gentleman's time has expired. now hear from the gentle lady, ms. balkman. >> thank you, mr. chair. i found mr. sherman's very question on unlimited authority for the fed as they go forward and i appreciate also the chairman's response. being able to anticipate what the need would be for authority going forward, do you believe it would be beneficial for the geo to do an audit of the federal reserve? >> well, i've addressed this kwenl from this week. the gao has authority over most

of our supervisory and operational activities. the single firm loans, like aig and bear stearns, it also has authority over our talf program. we would be happy to work with congress to any remaining aspects of our operations that involve the use of taxpayer funds or financial management. we are more than happy to work with the gao to allow their audit and oversight. the concern that i have with the bill that has been proposed is that it's not@@@@@@',aá')@ @ 'a)

given by mr. henserling early and also by others. i share those concerns. i'm very concerned that the president's proposal is silenced on any true meaningful gfc reform. because nowhere in the president's paper could i surmise that he proposed any ideas to fix the fatal flaws that i think many of us would agree are inherent. the too big to fail philosophy, these are flaws that significantly contributed in many of our estimations to the financial crisis that our country experienced. my question would be how can they be and how can the only plan be to engage in a wide ranging initiative to develop recommendations on the future of

fannie mae and freddie mac and the federal home loan bank system which will be punt ed until the president's release of his 2011 budget? it seems to me that real reform could have been included in freddie and fanny receiver championship and how can we expect to fix the problems of our financial system without making changes at the root cause. what is our way out? will starbucks be too big to fail? will these be considered financial tier one organizations? i think at this point we need to ask those questions. we saw that the government backed away from cit, which i think many of us were happy to see, but i would ask, again, do you believe that we should be acting sooner to reform the gses? and that's for anyone on the panel.

well, okay. i think the hesitantsy is that this translates from financial policy to perhaps to housing policy and this is not an area where any of us have direct responsibility at this point. certainly as they're functioning now and as they function before, i believe they're systemic risks over the years as we know now. so i think if they do continue, clearly this is something that an oversight council should have some input and responsibility for. but i think as you say, it's not within our privy to influence that policy decision. >> no, i appreciate that. and it's rhetorical in the sense of laying that on the table,

again, that there are concerns from this side of the table to say this is an area that we have concern. my colleague, mr. sherman, had just referenced, and i think rightly so, the treasury secretary's comments indicate that because of the ex toe facto deposition, that moral hazard will be reduced. so it seems that everyone from the taxpayers or the financial banks have the potential to lose big except the creditors and the counter parties that failed firm. so how will that improve the status quo, in your estimation? >> chairman bair has spoken on this, but i think it will impose loses on creditors, so i think that will be an important part of it.

it requires firms to have securities by contingent capital or convertible debt. in the event one of these resolution events would be converted into a less valuable, more junior liability and, therefore, it indirectly impose costs on the lenders and the company. but i think we all agree that imposing costs on the shareholders and the creditors is an important part of this idea. >> just to change subjects, do you think that there is going to be an influx of lawsuits that would be challenging products? this is now on the -- apparently my time is up. thank you, mr. kanjorski. thank you to the panel, too. i appreciate it. >> the gentleman from new york, mr. meeks. >> thank you, mr. chairman. it's good to see all of you again. my first question would be to chairman bernanke.

we seem and every time we look at reports, we seem to be getting some early signs that if not recovering the recessions at least bottoming out. but most of the data that we've looked at is based on domestic economic trends in housing, employment, etcetera. but we've also seen that our economy has become increasingly dependant on a broader, global economy. and in particular, developing countries have become responsible for 75% of growth this decade and over 60% of growth in u.s. ex ports. so my question is, how do you see trends and risks in the recovery and developing countries impacting our own recovery here at home going back and forth? >> well, emerging market economies took a very big hit because they -- there was a lot

of capital flowing out of those countries and many of them are very dependent on exports and trade sell a lot. so those economies did have very serious declines late last year and early this year. but the news is generally good. most emerging market economies in asia, latin america and other parts of the world have bounced back to some extent and i think that's very positive. it won't have a major impact in the u.s. because we don't export a great deal to those countries. but it will contribute to a broader, more stable economy in systems so i think it's very positive both for us and for them. >> and i would ask chairman bair, and anyone can answer this question because i'm always concerned about what took place with lehman brothers, especially currently with the bankruptcy, they still have a lot of u.s. money investors tied up in london. and i was wondering, how would we prevent something -- you

know, if we had with the new regulatory reform program coming in, how would we handle the same situation that we had with lehman brothers? how would it be different? how do we make sure that we don't fall into the same situation that we're currently in in regards to an international holding company like lehman? >> well, i think with the resolution authority that is patterned off of what the fdic has now, you could have, in a situation like that, put the systemic functions into a bridge facility. you could have required that derivative counter paerts condition to reform on those contracts. in a bankruptcy situation, counterparties have an immediate caught to point out netting. that is what happened. they exercised, pulled collateral out of the institution, netted their positions and caused a lot of disruption into the system. so with the resolution filling the lines of what we have now, you could have wiped out

