with supreme court decisions. is that right? >> yes, yes. >> so when mr. phong -- you were here when he testified, right? >> i was. >> when he says it's not only legally permissible, the sound manager a process to be informed of and inclination but the chief sub 10 officer to oversee departments for process seems, but that's not inconsistent with that is what you're saying? >> i believe that statement is correct, but i believe the criteria used in this circumstance are unlawful. the general statement that those individuals may play a role in such review it because uncontroversial. ..

>> i'm having a hard time here. i'm a businessman, i'm a dentist. i actually watch government, seven groups have to hang my television when i'm capable to do it myself. how does this process and how do these delays cause increase cost

to the american taxpayer? >> well, it's clear that these sorts of delays result in increased litigation. epic has been forced to litigate for classes to obtain the disclosure that we otherwise could have obtained directly from the agency without litigation costs if the deadlines had been met. the way this impacts the american taxpayer is the foia has a cost-shifting provision. that means when foia members are required to force disclosure of records, they can obtain fees from the agency. offend -- epic litigates our own cases and recovered fees on this basis. that comes from agency budgets and they are funded by the taxpayer. >> oh, so we were building up a

bureaucracy within a bureaucracy; right? >> it is. those costs are avoidable if agencies work with requesters to meet deadlines there's no need for litigation. >> do you see a reason if an individual aside privacy issues, if an individual is giving a foia why it shouldn't be just broadcast to anybody? >> i see no reason, and i think an affirmative disclosure by the agency is a powerful tool in increasing open government. >> once we go through one individual, it could be used in a mass media aspect allowing the individuals all around america to pick and choose through the, you know, like technology driven? >> there are many technologies that enable one to many communications that the department could leverage in order to better publicize the documents requested by individual foia questioner les

and make it widely available. >> a wide stream process should be in order? >> i agree. >> mr. edwards, foia's had a chilling effect, or the delays have had a chilling effect on the foia requests. i'm from arizona and we have problems with the border, a lot of violence. how could that have impacted the process and getting proper information out to the proper authorities? >> without getting into specific foia cases, i, my team, did a review of the foia process, and what they found even though in 2009 there was 103,000 and 30% of that was immigration alien files. there was still a number of

foia's that once they are completed, they could have gotten out of the door, and it still ended up in process. the 1.5%, talking about the 662 that ended up in the significant review process, that also should not have been delayed, so i cannot really speak to the specific foia case, but this is what was our scope was and what we observed. >> were there particular cases involving law enforcement on our southern border that could have been imp kateed? >> i don't know of such. >> i yield back the balance of my time. >> i thank the gentleman. mr. ross, are you prepared? i yield you five minutes. >> thank you, mr. chairman. mr. verdi, your organizations made a few requests in the past, and i guess over the years you've had some adequate responses and inadequate

responses. my question to you is based on your experience, have you seen an improvement in the last year for your foia requests, or has it been declining or stayed the same? >> sadly, we have maintained a 100% noncompliance rate or the agency has a 100% noncompliance rate with requests in terms of meeting statutory deadlines. there's nor an improvement or degradation in the response. >> these are based on grammatical errors or substantive errors, or why are the requests not granted in a timely fashion? >> they simply vice president responded -- haven't responded to the request or exemptions outside the period we had to challenge through the administrative process, but in any case, we did not receive

documents prior to the 20-day working day deadline. they violated deadlines in appeals and the agency missed its deadlines to answer a lawsuit. >> so, in other words, there's been absolutely no change other than maybe worse? >> i have not seen a terrible change. >> okay. recently, since president obama issued office, there's three memorandums on open government issues. two of those memorandums regarding the freedom of information act and one is transparency in open government released on the president's first full day in office, and attorney generallerric holder destructed the by memorandum the chief foia officer to support career staff by ensuring they have the tools necessary to respond promptly and dpishtly to foia requests. the president emphasized on several occasions the need and requirement that there be an efficient and immediate response

and train transparency to the requests. in january of 2009, he stated "in the face of doubt, openness prevails. the government should not keep information confidential because officials are embarrassed by disclosures or because of abstract fears. nondisclosure should not be based on the personal interest of the government officials at the expense of those they are supposed to serve." my question to you is do you feel the front office review process comports with the president's objectives to foia. mr. edwards, i'll start with you. >> as we look through the process, particularly this came to us about the specific review process because that changed from the 2005 practice, so starting september 2009, there was a review on concurrence. >> right. >> which really delayed the

process. we have brought this to their attention and we have a number of recommendations and the department has taken efforts to put the share points back in place. it was three day notice and now it's changed as of this monday to a day, so i think the department has made a number of changes. >> just recently? >> just recently. >> i think the basic act of flagging specific requests based on this criteria, this politically sensitive criteria is inconsistent with the president's commitment in this area. >> okay. i yield back, mr. mr. chairman. expwr would the gentleman yield? >> yes, sir. >> you said, if you -- sending information to political appointees so they are aware, let's just say a press office, spending them as they go out or substantially as they go out would not violate foia so essentially the press office

could respond when the press now having this information ask questions. that part is just fine; right? >> correct. >> so it's really the advanced notice and with the ability to act that really distorts the process whether they act to spin beforehand, or they act to actually change the material release, for both of you, that's where the lines crossed, isn't it? >> yes, it i it's the delay that is unlawful in violating the deadlines and the use of criteria that have been labeled irrelevant by courts and by lawmakers to make a determination concerning the foia requests. those are the two aspects that are objectionable in the circumstance. >> thank you. thank you to the gentleman, and i'm the last so i'll yield myself five minutes, and this will be the close. first of all, really for both of you, you are dealing with 662 to

use the number that is the most accurate number today, the ones sujts to delay or interference, not the rest of the files as far as we know; is that right? >> yes. >> and to the ig -- >> as far as i know. >> okay, that has nothing to do with redacting the process. mr. verdi, they talked about redacting. in your experience, how often have you prevailed when you timely get through the process of that you originally got and ultimately are entitled to after you objected to the amount of redacting? what's the ratio? hoven do you -- how often do you prevail? >> almost universally prevail on actions. >> right, but there's a pervasive problem clearly that if redacting is over relative to secondary review even when it doesn't involve the 662, that says something about getting

from where prior presidents have been to where this president rightfully so said he wanted to go; is that right? >> i think that overredacs is a real problem, a clear problem for foia requesters like epic and others who are less able to challenge the actions in the administrative process and full litigation process. >> thank you. mr. edwards, and by the way, thank you for your report. i realize the scope of your investigation was limited, very different than ours, but i thought it was overall very, very good work. did you look at share point and how it works in your investigation? >> no, sir. we became aware of the share point system, the new platform, and the three days where people can, the components can submit their responses and after three days they can get it out of the door, and then that changed to a

day this monday. we have not -- >> coincidence of our hearing not with standing. >> we have not had an opportunity to assess the system or because our scope was just -- >> do you plan on looking at that share point? >> if that's something the chairman wants us to do. >> i think the chairman and ranking member both would like you to look at it. one of my companies i'm affiliated with in the past has share point. i'm aware one of the things it has the power to do, and you'll have to see whether the version you bought is implemented, but it can parable share. it's designed so you can look at, for example, the political review could be limited so it wouldn't see the source of who it was from at least in the macro sense. look into it and give us a view as to whether or not share point could meet your high standard of eliminating the one-day delay all together, eliminating any chance that information,

although publicly required and publicly disclosed later when this material is put on the website, could be not available to those doing the review as the ranking member said. it's the ere rough who are my enemies, and if your enemy is mr. verdi or the associated press, the point is why do they need to do it if they are, in fact, just reviewing on making sure the secretary's informed. the question that remains, did your invest gages, you're familiar with the deputy chief of staff to the secretary doing her on reviews, in other words, doing her own searches for foia discovery. are you familiar with that? >> no, sir. >> i'm interested in that one. we found that in some cases rather than foia professionals, political appointees did their own reports. my understanding and all of us

who have done a google search understand that your results are as good as your input. you get back less than a foia professional would get in order to fully disclose as the president envisioned, so although those were not the main topics today, i would appreciate it if you'd look into them. i am particularly concerned with the idea that you have all these career professionals who are very capable of doing funnel disclosure and making redacting decisions, and then you have the material eventually delivered to the press and others having been self-selected by people and whether they are political appointees or that i found with the mineral management service what they thought was important for the congress to know and it was much less than we should have known, so those areas i would appreciate your looking into it as you see fit in letting us know. i want to take this moment to thank both of you. you did a lot of good look.

