other. american values an practices, but also in the geneva conventions that provide legal protections for our own fighting men and women. all of these arguments have the force of right, but ultimately even they are beside the most important point. there are many arguments to be made against torture on practical grounds. as i have said, i believe torture produces unreliable information, hinders our fight against global terrorism and harms our national interest and reputation. but, ultimately, this debate is about far more than technical or practical issues. it's about far more than whether torture works or does not work. it is about far more than utilitarian matters.

ultimately this is about ultimately this is about this is about morality. what is at stake here luke is the very idea of america. the the amana, whose values inspires the world and in still in the hearts of its citizens the, no certainty that no matter how hard we fight, no matter how ade dangerous our adversary in th course of vanquishing our enemies we do not compromise ouo deepest values. we are america. a we hold ourselves to a high your standard.that's wt's re that is what is really at stake. osama bin laden is dead, america remains at war and to prevail w, need more than victory on theicn cettlefield to the it struggledn to advance freedom in the face of terror in places where oprah's of rules brad th malevolence that feeds and ideologies of violent extremism.

prisoner abuse, expect a terrible toll on us in this war of ideas. they inevitably become public and when they do, who could thes threaten our moral standard and expose us to faults widelye discriminated churches the democracies are no meritistic a inherently moral than thend othc regimes. i and a stand that islamist extremists who resort to terror would destroy us if they could obtain the weapons to do so. but to defeat them we must alsoe prevail in our defense of the universal values that ultimately have the greatest power to evi though it took a decade to findi him, there is one consolation for bin ladens's ten ury feige of justice.alling he lived long enough to see whab some are calling the ear of

spurring, the complet repudiation of bin laden's world view and the disregard for lifed and human dignity to advance ita in egypt and tunisia, arabs successfully reclaim their pclai rights from hypocrisy's to determine their own destiny without resort to violence of innocent lives and now arabs are trying valiantly by means a justice are caused to do the same in syriasa and elsewhere.es as the united states discusses and debates what role we should play to influence the course of the year of spurring can we nott all agree that the first and mot most obvious thing we can do isj stand as an example of just government and equal justice the idea that an individualhe human rights are superior to the will of the majority or the

wishes of the government? p individuals might forfeit their life and liberty as punishment , for breaking the law, but even then has recognized in our constitutions for prohibition oe cruel and unusualy punishment r they are still entitled to if .espect the basic human dignitys even if they've denied that respect to others. tdon't mourn the loss of any terrorist life nor do i care if in the course of serving their d malevolent cause they suffer the great harm. and they burn their terrible punishment in this life and the next. we what i do more in is what we pol lose when by official policy ore official neglect we allow, confuse or encourage those who fight the war for us to forget that sense of ourselves which is

our greatest strength that when, we fight to defend our securityt tribe, not a king, not a twistei interpretation of an ancient religion, but for an idea that all men are in dhaka by their creator with any legal rights. it is indispensable to our success in this war that those t we asked to fight noted in there discharge ofir their dangerousus responsibilities to the countryy they are never expected to forget that they are americans and the rollin and defenders of the secret idea of how nationses should be governed and conduct their relations with others, gen even our enemies. and those of us who've given this onerous to be are obligedhn by our history and the many terrible sacrifices that haveene been made in our defense to make

clear to them the need not risk the country's honor to prevail, violence, chaos and heartache of the war through the provision in crueltyth and lost that they are always americans in different, stronger and better than those who would destroy us. i yield the floor. >> now a senate hearing on changes to u.s. intelligence agencies since 9/11. we will hear about the implementation of the 2004 law that created the office of the director of national intelligence. witnesses include former cia director michael haydon and the former house intelligence committee ranking member jane harman. the senate homeland security committee is chaired by connecticut senator joe lieberman.

>> um [inaudible conversations] the hearing will come to order. good afternoon and thanks to all of you particularly the witnesses for being here. this is one of a series of hearings the committee is doing this year as we approach the

tenth anniversary of the attacks against the 9/11 and the purpose of these hearings is to examine how well with national security reforms implemented in the wake of 9/11 are working. this particular hearing of course has been held in the aftermath of a spectacularly successful collaboration between the intelligence and military agencies locating and killing osama bin laden the al qaeda leader who presided of course over the 9/11 attacks on america. this success required intense and focused cooperation among the key intelligence agencies and the defense department as well as other related agencies through of the government. each organization as we go back and debriefed on this mission brought its distinct assets and expertise to bear on the mission

which was to locate bin laden and then to capture or kill him and when it comes to intelligence, sufficient material was brought together to reach informed conclusions with a level of confidence that enabled the president of the united states to make a tough call but one he felt the evidence enabled him to make the size of the result of this remarkable success. i don't believe that all of this would have happened ten years ago. in fact, in the report of the 9/11 commission the author expressed frustration that as they reviewed the government at that time no one was actually in charge of the hunt for bin laden which symbolizes to the commission that this function and the disunity that they can conclude contributed to the 9/11

attacks in the first place. in response to the 9/11 commission criticisms this committee drafted and congress has the intelligence reform and terrorism act of 2004. there is -- there was then and still is today another body of congress called the house of representatives and there was another committee that drafted similar legislation headed at the time by one of the three witnesses, congresswoman harman. a result of the most sweeping intelligence reform since the creation of the cia after the second world war. i think the most important reform in the 2004 act is the creation of the office of director of national the intelligence with the aim of bringing together coordinating

the efforts of our 16 intelligence agencies and offices under one leader to make sure they work toward a single goal of collecting and analyzing intelligence to better protect our national security. so, the purpose of the hearing today really is to take a look at how the zero dni is going to include the rest of my statement in the record except to say that i am grateful that we have the witnesses that we have before us today. really three people particularly well to assist us in answering questions we are posing which is how has the odni money and what if any statutes of limitations are necessary?

i mentioned congresswoman harman was the ranking member of the house permanent select committee on intelligence where she worked closely with us as i sit on the to those in fort she chaired the homeland security subcommittee on intelligence information sharing and terrorism risk assessment and has now gone on to be the head of the wilson center which she is already doing a great job. general michael haydon, former director of the central intelligence agency, former director of the national security agency, former deputy director of national intelligence really a great national asset to help this committee in its deliberations and former assistant director of central and intelligence for analysis and production. and really one of the nation's top experts on intelligence analysis. we think all of you for coming today. we look forward to your testimony about where we are,

where we need to go to ensure that our intelligence community consistently performs at the highest levels, the kind of levels that we saw demonstrated in the hunt for and taking down of osama bin laden. senator collins. thank you mr. chairman. i am going to follow the chairman's the day and also in an abbreviated version of my opening statement. let me begin by echoing his comment about the distinguished panel that we have before us today. i too am particularly delighted to see former representative jane harman here with us as the chairman has indicated she was one of the four authors of the 2004 intelligence reform and terrorism prevention act and worked very closely with us through extraordinarily intense

talks if the negotiations that spanned several months. general haydon has given so much work and effort to his country and also was the key behind the ausley year as we drafted that bill and of course as the chairman has indicated has had a stellar career in the intelligence community, and i am confident that all three of our witnesses will help us do the evaluation that we are undertaking today. last week's news that osama bin laden was worked demonstrate exactly the successful collaboration of intelligence and operations that we envisioned and reforming our key capability in the wake of the

attacks on our country men en in 2001. this was a great victory for the intelligence efforts and a great blow to al qaeda. but the fact remains that al qaeda isn't going away and that is why it is time for conagra's to examine closely and build upon the success that have emanated from the intelligence reform and terrorism prevention act identify any shortcomings and work to correct them and build further reforms. as the chairman indicated, our 2,004 law created the director of national intelligence and the national counterterrorism center to foster information sharing and collaboration among our security partners not only across the federal government,

but also tall levels of government. the dni has made some concrete progress integrating the 17 agencies in the intelligence community. i want to give just two examples of how that integration is taking place. they are not the kind of examples the public is generally aware not but when you talk to those working these frequently come up. in 2008 the dni ruled out the innovative state which is an intelligence analyst facebook but instead of being used for social networking, our intelligence experts are posting, sharing and asking each other about topical issues. they can collaborate with colleagues across agencies and the world helping them to share leaves and resources more easily than ever.

a second example is the national counterterrorism center's creation of the pursuit teams that met terrorist networks, track threats using information from across intelligence agencies to bridge the gap between national and domestic intelligence and help to put the pieces of the intelligence puzzle together. those are just two examples of innovative ways the stovepipes have been broken. i completely agree with the chairman that i doubt that the kind of integrated operations that were successful in going after osama bin laden could have existed a decade ago. so i think that we have indeed made progress. and there are other examples as well. the unrest of mr. zazi and

mr. headley are two other cases where the dots were corrected. on the other hand, this committee has investigations and reports on the fort hood shooting hair show the we still have a way to go in other areas particularly in the information sharing between the fbi and other members of the intelligence committee. we concluded that the dod and the fbi collectively had sufficient information to have detected major passan's radical islamist extremism but that the department of defense and fbi field to act effectively together on the many red flags signaling that he had become a potential threat. so the bottom line is almost ten years since the attack of september 11th and 7 years since

our landmark legislation, our nation as much safer, but we clearly are not yet safe, and that's why it's incumbent upon all of us to reevaluate the mall and to look at where we are and where we need to go. finally, let me and with one comment that seems to be of concern to me. when we drafted the intelligence reform act, we described the dni as the quarterback that the 9/11 commission envisioned and that we intended. at a were earlier oversight hearing the two leaders of that commission, governor kaine and congressman hamilton made the point that some of the functions we envision the dni carrying out are being done by john brenau of the white house, and that

troubles me not due to any doubt about mr. brennan's capability but because that structure undermines the statutory role of the dni. so a basic question we adjust and is whether changes to the mall are required or whether it is simply a matter of more fidelity to the spirit and the letter of the 2004 law in order to realize the potential of the dni. thank you mr. chairman. >> thank you. well said. congresswoman, it's great to have you here on the other side of the table. welcome back. >> thank you. i'm not used to be on the other side of the table. you and i and senator collins and pete hoekstra or at the same table day and night as we crafted what is now probably the

worst ackerman never invented. again it is a pleasure to testify with good friends before dear friends and dedicate former colleagues who serve on one of the most important and bipartisan committees in the senate. i now work in a bipartisan institution and pinch myself every day to be so lucky and to succeed our former colleague lee hamilton at that job. i am passionate about the topic of the hearing. intelligence and intelligence reform of the focus of my 17 years which is 100-1912 years in the house of representatives. i didn't run and intelligence agency like mike haydon and i wasn't a top analyst like john gannon, but i did try to conduct as you did careful oversight over the function during my eight years on the house intelligence committee and my eight years on the house homeland security committee.

