because they just don't think there are jobs out there. the reason why we know these numbers is because we ask a lot of detailed questions. over the years, the census bureau has really tried to tease out this issue. they have produced for many years since unemployment rates, including various definitions to address this issue so we are fully aware of this. host: the next question for stephen rose comes from -- sorry, let us move on to the next one. tennessee. this is dave. republican line. you are on, david. caller: good morning. i own a small business, and to make, at least what i am seeing, is the financial underpinnings of the economy are good. consumer debt paid off and massive quantities. we have divided government, which typically is helpful. but the overreach of the federal government in the last two years and the tax

implications have been so profound that what i am saying is it is a psychological thing but the american public. they are absolutely scared to death of of what is going on in this economy. the weirdest thing is if obamacare was repealed, i think it would be a huge stimulus to the economy. not a tax cut, just a repeal of an existing federal mandate. host: what kind of business do you have and how many employees? caller: 9 employees, and the fireside and gas grill business. guest: this is a very political issue. by and large, economists don't find that doing away with obamacare would be a big positive jolt to the economy. first of all, very few of the provisions were put in effect and the notion that somehow or another people making decisions about what will happen at 18

months from now is something most of us did not think what is happening. in terms of taxes, obama under the administration, taxes are lower than when obama came in. it is a little hard to say he has taxed the recovery away. this is a recession brought by a deep financial crisis set up by a series of blunders by wall street. let us be clear that was initiated this. a lot of people took part. the people who bought homes in which -- how can i afford this? gee, if you have to say how can i afford this, you probably can't. there were appraisers, people trying to get the fast buck. everybody thought it was going to continue -- based on a house of cards. wall street started off. the only industry that could

really bring the economy down the way it did, because it is the center of every other industry. every other industry makes its plans and the basis of using loan funds for interim projects, to deal with costs over a long time. would not have as much of their own money at stake if they could use lines of credit. we are in the midst of a financial crisis. everything looks buyer now. things seemed to be turning around. we are at a turning point. not where we want to be, not economically strong. a lot of people are hurting and we will see what happens in the future. host: michigan pettitte rebecca -- michigan, rebecca. job seekers. caller: i am calling for my husband because he refuses to discuss it any more. do you hear me? [laughter]

i am sorry. i wanted to make something real clear. they always cut me off before i can finish. my husband is not laying around on the couch doing nothing. he is depressed, yes. he has been on those bills, you know, on a lot of pills since he got laid off all but now we cannot afford to pay for them anymore. he worked for 29 years at a foundry and was laid off and for the first year he applied everywhere -- everywhere but grocery stores, wal-mart, ok? he was making $29 an hour. but he never even got a callback for 19 months. and he had four call backs that

month -- got in, he was one of four -- chosen and did not get the job. the first job he was offered, he took. he is now working at a gas station for minimum-wage. and to tell you the truth, he loves it, as far as being able to get out and have a job. but it is not enough to pay our bills and we don't have insurance anymore. we have bills -- he has shots he needs for ms that are $1,000 a month that he has not taken and he is getting wobbly and it will get worse. one more thing -- is 56. host: what is the moral of this story or the question you want

people to understand based on what you experience? caller: what i want them to experience is -- here is a man who has given his whole life to a company and all of the sudden, they just throw them away and he can't get a job anywhere else because of his age. everyone -- this man, too -- i am not criticizing you. but we have had so many people, the show saying, that is right. over 50, it is kind of tough. and that is the end of it. aboutn't you do something it? guest: obviously your husband is one of the casualties of the winds of economic change. it sometimes happens even when there is a strong economy. obviously it happens much more when there is a weak economy. the only kind of programs for people like your husband are really based on western european

models of a very strong safety net. they have higher taxes but they replace up to 80% of prior earnings and retrain 50 year olds for a long time. i notice you are from a republican line. what would help your husband is for us to be more light europe. that is not on the agenda in the united states and something the republicans have no interest for voting for. host: we are out of time. it would begin as may be imminent -- a minute. guest: economies are funny things. when they are working, everyone is making their individual decisions. and all of these individual decisions lead to strong growth and income. when they are knocked off their moorings, as in the financial crisis, it is hard to get back.

once the virtual cycle starts -- and i don't know when it will start. it could start as early as this spring and then we will be seeing strong growth this year. it could start next year. it may be very anemic growth this year but the consensus view overwhelmingly among economists is that it will start in the next 24 months

securities exchange commission chairman mary schapiro discussed the work for the agency and its plans to implement a financial regulatory law. known as dodd-frank which president obama signed last year. she said the continuing resolution which is currently funding the federal government has put a strain on her agency. treen shapiro spoke before the practicing law institute today. her remarks are 20 minutes.

[applause] >> good morning. thank you very much, rob. that was lawfully, and i have to see that it is an equal honor for me to work with people like rob and meredith at the sec at this time we have so much on our plates. knowing you have a team other known to you that is indecipherable, talented, committed is really a blessing it is a pleasure to be here at the sec. i think each year this program gives me a chance to take stock of the previous year and reflect on what is yet to come. and as i keep you all know, last year was indeed a very busy one. so much so that i actually began to wonder whether we had never been busier, and i started to think about what it must have been like in the 1930's when the sec was established. and clearly, it was a tumultuous time, the shadow of the great depression harvard and the staff will certainly still mastering the various provisions of the

new federal security act of 1933 and 1934. but recently, we can across a letter from william o. douglas to joseph kennedy that was written 75 years ago to this very day. no douglas, who had just become the commissioner of the sec was filling out the remainder of kennedy's term, and he sounded somewhat daunted by the task ahead. he wrote, quote, i fear the issues are much too large to fill. but he said i will try at all times to live up to the high standard of performance that kennedy had set. in less than a year's time, douglas became chairman of the sec and was soon dubbed the agency the investors. now the similarities between then and now can be overstated. but the standard of performance today is as high as it has ever been. and the need for an investor advocate is just as great.

investors, especially now, want to know that someone has their back. they want to know that someone is making sure companies are disclosing the accurate numbers, that someone is policing wall street and pursuing fraud, and that someone is making the markets as fair as possible, even for those without supercomputers. that is what the sec aims to do and that's what it's done for three-quarters of a century and that is what we will continue to do for years to come. the fact is without a strong agency to carry out that mission, americans will not have the confidence to invest in the markets, and when investors don't have confidence, when investors dollars don't flow freely, companies don't get the capitol they need, innovation slows down, and jobs disappear. at the sec, everyone who comes to work each day knows this all too well, and that is why we are so committed to our work with 30

is reviewing a corporate filing, analyzing market data, examining the broker-dealer or pursuing an investment force action. this morning i know we are joined by many of the find men and women who currently greaseballs of the sec, and i ask all of you who work at the commission to please stand and be acknowledged. [applause] thank you. these are the people who make the difference in the lives of investors, and we are just as determined as william o. douglas to live up to the highest standards of performance. i've seen it firsthand in my first year as the chairman place of the staff increase the call for the reform, well, you leadership across the agency, adopt the new culture of collaboration and suggest innovative ways to improve our system and a streamlined

procedures. in over the past year, i saw the true public servants continue to perform under significant pressure and under an intense spotlight. i have seen them all up their sleeves to figure out what caused the market disruption. i'd seen them bring some of the most complicated enforcement actions and reached record settlements coming and i have seen them work long hours to fulfill the new responsibilities for the derivatives, hedge funds and credit rating agencies. while every agency false to meet the demand of the day, the evolution of the sec has been rather rapid in the past few years and continues today. in 2010 we saw the restructured enforcement division that didn't shy away from the complex, difficult cases, and we sold a new specialized units begin to take hold. when i spoke here last year, said the pipeline is full of cases growing out of the financial crisis.

since then, many of those cases have emerged. over the past year the commission brought actions against citigroup, goldman sachs, state street and iacp asset management, to name just a few. we filed our first case against state involving municipal securities, and we continued to unravel the strands of one of the largest insider trading. we brought accounting cases against dell and diebold to name just two. most recently we brought a significant case in which a proprietary trading inappropriately used confidential customer information to make trade for the firm's benefit in a. last year we also introduced new cooperation tools similar to those used by criminal authorities and in december 1 of the tools for the first time when we charged a former corporate executive but not the company which cooperated extensively with our investigation. why we know that the statistics alone are not a comprehensive

indicator of success, the fact is the court ordered disgorgement are up 20% and the amount of penalties tripled over the past year. while i can never produce a particular case will be brought, i know that our pipeline significant cases remain full. in the past year the staff also made good on a promise to create centralized databases for the massive number of kids, complaints and referrals we received. now received in the los angeles office can actually be viewed by an examiner in the philadelphia office. but that was just the first phase and in a couple of weeks we will have updated our system further so that investigators will be able to search the database and analyze the information and resources permitting will then add analytics to the mix so we will be better able to link the dhaka and detect the tremendous. 2010 also saw the reorganization of our examination program. under its new leadership the

exam a program is now more sharply focused on identifying a higher risk firms than it targets for examination. and to bolster its ranks, it brought on board specialists and risk-management, treating and complex structured products. now rhetoric and sending the teams to examine the firm to expand unit the individual specialists with the right skill set for the firm they are examining or the issue they are focusing on. in addition, the new leadership team set out to build a national exam program that provides greater consistency and efficiency across the region. this hasn't always been the case, yet all of this is important in our efforts to evaluate risks in the foreign policy and to identify the potential wrongdoing. and in fact, last month alone in the enforcement division brought three significant cases stemming directly from the examination. doing for the national exam

program will continue to conduct of the areas from trading practices to market manipulation to the structure problem. of course no discussion of 2010 would be complete without at least a mention of may 6th, the day the markets dropped more than 500 points in a matter of seconds only to bounce back and its leader. that reinforced the importance of our ongoing review of the structure of the market's. the review we actually launched months earlier with the january issuance of the concept of the release on market structure. clearly, today's market structure offers of the vintages over the market that existed when i first served as a commissioner in 98. the spreads are narrower and the markets are more liquid and transparent. but there are drawbacks as well. high-speed algorithm electronic trading increases the risk of sudden if liquidity and a damaging volatility.

the continuing growth of trading and dark pools and other types of venues threaten to undermine the market price discovery function. some participants may have information advantages. the complexity of the market structure sometimes makes it difficult for even sophisticated investors to pursue their own best interest. the challenge is to preserve the benefits of the current structure while minimizing the drawbacks. in the immediate aftermath of may 6th, the sec worked with finra to the liberals that trigger circuit breakers for certain individual stocks, to clarify upfront how and when erroneous trades would be broken, but effectively prohibit, quote, in the u.s. market. we propose the creation of a large trade reporting system that would enhance our ability to identify a large market participants, collect information on the trade and analyze the trading activity.

we propose a new rule will require the creation of a consolidated audit trail that would enable regulators to track information about the trading orders received and executed across the multiple in use. and we have adopted a rule that effectively prohibits the broker-dealers from providing unfiltered access to the exchange's. these are substantive rules and proposals that will diminish the risk of damaging events and too much to keithley infield level for all investors. but as we analyze the responses to the concept release with the intent of may 6th firmly in mind, there are further actions to be considered. we are looking beyond the current circuit breaker system and the current considering progress and to limit down style treating prisoners. under such an approach, trades would have to be executed within a range tie to the security in order to accommodate the fundamental prices, the market

would pause if no trades naturally occur in the parameters for the preset period of time. we are examining trading or other obligations that might be required to date defacto market makers. the high-frequency traders which account for over 50% of the daily trading volumes and supply much of the market liquidity. we are asking if the firms should be subject to inappropriate regulatory structure including with respect to the coding in the trading activities. given the potential for the trading algorithms to cause severe trading disruptions and shake investor confidence we also are considering with the should be subject to appropriate rules and controls. and because of the fragmentation and the complexity of our equity markets, we are examining rules that would enhance transparency of trading in the new practices and the practices of the broker dealers acting as agents for investors. all of these issues are complex and they are interrelated. but the equity markets are too

important to the economic success of the nation to shy away from doing whatever is needed to ensure that they operate as efficiently and fairly as possible. now of course, the rulemakings front last year ranged well beyond the market structure issues and the calendar was packed even before the passage of dodd-frank to read the list is way too long to recite, but there are few rules i think underscore our focus and direction. first, because of the intense interest in the municipal securities market, we adopted rules that provide market participants with more meaningful and timely information regarding the health of municipal securities. in addition, we adopted rules to curtail the pay to play practice is the investment advisers seeking to manage public pension funds. second, because we believe the dialogue between investors and corporate boards improve the accountability, we adopted rules to facilitate the nomination of the directors by shareholders.