your report is good work, and this committee has a special place in its heart for two groups. sunlight people who serve no purpose other than getting the truth out of government that we benefit from and the ig's who are absolutely essential. we do not -- we wouldn't know about 90% about what we are interested in if not for your fine work in your field, so i want to thank you. this is an important hearing, not the last freedom of information hearing. it is not the last sunlight type of a hearing, but it was an important one. i thank you, and we stand adjourned. [inaudible conversations] [inaudible conversations]

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>> on his last day of the job, the inspector general for t.a.r.p. offered criticism about the 2008 program to stabilize financial markets. he said the program encouraged large firms to become figger and the program hasn't succeeded in helping struggling home owners. he testified for an hour an 20 minutes. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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>> committee will come to order. today's hearing is entitled "has dodd-frank ended too big to fail?" this is the special inspector general for t.a.r.p., mr. barofsky's last day on the job. he's had an eventful two years that probably felt like a lifetime, but we appreciate your service and appreciate you being here on your final day on the job, but as is been tradition for our subcommittee, we begin by reading the oversight and government reform committee's mission statement. we exist to secure two fundamental principles. first, america has a right to know the money washington takes from them is well-spent, and second, they deserve an educative government that works for them. our duty on the oversight committee to protect these

rights and hold government accountable to taxpayers because taxpayers have a right to know what they get from their government. we will work tirelessly and partnership with citizen watchdogs to deliver the facts to the american people and bring general reform to the bureaucracy. this is the mission statement of the oversight committee. this is important to the mission statement of inspector generals across our government. today's hearing we'll explore whether the largest financial institutions will start -- i'll start by giving an opening statement, so we'll start the time now. the hearing explores whether the largest institutions are still too big to fail despite the dodd-frank act and other regulations. we are concerned about the ongoing perception the government bailouts remain an option. the bottom line is at 2300 pages, or over that, body-frank was supposed to denned too big to fail, but it reenforced the

culture, and tipped the economic scales for a few at the expense of growth and competition. as january 2011 report to congress, the special inspector general for t.a.r.p. mr. barofski, and this had certain financial institutions with explicit government support. through greater access to cheap credit, these institutions received benefits crowding out of smaller competitors. those findings were backed up by data from the fdic finding they paid 28 basis points less than the smaller rivals. this was not lost on credit rating agencies who take the backing into account when rating credit worthiness. this funding advantage is the result of the market perception that certain institutions are

just simply too big to fail. dodd-frank nullifies ad hoc deal making like in the financial crisis of 2008. if that wasn't enough, secretary geithner stated in december 2010 that in the future, we may have to do exceptional things again, and he said this after the passage of dodd-frank. the combination of a government guarantee and cheap money reenforces the moral hazard and instead of taking bailouts off the tab, the federal government gives large institutions a special preferred status. last december there was a very loud message to washington. they don't want their hard earned tax dollars going to anymore bailouts. the american taxpayer does not want their government in the business of picking winners and losers. we need to create a competitive lending environment where small businesses gain access to capital and thrive and feel confident in the credit markets

and start creating jobs again. by recognizing the government's willingnd to bail out large institutions, we can have a honest conversation about ending too big to file. i'm interested to hear what the first and second panel have to say about this matter. on the first panel, we have the special inspector general for t.a.r.p.. on the second panel we have representative from treasury, mr. massad, the acts under secretary for financial stability. with that, i yield the balance of my time. >> i thank the chairman for holding this committee, and thank you the chairman for yielding his time. i really just wanted to thank a unique individual in the -- if there's a wall of fame for ig's, neil, you're going to be on it. you've done an amazingly good job. i looked at your op-ed this morning and said, darn, he got the title we should have had.

it was entitled "where the bailout went wrong." i look forward to hearing your thoughts on the t.a.r.p. bill and where we should learn from the mistakes that were probably inevitable, but due to your hard work they are public, and we intend to address them one by one. as you go off to academia to teach and write, i hope you consider an invitation to come back here, an invitation where we want your council in whatever form it can be provided. again, mr. chairman, thank you for this hearing, one of many in your series and taking seriously the special committee responsibilities for oversight, and, again, nobody is more a hero here than a great ig, and we have one in front of us. i yield back. >> i thank the chairman, and this time i yield five minutes to the ranking member, mr. quigley, and he will share

his time with the full committee ranking member as well. >> thank you, mr. chairman, for convening this meeting. again, i want to thank the guest today for his work at cig-t.a.r.p.. we appreciate what you do for us. the government bears too much risk and taxpayers are left vulnerable to huge losses. if firms perceive taxpayers cover the losses, the firms take a bigger risk. as the overleveraged firms grow in size, they can become too big to fail, and, in fact, passing their risk on to taxpayers who would not allow a financial collapse. it was signed by congress and passed by president bush averted a catastrophe, and now it's a net profit for taxpayer, should not minimize the fact it expose the taxpayers to unacceptable losses. today, we have to safeguard the financial system against

collapse. t.a.r.p. did not create too big to fail, but it did reenforce it. the dodd-frank law was an attempt to roll back those steps that caused too big to fail. it allowed hoop holes for risk takes and created a risk regulator to oversee all financial firms that are systemically important. most importantly, it creates a special resolution authority for failing firms to end bailouts and impose losses or shareholders. this will be judged on whether the market receives it as a credible alternative to bailouts. this is the key question. does the market view this as an alternative to bailouts? it's my understanding that implementation of dodd-frank is in early stages. i hope the result is predictable and orderly process for unwinding failing financial firms addressing the too big to fail problem is more important

today than before the financial crisis. in 1999, the five largest u.s. banking institutions controlled 38% of all banking industry assets. today, they control 52% of banking assets. to fix this problem, dodd-frank has to be successfully implemented. i look forward to the testimony from our witnesses, and i yield my time to the ranking member of the full committee. >> i thank the gentleman for yielding. i thank the chairman for calling the hearing this morning. unfortunately, today's hearing represents tragically missed opportunity in the majority's refusal to grant barnesny frank to testify before the committee throughout the drafting of the regulatory reform legislation and as the current ranking member monitoring the legislation, representative frank's expertise on the manners before us today is unparalleled. we would have benefited greatly

if we could hear from him, but despite the disappointment, i thank the witness for appearing before us today. i recognize our special inspector general barofski and commend you for a job well done. thank you for working with me and the many times i bugged you to do reports and look into things. i really appreciate it. you talked about the work enabling us to better fulfill the role and ensuring effective government oversite of the t.a.r.p. program, and, again, i thank you. in the wake of the 2008 financial crisis, we enagented dodd-frank to set in place a robust regulatory structure to end too big to fail. according to the fdic, the new requirements under dodd-frank ensures that the largest financial companies can be done in an orderly fashion without

taxpayer cost. under title ii of the dodd-frank act, there are no more bailouts, however, as the chairwoman said and you and others acknowledged, dodd-frank will not work unless we provide the regulators with the resources they need to make full use of these new regulatory authorities. frankly, the budget proposed by the new majority effectively cripples the regulators. we drastically cut the budget of our agencies charged with carrying out this important regulation will be paving the way for the next financial collapse, and we will never be rid of entities that are, in fact, too big to fail. i trust that mr. barofsky will comment on that with the whole issue of the need to make sure these agencies are properly funded. i'm looking forward to the hearing from today's witnesses, and, again, mr. barofsky, i thank you for all that you've

done. i know you are moving on to academia, but we -- i know that many students will benefit from what you say and what you learned. we hope you'll return to government soon. may god bless you, and i yield back. >> well, i thank the full committee ranking member in response to the request to have mr. frank testify before the committee. i also serve on the financial services committee. he's ex officio member of five members on that committee, chair of the financial services committee for four years, he is every venue to speak about his law he passed. today is about the implementation of dodd-frarng and whether or not that ended the culture of too big to fail or whether or not it's propagated it. we have two panels today. one is the special inspector general who oversees the program.