shareholders under our priority claims. with the rights that are closed out, you have a disruptive situation. so i think any resolution is going to be a difficult thing, but i think the kinds of tools that we have, you can do advanced planning with our resolution process, particularly for a bank, we work with the primary regulator. when we see trouble coming, we start planning in advance. there is no control over the timing, so there are a lot of advantages that we have and i think provide a more orderly process. while at the same time, imposing significant losses on shareholders and creditors. >> and let me ask my last question to the comptroller, comptroller dugan. and this is based on reports yesterday that fasby is

considering a new accounting standard that would require all banks be considered mark to market. including those held at book value. now, given that many people are looking at getting the banks to move toxic assets off their balance sheets and getting them to participate in the government programs to facilitate, this has been the unwillingness of the banks to mark down the value of their held to maturity loans. so do you see this as a positive accounting standard or do you think it would promote greater urgency for banks to actively move toxic assets off of their balance sheets? >> well, congressman, i believe the fasby has announced that they would -- they haven't put this proposal out yet and i think they have announced that they would be putting such a proposal out.

it would move more of the loans on balance sheets to mark to market or fair value status. although it would have different treatment for how the ups and downs and that would be run through the income statement or the balance sheet. i view, i must say, have a significant concern about moving more assets and liabilities into the mark to market arena. i thought given all of the issues that we've had this year about the volatility that i introduced them to income statements and balance sheets that we wouldn't have continued marching down that path. so this concerns me. it concerns me what it will do to the process of having more ability to have loan reserves in good times to prepare for lows in bad times. so we'll want to study this. >> the time has expired. general of california. >> thank you. >> this will be the last

questioner. and i apologize to all concerns, but we have about an hour vote and we will end the hearing at this point. it isn't fair to the witnesses to have them sit around and have the only two people in washington who aren't making plays come back and look at them. >> so i guess i'm cleanly up batter. first question to chairman bernanke. week talking about firms significantly too big to fail. not in an exact number, but an order of magnitude today, how many firms is that, 5, 50, 500? >> order of magnitude, i would guess -- >> could members, as they're leaving, please do it in a quiet way so we don't disrupt the hearing any more than it's been disrupted. >> a very rough guess would be about 25. but i would like to point out that the -- virtually all of those firms organized as bank holding companies which means

the federal reserve has an umbrella of supervision. so i would not envision the fed's oversight extending to any significant number of additional firms. >> okay. so it's basically you say, additional oversight for about 25 firms over which you already have some oversight? >> in fact, we already have umbrella supervisor authority, yes. >> okay. and if a firm was supposed to be systemly significant and they didn't like or want the additional supervision they were going to get, they could always spin off divisions or do whatever they needed to do to not become significantly significant, correct? >> absolutely. >> second question for the whole panel is unless i heard incorrectly, with the exception perhaps of mr. bowman, i think all of you believe that some of the powers or authority or whatever in the cfpa should be

somewhere else than the cfpa as the treasury has proposed it? i think that question was very unartfully worded, but hopefully you understand that the powers and everything the treasury gave to cfpa, with the possible exception of mr. bowman, or maybe you agree, that all of you believe that some of those powers and authorities should be somewhere else. is that correct? everybody is nodding. >> the reporter can not pick up nods. >> let's hear some yeses. >> yes. >> yes. >> so all of you believe that. okay then. one final question from me and then i can reeled the balance of my time to mr. posey. the treasury proposal does not have federal preemption which in theory perhaps means 51 regulators instead of one. do all of you support or do any of you not support federal reception? >> we -- yes, chairman bair?

>> yeah. i think we -- there's a lot of state chartered banks that operate multiple jergzs and they comply with state consumer protection laws. so we do disagree on this. we think that it is appropriate. we also think with a good standard setter, it was appropriate for some strong, valid common sense standards for the need for states that go above that will probably be greatly reduced, if not eliminated. but there are a lot of state chartered banks to comply with the statement of consumer and production laws now. >> i'm from california. no matter what regulations are set up, my state will make them more onerous. >> mr. smith. >> i grey agree with every single thing chairman bair said. there were a number of regulations where states did not adopt additional standards. but the states have acted when there has been no federal standard for inadequate

enforcement. >> so a 3-2 vote on that. i will be happy to yield the balance of my time. >> we will be adjourned. mr. bowman, you want today last -- >> yes, mr. chairman, if i could, mr. dher man asked me a question that i didn't have sufficient information to respond to. i'd like to supplement the record. >> we will have in writing fdic commissioner rogers the ability to respond or the record will be open for all witnesses and members and others to submit statements and let me just say, there are a number of witnesses here who have appeared before the committee and several occasions. i welcome you here in your guys as born again consumer protectors. it's a convincie ining role. >> mr. chairman, i think it's so important that this panel come back, maybe not mr.