i agree with both of you that if 24 or more heroic navy seals deserve the nation's gratitude for the killer of the world's most wanted man last week. the information on which was based drive in most part from the integration of people and achieved by the intelligence reform terrorism prevention act to those of four. we now have proof, big time proof that erpta works and can obtain this aimlessness that it authors including me dream of. in fact, my view is had we not passed erpta and had we continued to operate the intelligence community using the 1947 business model set out in the national security act we would probably not have been able to thwart a number of plots

or to take down osama bin laden. let me focus briefly on three issues. first, both of you have been addressed the performance of the director of national intelligence, the dni. by the way i take credit for the name of the dni. originally it was supposed to be national intelligence stricter, nid, which i thought sounded like a bug. >> it's interesting. i take credit for that, too. islamic and i'm the one who actually did it. [laughter] >> i think we can all agree that pete hoekstra had nothing to do with it. [laughter] >> moving along, second, let me talk about something senator collins mentioned which is the role of domestic intelligence agencies and third some ongoing issues evolving congressional oversight of course not involving the two of you.

i think the dni continues to be work in progress. congress intended her or him to be a joint commander. a quarterback is a good analogy, but i recall our modeling this after the goldwater nickel slot that created a joint command across four military services and worked very well i believe so we envision the commander across 16 intelligence agencies, far more than a coordinator come and a job that clearly required leadership skills. erpta is not perfect but i believe it contains adequate authority to give the dni the necessary leverage that she or she needs to get the job done. i've often said that the function is 50% law and 50% leadership. congress intended as i think both of you said the dni serves

as a principal intelligence adviser to the president. those authorities were i think clarified and enhanced when the president, president bush issued an executive order and that was the intention of congress including of president bush as well. this has never really happened. i believe during the bush administration vice president cheney was the principal the intelligence adviser and as senator collins said during this administration, john brennan, the counterterrorism coordinator in the white house is the principle intelligence adviser. in my view, neither president has adequately valued the dni rule nor has made, nor as either president made an effort to support the mission. this is something i've think congress and those of us who agree with congress should push hard on. it's not to diminish the

reputation and powered of the people in the white house who have assumed the role, but we have established a person who is confirmed by congress and accountable to congress to take the job and i think we should push harder to make sure that person has the job. president bush, also, let me mention -- let me raise a few issues that i think are important that the dni is addressing. number one, the dni has suggested, and i would urge that this happened, that the national intelligence program be taken out of the defense department and added to the dni budget. i think this will achieve more efficiency and promote more accountability. a second come - the issue of right sizing of the dni staff is being handled well and we should move on to other topics.

we should also by the way reduce the use of outside contractors. third, when general petraeus moved to the role and i assume he will and the cia director panetta becomes the security fence hopefully we will finally cement a good working relationship between the cia director. this was impossible to doesn't for because defense rumsfeld opposed the law and duncan hunter also did. we had to work around them to achieve what we did, and i thought it was pretty good. finally, the dni clapper urges the we reduce the number of reports to congress. i know how those reports began to statutes and i know what they mean politically to the members who have them but i think consolidating them will save time and resources and enhance the focus on the mission. i want to keep to my time so let

me move to another subject and that is our domestic intelligence agencies. i think senator collins said there are ongoing problems with the vertical intelligence sharing, this is going better especially because you're doing so greater oversight and the fort hood massacre as you said to have perhaps been prevented if there had been better collaboration between dod and the fbi, and the especially weak player is the intelligence analysis function in the department of homeland security we need much more work and i want to think the stuff and you for the work you did on helping to pass for the over classification bill last year which was signed into law by president obama in october. finally, on congressional oversight, your committee has far more jurisdiction than the counterpart on which i served for eight years.

but i don't believe any committee in the senate or the house has adequate jurisdiction. we know why this happened. no one wants to give it jurisdiction but i actually think that reorganizing this function in the congress would carry out a strong recommendation of the 9/11 commission that number to give a better shot of providing the oversight necessary to be sure that the intelligence community will get the job done and help us protect our homeland. i agree with senator collins that will last week's news is fabulous it will not diminish the threat to the homeland and it probably will not diminish the potency of al qaeda although the potency i believe will now move from pakistan to other places like yemen where al qaeda and the arabian peninsula is emerging in my view and the part of al qaeda doing the most work to inspire people to attack us in the homeland.

of let me finally conclude by saying that there is no way to make our homeland 100% safe. what we can do is minimize risk and we are doing that. we need to constantly reevaluate the threat against the united states and prioritize our investments. we are not making a lot more brain cells and those we have have to be applied against the top threats and surely we are in a resource crunch and resources must be carefully marshaled. let me close by recognizing the heroically brave women and men of our intelligence community who put their lives on the line every day for the country often in ostia places around the world living apart from their families. surely the cia director panetta and the dni clapper and some members of congress and others

and president obama should take a lot of credit for last week's activities. but the true heroes were those in the field not just the navy seals the those in the field who put together the clues that led to the information come attract the careers that found the house that john osama bin laden and they deserve a heartfelt thanks. >> here here. thank you. that gave the president a sufficient level of confidence in the information he had to order. thank you for the excellent statement. it's good to welcome you back. good for being here and we look forward to your testimony now. >> thank you mr. chairman. good to see a lot to begin. let me begin by attempting to scope the problem. we sometimes look as if we are trying to repair a community there was dysfunctional, and what i want to describe is i think what the legislation attempted to do is to balance

two things both of which are virtues and two things which in a complex organization has to balance and that is simply unity of effort for the whole and autonomy of action for the poor and those are good things, both need to be protected, and i think the macrojudgment was more than a brick shy below when it can to the unity of effort for the whole and that was the intent of the legislation. the problem is i think what we are trying to do is to build with some of our young guest analysts describe as a network organization which very frequently looks and acts like it is leaderles or has many leaders and the only way we can get from here or there is to have strong leadership in order to create this kind of organization. and so what the nation decided in you have fostered in 2004 is another path to the balance, not

the d.c. ausley -- dnr i. i think that in the committee we were nervous about that and quite busy at that time. we thought it had a real authority and did provide roughly a fair amount of blue but even those who had our doubts recognized that if we needed more blue and unity of effort to the then current model was probably going to be inadequate simply because it had full-time work as the director of the cia and would be very hard for anyone almost superhuman to kind of reach above that role and both psychologically and physically play the role of cushing the entire community. but you have a real daunting challenge because whatever blue we had in 2004, whatever forces we were able to create in the

community can from the fact that the head of the -- community headed the cia and he was in the court position inside of the community and of course the decision was made whatever the dni was going to be he wasn't calling to have his office at langley let alone run the cia. so he had a difficult challenge to kind of pull us out of this course, put us on another and put enough bricks in his backpack he had enough authority to get beyond what the old model provided. beyond that is it's substantially difficult as it was this has been harder than it should have been. we were ed war and therefore it's kind of hard to restructure when your daily tempo is so important but there is another i think more subtle challenge because we are at war. those big organizations to care

a lot about, and most of those first initials are n are in the department of defense and as mentioned i was the director of nsa and i wouldn't say we were schizophrenic but we did have a depravity and other personalities. we were the national security agency but also directed to act as a combat support agency to read in many ways, your law is trying to strengthen the national character to bring organizations under the director of national intelligence. it is inevitable that after nine years of war the combat support character of those organizations become more and more. there's nothing wrong with that, that is a good thing we would all agree and foster it, but it's not quite a convergence on the course of action you set out in terms of strengthening the dni. there are other the next and it is harder. we have had four in six years. that can help.

we have had for dcia and that can help either. i think one of the most powerful phrases in the legislation is the rule that you gave to the dni to recommend to the president the dcia. i just told you we had four and four. i can think of only one example where the dni recommended the head of the cia to the president of the united states and the was john negroponte recommended me instead of his deputy and we overlapped for only six months after i took the job. it's actually pretty important. finally, and i am fearful of being preferential here, my job as the principal deputy i think is important because the two tasks you gave to the senior intelligence adviser and the president and the functioning to the community, those are really hard and the deputy function is really important. for over half the life of this

legislation that the deputy position has been vacant. that has a real impact on i think as you said, senator collins, affecting the intent of law rather than trying to change the legislation. now, all that said, i think there's been some really good news with regard to the dni. number one, it exists and is accepted and frankly in 2005 when i was the principal deputy that wasn't a given throughout the community. the in ctc has been measured as a success and there will be questions as we go further. imagine if you will chongging to create the nctc which is characterized by foreign intelligence with domestic law enforcement. try to picture that reported not to the dni but if the reported to the d.c. i and was your

former espionage chief american political culture would have rejected that like a foreign object and so the dni structure has actually enable the success of the nctc. the dni is also filmed from time to time in front of the trains. i can recall director mcconnell spending eight -- 18 months on legislation you are familiar with. that couldn't have been done by any sitting director. only the dni could have brought the gravitas of the community to that discussion. this sounds a bit personal but it's a very real. every day i was there i think god that there was a dni. i had no idea how anybody could be there and be the head of the american intelligence community. we talked about the recent success and you used the term quarterback. i think i'm a little bit more comfortable with the term coach to describe the dni and i think

it's clear why wasn't on the inside but from all of the accounting i think it's clear that the director panetta was a quarterback for this effort. there is an echo of that if you recall the cerium nuclear reactor the was ultimately destroyed when that came up director mcconnell and i worked very closely but in fact she is empowered me to act on behalf of him because this was at the operational level, and i don't know the we want the dni routinely played at that level. there's other things they set in motion, sharing 502 which sounds like coded language to most folks in the room but it's a process which allows over time the bureaucracies to more readily share information. joint duty is another thing that's been set in motion and that over time will change the

culture of the community, not possible without the current structure. there are some tinkering sentinel that someone might consider. i will not suggest any. that should come out of the sitting dni but some things that come to mind if there is anything you need to do to get the national intelligence program more fully under the dni and out of the budget, there is some legal impediment i'm not aware that probably a very good thing. we've already mentioned we are cooperating pretty good east to west at the national level. but the new thrift will require more cooperation from north to south and how better to we should win the national, state, local, tribal assets? i don't know that there are legal impediments, but if there are i think the would be a great help to rebuild that said i think i agree with something both of you suggested. we are going to succeed or fail

moron tangibles than on the precise litter of the law as important as this. the most the come to mind or the personality of the dni. that really matters to that person is. second is the relationship with the dni to the dcia. it's got to work. my shorthand is the dni of the dcia ruined the run and the dcia total transparency. then finally as it is already suggested whatever shortcomings there may be in the lock everything is fixed. if the dni is and everyone knows him to be the president's senior intelligence adviser without question. thank you very much and i yield to the questions. >> thanks, general peaden, there was great. thanks again for being here. please, proceed.