the second panel is the treasury department and they can, in essence, have a full panel to themselves. in essence, we give the minority a full panel. usually that's praised, but maybe not in this atmosphere. our first witness is neil barofsky. mr. barofsky is a federal prosecutor in the united states attorney office for the southern district of new york for more than eight years. mr. barofsky's last day is today. i know his staff is sitting behind him, well, they are not smiling. they are sad to see you go, mr. barofsky, and we certainly appreciate your service to your government that you've rendered in the last two and a half years. we know it's been businessy, challenging, and you put more hours into government service

than you'll ever be paid for. we appreciate your service to your government, and in the interest of openness. with that, it's policy for the committee that all witnesses are sworn in to testify. please rise and raise your right hand. do you swear or affirm the testimony you are about to receive -- you're baht to give will be the tryout, the whole truth, and nothing but the truth. thank you. let the record reflect the witness answered in the atirmtive. thank you, mr. barofsky. we'll now give you an opportunity for your opening statement. your written testimony is entered into the record, but we want you to have the opportunity to say what's on your mind. >> thank you. thank you for your kind comments, and thank you for the opportunity to appear before you today. it is a privilege an an honor to testify before this subcommittee on this, my final day, as inspector general. it's hard to believe that two

and a half years ago, there was no such thing as t.a.r.p., no such thing as sig-tarp, or a t.a.r.p. subcommittee. since that time, we've seen an outpouring and outlaying of government funds to a financial industry teetering on the brink of collapse. the emergency economic stablization act which created t.a.r.p. also created cig-t.a.r.p. at congress' insistence. i'm proud to say that since our inception, december of 2008, we've made great process to filling the goals set forth by us from congress. we issued nine quarterly reports, 13 audits, secured civil or criminal charges against more than 50 individuals, 18 different defendants convicted of t.a.r.p.-related fraud, and our investigations help assist in the recovery of or prevention of loss of fraud from making sure tarp is an agency that will more

than pay for itself. as importantly, we helped bring transparency and accountability to a program desperately in need of them. treasury through t.a.r.p. made a series of promises both to wall street and to main street. unfortunately, it's track record has been nixed. it's been filled with promises to wall street in record professability of the nation's largest banks, but, unfortunately, it's failed to live up to promises to main street. first, the promise to restore lending. such an important part of any economic recovery has gone unfulfilled. when treasury gave out hundreds of billions of dollars to banks, it did so without any policy in place to accomplish that goal, without any strings to require lending or even provide insenttives for it. not surprisingly, credit continued to con track

throughout the financial crisis and well into the recovery. second, the promise to preserve home ownership. such an important part of the legislative bargain that treasury struck with congress in order to get t.a.r.p. passed. the original promise to modify up to $700 billion in mortgages that treasury was to purchase under t.a.r.p. cast aside after weeks. that was replaced by a promise by this administration to modify up to 4 million mortgages for struggling homeowners. that promise too was cast aside replaced with the cold stark reality of a failed program that was poorly designed, poorly managed, poorly executed, and will come nowhere close to living up to the original promise. finally, after secretary pallson and secretary geithner told the world they would stand by and

not let the largest banks fail and would use the t.a.r.p. funds to accomplish that, we are left with a financial system with largest banks that are bigger, more concentrated, and more dangerous to the system than before the crisis. we were then promised that to regulatory reform, the era of bank bailouts would end, a promise that looks like it, too, will go unmet. not with standing the passage of dodd-frank, the financial markets still perceive that the united states government will bail out the largest banks with credit rating agencies giving higher rating to the banks based on the assumption they hit the rocks again, the united states government comes to the rescue. as for the execution of dodd-frank, it remains theoretically possible to address the problems of too big to fail. treasury and the regulators were certainly given the powers and authorities to take on the

largest banks, but these are the same regulators whose income tense and lack of foresight that is one the causes of the financial crisis, and while chairman sheila is a strong advocate for using the tools of dodd-frank to simplify the largest institutions as necessary, she appears to stand alone as her term quickly winds down. with that dray dramatic and without quick action, this promise too will be broken with potentially devastating consequences. mr. chairman, ranking member, i thank you for the opportunity to be here today. i also want to thank you and the chairman of the full committee and ranking member of the full committee for your strong support over the years. we would not have been able to accomplish nearly any of our goals or our accomplishments if it wasn't for the strong

continuous and above all, bipartisan support from congress. if we received only support from one side or the other, it would not have had nearly the impact that your uniform support has been for our office. i thank you. i also want to thank the incredible men and women who work, their sacrifices, their commitment who demonstrate all the good that's in federal workers, and it's my privilege and honor to work with them for the last two-plus years. i thank you, and i look forward to answering any questions you may have. >> thank you for your testimony. i recognize myself for five minutes. to initially start this question, you've mentioned in your reports, you mentioned in your editorial today in the "new york times" that the objectives of t.a.r.p. have been shifted dramatically in the two and a half years since the creation of the program. it's not evolving, but it seems like if they fail to meet

metrics set for themselves, they change the metrics. can you e lab rate on -- elaborate on this? >> it happens far too often with this program when a goal wasn't met, rather do what you would expect in a good government program is you acknowledge, have a goal, have a plan to achieve the goal, measure the performance, and if you're not performing, you change the program. far too often in t.a.r.p., it's set a goal, adopt no policy to achieve the goal, basically ignore it, try not to be incredibly transparent about the progress on the goal, and when you don't meet the goal, rather than change the program, change the goal, and declare mission accomplished and move on. that happenedded with the housing program certainly, and it's happened with the map street goals which have basically been written out in testifying in front of an

oversighted panel, they talked about the goals, the main street goals part of the bargain, why t.a.r.p. got passed and dismissed them as window dressing, things to be taken into account. well, they were intended to be more than that, and that's some of the broken promises that i discussed. >> to go further on this, there's been a discussion in recent days that the t.a.r.p. has been a success for the taxpayers. in dollars and cents terms, it hasn't been as -- hasn't been a huge negative. what are the negatives? what is the legacy of this, well, of t.a.r.p. and our unprecedented intervention in the market? >> well, i think there's a number of areas where t.a.r.p. fell short. you know, first, of course, are the goals not met, the goals part of the bargain we just discussed. there's a cost to not meeting your main street goals. one of the costs has been in the

impact on government crbility, and the bottom line is people don't trust their government, and part of the reason why they don't trust the government today is because of the bailout, because the failure to reach goals, and because the mismanagement of the program. it's the too big to fail problem. as i noted before, when the secretary's told the markets we're not letting the banks fail, that was instrumental in developing t.a.r.p., but it exacerbated the problem of too big to fail. it was as explicit as could be. the reason it helped avoiding the economic collapse was because the promise of not letting the institutions fail. that has the unintended consequences of the problems getting bigger and bigger and backs up they are able to borrow money more cheaply, able to access the credit markets, and

right now, they are more systemically than before. there's fewer than them and bigger than ever. that's a real legacy. >> has dodd-frank prevented that from continuing? >> it was not a magic wand that gave certain powers and authorities, did -- it didn't actually change the status quo. there's one path regulators could use to accomplish that goal, but the bill itself is just that, a bill, and unfortunately based on the market's perception, they are unconvinced it will be used in the way it needs to be used in order to address too big to fail. >> even in the design of the bill, does it leave wide openings for bailouts to continue? >> well, i mean, technically under the letter of the law, right, and there's dispute about what the meaning of this is, but it states that in certain language that bailouts won't

happen, but that's sort of ignores reality, and the reality is when we talk about too big to fail, far too often relose sight of the fapght what the words mean, and it means what they say, that whether there's a law in the books or not a law in the books, if these institutions, if we have a repeat of the financial crisis, it's not going to matter what the law in the books is because it's failure is not an option. you can't let the banks fail if that happens. it doesn't matter the ideology, the country will go down the tubes, there's a crash with devastating consequences, armageddon, no cash in the atm's. who is president at the time and controlling congress at at that time, has to rescue the banks. it is not a moral question. that's what too big to fail means. while people can argue whether

certain interpretations and portions of dodd-frank giving certain degree of discretion as to which creditors, possibly get paid $100 and which don't which is a subject of the debate or other provisions that you can point to and say, this doesn't mean a bankruptcy, just a suggestion that the banks continue in the form of a bailout whether funded by the industry or elsewhere, it's almost all beside the point because if you have too big to fail banks, it's put to the side, and we're going to be back where we were in late 2008. >> in essence, it codifies the status quo. >> unless and until treasury and the regulators use the powers that that have under dodd-frank, and a lot of these frankly they had before dodd-frank, but unless and until they use the authorities, we're in the status quo or worse than that because this was nothing, maybe you have

a chance of convincing the market, but the markets are looking at dodd-frank and they are rejecting it. now, that's not to say that dodd-frank doesn't do good things to help limit the banks, increase capital requirements is important around the edges, the vocal rule of -- although, i think a lot of exceptions that may defeat it -- are all helpful to limit certain areas of potential risk, but the big-ticket question we talk about today on solving too big to fail, the answer is certainly not yet, and by all indications of what's been happening on what the direction has been, i'm not entirely on the mystic that it will. >> thank you. i recognize mr. quigley. >> thank you, mr. chairman. it's not that i disagree with you on the point, just want to understand better. in your testimony today and the editorial discussing this recommendation to simplify or