we also revives the proxy rules some additional materials can be provided with the company's notice and we issued a concept release of the process through which the proxy's are distributed and votes are tabulated. feared, because we believe that investors deserve clear and accurate information from their advisers, we adopted rules requiring advisers to provide clients with brochures that plainly disclose the practices, fees', conflicts of interest in the disciplinary information. as i pledged last year, we also proposed rules to create a more equitable framework for the mutual-fund marketing fees known as 12 bea one ze and we propose rules to help clarify the need of the day in the target date on the as well as enhancing information and funding advertising and marketing materials. additionally, just this week because of the actions, investors to the first time were able to access detailed

information that the money market funds file with the commission including their shadow asset value. while the commission uses this information in its real time oversight of the money market funds, we believe public disclosure could provide investors and market analysts useful insight for their evaluation of the funds. going forward, we will be working with a regulatory colleagues to assess the various options for making sure money market funds are structurally sound as investors are led to believe. but if you fought the rulemaking agenda was busy before dodd-frank, since then we've actually been in overdrive. in connection with dodd-frank, we've proposed 24 rules, we've adopted six final and to interim rules and have approved two proposals from the self-regulatory organization, and that's not to mention the reports we submitted to congress, the host of rent

tables we held and the thousands of public comments that we reviewed. with the passage of dodd-frank we took on the greater responsibility in a number of areas, setting out to create the contour of the whistleblower program to facilitate the registration of the hedge fund advisers and to establish an entirely new regulatory framework around the over-the-counter derivatives market. in the year ahead we will continue working with the cftc to shape the regulatory regime for the otc derivatives, in terms, a developing requirements for the new trading and clearing platforms, crafting reporting regulations, carving out in the user pensions and undertaking dozens of other tasks. we will propose a law with a banking regulators, risk retention or skin in the game requirements for asset backed securities transactions and we will see the a b.s. in she worse for the first time prepared to perform reviews required by dodd-frank of the bundled assets as well as to disclose the

nature, findings and conclusions of these reviews. of course, we will work to think of the earlier proposed rules with those adopted under dodd-frank. in. we will begin to consider rules stemming from the recent study recommending that the financial professionals who provide personalized interest matej fisa about securities adhere to the fiduciary standard of conduct no less stringent than those upon the investment advisers. and in the months ahead we will also be finalizing rules that will allow us to leverage the resources of whistle-blowers. after all, these individuals are often the closest to fraud and can be a source of information for our enforcement and inspection efforts. this is particularly important because we can't be everywhere tall times given our limited resources. of course, it is important that our new program coexist with the important role of internal compliance programs in fraud. but the rules should send a clear message to the

whistle-blowers' that they play a critical role in protecting investors. indeed i believe once the commission clarifies the contour of the program we will see an even greater influx of the whistle-blower tips than we have already witnessed. all of these tasks, all of the confidence enhancing measures require resources. but unfortunately we have been operating in the continuing resolution that has hampered our ability to do what investors and capital markets deserve. it is a strain that is already having an impact on the core mission, separate and apart from their responsibilities the congress gave to regulate the derivatives, hedge fund advisors and credit rating agencies. it is a strain that will intensify the longer the budget remains in existing levels. to fully appreciate the impact, one only needs to consider the during the past decade, trading volume has more than doubled the number of investment advisers has grown by 50%, and the funds

they manage have increased to $30 trillion. the work force has already been cut in the years preceding the financial crisis and is only just getting back to diprete crisis levels. a number of the financial firms the we regulate spend many times more each year on their technology budgets alone than we spend on our total operating costs. and why we absolutely appreciate the need to find efficiencies and leverage resources, which we have been doing and we will continue to do, we also know that last year alone we sent the u.s. treasury nearly $300 million more in collective transaction fees than we spent. and we will continue to pay our own way for the years to come. furthermore, in the past year we returned morton and $2 billion to the harm investors, more than twice our annual budget. so we need to ask ourselves if we want our market analysts to

continue to use the cable technologies to the monitor trading that occurs at the speed of light. we need to ask ourselves if we want our chief securities regulator to have to pull the plug on the data management systems and on the digital forensics lab needed to create the data that the sophisticated fraud esters leave on their hard drives and other iphone. we need to ask ourselves if we want to turn away the influx of the market and economic experts willing to compromise our talent and joined the ranks. these are the questions we are confronting even if we implement the responsibilities for the funds, derivatives and credit rating agencies. no single aspect of our diverse economy is in itself sufficient to drive an economic recovery. i believe a particularly critical component is our flourishing equity markets which supply the capitol needed to renovate, grow and create jobs.

italy happens though if the markets are fair and investors have confidence in those markets. welfare is much to do all i am proud of the progress we've made that the agency, proud of the way that we are evil and to meet the needs of investors and proud of our accomplishments. we will continue to bring significant enforcement actions, continue to step of our exam programs, continue to take steps to ensure fair market structure and continue to increase the new responsibilities. we will continue to strive to live up to the standards set by the pioneers 75 years ago who laid the groundwork for the agency whose primary role is to protect investors. we know what to investors and our capital markets and our economy. thank you. [applause]

at the world economic forum stevens with a lid arabic news station handled the ramifications of iran speak as nuclear program. the washington bureau chief joined the president of the council on foreign relations and representatives saudi arabia,

turkey and germany. this is 50 minutes. ♪ [speaking in native tongue] will come. the question of the hour is what iran develop a nuclear weapon. to discuss the full discussion this strategic as well as political ramifications of this potential outcome we have a distinguished panel of decision makers and scholars from the region and beyond and i will start from my left.

[inaudible] federal defense public of germany. prints turki al-faisal deputy prime minister and from the united states richard haass, president's council on foreign relations. welcome. is a nuclear iran inevitable? that this is the genie out of the bottle? let's start from here from my left quick answers we can get the ball rolling. >> i believe yes for two major reasons. one is a lot of trading by israel american and muslim for the military option significantly have been mentioned and the second thing

which is i think iran completed to develop. >> it gives the chance to avoid that situation and in the position where we are negotiating with iran that establishes itself as being productive. i feel we should use every opportunity to reach a goal on the diplomatic and this is what we have to do. >> i would pose the question in another way. what of iran doesn't have nuclear weapons? and i think that would be an alternative all of us should work hard for because the area cannot afford to have the kind of competition that might rise with the nuclear power iran. >> let me talk about nuclear technology. i.t. we have to make a distinct

distinction between nuclear weapon and for peaceful purposes. iran is definitely has their technology and says it is printed using get for peaceful purposes but overall nuclear weapons in that region. >> we are talking about the weaponization. islamic the short answer is iran with nuclear weapons is not inevitable >> i don't believe it is clear iran has made the decision to go 100% of the way to actually have nuclear weapons. it's quite possible, for cybill, that the iranians have gone 80 to 90% of the way to become a so-called threshold state in the belief they could derive most of the benefits without incurring most cost so i don't think it is inevitable.

indeed it is inevitable that they would like to get close to it. it's not inevitable they get all the way it there are things that can be done to interrupt the process and there is another complication when we say iran there is a big difference between this iran with certain capabilities and a very different kind of iran has a certain capabilities. so a part of the question also has to be is this the current type of iran that we see as inevitable or could that change and make us feel differently about the capabilities? >> all of you know that the program as old. it began and now we have a great deal of activities, the iraq facility uncovered by the americans and the french, so we are talking about a country that has the infrastructure of the nuclear weapon. maybe like germany or japan having the ability, but that

certainly is worrisome for the neighborhood, for the turks, the saudis and the americans. for the three of you who live in the neighborhood of iran, can you afford to live in the shadow of a nuclear iran using this particular regime? >> our position is very clear. it is the strike of every sovereign nation to the technology to use it for peaceful purposes. but when it comes to nuclear weapons we don't want nuclear weapons in our region and it is very important for the countries to sign up to the npt, the non-proliferation treaty, and also follow the obligations of that treaty. in our region we have countries which are suspected to have nuclear weapons. do you it we would pay against which would deal with the

nuclear weapons. >> iran signed in 1968 and there is a history of the clandestine activities. can you call someone from saudi arabia, before it to live in the shadow of the nuclear iran and in this particular regime pursue certain policies of the government? >> one of the ironies of course is that signing the npt in 1968 iran also presented to the united nations in 1974 a proposal to make the middle east free of nuclear weapons. and according to the officials policy until now they hold onto that position. but they continue to undertake these activities, and that is why they have faced this world wide sanction on their program. the kingdom has always stood for

the zone free weapons of mass destruction and that is the only alternative. the elephant in the room of course when you talk about that is israel, and that is where the issue takes on the added complexion, which must be included in the discussion because israel with a nuclear weapon is dangerous and has threatened in the past to use it and it is from that context that we must discuss the weapons of mass destruction that apply to all in the area because when you level the playing field you can ask everybody to play. >> one final thing. iran is technically in violation of the npt, right? >> you cannot confirm that -- >> what you mean? >> there are facilities that iran hasn't informed -- there are certain activities they are not being informed us.

>> but when you acquired the enrichment technology, there are not very many technologies and it is to go from civilian to the demilitarized. to give more time. >> okay. what are you doing individually or collectively as kuran's neighbor to deal with this issue, are you, the saudis and the turks and the offers waiting for unsolder to deliver you from this nightmare if you will. >> we are very much involved in the subject, we have good relations. on the other hand, we believe that there is a huge misunderstanding going on between the western world and given some of the region and

iran. diplomacy and engagement is going to be the best way to overcome this issue. marginalizing iran and more and more in a way the vocabulary approach which is kind of downgrading them and is not going to give any kind of solution out of this. it is why we have from the very beginning been in close touch with the p5 plus one countries including germany and also we have together with iran made the tough declaration about the special arrangement which has already been prepared by the groups so to say. so the diplomacy engagement will deal with this issue. >> as i said, the kingdom is very much proposing the zone

free weapons of mass destruction and that is a uniform position. >> forgive me. this has been on the table now for ever. the israelis don't care for it and iran doesn't care for it. >> i did to disagree. at the recent npt review conference in new york that composition took french position and was agreed to buy all of the countries that signed the npt and there is a decision by that group told a conference in 2012 on the issue. now, the peace five plus one has issued sanctions which the whole world community has supported, but i don't think that will get us anywhere. i would rather have us concentrate on the zone free weapons of mass destruction and add to it the two reasons. one for the rewards come for the countries that joined giving them a technical and economic support in their civilian

nuclear development, and the nuclear security umbrella. the other one a sanctions regime, both of them to be guaranteed by the permanent members of the security council and the sanctions regime would have diplomatic and economic sanctions but also include a military sanction clause so the country that doesn't join weapons of mass destruction would have to face potential military sanctions. >> okay. [inaudible] military power and this is created for the entire region and this is something that is quite dangerous by the international community's. >> the p-funk plus one as mentioned before this is for richard haass and minister

freiherr zu guttengerg. there is the view that in the middle east it is excluded were not fully informed but the discussions between the p5 plus one and iran. is there any truth to that? >> we are all members of the united nations, and the p5 plus one for less evolves out of the united nations as well. so on the circumstance i see a lot of talk going on in between, and it's not only on one hand or the other hand. there are strong exchange views. regardless of the question that - there is room for combining certain efforts at least talking about combining certain efforts, and not just blaming the the one part whether it is helpful or not and i think we should be more creative. let's say the p5 plus one is the german understanding approaching that -- >> may be the germans should

deal with the six permanent members. [laughter] >> probably not today. and i think there is room for the closer exchanges. that doesn't bring us to any solution. nevertheless, the dual track approach, the global approach, the p5 plus one is still valid and we have not come to an end yet if there are still many diplomatic issues on the table as well as certain sanctions, and i would certainly say as well the broad spectrum of that, so combining that with certain ideas, combining that with the overall idea of the nuclear world which we share that is close at the moment to fulfill it within the next year to come is i think perspective and open for creativity and not only on

each other. >> the reason they can plan is the turkish and brazillian initiative was, quote on quote, dismissed by the united states. what would you say to that? >> i don't believe in the diplomatic initiative has any chance of succeeding. i think that the iranians see the diplomacy as a tactic to buy time and i think the challenge is not the peace five plus one. i don't think it is when to work. it will think the turkish initiative can succeed because of the commitment to this program. the only chance we have i think is to enhance the sanctions possible with the selective military enforcement to increase the pressure on iran and if that doesn't work, then on if you're one day we come down to what is essentially a minor choice. we have to learn to live with the nuclear weapon or something close to it with all the costs

strategically that would entail or we have to use military force to basically so-called preventive attack in order to set it back however many years we can but i don't think we should kid ourselves. the problem with diplomacy is not that the regional members may be pulled no every dotted iowa and tea. the problem with diplomacy is the government isn't. it's interesting essentially meeting its international obligations in the nuclear realm. it wants to enrich uranium. it is not interested in any serious way to produce electricity. let's not kid ourselves. this isn't about the right to enrich uranium. this is about a sustained commitment to either develop nuclear weapons or to get 90% of the way there. that is what this is about. >> let's go to the audience. anybody in the audience feel strongly that there is an exaggeration about the program and that iran, the word should live with the nuclear iran?