[inaudible] if he could hit the microphone. >> there you go. >> thank you pure in my view for all the performance of the u.s. intelligence community has improved dramatically since 9/11. analytical tradecraft advanced significantly performance counterterrorism programs has reached the highest standard of professionalism and dedication. the application of technology has broadened, deepened and accelerated. interagency collaboration especially in support of the fighter has improved remarkably. in progress towards the more distributed model of intelligence support to users anywhere in the world is palpable the fusion of intelligence and well-trained people and advanced technology and the interagency team work and afghanistan and iraq are at the highest level ever that seemed unattainable when i left the government. the creation has been contributed significant to this progress will the leaders and

individual agencies with administration's congressional support also have taken the steps on their own. the department of defense when congressional approval to establish and to those into the position of undersecretary defense for intelligence to improve management of its considerable intelligence assets and programs. significantly in my view the secretary defense elevated the authority and the budget of the joint special operations command to provide in the field a strong coalescing leadership, kirchen of command and a powerful authority to coordinate the focus requirements for intelligence collection and analysis by would risk the whole side judgment that the cooperation of the cia including the counterterrorism center has never been closer and more effective. there is always room for improvement intelligence business, the strong club of performance of the agency's is unprecedented in a source justifiable to the intelligence community. the domestic picture in my view is next. the difference with fidel ranges there is no counterpart in the

homeland to integrate the intelligence process these. the fbi has built an impressive intelligence infrastructure and shifted significant resource once devoted to more enforcement to domestic intelligence collection analysis. the national counterterrorism center has made significant progress in integrating foreign and domestic intelligence analysis. the department of land securities was 22 constituents agencies sometimes taking initiative on their own has made commendable strides in our border security and some but uneven progress in sharing threat based information in coordinating policy with state and local governments in the private sector. overall however domestic agencies do not show the strong unity of effort that is evident abroad. in my judgment it is a much slower work in progress. the dni should be seen as a leader with explicit response of the lease for clearly defined selected oversight performance for the development and

application of interagency program standards and for the implementation of the national intelligence program. we are not yet there in my view. i believe however we can do better. we should recall that the erpta was passed after decades of debate about the success of tci to manage the community. today it is challenged by historic political change of leaders first threat environment and technological revolution that is enabling even minor adversaries to hurt us as never before. the dni has the potential to help agencies achieve a unity of effort in this challenging environment. to be optimized, the dni rules and responsible these should be tied clearly to defensible strategic priorities and requirements. the leadership must be afforded it with regard to these priorities but not intrusive in the agency specific matters and must recognize the distributed

network nature of intelligence supporters of the world today. and most importantly in my view the incumbent must have the visible and sustained backing of both the white house and the congress and it is questionable whether the dni has this now and this in my judgment has been a major obstacle to progress. they needed additional authorities i believe his management of the national intelligence program would be strengthened if it were removed from the defense budget and a purple of tightening budgets he will need clear authority and powerful top cover to evaluate and prioritize the key programs for growth, reduction and elimination it will he has a unique potential to perform. at this juncture however rather than simply that authorities are believed there would be more useful in the period of leadership transition to take a step back and consider ways to get the intelligence community, white house and congressional priorities aligned to enable and

support this hazardous mission. i would say several priorities areas in addition to the management across the agency program as i which the dni is uniquely positioned to help improve the performance and enhanced the u.s. national security. balancing strategic tactical collection and analysis which in my view has swung too far in the tactical direction to recruiting trained analysts for the information age giving greater and full internet access to social media and outside experts essentials against the challenges we face today. and strengthening the commitment to science and technology in the area where subject more than ever to technological surprise. enhancing training and education for the intelligence profession that is with a curriculum that codifies and conveys the body of knowledge that defines the intelligence profession itself.

that insecurity counterintelligence in the 21st century, pursuing the benefit from innovation and avoiding the costs of doing it the old way and continued promotion offormal the agencies and improving intelligence strategies and policies as well as the government contract -- improving government contract management overall. i'm glad to say i am aware that the dni is working all these important areas but in my judgment it will need help to deliver the best results the and it shouldn't matter -- should matter to all of us that he succeeds. >> thank you. door statement and the others prepared will be part of the record and we appreciate the time and thought that you gave to your statements. we will do a seven minute round of questions here to the general haydon, i want to start with you picking up on one thing you

said, reminding us that the dni has two major functions. one is to be the senior intelligence adviser to the president, and the other is to be whatever term we chose, coach and manager, leader, quarterback of the intelligence community. you've been close to the functioning since it can to affect and first one to say you're absolutely right one of the shortcomings the last period of time which is not into law but its implementation is that for too long the principal deputy commission has been vacant and that means either we are putting these two functions in a very burdensome way on the dni himself or he's not going to be about to -- either do both not as well as they should be

done or fulfil one and not do as well as he should. how would you assess the function of the dni as the senior intelligence advisor to the president in practice? in other words, we talked about this a little before. the cia is a big agency that the lot history and a lot of assets so that's the muscle they have. but from what you know, you can't talk about it from the inside but has the dni created since we created the senior intelligence adviser to president? >> writing it's gone back and forth. it depends upon the personality of the president, the personality of the dni. the first thing is the dni has to choose where he's going to shift his weight. as he shifted downtown? that's frankly have to draw the

picture or does he shifted back out of headquarters. there's an incredibly powerful gravitational pull downtown and that is sent out of pride for the dni. that is out of the demand of the president and the national security council staff. my experience to show you how difficult this was, i was generally always there, not in the morning briefings, the was generally the dni show one of the decisions he made it the deputy level, principal level, and i was almost always invited so i knew there with the admiral mcconnell literally president or stephen hadley would say okay the to mike schogol first and he would talk and then if i had anything to add i would add. we were both of there. the admiral was really disadvantaged and i'm sitting atop the nation's premier analytical service. we are going down with the

problem to ensure. at mcconnell is up the road reading books and i'm putting somebody in the back of the car with me explain the details are running down because it got the analytical staffs. so there is a bit of attention, a bit of an anomaly. you have to work through would remember that transparency and freedom of action between the two the bci and the cia have to be friends and the dni doesn't get to to do the job which is smooth functioning into the community. unless everyone believes he's the responsible one for job one. he gains power for the second task from his performance on the first. >> i agree. we wanted the dni to be the principal intelligence adviser to the president because the gathering of intelligence goes beyond the central intelligence agency even though it's -- it has the most personnel and the

most assets in the community. is the presence critically important to this fact? it's not in the statute or is it generally in the statute cracks >> first of all, senator, mr. chairman, this depends on the personality of the president and all presidents deal with this in a different way. president bush was very

her or his job is to leverage

the strength of the other agencies. if you are a good ceo you don't do all the work yourself. you help those underneath you understand the mission and perform their mission as well and then you put together and that is what i see is the dni role and yes i agree with general haydon that being part of the president's daily brief is important but i don't think the dni personally tested with every time letting other people shiny and have that face time is the sign of a secure leader. >> he said twice now that we ought to be pushing harbor. in the face of the fact that neither president who is head of the dni has used that to the full extent we hoped. are you thinking additional statutory authority to the dni or is it more to make a point to the president that if we could that this is what we intended and this will serve him better? >> yes. it's the latter. i would think to the extent that

our law left any ambiguity, and of course as one of its authors i thought it was quite as well. that was clarified. >> but not without in dignity. islamic in the face of opposition by the to keep people in government at the time i thought we did extremely well. but executive order 120003 issued by president bush and supported at the time by candidate obama as i recall was an attempt to make even clearer we intended the dni to be the principal actor in intelligence. i mean, you can't make a president rely on the somebody in the chair. but as general haydon said, you can try to help forge the right chemistry between the president and this person, and you could also explain as congress that the person accountable to

congress for the failure of success is the dni, not the vice president of the united states or the principal counterterrorism office in the white house. >> do you want to get into this? >> just as former deputy director [inaudible] orie regard it and still do and as access to the president and ability to serve the president is absolutely critical to the rule of the senior adviser to the president. i degette -- by the way, i will add it and i think mike knows this all it takes resources to do that successfully and that is a substantive role that you play in the form it's difficult for managing of the community role and the d.c. i struggled with it and all of them try to do the two things. but i think the problem with of the dni construct is i don't think they have analytical

resources to serve the critical role. it takes to produce that is a tremendous and the estimate of resources and expertise and they have to be serving the person who actually provides the briefing. >> so is the answer to try to provide more analytical resources to the dni? >> that would be the answer to the question, yes. i think if he's going to continue to serve in that role he needs to have more resources. a person can't do it on their own. >> because otherwise this will naturally move to the cia -- >> i think there would be a strong gravitational pull in that direction. >> okay. thank you. senator collins. >> thank you, mr. chairman. as i am listening to this debate, it reminds me that an washington there are three

levers of power. one is your relationship with the president, and we talked about the fact and i agree with representative harman that neither president bush nor president obama has fully valued the dni as the principal advisor to the president the way that we intended in the law. the second is the control of personnel and i want to come back to that with an example. and the third is control of the budget. each of you i believe made a budget recommendation to us when we wrote to the 2004 law it was a big, huge dispute over whether the intelligence community budget should remain with the dod and then be doled out essentially to the agency. so whether it should go through the dni.

and i think, but i want to clarify that each of you are recommending more authority for the dni in this area. so if i could first explored the budget issue and start with representative harman. .. unless there is a bar in the statute by just getting hopefully this president to support a.