shrink, can you react to, i guess, the response to that about too big to fail that if i could quote, "there's no reasonable way of sufficiently reducing their size and complexity without jeopardizing their independence. large european and asian bank gobble them up pushing the too big to fail risk overseas and outside of our control cutting the banks down in size doesn't mean there's less risk taking in the financial system, but the risk taking shifts elsewhere in the financial system where it is harder to monitor and to regulate. think hedge funds." what would your response to that be? >> that seems like an embarrassing the too big to fail. >> but is he correct? >> i don't think he's correct. you know, if you -- this is very similar to a different argument that's been advanced that, you know, our largest banks if they are not of the size and scope that they are, they are not going to compete with the larger

european banks. if we break that down, what it really means is okay, other countries guarantee their banks, and those banks have the advantage, and unless we guarantee our banks, our banks can't compete with the other banks. that is essentially what it comes down to. really the question becomes do you believe that the government should subsidize and guarantee and backstop our largest financial institutions, or do you believe that we should be true to the capitalist ideals and let the banks compete without an economic subsidy, a significant subsidy they receive, and, sure, there's a number of doomsday scenarios that one is pose if we use the tools of dodd-frank and true to the idea of ending too big to fail that it may actually result in banks that are not as profitable as they are today. >> but there are all sorts of instances in which unfair trade practices, for example, by other countries do put our capital

istic ideals at risk. i'm just asking you don't see that as a possibility in the banking industry? >> i think it's a possibility, but there's other ways to deal with the concerns rather than embracing the idea we should grant our largest banks subsidy and putting them on the books. there's very little difference when you compare where we were in the lead up to the financial crisis with fannie and freddie than we are right now with the largest banks. it's the sometime type of guarantee, same distortions on the market, and in many ways, we could very well end up in that same situation, so, sure, maybe our banks are able to reap short term profits because nay are able to compete with other banks with subsidies, but i'll take the other side. if we remove the subsidies and guarantees, over time, we'll have a better and healthier banking system.

that is what larry summers said recently. >> how do you protect the banks in the meantime from unfair practices or unfair competition as it might exist? >> again, i think there's constant interaction. >> i don't think you need to like too big to fail or embrace it to be concerned about that potential risk; right? >> right. and we shouldn't ignore it, but the treasury department has offices dealing with foreign regulators and offices through the g20. there are mechanisms to deal with unfair practices internationally, and that's the right police to deal with them, not throwing your hands up and saying we're subsidizing the largest bank and take money from one pocket to put in the pocket of the shareholders and executives at the largest banks. that's what's happening. one study represent -- recently was $34 billion in subsidies in guarantee. i say take that money and put it elsewhere and we'll be better

off. >> i appreciate that. i guess the second point would be what's implied here is that this encourages banks to engage in risky behavior. could you detail that risky behavior today? >> the idea is banks -- anyone who runs a bank especially when they are large and interconnected in different businesses, they make decisions on how to invest money, manage their portfolio, and the question comes of what is the level of risk they're going to attach to each of the decisions, and the problem with too big to fail is that it impacts that decision making process. senator kaufman described it as being the rational decision of an executive when you take the sign curve in the decision making process of profit and loss from a particular decision, and that what too big to fail

does is take out the bottom of that because it's the rational assumption that if the risk doesn't work out, you're not going to have the negative consequences of that risk, and that's what happens with too big to fail is that you actually rationalize risky behavior because it's in the best interest not only of the bank, but of the shareholders and executives. >> thank you. i yield back. >> mr. mein for five minutes. >> thank you. let me thank you for the service you've given and in looking at this issue in such a scope, a tremendous challenge to our country when it happened with the healthy capacity to then look back at what happened and ask the kind of difficult questions that allow us to consider the implications of all that happened so quickly with such remarkable significance,

you know, at the height of the challenge to our financial system, so i appreciate your service to our nation, and i thank you for it and wish you the best of luck as you move into the next part, but thank you for your contribution, and i know that you would say as well that thats something that has been a great part of it is the work you've done and supported by some other fine people as well, some of whom i've known from prior existence, and i want to complement them on the great work they've done with you for your work, but, look, you've studied this. you've spend time really looking at the big picture, and had the chance to sit back maybe more than many of the people here in congress have, and you made a comment talking about unless there's dramatic and quick action, we're going to head down a path, that's a concerning observation to me. can you identify what you mean by dramatic and quick action and

what you think we ought to be doing here in congress to protect against the kind of concern you've identified in your testimony. >> well, first of all, thank you for your kind comments and it is certainly true. i'm the one who gets to sit at the table and take the credit for the successes and blame for the failures, but it doesn't happen without the people at tarp and the senior staff, and yes we benefited from one individual and that's my staff jeff molten who's been, you know, wonderful for our organization and deeply appreciative. as to your question what i was referring to is we have to stay here in the realm of the possible, and we have to go back and say there's certain things that could have been done with dodd-frank, things that were suggested in the senate by senators brown and kaufman that could have made this a better

protecting against too big to fail, but where we are today, there is a path that has a better chance than most of succeeding, and that's the one advocated by sheila bair, and it's ultimately not a very dramatic departure, just fulfilling the mandate of dodd-frank, and what she has said part of the proposal is the living wills where the banks are required to come up with plans of how they would be resolved in the event of a financial crisis, and she came out with something and has been saying this over and over again which on the face doesn't appear to be controversial. she says in order to carry out the mandate of dodd-frank, in order to really address too big to fail, we need to use these provisions, and if banks come up with things that are not sufficiently credible, not just to us, you to the market, -- but to the market to be resolved in a meaningful way, then we need to use the powers of

dodd-frank to simplify and shrink the institutions. she said stronger language on that on other occasions. what's remarkable about this is the deafening silence met by the other members of the oversight counsel and tim geithner. this is a path that at least has a chance of working because ultimately they are too complex and too large, and, you know, i think chairman greenspan said famously in the beginning of the crisis too big to fail starts with too big. it's not always too big, but it's interconnectedness and other things, but it's a really, really good place to start, but it really does appear what's happening with the suggestion is that the others are playing the equivalent of the regulatory game of running out the clock of saying nothing, doing nothing, and the bottom line she can't institute the changing before she steps down, and the plans are not coming in a matter of

six months, it could be a year before anything happens, but what would be an example of dramatic change? how about a strong endorsement from the secretary of the treasury, the chairman of the federal reserve and others that chairman bair's suggestion is going to be adopted. perhaps this can help chip away at the market's perception that resolution authority is a joke. if you look at the language that is used in rejecting the idea that we're -- that dodd-frank is going to somehow end too big to fail, that this resolution authority is going to work, it's striking language. it's not just the passive rejection, but a complete rejection. >> that's one the groups that included in their analysis that the idea that the government is going to bailout. this is part of the problem we're looking at. >> absolutely. they reject this is really going to happen. it's a minor first step, but i think if we start by the

government officials in charge of implementing dodd-frank instead of implements what are basically, i'm sorry, empty statements this is going to end too big to fail as we know it and never have to bail out anyone again citing provisions in the law which i heard and i'm sure you'll hear again and this laws says we can't bailout, so therefore, there's never going to be a bailout, but let's start with articulated plan similar to the one advocated by chairman bair saying, okay, this is how we're going to do this. wear going to simplify and shrink the institutions to have a cred l response to the market that we're not going to bail them out because right now, the empty rhetoric of not bailing the banks out, the market's not buying it, and you can measure whether or not your statements are effective or not. all you have to do is look at what the credit rating agencies say and how much cheaper the benefit is own how much cheaper it is for banks to raise

capital. there are things you can actually look to. .. i personally believe it chairman bair's approaches approach is a better one. thank you mr. chairman. >> the ranking member of the full committee, mr. cummings. >> thank you so much. as you were testifying i could not help but think about the

fact that come june 25 in my district, 40 miles from here, people will march into a room, to a conference on preventing foreclosure. they will march in and mr. barofsky, it literally appears 5000. they will face a very difficult situation and finally they will get a chance to sit down with some lenders and come, try to come to some resolve with regard to modifications. many of them will be lied to. many have been lied to. they have been playing games with a lot of these servicers, as if they were fools. and when i read your editorial piece at 4:25 this morning i was very impressed, and you know i'm just wondering, you know we just voted yesterday to end the hamp

program and i know how you feel about it. many of us feel the same way. but, when you and the program, we and the program and there is nothing to substitute, nothing, i am just wondering, is that a good idea? i'm just curious. >> as special inspector general, it has always been my position and it continues to be my position that t.a.r.p. made a promise and congressman i don't want to presume anything about your decision to make a vote for a lot of progressives that i've spoken to, members of congress, the reason why they voted for t.a.r.p., one of the really things that convinced them to vote for it was essentially a bank bailout, was this promise to preserve homeownership. >> you are right. that was one of the reasons why i voted fort.