>> i just want to know if the countries are threatened by nuclear iran when the tradition speaking on the countries and have always had israel in the shadow and the attacks on different countries and different times. we just feel is it being exaggerated by the policy just paranoid? >> the i see something? the elephant in the room is as real -- israel. no one would like to see them have nuclear weapons and threatening them with it. it's not just iran, is any country in the area as the minister has said having the nuclear weapons is something that is unacceptable to people so it isn't just iran and israel with the whole area should be delayed of any efforts to develop nuclear weapons and that is why it is known mass destruction is so essential. so in my view it is very workable because there are

others free of the mass destruction. they can be emulated and put in practice. >> [speaking in native tongue] ♪ >> [speaking in native tongue] >> richard, you had something to say? >> the last question faced the point about why people were so concerned about in iran and nuclear program. there's good reason to be concerned. iran is not a status quo power. iran is an imperial power that seeks to reshape this region in its own image but what it's doing in lebanon, look what it's doing in gaza. it's not content to be a normal nation state. it's the largest state supporter of terrorism in the world. again, and iran and nuclear

program would simply give iran a much greater freedom to promote its foreign policy in the way that it chooses to carry out a foreign policy. but also pleased by the way the region on the knife's edge. imagine the next time hezbollah confrontation. imagine then the potential for the escalation if you have an arana and nuclear power that obviously is in the context of israel. if iran gets nuclear weapons does anyone in this room seriously think that several other countries in the region will also want to get nuclear weapons including several of the countries who are represented at year? the middle east iger think has shown itself to be dangerous and unstable enough the way that it is. adding in iran and nuclear program and all the repercussions would have would take the most dangerous, unstable part of the world and place it on steroids. this is a tremendous strategic consequence we shouldn't underestimate. >> i would like to underline

that because it has its intellectual image just to figure point to what israel has in that regard, and just to put the argument towards iran i think it's just not fair. it's the outcome of that very issue that is the biggest concern, and the nuclear, the possible nuclear race that we are talking about his just emerged the question of iran. i haven't heard it before in that regard and it hasn't happened. and we are not talking about only the respective countries sitting around this panel here, but other countries as well, so this is also a european concern we are having and this isn't just by finger-pointing towards israel. >> okay, now israel is an undeclared nuclear power. if iran develop a nuclear power, what would that do to the balance of power in the region? >> i don't think would change the fundamental. what do is to attract significantly from the stability

in terms that would make iran i believe field much more assertive. if iran felt it could act within in punitive because it had nuclear weapons providing the sort of strategic shield, why do we think kuran would then show any strategic constraint to anything it did? that to me would be an illusion. in that sense it would fundamentally affect the regional balance of forces and again make the middle east far less stable in. some of the united nations security council declared for different sanction packages for iran so far. the sanctions prove not working as well. were we able to reclaim iran from the program? no to redo the continue the program? yes. so here it is important to have a distinction which is just from one of my that crounse and

engineering will you do but in reaching an iranian is you have a centrifuge and raw material. the more you turn it the more enriched uranium have. if you just rotated a short amount of time you have a fuel for nuclear plant. if you rotate for a longer time than you have raw material for a nuclear weapon. that is the difference, the matter of how long you spin the centrifuges. so it is very difficult to make a decision based on only having those centrifuges in place. we are trying to say here is is very important for the countries to have equal opportunity to have access to the nuclear technology. when we look 50, 100 years from now on you shouldn't think about the world where only a handful, a number of countries have exclusive technology and others don't. we don't want to end of a situation where we have the

haves and have-nots later on. but then if there is a threat and the perception of the threat is real, then we should work on it through communication. one-sided sanctions cannot work. >> let me digress a little bit. the thing this year's new reality and when we set up the panel discussion this long before the defense in tunisa, yemen, what have you, talking about living in the shadow of iran, even with a sticking place in egypt, tunisa, yemen, where is the priority of the nuclear-armed iran compared to the immediacy in cairo? >> from germany come from our perspective, from my perspective it is hard to compare those.

they may be linked between certain topics but the figure would be much easier to clearly compare them. the thing we're talking about is part of the yearlong discussion it also the question of how to buy time. those are relevant at the moment, very worrisome as a big concern for all of us and also a destabilizing potential destabilizing portion of the region where elon please a certain rules of this has made the link between those things but the iranian nuclear issue is a think we have to depart from the current issues we see. specter reason i ask is if you are a decision maker what makes [inaudible] >> short answers to both. as a policymaker don't have the

luxury of choosing what comes into your in box to read you to choose with what comes into the unblocks and noticed with these issues as well as several authors are there. >> let's go to the audience. >> this is a question to mr. mr. haass. you believe the forces an option given the engagement of the united states? >> i do believe that force is a serious option. the kind of force in the united states is largely used in iraq and afghanistan and a very heavy on the army and marines. most of the scenarios i have seen involving dealing with iran would involve air and naval forces which is not to say that it wouldn't be difficult, it wouldn't be costly, forced to also be used in multiple ways, you could use force in terms of sanctions strengthening like was used against iraq 20 years ago

after the sanctions were put in place following the invasion of kuwait and force was authorized and used to enforce the sanctions. you could use the force to attacked known nuclear installations. obviously you can't attack on known nuclear installations. also you can't always destroy what you can't attack sweet to assume any military attack on iran would accomplish certain things and set back the nuclear program of iran. i don't think we can say with certainty exactly how much it would achieve. we obviously don't know how iran would retaliate, but i believe it is a safe bet that iran would retaliate in several ways. devotee to anyone who's analyzed the use of force says this is a potentially costly action. anyone who's analyst living with an iranian nuclear weapon systems is a costly and risky option. neither one of these options is at all attractive which is why we constantly what to think

about how we avoid getting to this place even if the purpose of the conversation is to say well if we can't avoid getting to this place to insure. >> we will be discussing the option in a minute. anybody have a question? >> the international herald tribune. i would like to ask prince turki al-faisal but also al bu-ainnain, if indeed the government falls like we've seen in the tunisa, what impact would that have on the region let's say in your country and what you think that democracy is even more destabilizing them a nuclear iran? [laughter] >> current events, what can i say. >> let me go back to something that the minister mentioned earlier about israel as the

recent. sir, if he would look at the records of the united states you would see the arab countries have been fretting about israel's possession of nuclear weapons for maybe 40 years since it became apparent that israel had them, and the other thing i think i would say is stuffing you're point is happening. it is the finger-pointing that is taking place now that really encourages us to vote for a zone free weapons of mass destruction. in my view that is the only option we have ahead of us because without it, we live in constant danger of not just from israel and iran broke any other country that see with both countries have nuclear weapons they would wish to go that way and on the situation frankly i don't see anything now that i can say about it. it is a situation that is in flux. >> let me just continue. what is wrong with the

diplomatic aspect? [laughter] .. [applause] >> anybody want to try to top that one? okay. anybody with a burning question. go ahead. here. state your name please. i think i know you, but state your name nonetheless.

>> hi, it's mina. i wanted to ask the theory is that if iran does get a nuclear weapon, then the region and the countries feel they must get nuclear weapons. i'd like to ask mr. babacan, and mr. turki, is it true? do you feel your country would have to get nuclear weapons. the countries for several nuclear programs in the region are possibilities for that? thank you. >> i think the answer is a very easy to understand. and it's definitely, yes. more and more countries in the region will try to own nuclear weapons. they will try to balance out what has already happened. really that would be really a big, big threat for the whole region. knowing that region has already

many difficulties, many conflicts, many problems going on, on top, more and more nuclear weapons in the region, it may bring disastrous consequences. that's why we are hard on countries who could have or already have nuclear weapons. >> he's right. the countries in the region, saudi arabia, turkey, others are pursuing nuclear programs and investing in it. it's for defensive purposes. come on. that's what the iranians say. >> i think transparency is very, very important. that's why i mentioned mpi, international regulation, and open processes is going to be very important. here we have to rely on the

international corporation and agencies and we have to urge the countries to be very transparent. >> the kingdom of saudi arabia has started a program on developing it's own nuclear energy requirements and options. and it -- this is a generational issue that will take us a long time to go. the kingdom of saudi arabia has also announced it will not go for nuclear weapons. i will throw back at you another theory than the one that you have thrown at us. that theory is that bull -- is that we all have a zone free that's free of weapons of mass destruction. the rewards and sanks scheme are empowered within that zone. and in my view, that is the more applicable theory than the other options that you presented. >> okay. quickly -- quickly because i want to go back to richard. he's been shaking his head.

would you also engage in nuclear, what do you call it, to start the nuclear program? but it's also taking a measure that they are not going to enrich the uranium in the uiu which is completely safe to come to that nuclear ables. of course, iran is difficult. the nuclear power not to counter the gulf stage. they don't meet. that will take care of what you call a huge destabilization in the region. of course, it can encourage the other gulf original states to pursue the nuclear options. the question is really, this is what your question said. we have to look for realities. i think reality today, u.s. today, doesn't have a real policy, middle east policies. this is what we are facing today. collective policy, it has to be

-- you cannot have that in regions, where, you know, you implement everything towards iran and not brings towards other. this is the reality that you have to face today. very important is to -- okay. take this collectively in the regions and to make a complete fusion for wmd. >> richard, we'll get back to the break. [speaking in native tongue] ♪ ♪ [speaking in native tongue] >> richard, you were shaking your head. >> i don't believe the iranian program is a narrow response to the nuclear weapons capabilities. iran has it's own regional ambitiouses. it's noticed the united states used military force against iraq, but not north korea. iran has made the strategic

assessments ab the nuclear program. it's way beyond israel. there's no programs in the middle east until peace and israel felt secure. the last i checked that is not in the immediate future. and the reality is the timeline of iran's nuclear program is far, far, far faster than any diplomacy about the nuclear weapon free or p5 plus one. that's the danger. the hope that whether it's regional diplomacy, or more narrow diplomacy is going to solve the problem for us is unlikely. because 24/7, the iranians are busy in their laboratories with their center fuses. >> may i go? >> yes, i made the proposition. richard thinks it's not going to happen soon. i think it's not going to happen soon because the united states and the western powers don't want it to happen soon. not because israel doesn't have the security that it seeks.

because it could be an incentive for the israel and the arab countries to reach the kind of peace that we are all seeking. if you have the zone with the sanctions regime and rewards regime attacked to -- attached to it. it is from that context that the zone should be an issue that takes precedent over other alternatives when it comes to the issue of nuclear threats in the area or between iran and israel and other arab countries in the area. >> yeah, just very quickly. just taking the case that -- it's a surprising case that israel would make a certain step. what gives you the confidence that iran may follow? what gives you the confidence that pakistan may follow? the goal and aim you have just described. i would like to believe in that confidence. but i would just like to have a definition of it. >> if i may -- >> go ahead. we wanted to be heated a little

bit. >> there should be a reward and sanction regime in the zone. and the sanction regime to include military option against any country in the area that does not become a partner in the zone. and that seeks to develop nuclear weapons. that is more of an acceptable alternative than any unilateral military action to be undertaken either by israel or by the united states. >> which we all want to avoid. >> absolutely. that is why if there is such a zone with such a sanctions regime attached to it, whether it was iran, saudi arabia, if any of those would seek, they would have to face the world community as a military option against them. >> the problem is there is no world community when it comes to these options. >> why not, richard? >> if there were a world community, iran would not be where it is. iran is where it is because the sanctions are not tough enough. if the united states did ever

want to use military force, there would not be a world community backing it. the united states would have to do this sort of thing with virtually no international backing. we don't have a world community on these issues. and if we in a sense talk about this aspirationally, my concern is we're going to get distracted. we have a lot of train metaphors. this train is moving very quickly. >> genie out of the bottle. one from the middle's. >> -- middle east. >> i don't think it's out of the bottle. the answer is it inevitable? i don't know. we don't know about iranian decision making, there's debates and calculations, increased sanctions, i doubt it, diplomacy could have affect, i doubt it. there are military options and so forth. i don't think it's inevitable. it's to defeat us given the