>> i have been advised that we have been in discussion with the dni about whether there is there is a need for statutory action and they are not sure, so they are coming back to us with an answer and we will reason it together. >> general? >> yes, maam. you have got some tension outside the inside the law on the budget. ever be picked is great, determined is what you decided and then you have got section 1018, which says nothing in here of the progress of the cabinet officers of which these officers are located. i'm not suggesting you go back in and use a wrench to change any of that led to the degree you can end the process, foster the dni determines i think that is a very positive thing. in terms of shifting out of the dod budget national and intelligence program into an

independent account under the dni think most people look at that will say you would actually strengthen his authority and the execution year which is not a bad thing. it may not do a whole lot in the planning or programming about in the executioner which is where you look around and say who is burning money at the rate expected and who is sent and let me ryan mind everybody was my money to begin with and that might be a very positive thing. >> mr. gammon. >> i agree with all that has been said. i think jim clapper is made a persuasive case that i would have probably agreed with even before he made it, and i think in a era of greater stress on the intelligence budget i think it is important, important and it real terms and symbolically that he have that legit control. >> i was smiling as general hayden was talking about the language, because i remember how difficult it was that we did

want the dni to be responsible for determining the budget but in order to get the bill through, i think we did create a compromise or some lack of clarity in order to get the bill accomplished, which sometimes happens so it will be interesting to see if we can perhaps clarify that. let me turn to the personnel issue. as representative harman has mentioned at the start of this current administration, shortly after leon panetta was confirmed as the cia director, the dni, admiral blair, issued a directive in which he claimed the right to select an individual other than a cia station chief to be the dni representative and foreign government. and, this builds upon similar

but far less public efforts that were undertaken by previous dni meg ripati -- negroponte and mcconnell as well but this did blow up into a rather prominent public battle between the dni and the cia director. and the unfortunate, in my view, outcome was the white house was forced to choose sides and sided with the cia, which in many ways in my view, undermined the dni's ability to to in the whole area of personnel. so, my question is, who should be in charge of the personnel in the intelligence community in terms of allocating assets?

mr. gammon we will start with you. >> first of all in a particular case you are citing in my judgment i think it was badly handled and so the outcome need not have been what it was and i have to believe it could have been managed in a way that the parties of interest of this conflict could have got away with a much better feeling but i think it ended up undermining the dni and did a lot of damage to his ever to establish authority. i think in the nature of the global threat environment in our country, the need to be able to move assets quickly is critical and i think the dni needs to have some authority to be able to move personnel also. so i don't have the confidence to say how precisely that should be crafted into law but he does need to have that ability and i think the dni is the appropriate authority to do it. >> thank you. general hayden?

>> yes, maam. admiral mcconnell and i had that very issue for quite a while when we were in office and unfortunately the he couldn't get it across the finish line. i recall, this is a very emotional issue for the cia and i was doing my duty in terms of representing and frequently my senior staff would say you just take this to mr. hadley or someone else in the white house. my response was guys, we take this to the white house, we lose. there is no way the white house can support the dni in this kind of issue. frankly i think the dni was wrong. i think it should be a station chief. i think our foreign partners expected to be the station chief but the dni has a right to be wrong without being over ruled and such a public humiliating way by the white house, so i agree with john. it was a very bad thing. in terms of moving personnel around in general, falling back a little bit on the military model commanders talked his commanders.

commanders don't command troops inside other people's organizations, so i think the model we might want to think of is to make sure the dni has the authority to demand capabilities of his component commands come his component commander, nsa, nga and cia but to leave those commanders, component commanders to freedom of movement is how they respond and how they create that capacity for the dni wants it but he fully should have the authority to demand capacity where he needs it. >> that is a good distinction. >> i strongly support that last point and also agree with mike hayden's earlier point that the dni should carefully pick her his fight and hopefully pick the right fight. this was the wrong fight. all of this beats the conversation we are having and have been having from the start. i felt again given the implacable opposition by

secretary rumsfeld and armed services chairman duncan hunter that we did pretty well. we consulted closely with an unnamed source than in the bush administration to make sure we had adequate authority for the dni to build the budget, not just to educate the budget it has moving money, providing money is how you give somebody power and i believe we had adequate authority there. section 1018 was modified or clarified later by executive order 120 -- 12333. in terms of people, even people for the pdb, if i were the dni i would use assets that exist at a monthly 16 intelligence agencies to help me do what is necessary there. there are excellent analyst at the cia as we mentioned.

john gannon knows that extremely well and they surely were very good at providing information leading up to the capture and kill of osama bin laden. those assets could be used by the dni. there is no prohibition against using them. they don't have to move to different box. i think we should be done with moving boxes around and we should insist that the dni get the respect that hurston deserves and do the job by leveraging the assets of the agencies under her or his command. just one final comment if you will indulge me. i also believe that as the intelligence community more fully adjust the joint model of the military, where in order to advance your career, you need joint service, that will help promote those kinds of exchanges and willingness to give up talented people as well.

senator collins that was in the love and giving some points for joint service and trying to break down as and she said the stovepipes and promote a need to share culture instead of a need to know culture. >> thank you. >> senator collins, one of the other ways in which the law attempted to give the dni authority in a way that would help him or her be a better manager or leader of the intelligence community was in the recommendation of personnel throughout the intelligence community. general hayden as the beginning of a series of questions he made a think a very good point which is to the best of your knowledge, the only cia director who was actually recommended by the dni was yourself and in the other cases, i assume what you are saying is the name came from

the president. while the dni may have formally put his name to the bottom of the letter recommending that is the way it happen. >> that is my understanding senator and frankly there is nothing wrong with that. but if you are going to establish that kind of relationship, if you have this ideal relationship between the dni and the dci a, starting off with one owing nothing to the other for being in the position, it isn't a disqualifier. >> it makes it harder, you are absolutely right. none of us here think that general clapper came with -- up with the idea of general petraeus being ahead of the cia. not that he is opposed to it. i talked about and i'm sure he's happy he is happy that it. this discussion is another piece of evidence and one that we just had of the way in which the law can express an aspiration that

the congress has regarding something but it all depends ultimately on how the people in the positions are implemented. go with acknowledging the piece of unaccustomed congressional humility let me go on to ask you, one other idea that has been suggested to us as we take a look back at the dni is that we ought to extend the authority of the dni to recommend, to approve, recommend and order prove personnel throughout the intelligence community below the level of the head of the constituent agency, perhaps down to the second or third position in the agency. what you all think about that lex lets start let's start with mr. gannon. >> e. i would think that is an idea whose time has not yet come. [laughter] >> the that didn't have any particular charm for me either

senator. >> representative harman? >> i think there are higher priorities like urging the president to fully stand up to privacy and civil liberties board required under the law. i would go there before i would start an opportunity to pick new flights between the dni and other agencies. >> am i right in interpreting the reaction to consistent with what we just said about the dni relationship to the dci a, that the head of the constituent agency ought to be able to choose his own second and there had -- just in terms of their ability to work together. let's see, let's go back to this extraordinary experience we have just been through with the intelligence leading to the take down of osama bin laden.

the president designated the tour of the cia, director panetta, under title l to be in charge of this operation. even though in the end of course, and leon panetta both privately and publicly has gone out of his way to say that he then essentially delegated the final part of it to a title x force which was the special operating command under admiral mccray then, i suppose the first question i want to ask is whether consistent with what we have been focused on today, do you think and i know this is second guessing a spectacular success but whether the president consistent with the intention of the love we were talking about should it designated the dni to be in

charge of the hunt for bin laden as opposed to the dci a? jan do you want to start it we will just go down the row. >> in terms i think the answer to that is yes. i think this was a highly risky operation and there were at least plausible reasons to designate someone else. i'm just guessing that the president has worked longer with director panetta than he has with dni clapper on a personal basis and figured he not only brought the assets to the table in terms of preparing the information on which special ops team acted but he also had a strong relationship with congress and therefore that made him probably the best guy especially in the event something went wrong. so i think this was a call based on personal chemistry more than on an organization chart and i don't fault the president for making it and the result was

spectacular. >> and it worked. >> all that is true and i agree with it but i don't think it is exclusive. i think it is structural. i don't think it is personality-based. if you do it under title l it is a covert action. executive order says the president can change this but what it says right now is the only -- is the central intelligence agency so i understand why that is gone in that direction. technically the director panetta had what is called opticon rich means he is responsible for it. he gave admiral mccray then and his group's take on the tactical control. it makes great sense. i can't think of any other better way to do it. with regard to the dni role of this we actually have this discussion in the bush administration and congresswoman harman has talked about needing more presidential of to the job and we got a fair amount from president bush based on my recollection. we had a pretty serious debate

about this role and we went to the law, and the language in the law is that the dcia reports to the dni for all the activities in the central and teijin's agency and it is not authority direction or control which are also english words that were available but they weren't chosen. fields in a decision, and we have this discussion long before going to abbottabad, is that the dni had to have total transparency. the covert actions are so sensitive and those delicate but that president and i suspect this president wants no one between him and the individual carrying out the covert action. and so in that sense the dni is kind of here in a be aware of as the nsc role but not in that chain because we discussed this at great length. he really clearly didn't want to

make this to ops rather than one. >> discussing in other words is kind of action? >> that is correct. title xv covert action. >> right and begin because the cia director is in charge of the operators. mr. gannon. >> i have no problem with the way this transpired and i don't think really had negative impact on the dni's authorities. as a professional intelligence officer i regarded covert action is partially an intelligence activity. it is supported by the national intelligence budget program so the dni should play consulted role but i think the accountability for covert action belongs acutely to the president that there should not be any players between him and the actual operations beyond the cia director. >> let me if i may go over my time, want to ask you mr. gannon a somewhat related question. i was interested in your

statement and your testimony that the intelligence community has moved to what you call a more distributed model of providing intelligence support in which a large number of intelligence agencies and officers provide direct support to policymakers and also work closely with the military. in fact with troops on the ground and that there could va conflict between that model and having a strong central leadership. i just want to ask you to develop that a little bit more. is there necessarily a conflict there or is there an argument the dni should in any case be the leader ultimately responsible for building the distributive network and ensuring it works properly and accountable for the performance? >> the direct answer to your question is i don't know there is necessarily a conflict of my point is i think we do need to

understand the evolution of the intelligence community to a more decentralized distributed model of intelligence support. back in the '90s when i was producing intelligence, there rarely was a preference for the national customer at the cia, and i could. >> just to clarify? >> the cabinet level, washington-based, the president and the white house. >> as opposed to. >> as opposed to the warfighter, the military establishment so if i got a request for analytic support safe from at that time -- i would say if you could wait a few days i will get a sanitized version. ice on the 97 berman change partly because of the digital revolution where we could provide it in real-time and secondly because of the demands of people like -- and he would say heck now i need it now. look at the challenge.

this is the post-cold war period. i have challenges and i need to have real-time intelligence and i need to have the best that you were giving to the president. so you started then the decentralization. was no longer just coming out of cia. you have to find other ways to get the information out there. but i think with the balkans conflict, that began where the demand was not only to get information out there but to actually have intelligence capability in place in the field where you could actually provide intelligence requirements and analysis directly to the mission that it was to serve. i think that is what i was talking about, the jsoc model and afghanistan. my point is that i think we can sort of lighten up about how much the dni should be controlling this. this is the network's environment that we were talking about here that mic and i both

had mentioned. i think that is working very well and the dni should be nurturing that but the dni should be above it all looking for where there are gaps where you can better enable it, better resource than two growth that capability for the intelligence. i don't think there's anyway we are going to get back to the old days where you had an essentially control distribution of intelligence support. >> right and i hear you saying that we shouldn't try to get back to that. the world is gone beyond that. >> it is just the expectations we have put on the dni. if successful authoritative dni and by the way i don't see a secretary of defense who worries about a lot of what is going on. i think this is, a lot of the success we have had in afghanistan is because we have developed a network capability and that means you are not going to have be intrusive central authority getting in the way.