>> so this is part and parcel of t.a.r.p. in my view as the need, that was the need to save the financial system. i don't rank them but i put them side-by-side. it was just the goal of t.a.r.p. to preserve homeownership as it was to save the large banks. now the second panelists disagrees with that conception and talked about that is being something to be taken into account, but i believe that is on par. so i look at the disappointment, the broken promise of the hamp program, and i do agree with you that we can't just abandon the goal of t.a.r.p.. i also can't defend, for those who voted against -- voted for termination of hamp, i can't defend this program because ultimately treasury has had opportunity after opportunity to make meaningful change. why on earth have those services that you just described, what they have done to those homeowners in this program which

has been so well documented, how come treasury has not lived up to a different promise it made, the promise it made in november 2009 to impose financial penalties on those servicers were not performing? why are we here two years into the program without a single financial penalty for non-performance under the program? >> and i agree with you. i need to gets to one other thing. the reason i started out the way i did was because you know, we can have all these discussions that we want, but when i go back to my district and that no members on both sides of the hour they go back to their districts, some of them may not see these folks but there a lot of americans suffering and you are talking about too big to fail and dodd-frank. if we basically cut the money for carrying out dodd-frank, i mean do you have an opinion on that? because that is what is happening. >> i am comfortable --, law-enforcement background. i have seen during budget

freezes and hiring freezes. at sigtarp we have been blessed and i take all the members of this committee on both sides of the aisle for your generous support through resources for agency. we couldn't do what we do otherwise. but those types of budget cuts and freezes have a direct impact on the ability of those offices to put people in jail, to lock people up and hold people accountable. >> but does that also have an impact do you think -- he said you know how the market is viewing dodd-frank. you talk about the possibility that dot frank could operate but you also said they look at it and say you know what? we are not so worried about it because you said too big to fail, but also could it be that they see that there is an effort to kind of take the money from out of these agencies so that they can properly enforce and carry out dodd-frank? that is what i'm trying to get at.

>> it may be part of that perception issue. look the bottom line is the regulatory agencies are not just charge with implementing dodd-frank but other things including law enforcement goals and enforcement goals and i'm thinking specifically of the fcc. when you take away funding, it may be that they have revealed their resources to dodd-frank but overall is an agency they are going to be able to accomplish less as far as enforcement is concerned and accomplish less perhaps in implementing dodd-frank. i am not here to wade into the politics of the budget battle, but look, it is simple. i've seen it over and over again with budget cuts. when spending freezes hit, it has a direct impact on enforcement. that is a reality. >> in just one last thing mr. chairman. "the wall street journal" article recently noted that republicans appear to be drafting bills aimed at dismantling the financial reform piece by piece at a time and what impact do you think that these repeated news reports

about the funding or dismantling of dodd-frank have on the market's perception or whether dodd-frank is working? >> to be honest with you i'm not really sure of what the impact is, in part because of the political realities of divided government. the question of how much success one side may have versus the other side. i haven't really traced anything or seen or heard anything but direct we links that, but if horse again if the agencies are cut so deeply to the bone that they are unable to implement revisions of regulatory reform, that is going to have an impact but i think the a far greater impact frankly is the lack of political and regulatory will in staking out how they are going to use this authority. they have all the resources to take on the issue of too big to fail and unless and until we see that shift, i think that is going to have our greater impact on market perception. >> thank you mr. chairman.

>> i thank the ranking member and ms. buerkle you are recognized. >> thank you mr. chairman and thank you mr. barofsky for being here this morning and my colleagues to you and your staff. thank you for all the fine work that you do. i have one general question and then i would like to just ask a couple of questions about some of the comments you have made already. would you agree that t.a.r.p. picked winners, perhaps letting weaker entities survive, and if so, do you think that maybe was a misallocation of funds? >> when you look at t.a.r.p. as a whole, i think the lack of transparency in the program in certain aspects have led to the very fair criticisms that it times t.a.r.p. may have picked winners and losers. generally speaking when we are talking about the different tar programs and of course there are 13 different t.a.r.p. subprograms.

it is hard -- we often think t.a.r.p. is a model and usually we think of t.a.r.p. as one of those problems, capital purchase program which by very definition picks winners and losers because banks apply for tarpaulins and some receive t.a.r.p. funds and others didn't. those who received t.a.r.p. funds essentially got the benefit of government capital. but there was in fact a process in place that was intended mostly on the banks predatory ratings, that type of thing. on certain occasions there were exceptions and we have done audit work on this. so certainly there were winners and losers pick. t.a.r.p. certainly didn't have a perfect record. there havethere there've been af banks that were supposedly healthy, deemed healthy and viable that failed. others that were deemed healthy and viable and months later had a tremendous amount of additional support like bank of america and citigroup. so i sit me understand that concern. on the flipside it publicly

would have been inappropriate for t.a.r.p. to give money to all financial institutions they came to the window. part of the importance of protecting taxpayer money is making sure went into banks that were healthy and viable but they didn't have the perfect track record. but i don't blame them for not having a perfect track record. i think based on our work in our reporting, it was incredibly difficult time to say the least. there was a real sense of panic. they made mistakes for sure but i don't think those were mistakes that were intentional in any way and overall i think they tried to get it right. they just didn't sometimes. >> thank you and then i just want to go back to comment, when you were responding to our chairman. you mentioned that unless treasury and the regulators use their authority, and you mentioned that some of those authorities they already have. we will experience a status quo are worse. could you expand on that for me, the authority that you are

referring to and whether or not they exist outside of dodd-frank prior to dodd-frank actually? >> i think the concept for example caps on leverage, capital floors are certain examples of things that have been around for a while. i think would dodd-frank does and as a sort of a positive thing it does, it really forces an entry point for using those types of mechanisms in anticipatory. in other words i'm going to go back to my discussion earlier about using living wills. this gives us an entry to evaluate the large banks that are systemically significant and evaluate whether or not they really could survive or whether the system can survive their failure. that is the key to any resolution plan is to take whatever it is and as chairman hare suggest putting it through a reality check. if it doesn't make that reality check, using those tools to are

there spin off certain businesses, to shrink the company, to simplify their organizational structures. if you look at some of the stuff that came out of the lehman bankruptcy, 3200 something different entities that were comprised. they are hopelessly complex and make resolution very difficult. i think that is a good start. of course we also have to remember that one of the limitations, if we wait too long in other words we don't use the authorities would when would make it these resolution plans, prescriptive way before the next financial crisis, even our best intentions may not really work because in an era of a financial crisis, that is when all the institutions are suffering similar threats at the same time it is going to be very difficult to execute some of these resolution plans. how do you sell off a large business chunk as part of a resolution if there is no one to buy it because the other entities are also going through the same stress of a financial

system collapse and i think that is what secretary geithner meant when he said to us the dodd-frank -- dodd-frank help but in the event of another financial crisis in the size and scope of the one we just met went through their maybe they need to do exceptional things again because even with the best intentions a reality of that type of shocks to the system is going to require, as long as the banks are too big, is going to require mcginn extraordinary intervention. >> thank you area much. >> mr. welch, five minutes. >> thank you very much mr. chairman. esther bravo brought a, i want to thank you for this tremendous work that you have done. we are really in your debt. this question, if i understand what you are saying is that dot frank is not succeeded in making the market to leave that it has addressed this question of too big to fail. in essence the implementation of

dodd-frank is not succeeded in convincing the market. >> when you say the implementation is that because of the regulatory provisions that had to be part of the follow-up of dodd-frank? >> right. so much of dodd-frank put the responsibility on the regulators and frankly on the treasury department and the chair of the stability oversight to send the right messages to the market. >> we would have been better off if congress specifying what were the guidelines and what were the parameters within which these large financial institutions could operate? would that have been a better approach? >> it would have would have been a more effective approach if ideas like senator brown's and senator kaufman's ideas in the senate which would have put leverage caps on the largest institutions, if that had passed that would have sent a very large and very clear message to the market that the largest

banks are too big to fail and whatever light a lot less on the regulators if that were included. >> then we get into the regulators and of course having a budget challenge in this country and this congress, and if we are cutting the budget for instance for the sec by $20 million, how does that affect -- what kind of sex -- signal does that send and how does that affect the ability to supervise the regulations that would apply at? >> according to the sec it would have a very direct result. it would inhibit their ability to according to chairman schapiro of being able to implement the requirements they need to do under dodd-frank. >> right and in your independent capacity is there offering to make sense to you? that is a threat in their ability to carry out their responsibilities? >> when you are a law enforcement agency and you have fewer resources, you have to