consequences. >> it's not only an issue, richard, because you think it's not feasible it's not going to happen. but sanks were reached at after a laborious diplomacy but the united states and other powers. if such labor can be put into reaching agreement on sanctions, why not put that labor and time and effort into a step that will go beyond these sanks -- sanctions and eliminate the issue from the beginning. why not make the attempt? >> because again the timeline of iran's nuclear program are far, far shorter or faster than the timelines of what diplomacy, be it about sanctions or nuclear weapons free zone can be realistically accepted. >> you are not proposing that that's true for diplomacy as you said. the timeline is too short. are you advocating there should be a military strike now? >> now, no. i still think there's possibility to bring about political change within iran which is something that we

haven't talked about. i do not believe -- >> that's going to happen through diplomacy or through what? >> picture now. [laughter] >> all right. one final question from the audience before we wrap it up. >> yes. please state your name. >> mishanan hussein with oxford university. just to follow along the wonderful conversation, let's be honest. if the current iranian regime was considered an ally of the united states and israel, would we be having this debate? would there be any train to follow? thank you. >> speaking for myself, i think it would be a fundamentally different conversation. if, you know, on one level the world talks about nonproliferation as a global absolute. but realistically, we distinguish. and it may not be pleasant, it may not be a comfortable fact, but the world reacted differently say to indian than

it would to iran. i would say for good reason, given india is a democracy, does not support terrorism. switzerland, if we found out it had an advanced nuclear program, it would be different. in the real world of the foreign policy and diplomacy, we make distinctions. there is a distinction, we are more concerned about iran than say including japan because iran is a different kind of international actor. >> that's a well taken point. i agree. but the united states has lived with the nuclear pakistan. americans college, including people who work in your institute would say pakistan is the most dangerous country. it has more than 100 nuclear warheads. part of the services are not in control of the government in karachi. the united states essentially in

north korea. islamabad, i'm sorry. what would you say to that? >> i think that the united states -- the world and the united states do pay -- i fear will pay potentially an extraordinary price for the realities of the north korean and the pakistani nuclear weapons programs. because the world i believe is made in the states. and allowing certain things to happen does not mean we should basically now base our foreign policy on repeating mistakes. i don't believe they ought to be if you will positive precedent. we ought to learn from these. because again the risk that nuclear north korea and pakistan to the world i would argue is extraordinary. why should we want to add to it? why have to begin working against the problem. >> okay. in turkey -- >> ask the questions, richard. we should have both of you together at dinner, i'm sure. quickly, i have questions please. from that scenario that i heard

now, i would assume there should be consideration within that framework of military action against pakistan and north korea. because it is extraordinarily dangerous situation there. but i don't see any talk of that. and there shouldn't be talk of that. >> first of all, in the case of north korea, that was active consideration of it by the united states. people like me were involved in the debate. i think there were moments when military force should have been used. i believe the world would be a far better place than it had. north korea has reached the point because of the force because of that are probably prohibited. the case of pakistan, i think there were some extra complications. i do believe the united states and the world were too lax and permissive. and again if there's an mixture, if you will of terrorism and nuclear materials, that dangerous mixture is more likely to come from pakistan in our lifetime than anywhere else. >> nightmare scenario.

>> it is a nightmare scenario. >> prince turki, the wikileak documents show the gulf states are not only concerns about iran's nuclear program, but they would support an american strike to obliterate that option from iran. what would you say to that? >> i would say that wikileaks is what it says, leaks. they are incomplete, selectively published, and chosen at random, rather than expressing a continuous build up of diplomacy and politics and so on. so i would reserve judgment on what happened on there. and rather than put my faith in the public policy of those countries and how they state those policies. >> okay. one final -- i'm told by the powers that be i should go back to the audience. >> thank you very much. [inaudible]

>> i was asked to make an intervention. after listening to richard's answer to the last question, let me just pick it up with your inbox what's been going on lately in our part of the world. it's very nice to hear it was a different regime, it was a friend of the united states and israel, you'd be looking at it differently. i take that from an arab state perspective. i think that has a big insult. the insult is 300 million people. you are totally forgetting about their perspective and reaction. i think it's very, very important what we should learn. we should learn as i said, we should learn lessons and not think what's happening, as much as, you know, my relationship with you personally how much i like and respect you. i got worried with that answer. because that gives a lot of disrespect to arab street. i think we should be respective because from their perspective, as prince turki said, he did not push it, i think you should be dictator and that perspective, it is an issue.

we want peace with israel. we put something with israel. we should be working harder because we are not getting an answer from that said. as people and again -- >> is there a question there? >> yes. >> make it short please. >> the question is the mbox. if you forget the people in the street and once you hit iran or israel hits iran and how it's going to come out and hit people, i love the leaks. the leaks show the difference between official and nonofficial. the majority are not official. >> okay. i think we got the point. richard, go ahead. >> i think you make a good point. i'll surprise you and agree with you. >> i'm not surprised. [laughter] >> the wikileaks reportedly represent who officials are talking about. it's one thing to tell the united states privately, but would they be prepared to say it publicly and carry if there was massive opposition from the

public. if the u.s. or israel want to use military force against iran, it would be shall we say highly unpopular. i don't necessarily assume that governmental statements of support would necessarily hold in those sorts of circumstances. the street does matter, and possibly because of events in recent days, it matters more in the arab world than it's mattered before. it's been exaggerated. remember people predicted the street would rise up and attack saddam hussein. for the most part, the street did not. it's possible now the street has a different dynamic and different ability if you will to mobilize itself. >> okay. let's ask the inevitable question. it's the 11th hour or the day of iran. containment, classic containment, or military option. let's say iran was back. either by the united states or israel. these are the only two powers. we are not talking about

switzerland here. >> we'll get in trouble. >> how is iran likely to react? how is iran likely to react? will iran react in a conventional way and react by resorting to symmetrical warfare. short answers. this way. >> it's unpredictable results from the iranian going to attack israeli and u.s. forces in the gulf and the oceans, or is going to involve the gulf states. if it involves the gulf states, it's become more complicated and very, very serious issues and devastating. >> i think both is possible. and the region is in fire. we'll have a european discussion about how to involve. coming back to what i initially said, let's try to avoid it, diplomatically. >> i believe that iran will strike back whenever it will. throughout the globe.

and final convenient targets to do that. >> your country will be in the defining line. >> my country and other countries. i think all countries would be in the fighting line. there are -- iran has assets throughout the world. i call them claws that it can use to serve it's own purposes whenever they wish. >> what will be the view? i mean you have common borders with iran? >> i think this scenario which is quite extreme. so the best would be to do things now to avoid such a scenario. >> diplomats like you. obviously, there's a lot of talk about about you know, military strike. >> we can't let people make scenarios and so forth. as governments, it's our duty now to resolve these issues surrounding the subject through diplomatic channels as soon as possible. on the other hand, the secret of the diplomacy here is trying to approach a country in a positive

way, having an element of respect in this approach. and on one hand, you are trying to have this. on the other hand, there are sanctions continuously coming in. when the element of respect gets out of the picture, then diplomacy gets into trouble. so i think it's very important to take iran as a nation to be approached with respect and talk with them. very openly. ask for transparency. >> earlier with hezbollah, would iran open up a front with israel if they attack hezbollah and lebanon? >> maybe. it had a wide variety of assets at it's command. it's also possible it would interfere with the flow of oil which would have repercussions for the world's economy. i participated in these scenarios. they are not pretty. there's no way to game this out where everyone is better off.

everyone is worse off from these scenarios. again, it forces the conversation on steps that could be taken to avoid it. i also hope the iranians take the conversations like this that they would be worse off. and hopefully the iranians will rethink the cost and benefits that would accrue to them with the nuclear program beyond a certain point. they could be losers as well. >> as they say, all good things must come to an end. i would like to thank or distinguished panel, our audience here in davos, and our viewers all over the world. [speaking in native tongue] ♪ ♪ ♪

>> weekend on booktv on c-span2. "afterwords" with michael reagan on his father's legacy. also ron reagan and his account. and emily lambert.

>> mr. president, it's my great honor today to speak on the floor for the first time as the u.s. senator. >> the new class of freshman senators have been giving their first speeches. follow their appearances online with c-span congressional chronicle, track the of timelines, read transcripts, and full video archive for every member. congressional chronicle at c-span.org/congress. >> a federal reserve official said today that banks have only taken 40 to 50% of the losses from commercial real estate that they will eventually have to occur. he added that problems in the sector are mostly a threat to smaller banks and don't appear to pose a risk to the entire financial system. the remarks came before the panel overseeing the troubled asset relief program. he's joined at the hearing by

the officials and the comptroller of the currency's office. this is two hours and 40 minutes. >> good morning. i'm ted kaufman, the chairman of the congressional overnight panel on the troubled asset and relief policeman. we're -- relief program. we're here this morning and welcome the visitors at the pivot moment in the nation's economic recorr -- recovery. the panic is over. the dow exceeded the year-end peek, only a few points below

it's all-time high. private companies are very slowly hiring again, beginning to put our millions of unemployed neighbors and friends back to work. although we have a long way to go as everyone knows. it's only -- until treasury's authority to stabilize our financial system, the troubled asset relief program has ended. however, threats to the banking system and the broader economy remain. our hearing this morning will explore one of those threats in detail. the troubled market for commercial real estate loans. commercial mortgages are exactly what they sound like. the loans taken out by developers to buy, build, and maintain commercial properties. almost everyone who lived in the department, shopped in a mall have spent time in a building that owes their existence to commercial mortgages. most commercial mortgages have terms of three to ten years. but the monthly payments are too low and to fully repay the loan

in that period. at the end of the term, the entire remaining balance coming due and the borrower must take out a new loan to continue it's ownership. the commercial borrower must reply for credit every few years. where banks are hesitant to lend, and property values from fallen, many will be turned down. loans that will come due in 2011, 2012, and 2013, and beyond. in essence, the terms our commercial loan creates a lag between the moment the market collapses and the moment that the economic impact is felt. the fuse has been lit. but no one knows how much damage will occur when it finally burns down. the congressional overnight panel has been closely monitoring the commercial real estate market since it's first hearing on the subject in may of 2009. the panel issued a comprehensive

report in february 2010. even after almost two years, the panel remains deeply concerned. in fact, just last month, the missed payment rate for commercial mortgage-back securities reached an all time high of over 9.3%. the commercial real estate market em compasses $3.4 trillion in debt. commercial properties could face a wave of foreclosures, customers, businesses, and renters could face uncertainty and even eviction. small banks in particular could face insolvency as nearly 1300 banks nationwide are considered by regulators to have concentrations in commercial real estate. concerns about commercial real estate also ruminate a broader theme of our oversight work. even in a crisis while authorities must deal with the short term dangers, they must also be vigilant to the longer terms threat.

the small banks avoid the financial crisis thank to the t.a.r.p., the collapses next year due to commercial real estate losses, t.a.r.p. support will have served only to postpone the inevitable of further, rather than 500 small banks continue to hold t.a.r.p. bank. the greater of the degree of the exposure to commercial real estate, the lower the likelihood that taxpayers recover all of our money. we are grateful, i mean truly grateful to be joined by two panels of expert witnesses, include government regulators and bank analyst. we look forward to your testimony. now to mr. mcwatters for his opening remarks. >> thank you, senator kaufman. welcome to the distinguished witnesses. there's little doubt that much uncertainty continues to exist within the commercial real estate or cre market. in order to face the cre market, it's critically to thoughtfully

identify the sources of the underlying difficulty. without a proper diagnosis, it's unlikely that we may craft an inappropriate remedy with adverse unintended consequences. proudly speaking, it appears today the cre industry is faced with both an oversupply of overleveraged cre facilities and an under supply of perspective tenants and purchasers. in my view, there has been a remarkable decline in demand for cre property. over the past few years and many potential tenants and purchasers have withdraw from the cre market not simply because rental rates and purchase prices are too high due to the excess debt carried by the properties, but because their business operations do not presently require additional cre facilities. over the past few years, while cre developers have conducted new office building, hotels,

multifamily, retail, and industrial properties with an excess of cheap, short term credit, the end users of such facilities have suffered the worst economic downturn in several yen rations. any positive solution to the cre focus problem that focuses only on the over supply of over leverage cre facilities to the exclusion of the economic difficulties facing the end users of such facilities appears less than likely to succeed. the challenges confronting the cre market are not entirely unique to the industry. but instead are indicative of the systemic urn certainties thatman -- that manifest throughout the entire country. developers and their creditors are currently struggling to restructure and refinance the portfolio loans. in some instances, creditors are acknowledging economic reality in writing new loans down to

market value with perhaps the kicker. in other cases, lenders and borrowers are kicking the can down the road by refinancing on a short term bases at favorable rate to avoid loss of recognition and adverse tax consequences for the borrowers. while each approach may offer assistance in specifically tailored instances, neither addresses the judgment lie reality of too few tenants and purchasers of cre facilities. until small and large businesses regain the confidence to hire new employees and expand their business operations, it is doubtful that the cre market will sustain a meaningful recovery. as long as we are faced with the challenges of rising tax and regulatory burdens, it is less than likely they will enthusiastically assume the entrepreneur risk necessary for