>> that is great. thank you. senator collins. >> thank you mr. chairman. we talked a lot about the dni this afternoon. i want to get your assessment of the nctc, the national counterterrorism center. i remember when president rushed by executive order created what was called ptech and i can't remember what that stands for but it was the predecessor agency of nctc, and i visited i believe that senator lieberman was with me, i visited t. tech and i remember being struck by how young the analysts were and got the distinct impression that agency sent over their least experienced analysts. by contrast, when we visited nctc, the analysts seem to be far more experienced and there

seemed to be competition to be assigned to the nctc, totally different, but that is my observation as a senator. i would like to hear your views of nctc. has it been effective? where does it need to go and i will start with you mr. gannon. >> i think nctc has been effective. i think it has been grown from strength to strength and is much better today than it was two or three years ago. i think it is doing a commendable job of integrating foreign and domestic intelligence and producing an analysis for a much broader nationally based customer base. i would say that the.which i think needs to be addressed by leadership and i think it is a leadership issue and that is the tension between nctc and the ctc

and cia. i was actually around and 1986 when we created the ctc and i think the ctc, there are different missions here. i don't think it is that difficult to appreciate they are different and they should be respected for their differences. they have some need to support one another and we could address that. but i think what has happened is the ctc in the washington domain is getting less attention, less respect and i think it deserves a tremendous amount of credit for what it has been able to do in providing analytic support to operations in the field and the reputation it has in the field if you talk to special operations people for example is very powerful. i don't think it is ever done better than it is doing now so why would we want to see that organization in any way diminish because we have created an nctc? i think you can do both of them. i think sort of the rap against

ctc was that it was in support of operations and didn't support the washington community. now we have the nctc that can do that and it has the responsibility of the ctc doesn't have to do integration of foreign and domestic. i think those missions can be developed that there has to be leadership and there has to be appreciation and the white house and congress have distinct missions that both of these organizations to will the people have to be given credit for. i perception is the ctc is not getting the credit in washington environment that i think it deserves. >> thank you, general. >> very briefly and as john just said, i was asked this question them both the dni role, deputy and head of cia, what is the division of labor between the two? what i'm going to tell you now is not perfect. it is wary but i think as john

noted that is okay. it is a bit offense and defense. u-turn to the nctc first to deal with the homeland and what needs to be done about it. hence the powerful blending of foreign and domestic intelligence and law enforcement. >> ctc has its center of gravity on the offense. we are going after these people and we need to know where they are. so i think we are blessed to have both been lucky to live in a nation that has the resources that can afford what i call redundancy, not duplication or competitive analysis. fundamentally, there are different and they're focused on different things. >> thank you. representative. >> a terrorist threat integration center, i know. i remember, was set up by president bush i think out of frustration that the intelligence function of the department of homeland security was taking so long to be

established and i think it has now become the national counterterrorism center underwrite 2004 law has served us extremely well. i understand this point, but i think our big threat now his attacks to our homeland and a piece of this we need to nurture and in fact is doing well is the nctc. it is very ably led by mike lighter who is a holdover from the bush administration, very good call by president obama to keep them there and get, along with something called the -- which stands for the interagency threat assessment and coronation group, a group of police and first responders who calmed to washington for a gear and work the nctc, is preparing good product for local law enforcement so they know what to look for and what to do.

nctc plays an indispensable role in that regard. the other point i was making is that after the abdulmutallab plot was finally foiled, that was not a great moment for intelligence community, mike lighter set up something called pursuit teams. we discovered there was no one in the u.s. intelligence community who had sole responsibility for detecting and piecing together disparate threat information. talk about offense/defense. that is an offense we absolutely need in order to protect our homeland in nctc provides that so i think we have room for both of these things. i think the week after in this picture is still the intelligence and analysis function at the department of homeland security. in the bush administration charlie allen had that job and he was a legendary cia director of operations who built it in my view a kind of many cia at dhs. i'm not sure we needed it there but i surely think we need more than what we now have there.

in fact it is kind of telling that rand pierce who is not the director of i am a but is an undersecretary of homeland security, has the portfolio for counterterrorism at the department of homeland security, not the director for intelligence and analysis. >> thank you. my final question for each of you is, is there any recommendation that you would like to make to us as we look to reifies necessary to the 2004 intelligence reform act? mr. gannon? >> i would just say that i think we are in a period of transition in the leadership in the intelligence community and the should be a great time to take a step back and i think of gates is leaving. there's nobody who has more knowledge and more desire to make dings work and i think jim clapper is a guy who works very hard to work with others.

i can imagine having a battered dni for the times we are in. so to bring some of the folks who are leaving to talk with them about how we could have the human dialogue about people who know and have worked like mike is an example, bring them together to ask let's commit ourselves to making this work. let's admit we have a need to do it, and let's concede we have a terrific guy and jim clapper and a capable set of leaders across the intelligence community and get their ideas about, and their commitment, with new leaders to move forward. >> thank you. general? >> i would be receptive to whatever the dni when he needs changes on lott to go where he has to go. i don't think there'll be numerous but when they come i think you can bet he needs them to get from here to there but to echo what has been set at the table before, a lot more is depending on the individuals and taking full advantage of the law

and those informal structures that get so much done in such a complex kind of organization, so i would keep a close watch on that. if you do end up with for lack of a better word pathologies in terms of poor process and personalities, then there isn't enough history and there isn't enough structure to overcome that. and therefore, that is a danger sign. you need to be aware of. >> thank you. >> i think the law is a good law and it is working and the people in the top positions are excellent, and we had an enormous success last weekend we have had other substantial successes over the last several years. we are getting better and better at this, building on the record of three administrations in pursuit of osama bin laden starting under bill clinton when he was indicted and again at the cia was set up to pursue him.

we didn't get ari far with that. the then national security pfizer's hair was on fire but alas, we didn't get the job done and through the bush administration and now the obama administration, with successive congresses we are doing better so i would kind of say that is in good shape. a piece of the law that has never really been implemented is the formation of a robust privacy and civil liberties board. i know both of you have written letters in my last job i wrote letters. to people of the top of now been designated by this administration but i don't think the board -- and why does this matter? it is not just to check a box of the civil liberties community which is a robust community and should be as happy. is to make certain there is full vetting of policies that affect our u.s. constitution and the

implementation of the fisa limits we all work so hard on and the implementation of the patriot act and perhaps new policies to deal with something i know you are both worried about which is our vulnerability to cyberattacks. we want a group of knowledgeable people to screen these things and then to persuade an anxious public that the policies are a good idea. i was told today that the patriot act extension may be in trouble on the hill in both parties because people don't understand why we need it. and, i think they would understand that that or if there were a bipartisan privacy and civil liberties board to explain this. the final point is that our vulnerability in the near-term future is to our homeland and that is why the nctc matters and that is why vertical information sharing matters. we have to think very carefully

about the domestic intelligence space and how we are going to move forward and make sure that we don't trade off liberties for security. i don't think that is a zero-sum game. i think we will either have oath or we will have neither. getting from here to there will depend on the watchdog that the three of us plus pete hoekstra insisted be in the 2004 law that has not yet been fully operational. >> thank you. thank you all. thank you mr. chairman. >> thank senator collins. one more item that i want to take up with you while we have you here. my impression from the testimony at least a representative harman and mr. gannon is that using the term general that you used, kennedy of effort, is that we don't have the unity of effort regarding domestic intelligence that we have regarding foreign

intelligence. and i know represented harman you have been critical at the department of homeland security is not where it should be. i agree. i think secretary napolitano is working on that and we are getting better but i wanted to invite any of you and we will start with mr. gannon because you made this point, what is the problem in terms of unity of effort? i note you weren't criticizing the of the eye. you were admiring their improvements they have made in counterterrorism but what do we need to do and does the dni needed additional authority or is this one of those areas as you said before that the dni, looking across the community, maybe this is an area that the dni authority has now focused in on? >> i would like to make several points here. i think you are dealing with frankly new agencies like the

department of homeland security. compared to the department of defense or the cia, they have years of doing foreign, working on the foreign intelligence side and developing cup at -- capabilities that are extort me. we don't have these capabilities. the fbi, and by the way would have reduces racism for the fbi today but i would also say that i think we underestimate the difficulty of transforming a law-enforcement agency into an intelligence agency and if i had been a cia man transferred to a law-enforcement agency i would have been horrified. so i think we had to expect was going to take some time and then some of the constituent agencies are doing their own thing and dealing with new missions. there is a lot of overlap, but i would also have to say that you also have fragmented congressional jurisdiction that i think it's been a real problem. there is no but i would call

adult supervision, giving all these agencies and ability to deal with the strategy and then to measure progress against that strategy. >> adult supervision from congress. >> yes. i wasn't talking about you. >> i know, i know. this is the most significant failure we had been working to adopt the recommendations of the 9/11 commission and we were really pretty good at reforming the executive branch but when it came to reforming congress, it just didn't work. >> fud again on the national side you have got the cia with years of practice and they have jsoc now which really has become a center, the gravitational pull on the agencies to work collaboratively.