make cuts. frankly you have to make cuts across the board. everything suffers so that will suffer and enforcement will suffer. >> the same thing with the financial consumer perfection board. dodd-frank calls for an independent watchdog. that would be independent. they are advocating for the interest of the larger financial institutions, it would be advocating for the interest of consumers. the cr provision, the continuing resolution provision would cut that budget by 40% 143 million to 80 million. so would you have the same response to that budgetary cut and its impact on being able to provide those protections? >> i would imagine so. i'm not familiar with the budget again, being fortunate enough to work with elizabeth warren when she was the chair of the

congressional oversight panel i would certainly take her at her word that this would impact the ability to go forward. >> one of the points of this hearing is there are legitimate questions about how t.a.r.p. is being implemented and whether too big to fail is going to work. it is not clear what the consensus would be on the committee as to whether we want to be tougher on too big to fail policy or not. that is not part of that hearing is. but let's assume that we did have a few that was shared across the aisle, both sides, where we did want to protect the taxpayer from a future bailout. what would be your recommendation that congress should do in order to provide us with protection against another bailout? >> i think again, step one is working within the realm of the possible of a bill that has already been passed, and that is to exert as much pressure as you can on the financial stability oversight council, on secretary

geithner to fulfill the promise and to not take any angrand -- incremental approach but take a look at the advocacy of chairman bair and use those tools. the goal should be nothing short of getting rid of that subsidy, and integrated that economic advantage that the largest banks have over their smaller counterparts whether it is the 78 basis points referenced in the chairman's opening statement, whether it is the implicit guarantee, the increased credit rating. that has to be a goal because this is a remarkable thing about too big to fail. perception matters. perception is as important as anything else. it is unfortunate the credit rating agencies don't have so much influence over things but that is the reality and we need to take that perception head-on. we need to figure out how to use the tools that we currently have to try to deal with that perception and not -- i am

sorry, essentially ignored the advocacy of chairman bair and others who have strong ideas about trying to get us to a point where these banks no longer enjoy that subsidy. >> it the gentleman with the yield i would be happy -- i think we agree that we want to end too big to fail and i know that has been your advocacy and your time in congress as well as mind. the bill that some of us saw coming out of dodd-frank is it would prevent too big to fail. >> i appreciate that and the chairman knows i've voted really a significant part because of the testimony of mr. barofsky in favor of the committee bill on hamp and to the extent that we can find ways to solve the problem, we have got to do together so i really appreciate your statement. >> i appreciate the gentleman's advocacy. we don't always agree, but you certainly have a great way of reaching out and try to find

consensus and i appreciate that. with that i yield five minutes to mr. issa, the chairman of the full committee. >> thank you mr. chairman and i would join in saying that as we start looking at the particulars of the continuing resolution, if we can get to some bipartisan discussion where we agree to the number and then began begins saying, if we need to add to the sec or as mr. barofsky i'm sure would agree, some of the sunlight web sites and so on that are also seeing cuts, plus those backup acres they actually save us money, then i think we could find those offsets. i think as the chairman work so hard to recognize that hamp was a large amount of money that did not need to be spent to ruin people's credit rating, still at the same time i would join the gentleman in saying but i'm concerned about where we make the huts -- naked cuts and i would hope in the near future we began talking about the need to

make austerity moves and then begin to say, where can we find multiple votes for something by putting things in and you mentioned the sec. i'm very concerned that many of the sunlight activities that on a bipartisan basis have been investing in, are also on the block there and it is my intention to work with leadership on whatever the final leadership is when pleads -- once we get to the senate to plus those backup. i think we need the ox is the quite frankly dodd-frank with bipartisan support of this committee almost got in the way of data transparency and we still have to get back to the committee to getting that transparency into what was dodd-frank. mr. barofsky if i can throw a slide up, i want to go through a couple of these because this illustrates probably the most important point you are making today, which is the 2 -- three-step credit rating increase. go to the next slide. real examples. wells fargo.

their cost of money is 4.81 versus cho america at 5.26. next slide. if goldman sachs vilified here, if their cost of money is just under 5%, national city is over 6%, that is three-quarters of the point you are talking about and it is even greater. next slide. barclays bank at 4.39 versus pb and tea, certainly in this region. a little less than three-quarters of a point. 5.07 higher. last, citicorp, 5.64. not earned in any way except that they are big. huntington national bank 6.54. let reask it to you in a different way as a former businessman. if i am among the most creditworthy companies, the fortune 500, down to small companies that simply have healthy balance sheets, is there any reason in the world that they are not going to migrate to

the largest bank when the largest bank and make a profit, nearly a point cheaper than its competition? peer cost of money. isn't this going to move the most creditworthy onto the big bank while leaving the little bank with higher rates and being forced to take whatever is left behind? >> no, absolutely because again let's say you are depositing money in one of these banks. you go beyond the fdic limit. you want to have implicit government guarantees of too big to fail behind your deposits? i mean, from an ethical and moral point of view, you may not want to support these institutions because of this implicit government guarantee but as a businessman, how can you not take advantage of the fact that you are getting what is essentially free deposit insurance based on the implicit guarantee that the government is going to bail them out. what does that do? it makes them bigger.

and makes them even more systemically important. it is a downward spiral. it also takes a smaller banks and gives them an incentive as well. we need to get your. we need to get into this gravy train. we need to get on the subsidy level so we can also oppressor competition and raise money more cheaply just because of this implicit guarantee. it is a complete perversion of the system. >> i think that brings up a point i want to make sure the committee focuses on. if we do not change where we are today, the five banks would represent 50% will be seven banks that represent 80%. basically through mergers, the little banks will get this rate by getting big enough to be not too big to fail, right? that would be the business approach in order to get my business away from the big five. >> it is a real danger. there are some provisions in dodd-frank that limit concentration above 10% of all deposits but it is a real concern and a real problem. one of the things that we talk

about his lehman and wasn't lehman a good example of the government's not stepping in? so much of the incentive of allowing women to fail was a lesson that we need to get bigger than lehman because we need to make sure that we are big enough that we don't have to go through a bankruptcy because of the implicit guarantee of too big to fail. >> thank you and thank you for your service in your testimony here today. i look forward to reading your work as an academic. i yield back. >> thank you mr. chairman and now i recognize mr. corder. >> thank you mr. chairman. mr. barofsky of pleasure to have you here. when as a kid growing up i remember personals -- commercials and the avis commercial, we try harder because we are never two. all of a sudden number one seems to be in the financial market a guarantee by the federal government. whoever is number two, good luck to them because you can try as hard as you want as long as you are too big to fail. you always be number one.

my question on i will follow up with the chairman hare, with community banks if we see what happens where you have seven banks taking 80% of the market seems to me there is an incentive only for community banks to merge with or be acquired by the too big to fail banks. is that what we are setting up a precedent with a t.a.r.p. package? >> again there is some limits. there potentially could be some limits in dodd-frank and regulators that could help to prevent the largest banks from gobbling up all of the smaller community banks over a certain cap, but certainly consolidation and continued consolidation certainly could occur and might be a likely byproduct of where we are which wouldn't be healtht healthy for the consumer or in the state of the economy we have today where the community banks are the ones that are serving most of our businesses in terms of loans they could give them what i think would be an opportunity for the too big to fail banks to dictate more

policy and restrictions and make it even more prohibitive to have a recovering economy. >> less competition is never good for the consumer and the notion of the too big to fail banks of having more political power almost seems uninhabitable pool at this point but it certainly could happen. >> systemically as a result of the t.a.r.p. package and i may have missed it because i came in late but has there have been anything to change the way we do business to avoid ever having to have another t.a.r.p. package passed by this congress? >> in many ways the way t.a.r.p. has been executed and the way its legacy has increased moral hazard, it is made the future -- more likely and less until we deal with is too big to fail problem the increased concentration, the increased size, the increased increase interconnectedness, the fewer number of large institutions will contribute and lead us to a point where the too big to fail banks have become bigger and their failure less conceivable

where possible. >> would it not be just as like they because the precedent is set there? do such t.a.r.p. packages now be considered for nonfinancial stew shins, insurance companies? we saw that with aig but i question is does this not set a precedent that goes well beyond assisting the too big to fail financial institutions and any entity that may be deemed to be too big to fail regardless of what their commercial purposes? >> the moral hazard generated by t.a.r.p. wasn't just limited to banks. as you said it was insurance companies like aig. daughter mel -- automobile an issue like gm and chrysler. now that that is part of t.a.r.p. legacy is expanding moral hazard. >> and is a professor would it be wise now in any of your classes that you would consider, the opportunity of changing your business plan to include a path