protracted economic expansion and robust recovery of the cre market. it is fundamental to acknowledge the american economy grows one job and one consumer purchase at a time. and the cre market will recover one lease, one sale, and one financing at a time. with the expanding array of less than friendly rules, regulations, and taxing facing business persons and consumers, we should not be surprised that businesses remain reluctant to hire, and consumers remain cautious about spending and the cre market continues to struggle. the problems presented by today's cre market would be easier to address if they were based on the over supply of over leverage of cre facilities in certain well delineated markets. the thoughtful, yet no doubt painful, restructuring, refinancing, and foreclosures could result in the material

deleveraging and repricing of troubled cre properties. unfortunately, even though cre properties that are appropriately leveraged and priced must also assimilate a drop in demand from tenants and purchasers who have suffered a reverseal no prospects. the administration could further assist the recovery, as well as the broader u.s. economy by sending a message to the private sector that it not directly or indirectly raise the taxes or increase the regulatory burden cre participates and enterprises. without such action, the recovery of the cre market will quite possibility proceed at a sluggish pace with further consequences for institutions and investors that hold cre loans and commercial

mortgage-backed securities. thank you, i look forward to our discussion. >> thank you. damon silvers. >> thank you. this is the third hearing with the troubled asset relief program. we looked at the issue through the experience the new york and atlanta metropolitan area. this is the first hearing that's focused on the national picture and on the view point and efforts of the bank regulators. in our february 2010 report as my fellow panelist have noted, this panel urged the treasury department and bank regulators, out of concern that the rapid decline of the market could lead to problems for financial institutions with significant exposure to commercial real estate loans. and in particular could affect the small banking sector. we noted that due to the shorter

term of most commercial real estate loans compared to conventional residential mortgages, the banking system would face rollover problems for more than $2 trillion worth of commercial real estate loans between 2011 and 2017. loans who's collateral seems likely to have fallen dramatically when the loans become due. today's hearing is an opportunity for us to revisit the question of what is going to happen to smaller banks as commercial real estate loans become due? and what impact these developments will have on efforts to revive commercial lending and on the degree of concentration in our banking system. we do this against the backdrop of smaller t.a.r.p. recipient banking have concentration in commercial real estate even when compared to nont.a.r.p. recipients of the same size and against the backdrop as we have noted in other reports of the channels that the treasury department faces in terms of constructing an exit from

t.a.r.p. for these smaller recipients of t.a.r.p. assistance. but this hearing is also an opportunity for us to look more broadly at the implications of the commercial real estate market for oversight of t.a.r.p. as a whole. several of our witnesses today have pointed out in their written testimony that commercial real estate loans are concentrated in smaller banks and are not a problem by and large that threatens the stability of systemically significant institutions. we also have a substantial body of testimony today that discusses the capacity of banks and other commercial real estate lenders to restructure commercial real estate loans. and the difference that that capacity and flexibility has made in terms of mitigating the impact of the dramatic fall of the commercial real estate values. neither proposition is a great comfort to me. nor i think would either proposition be comfort to the american public if the public understood the implications of these statements.

every week the fdic resolves more failed small banks. those banks are shut down, their shock holders wiped out, and employees laid off. the communities which they serve left without important institutions, in some case, and in other cases, they continue under new names and new ownership. all of the -- all of those harmed by these actions unavoidable as they certainly are, know that if they had just been systemically significant they might be well on their way to enjoying the fruits of the recent mini boom in finance. then consider any one of the more than 200,000 american families facing the loss of their home each month due to residential real estate foreclosures. in substantial part because of the lack of flexibility and the approach the banks have taken to residential real estate. now today rather than develop too long on these injustices that appear at this point to be profoundly lodged at the heart

of the financial policy, i would hope we could learn something practical as to one whether we still have cause to be concerned about rollover risk and commercial real estate, the risk that the panel has raised in prior reports, and two, what can we learn from the commercial real estate experience that might help us in dealing with the profoundly troubled residential real estate market. i look forward to hearing from our witnesses and extent my thanks to all of you for helping us today. >> thank you, mr. silvers. dr. troske. >> thank you. i would like to start by thanking the witnesses for appearing before the panel today. i appreciate you coming here to help us with our oversight responsibility. in my opening comments today, i wanted to touch on a topic that while not the primary subject of today's hearing, it is certainly related. that's the roll of regulation and regulatory oversight in the recent financial crisis. one common theme in the aftermath of the recent crisis has been that the crisis would

have been prevented by more regulation. of course, in our economic system, there are two sources of regulation. that imposed by the market, and that imposed by the government. both forms of regulation have their strengths and weaknesses. in my opinion, however, many of the calls for increased government regulation fail to recognize some of the inherent weaknesses in this type of regulation. it is important to start off by recognizes that regulators are human beings, not super heros, they respond just like all over human beings. government regulators have little incentive to closely monitor the behavior of companies to ensure they protect investors in the economy. in contrast, in a well functions market, shareholders and creditors have a great deal to monitor firm behavior since they do have skin in the game. some government regulators do an

exemplary job. no government regulators lost his job because the firm they regulated failed or received a bailout. many of the regulatory agencies have received the most blame received additional regulatory authority in the recent dodd-frank legislation. it seems clear that regulators have little funnel sentive to develop and apply the regulatory procedures that will yield the benefit. we were forced to rely on the motivation for doing the right thing. hardly a sound basis for effective regulation. we must also recognize that government regulators operate in a political process. when regulators try to regulate the companies, the shareholders and executives complain they are elected representatives about the undue burden, and these legislators try to limb the efficacy of regulators. we have seen this process play out time and time again in a variety of settings. when companies are making large profits, as often occurred in a

price double, it is unreasonable to expect government regulators to have the political will to defy members of congress and fop the bubble. i'm not saying the way the political process works is inappropriate, just that this dynamic must be kept in mind when thinking about the likely effectiveness of new regulation. finally, we need to recognize how executives, shareholders, and creditors respond to regulation. all businesses, including financial firms, aim to provide the products the customers demand. customers demanded and continue to demand many of the financial products at the heart of the financial crisis, such as collateralize the debt and new representatives. that will likely push firms to develop more complicated and difficult to regulate the products and move them into the more shadowy point. with the increase in government regulation will decrease

shareholders and creditors effort at monitoring and allow their oversight to be planted. given the regulation pushes companies to hide risky investments and reduces the incentives for the shareholders and creditors, government regulation likely leads to a world where there are fewer crises, but those crises will be much harder to spot and more destabilizing. is there a tradeoff that we want to make? of course, the government guarantee that systemically important firms will not be allowed to fail has removed any incentive creditors have to modify the behavior of executives and shareholders. it seems me a simply solution would be to eliminate the government's guarantee which would again provide creditors with the incentive to monitor the behavior of firms. claims that government -- claims that the lack of regulation led to the recent financial crisis or claims akin to someone got

sick if they didn't take any med -- medication. the correct medication overall health, his behavior and the disease he ultimately encounters. it is virtually impossible to design a regime of medication that will prevent someone from getting sick. they advise us to follow basic rules, balanced diet, exercise on a regular basis, don't smoke, avoid drinking to excess. they are designed to help build resistance to most common diseases and minimize the effects if we do become ill. however, following the rules, people get sick. good regulation would follow a similar source. establish the rules for natural regulators, shareholders, and creditors to oversee the behavior of managers. even the best government regulation will not prevent the occurrence of future crises. reduce the frequency, minimize the affect, and make people aware of the affect. the responsibility does not

reside with government regulators, but with the managers and owners who made poor decisions. we need to keep this in mind when trying to design optimal regulation and plans. hopefully the testimony we hear today will help us better understand remaining problems in the markets so that political leaders can work towards better and more efficient to ensure the stability of the financial sector. >> thank you, dr. troske. chairman niemann. >> thank you. i want to thank our witnesses today. the panel first explored these issues around commercial real estate in our field hearings in new york city in 2009, and in atlanta in january of last year. in the time since then, there is reason to remain concerned about mounting pressure in the commercial represent sector. financial stability overall has been returning, but the recovery

is still vulnerable. the concern is that the credit risk and particularly the maturity risk embedded in commercial real estate loans could provide such a trigger in the near term. it is estimated that hundreds of billions of dollars in commercial real estate debt will be maturing through 2014. the prospects for refinancing this debt are uncertain. as the recession in high levels of unemployment continue to put downward pressure on property values and reduce rent rolls. this could even jeopardize the viability of loans underwritten. these difficulty may weigh heavily on mid sized and community banks which are cattively more concentrated in commercial real estate than larger institutions. but the future of commercial real estate lending matters to more than just a subset of lenders and borrowers. commercial real estate impacted every community on multiple levels.

understanding the sector is an important aspect of stabilizing our national economy. we are talking about the office buildings, shopping malls, and hotels that shelter jobs. mortgages that help businesses remain open are critical to economic recovery. commercial real estate also includes multifamily and affordable housing units. for apartment buildings in particular, there's a concern that the property's condition will deteriorate as the owners cash flow is converted to make debt payments. tenants can find themselves homeless because the landlord defaulted on the underlying commercial mortgage. multifamily properties should be restructured with community preservation goals in mind. so in my questions this morning, i will be exploring the connection between the well being of our society and financial stability.

there are many open issues such as what steps are being taken at the national level to protect renters. our tightened underwriting standards being set at the right level to ensure prudent loans? or is credit being artificially restricted? and are banks adequately prepared for additional loan losses that maybe coming? i look forward to the witnesses response on these issues and to hearing your innovative ideas on stabilizing commercial real estate. thank you again for joining us. >> thank you all. i'm pleased to welcome our first witness panel which consistents of federal bank regular lairs, sandra thompson, patrick parkinson, regulation for the federal reserve, and david wilson, deputy controller for credit and market risk for the occ. thank you for coming this morning. we ask that you keep your oral testimony to five minutes to

have adequate time for questions. your complete written record will be printed in the record of the hearing. please proceed, we'll start with miss thompson. >> good morning. chairman kaufman and members of the panel, i appreciate the opportunity to testify on demand of the fdic regarding the condition of the commercial real estate market and it's relationship got overall stability of the financial system. the event surrounding the recent financial crisis have taken a heavy toll on economic activity across our nation. the past three years have been difficult for many institutions that focused on cre lending, especially in home construction. in 2009, there were 140 bank failures, last year, 157 banks failed, and many of those failures were caused by losses on construction loans that were made during the boom years before the crisis. some community banks with cre concentrations continue to

experience elevated losses. december stressed -- distressed cre loan exposures take time to work out and in some cases require restructuring to establish a more realistic and sustainable repayment program. some loans may not be able to be modified and must be written off. this process of prompt loss recognition and restructuring painful as it maybe is needed to lay the foundation for recovery in the cre market. at the same time, it must be recognized that many institutions with cre concentrations have weathered the financial crisis. as on the end of the year in 2008, there are over 2200 institutions that had cre concentrations. many of these institutions continue to operate in a safe and sound manner and serve the credit needs of their communities. it is important to note that capital levels at ensured

institution are relatively strong. of the almost 8,000 insured depository institutions reporting as of the end of last september, some 96 percent are in the well capitalized category. for banks with cre concentrations, 87% are well capitalized. the fdic and the other federal banking regulatory agencies have taken a number of steps to better understand the nature and extent of cre concentrations. the fdic has expanded the use of supervisory visitations at institutions with cre concentrations. we've broadened our offsight surveillance to better capture the outliers. we receive more detailed information on a quarterly basis on owner occupied cre exposures so that we can better delineate a bank cre portfolio. the fdic has also joined with the other federal bank regulator

in ensuring lenders to continue making prudent loans and working with borrowers who are experiencing financial difficulties. although a number of financial institutions have reported poor results for the past several years, there are signs of stabilization. year over year earnings have improved through september 30th and loan loss provisions have declined. additionally, noncurrent loan balances have declined with the largest decline occurring in the construction and development lending sector. there are other signs pointing to a slow stabilization in the residential and commercial properties sector with improvement in prices and vacancy rates. nonetheless, while there are signs of stabilization, the cre market is distressed and it will take some time to work through the issues. all banks, community banks in particular play a critical role in helping local businesses fuel

economic growth and we support their efforts to make good loans in the challenging environment. thank you and i'll be pleased to answer any questions from the panel. >> chairman kaufman, members of the panel, thank you for your invitation to discuss the current state of commercial real estate and the relationship to the overall stability of the financial system. over the past year, the rate of the deterioration for the cre market and credit conditions have leveled off and there are early signs of price stabilization in a number of key markets. however, weakness in real estate both commercial and residential continues to be a drag on overall growth in the economy cre-related issues ongoing for the community and regional banking organization. losses associated with the cre, particular lyres dearn issue construction and land development lending have been the dominant reasons for the bank failures since the beginning of 2008. credit losses for banks cre

continue well past the trough of recessions and we expect the pattern to continue in this cycle. working through the large volume of troubled cre loans will take time as banks go through the difficult process of loan workouts or restructuring. if done prudently and effectively, they reduce the losses to the bank system. in addition, proper restructuring can reduce the damage done to businesses and the economy by limiting the force of properties that would further impress prices. well, we expect significant ongoing cre related problems, it appears that worse-case scenarios are becoming increasingly unlikely. during 2010, delinquency rates on construction and development loans began to improve, falling 1%. still even though they continue improving, the large overhang of distressed cre that lost rates will likely stay high for some time to come.