>> and as you said. >> don't have any counterpart on the domestic side and a lot of what is being done including with the fbi while the structure is being put in place the output i think is -- but i have actually attended some of what i can find of who actually has jurisdiction in a particular hearing, i don't find it an aggressive approach on part the part of congress to really put quality measurement on what is going on. >> so what should be done about this? general hayden? >> first of all let me just say i agree totally with everything that john is just described. not bad people or lack of effort. it is very hard for us to do because we haven't done it historically. recall your legislation sets up the fbi to be a domestic intelligence service and everyone said that it was great in 2004 and late 2008 attorney general mukasey finally did issue fbi guidelines with regard to working the spaces between cases as a domestic intelligence

services. you saw how will well that fit in the popular political culture. it unleashed a firestorm of criticism so this is hard because we have not done it before and our political culture is a bit of a rejection for it. it brings the point to call someone harman brought up, you make people feel better if you have got those mechanisms in place and working to give a comfort level that this is being overseen as well. i guess to reinforce it, this is a very important if not the most important area of focus, the new flavor of threat homegrown, low threshold, self-radicalized, individual which puts a lot or wait on domestic as opposed to foreign, lot or wait on law enforcement as opposed to intelligence derived and if we don't begin to perfect our processes and organizations there are, something bad will happen and we will overreact and

perhaps make it even worse. >> well said. go ahead representative harman. i was going to ask you if you agree whether this is a matter of trying to give new authority against the dni or just searching the dni to focus in on domestic intelligence as one of the weaker links in our chain? >> i think the dni has adequate authority. i think we need to have, and this is something you can do, a public debate about how to do this. not whether to do this. i think most people get it, that the risk of homegrown terrorists great and maybe the harm from homegrown terror won't be as great as two towers in new york falling down and killing 3000 people but it is certainly possible, we all know this, that nuclear or radiological materials not only can be funneled into this country but

certainly they radiological materials are hearing can be assembled into a dirty bomb or several and harm a lot of folks. but my point is we need public by an. and. it isn't just making people feel better. at least that is my view. is making them agree that our constitution will be respected and it must be. otherwise the underpinnings of our country are done and we turn into something else, which i surely don't want us to do. we have not yet had a robust public debate about a comprehensive framework through security framework and a post-9/11 world. we have done that the psychically. we did the patriot act, which i supported. we amended the patriotic -- patriot act which i supported. we did fisa amendments. we did intelligence reform, but we haven't thought through how all the pieces fit together and i don't know we would agree and

i don't know that this is the best time for congress to do this since there is an excess amount of partisanship in congress at the moment that if ever there was a time to give this committee adequate jurisdiction to hold that debate and do broader legislation, not just moving boxes around for the dni, but really thinking about in a new world with 21st century threats, how should americans deal with the tension, interrogation, investigation of americans on american soil, racial profiling or other activities that are -- how should we do this comprehensive way? i think this is the time and this is a huge service you could perform. i think the hearings you were holding right now are very helpful, and i'm very happy to participate in one, but i would urge the congress to play its

role as a co-equal branch of government to thoroughly assess what is the right way of the buy-in to fill this domestic intelligence space. >> thank you. this is an interesting place for us to come but it does point to what needs to be done next and it does relate as you all said, to the unique threat which is to say we didn't have homegrown domestic terrorism in our minds when we adopted the 2004 acts. it now becomes a very significant part of the threat that we face and we are trying to do this in ways that are different, as he wills that. for instance the dhs is trying to interact with state and local law enforcement, literally hundreds of thousands of people.

they're obviously interacting with the leadership, but potentially a mighty force of gatherers of intelligence, if you can do this well and we are still feeling our way. i don't have anymore questions. i want to thank the three of you. has been a very valuable session for us. it really brought to bear the quite remarkable and long experience you have all had. you know, we are going to continue these hearings and stepped-up and decide whether we think there is any legislation proposed in a session of congress to better achieve the purposes for which the original legislation was adopted or whether this is a matter where we ought to just agree on a report or even, in part public and impart maybe just to meet with some of the key players and say hey we have taken a look at

this, and here is what we really think based on a what we agree you ought to be focused on now. doesn't require a new law but it does require attention and coordination. with that i thank you. the record of the hearing will stay open for 15 days for any additional questions and statements. the hearing is adjourned. [inaudible conversations]

[inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations]

>> mr. president yesterday the senate ethics committee votede e unanimously to release a special counsel's report regarding the actions of former senator john

ensign. the committee also votedy unanimously to refer several findings to the department of te justice and to the federal election committee. h because we had reason to believe that senator ensign violated laws within their jurisdiction. i want to tank up from the bottom of my heart, the senators who senators who participated in this investigation, many of whom are on theve floor today. my vice chairman, thetrao extraordinary leader, senator isakson, and i say peter, i mean a leader on the committee and ia consider him to really be a cochair with me. robts and senator roberts, who has been on this committee a long time who heads the sense of history and a sense of levity,

pragmatism and i've reallyty appreciated his cooperation.iad i want to note the participation of shared ground, who came on this committee and began this journey with us and his very important contribution. r senator risch who brought with him ane very strong legal slants everything that we did and was a very very valuable. i want to thank him and i want to say a special word of thanks to senator cardin, who sat in on this case because senator pryor felt he had to close a relationship with senator ensigs and had to recuse himself andan senator cardin we thank you so much for coming and and focusing on this case. i have to say that i am so

grateful to how thoroughly and hard and collaboratively we all work during this 22 month investigation. a i say, and i mean it was an honor to work with myn colleagus the ethics committee is unique.s its staff is nonpartisan and its actions are bipartisan. and that is so important always but particularly during these very polarized times. and also because this was such a longh and difficult investigati. for many reasons.bout i want to be clear about why the committee is releasingng its reportse to the public and why senator isakson and i ar addressing the senate today and if any of our colleagues wish to add to our comments, i hope they will do so. while senator ensign's reitzig nation and in our investigation before the next phase, which wae the, adjudicatory phase, theur trial phase, did not and their profound responsibility to the

united states senate, to ouro laws, to our rules, to our constitution and of course to the american people. article i, section 5 in theea constitution of the united states says quote, each house may determine the rules of itsfn proceedings, punish its members for disorderly behavior and with the concurrence of two-thirds, expel a member. that is in the constitution. senate rules, those give the ethics committee the responsibility to investigate lech violations of laws andprop rules and quote, improper conduct which may reflect upon the senate.that that is a quote from our rules. finally come ethics committee rules make clear that whenever its members have quote, reason to believe, unquote that aas violation of law has occurred, we quote, shall unquote reporteo

to the proper authorities. let me say this again. ethics committee rules make it clear that whenever the members tobelievmmittee have reason believe that a violation of law has occurred, we shall reported to the proper authorities. so we have a solid responsibility indeed. it is actually a mandate to refer possible criminal or civit violations to the department ofr justice and to the federal elections commission and that is what we have done today.respon we also have anotherll t responsibility and that is to tell the american people when we believe laws and rules have been broken and that standards of conduct have h been breached, ad that is what we have done today. our special counsel, it carolele elder bruce, has written a report that speaks in great detail about her findings andea that report has been releasedse today. these findings are so disturbing

that she believed that has senator ensign not resigned and had we been able to receive to that adjudicatory phase that t e evidence of senator ensign's wrongdoing would have beenub substantial enough to warrant reconsideration of expulsion. the harshest penalty available to the ethics committee and the senate. that is why when former senatort ensign resigned the vice chairman and statement, and we said that he had made quote the appropriate decision, unquote.nt to i wantve to give you the findins of the special counsel. one, there is substantial credible evidence that senator ensign conspired to violate doug doug hamptons postemployment. contact. two, there are substantial credible evidence that senator ensign aided and abetted mr. hampton's violation of the

postemployment contact them. three, there is substantial credible evidence that senator ensign made false and misleadins statements to the federal election commission regarding the 96,000-dollar payment made to the hamptons.s four, there are substantialed e credible evidence that the 96,000-dollar payment to mr. hampton violated federal campaign finance laws.stantial five, there is substantial credible evidence that senator ensign violated a law and a unofficial office accounts. six, there are substantial credible evidence that senator ensign permitted to spoil a shin of documents and engaged inl obr potential obstruction of justice. tt seven, there is substantial credible evidence that senator ensign discriminated on the basiss of gender.re eight, there is substantial

creditable evidence that senator ensign engaged in improper conduct reflect on the senate, including violating his own office policies written in a. manual. bees eight serious findings in a special counsel's report are the culmination of an extensive 22 month investigation and theom basis for the committee's unanimous decision to refer thif matter to the department of justice and the federal electior commission. eth as chair ofic of the senate eths committee i am proud to report to the senate that our committee and its staff and specialal counsel have been fair and thorough. we deposed -- excuse me. we deposed or interviewed 72 witnesses. we issued 32 subpoenas for documents. we reviewed more than half a million documents, including a

large number that were initially withheld from the committee. and none of this would have been possible without the very hard work done by the staff of our committee, our personal offices, and i'm so grateful to them. a special counsel who is who extraordinary, whom we all owe a debt of gratitude. and i particularly want to tackle the staff director and the chief counsel of the ethicsh committee, andic his team. they were focused and they searched for the truth and webei believe they found theev truth.t i also again want to personally thank our special counsel carol elder bruce and her team. tea our founders gave congress the responsibility to ensure that its members behaved ethically. we do this, the ethics committee, tries to do this by

working to prevent violations of rules and laws when possible.os. we before they do something they shouldn't do. we try to train colleagues so that they understand what we mean when we say, don't bring any kind of shame upon the senate.and and t then, if something bad happens, we give a fair hearing, and we might sanction them and. we do when necessary. this isn't an easy task, but every mcoember of the ethicsfu committee isil committed to fulfilling our critical responsibility and a thorough, fair and a bipartisan fashion. when senator ensign resigned he said and i quote, i related any law, any rule, or standard of conduct, unquote. i want to go on record as chairman of the ethics committee to say how strongly i disagree with thatwi statement. c ..