to where you can now be acquired or guaranteed by the federal government because the president has been set over the last two years? >> it certainly is a possibility again unless we take the steps to make that so painful and really address it through a regulation, again right now, it is a pretty good place to be to be too big to fail. >> so much for entrepreneurship. i yield back the thank you. >> i thank the gentleman and with that, i ask unanimous consent that i have two additional minutes and i will grant the full committee ranking member or the gentleman, mr. welch, two minutes. okay, thank you. mr. barofsky, have spoken to you about the small-business lending fund. this legislative creation that

doesn't have oversight from your office, from the sigtarp office. can you talk about the small-business lending fund and the impact this has, especially on these t.a.r.p. banks, the small t.a.r.p. banks that are still within the program? >> part of the small-business lending fund congress enabled treasury to refinance if you will, really move banks off of the t.a.r.p. ledger and onto the spl les letcher. when doing so congress gave treasury the authority and direction to adopt certain procedures that were different for the t.a.r.p. tanks than other banks the common applied for this program. we made a series of recommendations to treasury, which is to reject it, to help protect the american taxpayer as those banks move from again, from the t.a.r.p. ledger to the spl les -- fbl less.

there are less protections for the taxpayer and we have made a couple of recommendations and they have been rejected. is not entirely within our jurisdiction. this issue is very much within our jurisdiction because we have jurisdiction over the sale of troubled assets and hear the sale of the preferreds -- stock which are essentially being sold by one government entity and sold to another entity is very much a within our view under the confines of our jurisdiction which is why we have announced an auto specifically on this issue. unfortunately treasury is dithering on whether or not they think we have this jurisdiction. i tried to schedule an entrance conference and we were told to hold off for a little bit because treasury general counsel has to decide whether or not we have the right to conduct an audit of the exit of tanks from t.a.r.p.. now i have not made a big deal out of this, because frankly, i

can't even conceive that they are going to come out and suggest that the very clear and sense of congress that we have jurisdiction over the exit of t.a.r.p. banks isn't going to be there and because you know the money has been funded into this program yet. we don't have this great sense of immediacy of getting this schedule. but, if there is some bizarre legal construct that they adopt and suggest that the can do this work, i certainly hope that my successor will immediately bring that to this committee's attention. because this is a really important area because of the potential for the taxpayer really to get a raw deal as t.a.r.p. banks exit tarpon going to fdl less. we need very close oversight. >> thank you for testifying. i would yield two minutes to the full committee ranking member mr. cummings. >> mr. barofsky back on debris 25th, i requested that your office analyzed the homeowner

complaints. can you tell me what is going on without and when we can expect to have some results? >> i just got an e-mail that has the culinary numbers. we are going through i think 25,000 hits to our hotline and part of what has been helpful is helping us to organizing categorize our hotline hits. since we have gotten your letter or staff has been going through our hotline literally entry by entry in pulling together. i got a notice just last night that we have some preliminary results. i expect that we will have a tea before too long. i don't want to give you an exact date because when you are walking out he shouldn't stomp on the people behind you with the commitment that you can deliver but i will definitely have staff get in touch with your staff today to get an estimate of the timeframe. >> thank you. that maybe one of your last duties. [laughter] >> probably. >> let me ask you this. one of the things that concerns me is that we are going to, as you move on, the question

becomes you know, and mr. massad is going to testify in a few minutes. one of the things i would say, if one witness was an side-by-side with the other, which is never, i would say what would your response be to what they are going to say in some way or another? it sounds like you have made some reasonable recommendations, and mr. massad who will testify and in a the few minutes it said mr. chairman he is going to come in and he told us a month or so it goes that he was going to be retooling. have you seen any evidence of that? and why wouldn't the administration accept some of your recommendations? i made why do you think? i'm just curious because there is a lot of frustration on both sides of the island i'm just curious as to what you think. >> there has been no retooling. the announcement yesterday -- yesterday non-coincidentally was on the date of the vote of the

house determinant ham. there was an announcement and it was an op-ed in politico that mr. massad offered and essentially said they are going to now finally, two years later, almost 18 months after the promise to impose financial penalties on nonperforming servicers, there's going to be a plan. i've read the op-ed and it was brought to my attention and frankly it sounded initially like a little bit of a gimmick. the ideas they are going to give servicers grades and withhold payment raced on that great. okay at least do some movement direction although again, i don't put a lot of faith in words at this point given the works that we have almost 18 months ago. it is action that matters. so i did what i would normally do in that situation. i reached out to the treasury and said okay, give us the backup for this. if i'm asked a question today in front of this committee i can give an opinion about whether this is going to be effective,

but the construct is and the response back i get -- first to get no response and eventually we got a response that no we can't tell you because we don't have any other policy or plan other than what was outlined in the op-ed. this is ready, fire, aim all over again with respect to this program. this has been the one incident of potential retooling of finally meeting our recommendation, not just our recommendation, almost everyone's recommendation to start holding services accountable financially and i am hopeful -- i am hoping that this is better late than never as opposed to too little too late but ultimately words at this point are just words and after all of the broken promises, we need to see some action on this front if we are ever going to get the services to be held accountable for their terrible and abysmal performance that even treasury acknowledges. >> thank you mr. chairman. >> i thank the ranking member and mr. barofsky we certainly

appreciate your testimony, your candor and your ability to react to a variety of questions. too often in congress we see the person on the other side of the panel as more sport. it is quite interesting to have someone who is on the other side of the panel hewitt is of sporting mood. you are willing to react and answer the question posed to you. too often in this place and around washington it is not about answering the question posed to to you. is about what you want to answen very frank, very forthcoming, very open and answering the questions posed to you even when they are not convenient. we certainly appreciate your service to your government and to your country. thank you for your time today and thank you for your testimony. most of all, thank you for your hard work. good luck to you, and your

future endeavors. god bless. this committee will now be in recess for five minutes until we get set for the second panel. [inaudible conversations] [inaudible conversations]

>> if i could say pretty much what i wanted as mayor and the only person who got in trouble with me. >> current new york city deputy mayor stephen goldsmith spent eight years as mayor of indianapolis. today he has a boss, michael bloomberg and a different job description. >> i'm here to try to make the streets a little bit cleaner and a little bit safer and the tax dollars go a little bit farther and improve the large cities particularly the great large cities who have a vibrant future. i steer away from things that

will detract from that agenda. >> q&a sunday night at 8:00 on c-span. >> now more from the house oversight subcommittee looking at the dodd-frank financial overhaul bill. the committee also heard a dissent that the t.a.r.p. program from the assistant treasury secretary for financial stability, tim massad. he testified the taxpayer wouldn't fund any future wind downs of failing firms because the fdic now has the authority to break down these firms. this is an hour and 15 minutes. [inaudible conversations] [inaudible conversations]

>> the committee will come back to order and we will now recognize our second panel, mr. massad is the acting assistant secretary for financial stability at the u.s. treasury in his capacity mr. massad has the office of financial stability, which administers t.a.r.p.. prior to joining treasury, mr. massad was a partner with the new york law firm which had a diverse corporate practice. thank you for being here today. is a policy of this committee that all witnesses be sworn in before they testify. do you solemnly swear or affirm that the testimony you are about to give a be the truth, the whole truth and nothing but the truth? >> i do. >> thank you. let the record reflect that the witness answered in the affirmative. so with that, mr. massad we will

recognize you for five minutes and your written testimony will be entered into the record.ente we will then have some questions from the panel. >> thank you. >> thank you chairman mckenna, who ranking member quickly and distinguished members for the opportunity to testify today. you have divided me here toyo address whether the perceptions of some institutions are too big to failth persist despite the passage of dodd-frank and i'm happy to do so. i'm also pleased to be following special inspector general neil barofsky on his last day in office. sigtarp's recent quarterly reports suggest t.a.r.p.'s most recent report may be the moral hazard and i'm happy to address that statement as well. big t moral hazard is a real and significant concern, but to c suggest that this is t.a.r.p.'s legacy confuses a responsees to crisis with the need to fixoi the flaws in a regulatory system that helps trigger the crisis. t.a.r.p. was necessary and it i