approximately 1/3 of all cre loans are scheduled to mature over the next two years. this circumstances represents substantial refinancing risk as cre loans typically have large balloon payments due at maturity. since the passage of the october 2009 guidelines, banks have increased the level of restructuring of cre loans. economic incentives to restructure loans are aided by the current low interest rate environments. some banks with properties in healthier markets are beginning to see it pick up in demand for high quality properties with strong tenants. since the beginning of 2008, the third quarter of 2010, commercial banks have occurred almost $80 billion of losses related to cre, related to 5% of the losses during that period. given past experience and the recent improvement witnessed in the broader economy, it is estimated that banks have taken

roughly 40 to 50% of the cre losses that they will realize over this cycle. well we can project potential losses facing banks, losses ultimately realized this cycle will depend on macroeconomic and financial factors, especially unemployment rates and interest rates. sensitivity of losses to those factors is why we continue to emphasize the importance of stress testing associated with cre concentrations. progress on working through the overhang of distressed cre will take time and it will depend on banks taking strong steps to ensure that losses are recognized in the timely manner, loan loss reserves and capital reflect risk, they are hot if id in a safe and sound manner, and loans continue to be available to borrowers. the federal reserve to continue to work with lenders that ensure that bank management of supervisors take a balanced approach to ensuring safety and

soundness in the credit needs of the community. thank you, i look forward to your questions. >> thank you, dr. parkinson. mr. wilson. [inaudible comment] >> didn't push it hard enough. sorry. chairman kaufman and members of the panel, i appreciate the opportunity to discus the occ observations and it's impact on national banks. the occ supervises about 1415 national banks, representing about 18% of all insured institution in approximately 63% of all idi assets. commercial real estate is a prominent businessline and is a sector that the occ monitors very closely. national banks hold approximately $753 billion in outstanding cre loans which is about 16.5 percent of the aggregate loan balances. while the signs that the commercial real estate markets are beginning to stabilize, we

are a long way from full recovery. vacancy rates across major property types are starting to recover but remain high by standards. we expect the rates to remain elevated for the next 12 months. capitalization rates, the rate of return demanded by investors have shown recent signs. they fell substantially from 2002 to 2010 to the point they did fully affect the risk. : 2008 and in 2009 as investors became more risk averse. cap rates have appeared to have stabilized but the spread being demanded relative to treasurys remain why. a key driver for property values and loan performance is not a net operating income or

cash flows. overall, while we expect a rate of decline to lessen, only apartments are expected to show meaningful growth this year with other major market segment expected to turn positive in 2012. property prices have also shown recent signs of stabilization. the moody's index recorded an increase of 0.6% in november 2010 which was the third consecutive month of national price gains. while this trend is encouraging, we expect the prices to be on volatile until fundamentals improve consistently. the performance of loans within national banks mirror those in the broader market. while there are some signs of stabilization, non-performing loan levels remain elevated and continue to require significant

attention by bank management and supervisors. the effect of commercial real- estate on individual national banks varies by size, location, and type of cre loan. because the charge operate for construction loans led performance problems in the sector, banks with heavier concentrations in this segment tended to experience losses at an earlier stage. performance in this segment is expected to improve more rapidly as the distressed construction loans diminish. conversely, banks whose lending is more focused on income- producing commercial mortgages or -- ar >> another factor for many community and mid-sized banks is their cre concentrations. although cre percentages have declined recently, they are still significant for mid-sized

banked. they continue to be areas of emphasis and occ activities and the objectives are threefold. ensuring the banks work constructively with troubled borrowers, and that they maintain adequate loan loss reserves and capitol taking appropriate chargeoffs when needed. we are emphasizing the importance of stress testing on assessing whether additional supervisory policies are needed for examiners and institutions to more effectively deal with the risk that cre concentrations pose to the industry and viability of individual and financial institutions. in summary, there's modest signs of improvement, but the markets still face head winds. ultimately, the markets will require restoring supply and demand that hinges on recovery of the overall economy. this process is not painless,

and we expect cre portfolios will continue to be a drag on some banks performance for 1-18 months. during this period of adjustment, they will take a balance the approach in their supervision. >> thank you. we have questions. i'd like to talk about small banks primarily, and i want you to comment on how much you think -- you all talked about the disstressed commercial real estate market, how much you think that overhang is affecting their recovery. starting with ms. thompson. >> i think the overhang is impacting recovery. when we issued the guidance on recoveries, we issued restructuring. they have a close and good relationship with their borrowers. we have 4700 institutions where we have the regulator for, and

there's people located in the communities. the bankers that service the commercial real estate loans in their portfolio have a high touch with their borrowers, are flat with the markets, and it would be a win-win for them to work out and restructure these loans. we've been encouraging them to do so. we've been encouraging them to acknowledge when they can't work the loans out to take the losses right away. >> dr. parkinson? >> i think it is affecting the recovery as senator said and all of us have been saying. we have been emphasizing the importance of prudent effective workouts and certainly monitoring that the banks are doing in that area, but even with prudent and effective workouts, many of them have large volumes of assettings that are extremely troubled, and in the course of working them out, further losses are going to be recognized, and in some cases that jeopardizes their ability to play the economic role they

need to play, and at this stagings there's not much we can do other than make sure they follow the workout guidance to litigate what their troubled condition would otherwise produce. >> mr. wilson? >> yes, i have similar comments. there are a number of severely disstressed community banks that probably won't make it, and, you know, there is no real silver bullet, but the best we can do is make sure that we're fair and consistent and we do, we are consistent with our workout guidance, because in many cases that's the best for the bank, the customer, and it's also best for the community. >> when you talk to borrowers, you have good relationships with the banks, the borrowers said the bank can't work it out or extend the money because of regulators. i heard this time and time and time again. ms. tompson, do you have

comments to address to this complaint? it is -- i mean, the person that these borrowers are blaming are not the banks. they blame it on the regulators. >> you're absolutely correct. we hear that all the time, and we really as regulators try to take a balance the approach to supervision. we want banks to make good prudent loans. we don't want them to create further problems by kicking the can down the road. we think it's important that there are good underwriting standards and as long as a bank is making good loans, we are encouraging that practice both for small business lending, for residential cre, and we just think that the regulators are trying to work with institutions so that we can have a safe and sound banking system with good loans because we know what happens when a bad loan is made. >> i'm consistent with that. we are certainly aware of these reports, and we've been taking a very careful look at what our examiners are doing ensuring they follow guidance that we've

set out and take an objective balanced approach. we try to continue to reverse that through guidance to examiners and through training. we're very carefully actually looking at monitoring the examination process which includes local management vettings of exam findings and review and sample reports to see if there's any inconsistencies with the guidance. our monitoring to date suggests by and large the examers are considering the guidance and they are concerned with supervisory instructions. they should contact the reserve bank or u us in washington to discuss and identify the problems. >> mr. wilson? >> equally we agree with that. we do hear that a lot. we are very sensitive to it. when we try to solicit specific examples of a situation where we

can follow up, and as pat says, when we get specific situations, we believe our examiners are working appropriately, but lots of times it's more general that we can't really track it down. >> i'm out of time for questions because i will not ask the question i want to ask is how many times are the bankers blaming you for the fact they don't want to make the loan anyway, but i won't ask that question. >> thank you, senator. i'll start at a 30,000 foot altitude and ask a basic question. back at last time there was a severe real estate depression was 89-94. the answer was, the resolution trust authority incorporation. rtc purchased lots of loans, sold them at very cheap prices, it may not have been favorable for the taxpayers, but it led to immediate price discovery as to

what was a fair market value of the assets. given where we are today, is there a need for an rtc? ms. thompson? >> [inaudible] >> turn your mic on. >> i'm sorry. i worked at the rtc, and we had -- i think the industry and the regulators can work through this issue. i think that we are seeing signs of stablization. the cmbs market is coming back. it's not where it once was, but we saw a lot of transactions in the fourth quarter last year. vacancy rates are declining, and it just seems like the workout process just needs time to work itself through. i'm not sure that an rtc-type entity is necessary at this point. >> okay. thank you. . dr. parkinson? >> just to make an observation that the rtc was created to dispose of the assets of the failed banks.

>> right. >> if the concern today is about this overhang of troubled assets at the banks, until they fail, there's not really a purpose for rtc, and if the notion was that we create a government that could buy troubled assets from commercial banks that were still sound, you'd face the same issues as they did in trying to get the original conceptions of the t.a.r.p. program off the ground is at what price and how do you do that in such a way you're not creating a government subsidy on the one hand or not giving a fair price to the troubled institution on the other. >> okay. let me ask you this question. is there a need for a quasi-type structure? i've read about government-sponsored reits where the government purchases mortgages, purchases property, holds them in this reit-type entity, it's not a technical reit under the revenue code, but

holds it, sells interest to the public, and then ultimately as the properties recover, disposes of the properties probably with the public investors granting back some sort of an equity participation right to the government so the government thes government, so the government walks out whole. is there any need for something like that? >> i have not given as a proposal any careful thought, but i think the challenges would be many. where within the government would we have the capacity to manage, etc., etc.? i have not heard that proposal. >> what i am looking for is not necessarily the mechanics, but whether or not government intervention or taxpayer funds are needed to solve this problem.

>> funds have been flowing back into real estate as of late. i think another point that all of us made was that ultimately the fate and value of these commercial real-estate properties are driven by developments in the broader economy. i think the best thing we can do is try to support the recovery of through a prudent an >> okay. mr. wilson? >> i agree. i mean, i think there is a lot of money out there. there's private investor money. they are just looking for the right price. there is price discovery on some of the most disstressed assets, but i think there's many cases where it makes more sense for the bank to hang on and work with the borrower if there is a

viable source of repayment that can eventually pay the loan, so, you know, i think we probably can work through the process as painful as it would be. >> okay. ms. thompson, did you have something else to add? >> i think you're referring to an equity trust transaction. this was a type of transaction used at the resolution trust corporation. again, that was for failed assets where the assets were sold into a trust where some were performing and others not, and the government took a percentage share of the downside and the upside and that works well for assets from failed institutions. i'm not necessarily sure that's necessary right now because the market is starting to open up. some of the problem banks are raising capital, and we are seeing slow sign of asset sale, and as i mentioned earlier, the cmbs market is starting to slowly come back. especially in the cmbs market,

the special servicers have flexibility to work out the loans as do banks that have a commercial real estate in their port dpoal owe. i think the transaction itself has been done, and i think that it's a good mechanism, but i'm not sure it's necessary for an open market. >> okay, okay. fair enough. my time is up. my take away from this is that from the fdic, fed, and occ's perspective, there is not the need, clear need today for direct governmental intervention of taxpayer funds to solve this problem. thank you. >> thank you. mr. silvers. >> thank you, mr. chairman. before i begin the question, i want to observe, you know, our work as a panel is coming to an end. this is our second to last hearing probably, and one of the great pleasures of serving on this panel is to learn from dedicated public servants as

yourself, and when we discuss motivations of folks, it's always apparent to me that people such as yourselves have opportunities to make lots of money elsewhere, and i just suspect this from what i know of each of you is you spent long careers serving the public far less than what you can make in the private sectors, and the motivations from that are not dreamed of in the economist's philosophies. from that high level to the more mundane, dr. parkinson, in your written testimony, you observed that commercial banks charted off $80 billion in real estate assets. do i take from your testimony, and this is to all three of you, but particularly dr. parkinson, that these chargeoffs have largely been essentially driven not by refinancing failures, but by the failure of the borrowers to make the payments. is that fair? do i read that right?