him. it was senator ensign's action that led to a 22-month investigation by the ethics committee. and it was senator ensign's actions that led to the very serious findings and referrals in the report we are releasing to the public today. the committee believes that every senator should read this report very carefully. let me say that again. the committee believes that every senator should read this report very carefully because it is a cautionary tale. it shows that our actions, all of them, have consequences for ourselves, for our families, for our staffs, for congress and for our nation. ryr nation. it shows we must ensure thation every action we take is within the a all, the rules and thean in m appropriate standards oyf conduct. persona and in my hand you if i could

say my own personal view ityou n shows something else and that if when you are in a position of trust and power, don't abuse ite don't miss use it. get because people can get hurt, very hurt. we cannot violate the rule we s. set for others including our ow, staff. we must always lead by example, this ctease was a sad chapter fr the senate but a far sadder lives chapter for those whose lives were affected and destroyed. i want to thank the senate for placing trust in the ethics with committee and mr. president, vie with that i would yield to the t vice chairman of the kennedy, one that i consider my andons in the le >> senator isaacson. of a

>> on certain occasions when th, life of a public official one is called upon to make difficult decisions and unpleasant onesche such as the case of the six members of the united states senate ethics committee today but we recognize its essentials te, tha tith the tinstitution, theunde s senate, the loyal to our als citizens must live under mustndr also enforceable laws and rulese of standard conduct we pose upos ourselves.olemn it is a responsibility but it'st important to the integrity and ature of this institution. as bo looks upon itself as an advisory board and a source of information and counsel to our u members.here are we ask members to come to us the potentialof violation of a r decision or even something mades in passing to be trivial. be our job is to make sure in our case the different eddy that has a question gets an answer and no one unwillingly gets caught in

the ethical situation.uation. but it is also ourplaints responsibility when complaints t are filed follow on those if w complaints and if we find merit, of the complaint to enter an additional investing period oftn time which if that information bercy enough likelihood a violation has occurred to an ultimately go to an adjudicatory phase and finally a decision on it is a situation i hope i am said is it essential process to the integrity of this body. the complaint in question came to us it was like any other casl reviewed on an initial standpoint to determine whether or not it merited an invtigati investigation three the senate wonderful job of getting information and evidence and a gathering testimony to help us get to a position to begin to

make the decision we could go further. we saw a forensic experts and ta computers and technology to over 500,000 documents were reviewedr and cross reference to thest to forensic test and we t knew whaw we were dealing with and how was dealt with. hirin special counsel which is the rare thing for the committee to do but it was the essential because of where the evidence and the testimony was leadingt the committee, and i want to say at this point in time i have known a lot of lawyers in my day, once i've hired and then on table from. i've never known anybody morebii professional or whose ability i of my year more and i want to commend her on the floor of the senate today. are it was her report we were also submitting with the referral that indicate we have looked tos veidence to conclude that aha violation may have occurred. be

the ultimate decision on that would be up to the department of justice and would be up to the federal election commission report clearly indicates the senate committee didn't act on a what it thought were in opinion or when.rough huneds effect on fact her determined through the interviews, 500,000e documents examined and testimony that came to our committee. and myself and each member of ee the committee that every membero recognizes the senate ethics committee wants to be a source of information to see to it thie location has the most ethicalbue body in our government. but we will as a committee if ie becomes necessary in evidence finds that to be true we will e'll pursue our responsibility as a committee and do what was ts required of us in this body. f t mr. president i want to thank hd chairman boxer for the methodthe

she has handled this from the ad beginning to the end and who has been her aid throughout and helpful as i also want to joa commend chris car on my staff t for their tireless effort.e memf the members of the committee should be commended for their ad rerd work, and has been hard t work. ben cardin has been a tremendous legal mine for us, sherrod browo has been an insightful person to carry out the information and guidance in the right directionn my friend senator roberts on the floor today is senator roberts,r senator cardin, senator brown senato from idaho but deserves equal b credit and as the chairman saidc his legal mind and hisal insightful nature helped us come helped us to the conclusions we came to t. today. i want to repeat myo thanks to carroll bros for her effort in the work that she did as well ae brian, mike missile and john long who all work with her legal team. t the stafeaf of the ethics committee, this after the actoro

to see to it that a treaty was crossed and that the committee did its job and that bill corker and handan thinks to them for all of their participation. no one in public officeresponsia volunteers for the type of responsibility that we have had in the case of senator in someoy but all of us to thatus e sponsibility when it came upon us recognizing the integrity off the senate and of our decision was important on the future of this body. as the deliberations were andprf the ultimate result was it was n proved tathat this senate and is ethics ethics committee can stand and r to the effort necessary to see to it this institution'she integrity proceeds in the future on uninhabited and an presi endangered.is a membe mr. president, with that remarkl unless there is a member the would like to speak.

>> federal reserve chairman ben bernanke said failure to raise the debt limit by congress would hurt the u.s. economy and lead to how your interest rates. he testified along with fdic chair sheila bair about the implementation of the 2010 dodd-frank financial regulatory law. tim johnson of south dakota chairs the senate banking committee. this hearing is two hours [inaudible conversations]

>> [inaudible conversations] na >> i'd like to call this hearinh to order. today as the committee continues its ersigh its oversight of the dodd-frank wall street reform consumer protection act i welcome our witnesses back are a welcome our witnesses back to talk about the systemic risk in the financial of both flashy when

this committee that out the response of the worst economic crisis in the risk and too big to fail with key tasks. any serious financial reform had to include an early warning system that could detect systemic risk report to bring down the entire economy. equally important was creating new orderly liquidation process to prevent future bailout and large risky financial firms to plan ahead with their own possible failure. dodd-frank, we accomplish these goals, but those changes cannot just take place in the flick of a switch peer-to-peer witnesses will provide us with an update on their implementation of provisions related to systemic

risk and promoting financial stability less than 10 months after the legislation was signed into law. each of these agencies here is part of the financial stability oversight council for fsob continues to be the job for financial systems. it is important to note that the seats of two voting members remain vacant. the cfpa number we need to nominate those members as soon as possible. any political aim on these nominees to try to subvert would be irresponsible and risk our nation's economic recovery.

one note fsoc's early test was to break rules for large wrist financial institutions or enhance the provision. the so-called chatter banking system is one of the key pieces that led to the crisis. and while it is important to provide oversight of the shadow banking system, it is also important that this definition does not become a synonym for two big to fail. the dodd-frank act in a too big to fill bailout definition, there are liquidation authority to unwind financial firms about putting the financial system for taxpayers at risk. in fact, ranking member shelby worked closely with dan sherman dodd to craft an amendment that became the veil text of this

revision in dodd-frank and i want to thank ranking member shelby for his work. but we will never be able to anticipate every possible cause of the crisis, we're much better equipped to deal with the next crisis if and when it occurs. we should never forget the magnitude of the cost of the financial crisis, especially the section of millions of jobs of household wealth. upon the financial reform, we want to use revision history, but americans have not forgot that the recession was caused in part by incentive risks among some of the largest financial firms. with dodd-frank, we have created a new economics foundation against the entire economy in

the financial firm in it that they cannot back up. the implementation of these reforms is critical to our economic security. i want to remind my colleagues and the witnesses that as soon as we have a quorum present, we will move into executive session to report out ex-nominees. when finished with the nominees, we will return to her hearing. given the time constraints today, only the chairman and the ranking member will deliver opening statements. ranking member shelby. q-quebec mr. chairman, to expedite the hearing, i ask unanimous consent to my opening statement would be made part of the record. >> it will be perceived. >> chairman, i believe i'm right on the number.

i believe we just need one more person to show up to have a quorum. >> please proceed. we have a quorum.

>> i have moved that the committee entering to an executive session to vote on any nominations were well consider the following nominations to be a member of the board of governors of the center is to assist in. the honorable david s. going to be a new secretary for terrorism and financial crimes. u.s. department of the treasury. mr. jl sub when of treasury. this wonderful event the first vice president of the expert bank of the united states in the honorable shawn robert to be the first or the export of the united states. at a time when our economy and financial markets are in fragile recovery, it is vitally important that we do our job

here in the senate to act on the president's nominees in a timely manner. i support the nominations and recommend a committee report unfavorably. to the full senate -- and that the senate as quickly as possible on their explanations. ranking member shelby and i have agreed to move the nominations for this closer, falling in mr. albini and block the advisable. we will then hold a roll call vote and mr. colin n. roll call vote. senator shelby, would you like to make a statement on the nominees? >> sure. i just want to make a statement, mr. chairman, regarding dr. diamond. as they said many times, i don't believe dr. diamond is there a person for this job. he is of course a very accomplished academic and economist in his field, but i

don't believe he has the appropriate background or experience that makes him the best person for the job at this point in our economic history. the feds responsibility cut across three broad areas and be monetary policy, supervising our financial system and responding to financial crises. he does not have experience in any of these areas and i believe he's an old-fashioned big government. he supported wheeling out the big gangster in the crisis. he supports additional stimulus. he supports the use of behavioral economics to help bureaucrats control choices americans make. when i come he's advocating creation of the gse model after fannie and freddie to subsidize health care. i believe, mr. chairman, wearing nation of talented people. surely the president can find another nominee with the level of erie and to garner bipartisan

support. i would hope he was chairman would encourage him to do this. with that -- >> are there any other members present to wish to be heard on the pending nominations. >> mr. chairman, i am going to support the nominations except for mr. colin. they supported mr. cho in the finance committee to move on because i thought it was an incredibly important position as the under-secretary of crimes and we need to position to be filled, but we also need to have a robust enforcement of our sanctions law. and to be very honest with you, i did not get a level of satisfaction at the nominees. but in fact there is going to be that level of robust enforcement of the sanctions for. and the sanctions bond the coast where cnn forced or not in fours

to the full capacity is ultimately a two-foot tiger and sends the wrong message to those countries like iran for which we ultimately want to make it very clear that their path to nuclear power and nuclear weapons is not accepted. and we have letters that are pending that have not been answered. and until i get a better sense of his answers and until i get a better sense of how vigorous mr. keohane is going to be in a critical position. and when i see information that would lead me to believe they're actionable items against companies that in fact should be pursued under the sanctions and are not, maybe further political considerations, i get seriously concerned. so i'm going to cast a no vote today on mr. cohen and hope that

both the letters being sent, senator curt and i have sent will be responded to, that i can get a clearer sense that there is going to be a vigorous enforcement of the law, that when there is clear actionable items that in fact we are going to take action and i hope to be in a position to be supportive of mr. cohen. right now at this point, i cannot. so why not nominee, i wish to be recorded as a no. >> senator curt? >> mr. chairman, i want to back up what senator menendez has is. i am also concerned that we sent a letter -- senator lieberman and i sent a letter to secretary geithner about the lack of enforcement of the iran sanctions signed by the president into law last summer. we have a detailed classified annex, laying out the companies

where we think actionable intelligence and policy administration to enforce the act. we also have now seen uncracked weedeater showing that gasoline deliveries to iran, which are the center point of the sanctions regime by the united states and u.n. against iran, gasoline deliveries between january and march have gone from 60,000 barrels per month to 200,000. and we know the identities of the company providing the petroleum in direct violation of u.s. law. and so i also will be voting no on the cohen nomination because i am worried about the lack of enforced and of current u.s. law signed by president obama just last summer. >> are there any other cop

vince? >> we will now hold the first vote -- a voice vote to report on block the nomination of mr. daniel tweezer to be assistant secretary for financing, used department of the treasury to be first vice president at mercer shot robert albini to be a member of the yours for the export import inc. of the united states. those in favor say aye ko. those opposed say no. aye appear to have it. they are reported to the full senate. we will now have a roll call vote on the nomination of mercer david cohen to be undersecretary for terrorism and financial

crimes, u.s. department of treasury. the clerk will call the roll. .. [roll call] [roll call] [roll call]