did what it was supposed to do. it is most significant legacy is that a combined it combined with other government actions help save ours economy from a catastrophic collapse and may haver helped repent the second great depression. the lesson we learned learn from having to take these actions was to port the -- debtor protect ourselves against future crises and help with the moral issue are predatory system agent to be fix. today while more work remains we have taken significant action to do just that. in particular we have taken steps to address the moral hazard associated with the fact that t.a.r.p. another government interventions were necessary and to address the too big to failwe problem. just 19 months after t.a.r.p. was enacted, congress passed the dodd-frank wall street reform and consumer protectionas act, most conference of of reform of the revelatory -- financial riveter system since the 1930s.- dodd-frank contains three main elements that work together to address the too big to fail problem in particular. first and most important,

dodd-frank is the government authority to shut down a break apart large non-bank financial firms whose intimate failure might threaten a broader system. does so in a way that protects the economy while ensuring large financial firms and not taxpayers bear the cost.be dodd-frank provides us with the tools to ensure that nito firm will be insulated from the consequences of his actions are protected from failure.it dodd-frank makes clear thatt taxpayers must not be asked to bear the cost of a financial firms failure. second, dodd-frank creates a framework for identifying and responding to risk in the financial system. it creates the financial stabilityan oversight council ad the office of financial research fsoc is charged with identifying risks to financial stability, sip responding in promoting marketan discipline. it supports a test by addressing the critical need for more standardized useful and reliable data. third, dodd-frank requires regulators to impose substantiallyre stronger

provincial standards, race-based calf rope -- capital leverage would be tougher. bigger comics terms will have to hold more capital than smaller and less complex firms. dodd-frank also requires a req certain large firms undergo test and requires a living well. it also restricts risky activities by banks such as proprietary trading as well as the growth by acquisition of the largest firms. dodd-frank sets a clear path forward. we have made important progress in its enactment to implement its provision this provision but there is a lot more work to do. the financial markets arencia closely watching his progress which underscores the importance of the implementation. of course, -- let me turn brief. back to t.a.r.p. is another piece of for storing a strong financial system is unwinding the extraordinary assistance that could be provided the crisis. since i last appeared before the and talk to --

t.a.r.p. is continued to make good progress. i am happy to notice this hearing is taking place we expect to receive an additional 7.4 billion in repayments from banks. this means that taxpayers will have recovered more than 100% of the funds invested in the banking system, that is 251 billion compared to the $245 billion invested.wo every additional dollar wein recover from now on will be a net gain to the taxpayer and with today's w repayments over % of the total amount disbursed under t.a.r.p. has been recovered. guilts mikasa t.a.r.p. will be far less than anyone expected. earlier this month the cbo estimated the overall cost to be approximately 19 billion. of course t.a.r.p. is only one part of the action taken by the to thisnt to crisis which also included support for fannie mae, freddie mac and the federal reserve actions and guarantees money market funds. is important to look at the cost of all of thesse measures.

our latest estimate of the direct fiscal cost of these interventions which will be made available shortly will show that they are actually should he a small profit when we look at all those actionsd combined. now this estimate does not e include the stimulus measures and it doesn't include the significant cost to our economy of this crisis.t jobs were lost, businesses fail, household wealth declined and tax revenues -- but that damage would have been worse that would have been worse without the emergency response. thank you for the opportunity to testify. i welcome your questions and let me say i am happy to respond to any of the matters that were raised whether it is pertaining to dodd-frank or other issues. >> thank you. i recognize myself for five minutes. there are a number of questions

dodd-frank raises. i read your editorial against my legislation ending the program. we do not have to litigate that. we won the vote so i am fine with that. we had a bipartisan vote as well. i hope that sends a strong message to the overseers of the program. the status quo is simply not acceptable. destroying credit scores, taking their savings, it is not a responsible program in order to help half a million people. the people who are brought into the program and given verbal modifications of their mortgages and are kicked out of the program at the end of the day. the recent report was 700,002

ordered 40. we appreciate you releasing those numbers but it is not acceptable. we do not have to really get that. i want to raise a question i think is interesting. use of the taxpayers will not be on the hook for future bailouts. can you explain how you justify that under dodd-frank? >> dodd-frank provides taxpayers will not fund any bailout. it gives the authority -- >> how does it do that? >> it gives authority to fdic to liquidate and non-bank financial firm that is threatening the system and to oppose those costs on creditors and shareholders, including the ability to clawback those costs and to the extent those costs cannot be imposed on creditors and shareholders. there is an assessment after the fact on large financial

institutions. >> you disagree with the assertion that dodd-frank and robust, the comment that in the event of the next crisis we have to do extraordinary things beyond the scope of the dodd- frank legislation. >> as i testified before, the secretary's statement referred to the fact that it is difficult to predict the shape, the nature of a crisis. you may have to take extraordinary actions but he was referring to using the tools of dodd-frank. >> interesting. ok. another question i have. is treasury in terms of looking at financial stability, are you looking at the interconnectedness of our financial markets across regulatory regimes? for and regulations and how they

are moving forward. is there going to be, speaking to market participants. they see an opportunity for regulatory arbitrage and to make money based on the fact that other european countries are behind in terms of changing their financial regulations. is this a concern? >> absolutely. it is a good question. thank you for raising it. one of the important things is to work with foreign regulators to -- >> are you doing that? >> yes. there is work going on to do that. the dodd-frank law provides for that. >> i know it does. how was that going? is that progressing? how is it progressing? what are you doing? >> there's a lot of work going on by each agency. as you know. >> i know there is a lot of work going on by each agency.

you are stating some obvious things. it is part of the treasury tact and i have seen you before. i call my own time so you need to answer the question. >> i will be happy to provide you with details about that. i do not have them at my fingertips. it is not my responsibility to coordinate with our international friends on those regulatory regimes. it is my responsibility to implement t.a.r.p. i would be happy to get you a detailed response. >> it does not entail looking at international regulatory regimes is when i am trying to understand. i will move on. it is fine. the financial stability oversight council. which is a creation of dodd- frank entails regular sitting on a council together. each regular has their own

staff. is it your view in terms of preparing for this, how this council will operate? how their meetings will occur, where they will occur. is this being driven by the treasury department? >> fsoc is chaired by the secretary of the treasury and it has a number of members. 10 voting members as well as non-members. it meets periodically and it is promulgating rules. it is a lot of activity. it requires the coronation across all agencies as you know. >> i do not believe i said that financial stability does not entail looking at international regimes. i think i said the contrary. i would be happy to have you details on what is going on. >> she said it was not york responsibility.

>> that is correct. my responsibility is t.a.r.p. i will recognize mr. quigley for five minutes. >> thank you. good morning. questions this morning were brought up earlier about the community banks, the relative disadvantage. are you in a position to talk about the comparative disadvantage many of those banks, many in my state are at and what can be done? >> that is an important question. we have to have a thriving community bank sector in this country. we have taken a number of actions to do that. we funded the obama -- the it obama administration did not provide funds to large banks. we provided funds to 400 small

banks and 60 were funded out of the program. treasury push for the implementation of the small business lending fund to provide assistance. the differential you referred to is important. dodd-frank provides us with tools to address that. it allows us to impose tougher standards on the largest banks. capital standards, leveraged standards, liquidity standards. there is a lot of work to do to implement that but it does give us some tools to adjust the problem. -- addressed that problem. problem.ess that >> could you detail some of those? >> some of our banks do not have access to capital markets. that is why we have been able to see a lot of the larger banks have repaid t.a.r.p. funds and some banks have not.

we are continuing to work with them. is capital under a tart.a.r.p. not required to be repaid. the fact that we funded a lot of those banks has help them weather the storm. >> perception in my state is that as simplistic as it sounds, you have bailed out the big banks and shut down the small ones. if you are in my position, how do you respond? >> a good question. i think what we say is in fact under t.a.r.p., we provided capital to any small bank that was viable. we ended up providing that overall, 650 banks. we're continuing to work with them. the issues you raise as to whether big banks have an advantage. dodd-frank is meant to provide

us with tools to level the playing field. it needs to be fully implemented. >> a lagered discussion at some point. let me shift gears. march 21, a report that goldman sachs and others are skirting the volcker rule by saying it does apply to long-term principal investments. what has reaction to that then? >> i am not familiar with the particulars of implementing the volcker rule. i would be happy to get your response. >> thank you. i yield back. >> this is not the time -- you had identified one of the things you would do is to try to be

responsive to any comments that were made by the gentleman who testified before you. he raised an issue which was a question i think your general counsel was looking at, the right to conduct an audit of the exit of banks from t.a.r.p. is there any reason that should be a question? what is your position as to the authority of the inspector general to audit that process? >> thank you. it is a good question. the issue goes to whether sigtarp or the inspector general has jurisdiction or what their jurisdiction is. i respect both are in total to those opinions and i defer to the judgment