>> it's difficult. they can't meet the terms of the original loan and they're in trouble. whether that's because they don't have sufficient cash flow to service a debt outside of an event where the balloon payment comes due or how much of that was an ability to make the balloon payments, i don't know. i'm guessing that there's some of both and certain there's cases the fundamental problem is the lack of cash flow, and that in turn makes it difficult to make the balloon payments. >> certainly, but the reason why the charge off occurred, mr. wilson, you're nodding your head. it seems likely just the timing of the refinancing and the balloon issues these chargeoffs occurred to be in the routine cash flows than the balloon pams. >> i agree with that because even special servicers and cmbs

have a fair amount of an ability to work with customers. if there is cash flow there and the loan manytured, -- matured, that's an issue, but a lot of times, they work through the issues if there's a fundamental source of refame to the loan -- repayment to the loan. >> i think the chargeoffs have taken place in the adc space. >> yes, i was getting to that. >> okay, no, i was just going to say because there's a distinction between the chargeoffs numbers of for adc's and for owner occupied real estate, and you notice significant differences in both and significant -- >> what do you think are adc meaning the development loans and the like? >> probably about 66% of all cre chargeoffs as of 9/30 were attributable to adc.

>> this hearing ranged widely, but it seems to me our fundamental concern here for starters is there's $34 billion in t.a.r.p. assets in banks through ccp mostly almost entirely smaller banks, they are exposed to the commercial real estate market disproportionally. what happens when the balloon payments come due? it seems as though, tell me if you disagree, but it seems that that question -- we haven't got to that question yet that the chargeoffs are due to cash flow issues and in development loans, not in sort of occupied properties. is that a fair summary of where we sit today? >> i think that's fair. >> all right. so our panel's concern, and this is the third hearing and there's been a couple reports, is what happens when the balloon payments hit? mr. wilson, you say that there's a lot of flexibility here, so let me ask you this. if i'm a t.a.r.p. recipient bank

holding the public's money, and i come to one or more of you in a year's time with a bunch of loans that have come due, and they borrowers can't make the balloon payments and they have problems refinancing because price of property has fallen 40% which is what is said to be the market has fallen. i come to you and want to rollover this loan or redo it even though the value of the property, the collateral can't support the loan on the normal underwriting standards. what do you guys say? >> our guidance states -- we tell the examiners not to have banks classify loans because the collateral value declined. we look at the borrower's ability to repay. if they can make a repayment, that's the fundamental issue. >> i'm asking the situation where they can't make a

payment. there's a balloon payment due. they can't make it. >> they might not make that payment, but there is a pam. >> their ongoing payments. >> there are flexibilities the banks are allows and the cre workout guidance provide examples of those transactions. they can modify the loan, extend the loan, and we would focus specifically on the borrower's ability to repay, but encourage a modification. >> speaking broadly unlike the commercial -- the construction and development which, you know, if it was a failed project, you really have no cash flow. it's a liquidation type situation. most of the commercial income producing have ten innocents, have cash flow, but there's not opportunity to remodify the loan. if there's no additional equity, the bank can charge it down, but not off and restructure the loan, and so the loss content is

not as high in commercial mortgage which we see is a bigger issue going forward. >> my time's expired. thank you. >> thank you. i'd like to continue this line of questioning that mr. silvers has started because i think it's an important one. more generally, this is a fairly complicated problem knowing when you write property down in a dynamic economy in which prices are obviously flux waiting, and that affects the value of the underlying property and stuff like that. are there general rules you can sort of provide us of when you think it's appropriate for a bank to write down a property and when you leave it on the books as is and what is the cost and benefits from taking either action? i'll start with you, ms. thompson. >> well, i think that a borrower's ability to repay is a big factor in that the

consideration of whether you modify a loan or not, and i think that certainly foreclosures need to take place and write downs need to take place. i think if banks take a really hard look at the borrower's capacity as opposed to collateral value, and i think that we could likely restructure and modify a loan that would work for both the borrower and the bank. i do think that most institutions especially the smaller institutions hold these loans in portfolio, and they are very much aware of the appraisals and values that are in their specific communities, so i think that these bankers have really good understanding of what they're supposed to do and when they're supposed to do it, and we try not to be too prescriptive, but if you look at the ability to repay, try to restructure a loan, if you can't, write it off as soon as you possibly can.

>> thank you. >> number one, thing you're right it is a difficult question. i think senator's right that the local bank probably has the best information to make a sensible judgment about that difficult question, and that the borrower's ability to service even a restructured loan is really a critical thing or perhaps the bank has to ask themselves, i have two alternatives. i foreclosure, i manage the property and maximize the value, or leave it in the hands of the original borrower, and really the answer to that question is going to depend on the assessment of the borrower, and his capacity to really manage that property and maximize its value on whether they can do that presidenter than i can. -- better than i can. >> fundamentally, when we evaluate a loan, we look to cash flow sources to repay the loan, guarantors that have the ability or other viability sources, and as long as that's still in tact, the value of the property is

less important. where the value of the property becomes important is when the primary source or sources of cash flow are not there or they are insufficient, then we have to look to the value of the property and say, you know, that's sort of our benchmark for what you charge the loan down to, but we would not do that if there's sources of a cash flow to pay the loan, the collateral is only a secondary source of repayment. >> i want to turn to you to expand on something you hinted at that is a related issue. i mean, one of the things we have noted as a panel is the con accept traition -- concentration of loans in medium banks. what is their comparative advantage in making loans? i'm assuming that's why they are all there, and there's often been questions about whether these loans should be with, you know, concentrated in the small and medium-sized banks.

the alternative would be larger banks. give me an overall sense how we got to the situation where these are the banks holding their loans, and what's their advantage in doing this and maybe what's the cost of doing it. >> well, just stepping back as an economist like you are, these loans are ones where information are particularly important, and if i'm a borrower from outside the local area, i don't have the knowledge of the particular area and project that the local bank does. that gives the bank their competitive advantage compared to other potential lenders of these kinds of loans, and then the point that, i think over the years one of the smaller institutions have become concentrated in cre is other p kinds of loans they made because of development in securitization, ect., they no longer are the most efficient lender on those projects. in some sense their

concentration in cre is a result as an adverse selection to other things they used to fund no longer can do so competitively. it's understandable i think why they've ended up where they are. it does pose risk although i think one the things that's emphasized in the testimony and i think it is worth emphasizing is that while lots of banks with cre concentrations are in deep trouble, there's lots of banks with concentrations that are managing the concentrations quite well so that, you know, that thumbs down to the importance not simply of what their port portfolio is, but their capabilities of managing. our guidance has not been specified on putting an arbitrary limit on the concentration, but trying to encourage the institutions to manage those concentrations effectively. >> thank you. my time's up. >> thank you.

dr. troske in his opening statement opened the door for role of government and financial regulators, and i think the cre is maybe a good example of testing the role of bank regulators because in a regulators review banks at a point in time as well as looking back over bank practices over a prior period, assessing the bank's asset quality at a point in time as well as its capital ratios. there's a growing consensus that in addition to that type of stat tick assessment that there should be a forward looking approach to supervision as well as, and i think all of you in your written testimonies focused on issues around stress testing not only by the regulator, but also what you are expecting on the banks. when you look at the dodd-frank reforms, there's addition name assessments going forward with a

forward-looking approach whether it's living wills or the role of the spoc. can you talk about your views on the lessons learned here and how the regulatory supervision has changed, and is this a concept that is being grasped by regulators? >> yes. at the fdic we have a forward-looking supervision program where we've taken all the lessons learned from the bank failures and applied them to our supervision process. we looked at institutions that have high concentrations of commercial real estate that were funded by and have volatile funding sources, and we have put together a training program for all of our examiners that focuses on not just the financial condition of the institution, but the practices of that institution, and we are increasing our off site surveillance for all institutions so that we know, especially those that have cre

concentrations, what their financial condition is at any particular point in time. we're very concerned about interest rates. this is a low interest rate environment, and we want our institutions to conduct stress testing so that they can see, you know, where they will be if an adverse situation takes place. we are very concerned about the health and safety and soundness of the financial sector, and we have had a good response from our bankers with regard to this forward looking supervision approach. >> dr. parkinson, can you comment also in the cre context as to what is expected in institutions in assessing portfolios and risk under different economic scenarios and analyzing the statistical monitoring for loss reserving. >> okay. well, i think that's a very important emphasis in the cre guidance we put out in 2006 than

were reenforced with dad-frank with respect to the institutions to conduct annual stress tests and also requires banks to conduct their own stress tests on smaller ones in a semiannual basis for 10-50 on an annual basis and publish reports on that, and obviously where there's concentrations, the testing is not an important part of that. also, an important issue that i think i mentioned and maybe dave did as well, is the cre data collection project that the agencies embarked upon where we collect loan level data on cre loans initially from the very largest cre lepters, and that's been expanded somewhat, but i think that data will give us insight in the quest to understand how the values of the loans are driven by the economic variable levels, and from that to be able to figure out better

how to stress their their existing portfolio. i think that is an important recent cooperative supervisory initiative among three agencies. >> thank you. the issues around data collection we talked about and better performance data on the residential side is just as important on the commercial side. mr. wilson, would you like to comment about the expectations, what you would like to see institutions to address some of the risks going forward on the cre as well as any changes in example approach. >> yeah, we are working and stress testing is an area of focus at all level of banks. we would size our expectations to the size of the banks and also size our expectations to the level of concentrations that the banks have. if you're a community bank without a concentration, don't have a lot of hot money, things like that, we expect a lower level, but we are in the early stages of putting together

additional guidance. we're working with the fed and fdic on that, and we have tools out there now that we're talking about additional tools that especially our community banks can use. >> thank you. >> thank you, and to follow-up on a point raised by dr. troske on real estate and commercial banks. what impact is that having with overhang on commercial real estate, their ability to carry out other things? does it stimulate the economy in other ways, mr. wilson? >> i think for small subset of banks, the ones on the fdic problem loan list for example, that's a true concern because they are focused on working out of commercial real estate, but we have a large number of banks at all sizes where they are open for business, where commercial real estate lending as well as other lending, and, you know, i think that this disconnect is

more they pull back, we think rightfully so, in underwriting standard in hindsight that got too liberal. borrowers that qualify, we believe that there's plenty of credit available. >> dr. parkinson? >> to build on his points and maybe on earlier points, i think we're a bank as a cre concentration and that concentration has a concentration of loans that work well underwritten and suffering losses which is impairing their condition. those banks when you look at this, when you look at loan growth by the ratings of the banks, the banks with the lowest ratings are contracting loans at a rapid pace and recovering slowly.

at the extent the commercial loan registration is not met, that's an adverse effect on people who rely on those banks for credit. >> ms. thompson? >> i agree with my colleagues, and i'd mention that during the crisis the levels of lending for the larger institutions while the level of lending for the smaller community banks that do have the significant concentrations did increase. >> ms. thompson, if the open market committee proved -- >> i'll defer that to my colleague at the federal reserve. >> best estimate of whether it will happen or not? i'm more interested in if it does happen with the banks you're looking at, is that a significant problem to the banks? >> i hate to -- >> without the open market, if interest rates go up? >> this is a really good

environment for restructuring. it's a good environment for refinancing, modifications, and sales, and i just think that it might cause, it may cause an issue or two. >> dr. parkinson? >> that depends very importantly why interest rates are rising and why they are rising if the economy was recovering and the fed was raising the target rate, and then i think i'd be willing to accept the risk and the adverse effect of the rising interest rates in that context where it's in the context of economic growth and recovering smartly. >> i agree totally with that. i think the disaster would be if rates went up and the economy do you doesn't improve concurrent to that. when rates go up, the economy is getting better, and then there's more capacity for real estate

and borrowers. >> you mentioned stress test, you all did, in fact, do you think when stress tests come along, they should concentrate or what role should commercial real estate play in determining a stress test on a financial institution right now? >> well, i think the lessons that we just went through, the lessons of the late 80's and early 90's should be applied to national real estate portfolios. as has been pointed out, some banks do come through even these severe downturns with, you know, income out the other side even though they have large concentrations, but what we need to do is understand those betterment for example, it seems like construction and development we need to may more attention to those, but even that, you know, at some level a concentration is just too much, and i think if you have a good stress test, you can show that.

>> dr. parkinson? >> we talked about the importance of stress testing. i think dave also observed that the extent you have a concentration in cre it's obviously really important that you stress test the cre portfolio. that has to be a critical part of the institution. >> i do think stress testing is important and especially for commercial real estate. i also believe that the good underwriting under the ones written is probably the most critical. >> thank you. thank you. mr. mcwatters. >> thank you. you know, i don't know of a real estate downturn that has not ultimately turned around. there's always a point where things were overvalued, not enough buyers, not enough tenants, but look forward five years, and things are a lot different. today, we have the added bent fit of very -- benefit of very low interest

rates. one, kick the can down the road. two, refinance assuming interest rates are going to be down. keep that going for three to four years, wake up, realize the market has recovered, prices are back up, borrowers are willing to pay for more or purchasers are willing to buy property and consumers pay for many rental rates, and you're through this mess without the banks recognizes losses, without the banks having impaired capital, and without the boar -- borrowers recognizing income. what's the problem with that? >> i just don't think we can ignore the problems that exist today. that would be a huge prediction with an uncertain outcome, and i think that's it's important to recognize and have transparency for the financial sector so the

people know that they have good loans or they don't, and i think that taking immediate action whether it's modifying loans or writing the loans off, it's either one other the other and kicking the can down the road doesn't seem like an acceptable outcome. >> dr. parkinson? >> i guess i just observe that that strategy of kicking it down the road doesn't deliver success historically. the better approach is to look at it loan by loan, borrower by borrowers to make sure they have the capacity to service the debt. if you kick it down the road, there's a sense of the ability that the property is in the wrong hands and the value will just deteriorate even if there is an economic recovery. i agree we can't count on kicking it down the road to produce the desired outcome. >> okay, but that is being done

some, but as a whole, that is not being done? >> well, in the sense simply deferring the problem, we hope it's not being done at all. in some cases it's not restructured because in fact that's in the best interest of boast the bank and the borrowers, but our guidance makes clear that just doing that routinely to defer recognition of losses is not a good strategy. >> okay. mr. wilson? >> i just add that our guidances is also very clear if you choose to work with your borrowers, number one, it has to improve the prospects of ultimate repayment, and number two, you need toking the for that loan properly. if there's risk in that loan, there needs to be appropriate reserves. there needs to be appropriate recoil on the loan, chargeoff as necessary, so for the bank, it's not kicking the can down the road. the ultimate repayment is impaired. >> so the best approach is to

recognize economic reality, write it down, recognize losses, take the hit to capital, and in effect have price discovery based upon that? is that a fair assessment? okay. that ties back to my first question about rtc time structures, bailout time structures. is that -- that might not be the answer if the financial institutions that were holding the cre or in such bad shape they can't take the hits to capital and the borrowers cannot absorb the tax hits, is that a fair statement? okay. that's it. >> thank you. mr. silvers. >> just to pick up where i left

off on the last round. so we have a whole bunch of small banks that still have t.a.r.p. money in the form of ccp. to the commercial real estate sector, do any of you have thoughts on what is -- if our policy goal, and certainly it would be mine if i was the policymaker is to avoid further concentration in our banking sector. if that's the policy goal meaning we want a small rebust sector, any particular advice to trash ri in terms of the -- treasury in terms of the t.a.r.p.'s investment in small banks over the period when refinancing is due in financial real estate? >> well, i think many of the smaller institutions that have t.a.r.p. are managing their portfolios adequately, and i think the treasury has the provision that t.a.r.p.

participants have dividends to add someone to oversee the boardment i think the measures are there. i do believe that the institutions again, there are several institutions that have con concentrations, and they are working their way through the crisis adequately. >> any further thoughts on the subject? mr. wilson? >> yeah, i'm not real close to the t.a.r.p. program, but i would say that, you know, purr sunt to the 2009 guidance, we have laid out how we would like to see, you know, these problem loans managed, and that applies whether the bank has t.a.r.p. or not if the bank needs to be resolved, it still needs to be resolved. >> i don't know, it seems intuitive to me, and i wonder if you agree. if our goal is to keep the small banks sector healthy, that during this period when small banks with cre exposure have to

manage through the rollover of these loans that it might not be a good idea to compel them to pay back the treasury's money during that period, but this is not an ideological observation, but a practical one. is that right? is it better to try to get them during that period to be subjective of raising that capital privately? >> well, i don't think we've been trying to force them -- >> not suggesting you have been. >> we don't think absent to capital they wouldn't be safe and sound having done that. i think that really is the issue. we look at each one of these t.a.r.p. repayments one by one, and want to satisfy ourselves that either given the amount of capital they currently have or the amount of capital to raise

in the market that post t.a.r.p. repayment they will still have adequate capital to bear the risks that are present in their port portfolio including risks as a result of troubled cre assets, but at least, i don't see us forcing to repay. i think, frankly, the banks themselves feel for a variety of reasons that the sooner they can repay their t.a.r.p., the better, so they are quite, in most cases, quite an, to repay -- anxious to repay. >> that's very helpful. if we are to look at various aspects of t.a.r.p. that i asked about and the other part the mandate is that congressmented this rather extraordinary intervention in the financial markets, this t.a.r.p. to be done fairly. this may be asking too much of the three of you, but i would ask you to comment on what do we say to the executive of the

employee of the investor in a small bank being resolved by the fdic against the backdrop of what we did in terms of fore forebearance? how does that fair out? what do we say to the person on the losing end of the unfairness? i guess we say nothing. is that really so? that's kind of sad. well, -- >> two things. one, obviously, the reason for the extraordinary ventures you're alluding to is if the banks failed in a disorderly manner that the economy, the financial system might have been worse off including those small institutions that didn't benefit

directly from that assistance. i think also, you know, the two big -- too big to fail is a big problem. the dad-frank act has various provisions designed to address thatment i think we're still working through the implementations. ultimately how effective they will be, the jury is still out. we are working hard to make sure the systemically held substitutions are held to tougher standards than other institutions. more importantly, that's the regulatory side of things that in terms of market discipline side, the orderly resolution authority, that, as you probably know, there's no longer any authority to do open bank assistance, so there's not any benefit to the shareholders. i think all the agencies agree that certainly any holder of capital instrument should not benefit in any way from extraordinary assistance, and even, i think, the fdic has

proposed that holders of long held debt that assistance payments for those bad class of creditors be ruled out in which case i think all of those should do quite a bit to re invigorate market discipline. >> i think you're right. i would say that a -- what took place really helped everyone in the economy. i think dodd-frank did a lot to level the playing field between larger and smaller institutions. i think it really tried to take away some of the competitive in equities between the largest and the very smallest, and most importantly it did remove too big to fail. i think the steps taken were necessary, and the steps we're taking now in terms of the orderly liquidation will go a long way to have that conversation. >> my time is long expired. thank you. >> dr. troske.

>> thank you. i guess one comment to make about my opening statement. i was hoping to get the point across that i think regulators were on far too much blamed for the financial crisis than was warranted. i think it was the result of the owners and managers of firms. dr. parkinson, i wanted to start with you because i wanted to ask questions sort of specific to the fed. looking at the data yesterday, and i believe 9 -- the level of bank reserves grew back to $1.1 trillion after dropping below 1.1 trillion. we can discuss where that is, but most is access reserves. they have an ample supply of capital sitting at the federal reserve. does that give you comfort when thinking about the cre situation? do you have a sense of how much of this capital in excess reserves held at the fed are held by the medium sized banks

therefore having a cushion in the market? >> i don't know the answer to that question, but i would have approached it a different way. i would say if the concern is about the availability of lendable funds to meet the needs of credit-worthy borrowers, the fact that the banking system as a whole is holding so much in excess reserves at the fed that pay so very little, i think they have ample motive to go out and find credit-worthy borrowers to make loans to to get higher payments on the excess reserves. we are starting to see signs that the tightening of credit conditions has been going on. they are looking very actively for credit worthy borrowers to put that money to work. i don't know the answer to your specific question. i suspect that at this

proportion is at the large institutions, but i don't know the facts. >> i suspect the same, and i asked our staff to find out yesterday, and they were unsuccessful as well. i wasn't surprised that they were. i want to build on the last statement that you made or that the statements that you made about just the overall lending and ask, i guess, the three of you. it is clear that lending is down by most banks, and there's a question, and i'm not sure we're going to resolve it today about whether that's a lack of demand or a lack of supply from your regulatory standpoint. can you give me a sense of whether you think what it is? a lack of demand or supply. starting with you, ms. thompson. >> i think it's bothment i think there's three things. a lack of demand. i believe that there are borrowers that lack confidence. i think that there's a lack of supplyment i think bank capital is concentrated, and i think the biggest issue is collateral

values because they decline, and i just think that there is plenty of capital in the system. i think people have to start showing confidence in the financial institutions, and i think it's slow. i think there's a tentive rebuilding working our way towards whatever the new norm is, and when people are comfortable they'll go to institutions, apply for loans, and receive credit. i think there's a tentive nature out there that people are cautiously optimistic because we are not out of the woods yet. >> okay. dr. parkinson. >> it's a supply and demand side i think when you talk to the banks where they have binding commitments. it is at historic lows, and that's a good indicatesser for the borrowers. they just don't have the demand. on the supply side i think there are signs that for, again, for

stronger borrowers. ample credit out there -- there's ample credit out there, but there's been a real change since the crisis in terms of the axis to credit weaker boar roars. we don't want to go back to the availability credit that we had in 2006 and 2007. we want a new norm where there's more normal underwriting standards, but that doesn't mean people who could get credit formally cannot get it on the same terms today, and that must be constraining their spending, so, but again, we have to ask what's the alternative. >> mr. wilson, do you have anything to add? >> i agree with that. i also would point out on both the demand and the supply side the federal reserve quarterly survey shows that banks are saying that they're not tightening standards beyond what they were, and also they are seeing loan demands starting to pick up.

in our conversations with banks, they said, yeah, we don't like the rate that the federal reserve pays on reserves, and we would like to lend the money. i think there is a willingness on the part of our banks to put those back out into good quality loans. >> thank you. >> thank you. >> i'd like to follow-up on the issues around supply and demand and really focus on underwriting cry criteria. ms. thompson mentioned underwriting material is so critical. the reference to the senior loan officers survey does show that standards remain largely unchanged in the fourth quarter. certainly, they are higher than the average level over the last decade, and the majority of responses indicates that lending standards do not expect to return to long run norms until after 2012, and as a result will remain a take into tighter for

the foreseeable future. is this is good thing? is this evidence of an overreaction? >> i think underwriting standards were lax, and i think that the return to the basic fundamentals of lending is critical in making sure that borrowers have the ability to repay, not focusing on collateral values at the primary source of repayment and looking at other ways to generate income to repay the loans. that's critical. >> where regulators sometimes criticized for extending or going too far to one extreme? have banks in tightening those lax standards gone too far? is there any evidence in your reviews? >> banks -- well, the regulators are criticized generally in looking at the crisis. there were things we could have

done more quickly, and i do believe that there were some steps we could have taken to help deal with this issue. i think that the lending and underwriting standards that we have were collectively through our guidance. it's good guidance. it's prudent, and it certainly will be sustainable in good times as well as bad. >> dr. parkinson, what are you seeing in your assessment of the underwriting standards used by lenders? >> well, again, i think you had a right that there was a long period of tightening, but that proceeded from a base period where standards were too lax, and now we see sometimes that's abating, but i think almost more important than the specific standards when you're assessing whether someone's a credit worthy borrower, that depend on your support of the economic part of it will be. i think obviously confidence

both by the borrowers ben by the -- and by the lenders is slow to recover. i guess there's hopeful signs that the economy in the last couple months has been picking up steam, and i think once people are convinced that higher path road is sustainable and is the most likely path, you'll get a rebode in confidence, and that's probably the most important thing in working on increasing the demand and increasing the supply of credit. >> great. now, mr. wilson, you mentioned taking supply and demand into consideration that has an impact on lending levels, and you indicated there's a varying degree depending on the size of the institution, the type of the asset. can you elaborate so we can get a better sense of loan levels whether it's big or small banks and the type of loans? >> well, i think, for example in the community banks that have

big concentrations of commercial real estate, what we're going through right now, you know, brought to bear the risk, and they are more sensitive of those risks, so they probably are tighter than they would have normally been if they didn't have the concentration. yeah, underwriting standards in almost any asset class in 2006 or early 2007 were too liberal. the pendulum usually swings too far the other way as banks try to recover from problem loans, but, you know, we're seeing evidence that, you know, they are coming back into balance pretty quickly, especially in certain markets like leveraged loans. there's stories out there that, you know, the recap deals are very prevalent these days. pricing is getting tighter, and even in the commercial real estate, pricing tightened dramatically in the last couple months. you know, we feel like the supply and demand factors are coming back into balance.

>> taking into consideration in addition to the tightening underwriting standards, how much is preservation of capital playing into that issue of supply? >> obviously, that's the big problem with, you know, community banks that are under stress. to some extent, it's an issue for all banks, but that was very sensitive to that, and that's why the committee has a phase in that goes out through 2018 to be sensitive to that issue to not constrain lending because of capital requirements. >> thank you. >> thank you, senator neiman, and thank you for being here today, and thank you for your public service. i continue to be incredibly impressedded with the overall quality and competence of the people who serve in the federal government, and i think anybody here watching today would be proud of the fact that you're representing all americans near here and doing