[roll call] >> the voters 18 to four into ahe nomination is passed. >> the nomination is hereby outt reported to the full senate. we will now vote on thee nomination of mr. peter dimond to be a memberfederal reserve system. the clerk will call the roll. [roll call]

[roll call] >> the vote is in favor the nomination. >> hereby ordered reported to the full senate. the executive session is l wat to provide my col

i want to remind myagurd colleagues the record will be open the next seven days for anything you'd like to submit. our witnesses today have all l been before the committeemmitt numerous times of this year so i will keep the introspections brief. the executive secretary of the u.s. department of the treasury the honorable ben bernanke is currently serving as second term as chairman of the board of governors of the federal reserve

system. the honorable sheila bair is the chairman of the federal department insurance corporation and recently announced she will be stepping down as the chairman of the fdic at the beginning of july when the current term expires i would like to think you for all the work you have done to serve the people of the united states. i will truly miss you come july and wish you well in any future endeavors that you pursue the honorable mary schapiro was the chairman of the u.s. securities and exchange commission. the honorable gary eve ensler is the chairman of the committee future trading commission. mr. john walsh's the comptroller of the currency of the office of comptroller of the currency.

i thank you all for being here. secretary, you may begin your testimony. >> thank you. jarman johnson, a ranking member shall be, members of the committee, i appreciate the opportunity to update you on the treasury department implementation of the dodd-frank act. although our economy and financial markets have made progress towards recovery, we cannot forget what the congress passed and the president signed the dodd-frank act last year. in the fall of 2008 we witnessed a financial crisis of a scale and severity not seen in decades. the crisis exposed from the entel failures in the financial system. our system favored short-term games over stability and growth. the system was weak and susceptible to crisis and the system left taxpayers to save it in times of trouble. we had no choice but to build a better, stronger system enacting dodd-frank was the beginning of that process, and as we move forward with implementation from our efforts are guided by a broad principles.

we are moving quickly but carefully. treasury and regulators are seeking public input and committed to getting the details right. we are conducting this process in the open bringing full transparency to implementation. we are consulting broadly making input on rulemaking publicly available and posting the details as the senior officials' meetings on line is that the american people can see who is at the table and an. wherever possible we are seeking to streamline and simplify government regulation. dodd-frank consolidates the structures and oversight responsibilities updating and rationalizing patchwork regulations, built up over decades. we are creating a more coordinated regulatory process. regulators are working together to close gaps and prevent breakdowns in coordination and within the financial stability oversight council, looking across agencies and instilling joined accountability for the strength of the financial system. we are working to ensure a level playing fields, working hard

internationally to develop similar remarks on the key issues we're global consistency is essentials such as liquidity, leverage, capital and otc derivatives. we are working hard to achieve a careful balance and protect the freedom for innovation that is absolutely necessary for growth. we are keeping the congress informed of our progress on a regular basis. treasury made significant progress in the short time since the dodd-frank act was enacted. in those months we have stood up the eslocker which is working to identify risks to u.s. financial stability and promote market discipline while developing procedures for deciding which non-bank financial institutions and financial markets utilities will be subject to heightened provincial standards. we have made significant progress in creating the office of financial research which is working to improve the quality of financial data available to policy makers who knew and facilitate more robust

sophisticated analysts of the financial system. dodd-frank creates and the treasury is stand up to the consumer financial protection bureau working to protect consumers making sure they have the information they need to understand the terms of financial products. treasury is also working to enhance ability to monitor the insurance sector through the federal insurance office. which for the first time provides the u.s. government dedicated expertise regarding the insurance industry. we have made significant progress in the ten months since the enactment. continuing to move forward is essential to the country's financial well-being. there is no response alternative because if we don't invest in reform now we run the unacceptable risk that we will pay dearly leader and we cannot allow that. dodd-frank was enacted to make sure that our financial system is the world's strongest most dynamic and most productive. thank you, mr. chairman.

>> thank you, chairman speed. chairman bernanke. >> chairman johnson, ranking member shall be and members of the committee, think of the opportunity to testify on the federal reserve board monitoring system at risk and promoting financial stability both as a member of the financial stability oversight council and under our own authority. the dodd-frank act created the fsoc to mitigate threats to the united states. during the existence the fsoc has established the organizational structure and process necessary to execute its duties to read the fsoc have completed studies on the limits on proprietary trading and investment in hedge fund private equity funds by banking firms and so-called volcker rules. on the concentration limits, on the economic effect of the risk retention meet and economic consequences of systemic risk regulation the fsoc is currently seeking public comment on

proposed rules that would establish a framework for identifying and non-bank financial firms and market utilities that could pose a threat to financial stability and therefore should be designated for more stringent oversight. importantly the fsoc has begun systematically monitoring risk to financial stability and is preparing its inaugural year annual report. in addition to the role on the fsoc the federal reserve has other significant financial stability responsibilities under the dodd-frank act including supervisory jurisdiction of which the companies and non-bank financial firms that were designated as systemically important by the council the act also requires other financial regulatory agencies to take a macroprovincial approached the supervision and regulation. that is in supervising financial institutions and critical infrastructures we are expected to consider the risk to the overall financial stability in addition to the safety and soundness of individual firms. a major thrust in the dodd-frank

act is addressing the two big to fail problem and mitigating the threat to financial stability posed buy systemically important financial firms. as required by the at the federal reserve is developing more stringent provincial standards for large banking organizations and non-bank financial firms designated by the fsob. these standards will include enhanced risk-based capital leverage requirements, liquidity requirements and single counter party credit limits. the standards will also require system and the important financial firms to adopt so-called living wills that would spell out how they can be resolved in an orderly manner during times of financial distress. the act also directs the federal reserve to conduct annual stress tests of large banking firms and designated monk financial firms and publish a summary of the results. to meet the january 2012 implementation deadline for these enhanced standards, we anticipate putting out a package of proposed rules for comment this summer. our goal is to produce a well

integrated set of rules that meaningfully reduces the probability of the failure of our largest and most complex financial firms that minimizes the loss of the financial system and the economy for such a firm should fail. the federal reserve is working with other u.s. regulatory agencies to implement dodd-frank reforms in additional areas, including the development of risk retention requirements for securitizations sponsors, requirements for the over-the-counter derivatives and incentive compensation rules and risk management standards for the counterparties and other financial markets utilities. the federal reserve has made significant organizational changes to better carry out its responsibility. even before the enactment of the dodd-frank act, we were strengthening our supervision of the largest and most complex financial firms. we have created a centralized multi disciplinary body to oversee the supervision of the firm's. this committee uses horizontal or cross firm evaluations to monitor interconnectedness and

common practices among firms that could lead to greater systemic risk. it also uses additional improved wanted of methods for evaluating the performance of the firms and risks that might pose and more efficiently employs the broad range of skills of the federal reserve staff to supplement supervision. we have established a similar body to help carry all our responsibility regarding the oversight of systemically important financial markets utilities. more recently we also created an office of financial stability policy research at the federal reserve board. this office coordinates our efforts to identify and analyze potential risks to the broad financial system and the economy. it also helps evaluate policy to promote financial stability and serves as the board's liaison to the fsob to read as a complaint of those efforts under dodd-frank the federal reserve has been working for some time with other agencies and central banks around the world to decide and implement a stronger said of

provincial requirements for internationally active banking firms. these efforts resulted in the agreements reached in the fall of 2010 when the major elements of the new basil iii provincial framework for globally active banks. the requirements that such banks hold more and better quality capital and more robust liquidity buffers should make the financial system more stable and reduce the likelihood of the future financial crises. we are working with the other u.s. banking agencies to incorporate agreements and to u.s. regulations. more remains to be done in the international level to strengthen the global financial system. the key tasks ahead for the committee and the financial stability board include determining how to further increase the loss of the capacity of systemically important banking firms and strengthening resolution regimes to minimize adverse systemic effects from the failure of large complex banks. as we work with our international counterparts we are striving to keep

international regulatory standards as consistent as possible to ensure both multinational firms are adequately supervised and to maintain a level international playing field. thank you. i would be pleased to take your questions. thank you, sherman bernanke. trenberth. sherman johnson, a ranking member shall be and members of the committee, the key for the opportunity to testify today on behalf of the fdic. the recent financial crisis has highlighted the critical importance of the financial stability to the functioning of our real economy. when the emergency measures taken in the crisis stabilize financial markets and help end the recession in its wake almost 14 million americans remain out of work and the nation's face a number of serious economic challenges. consistent with historical precedent, a central cause of the crisis with excessive debt and leverage in the financial system. in the fall of 2008, many of the

large intermediaries of the core of the financial system had to the capitol to maintain market confidence in their solvency and the period leading up to the crisis we sell excess leverage of financial institutions, securitization and real estate loans that made the entire system highly vulnerable to the declining home prices and a rise in the problem mortgages. the need for stronger bank capital requirements is being addressed through basil free and here in the u.s.. one of the most important -- excuse me one of the most powerful towards excess leverage institutional risk-taking before the crisis was the defacto policy of too big to fail. with the expectation of the government backstop the largest financial companies are insulated from the normal discipline of the marketplace that applies to smaller banks and practically every other private company. the situation represents a dangerous form of state capitalism which the market expects the companies to receive generous government subsidies in

the times of financial distress. and the result is likely more concentration and complexity in the financial system more risk-taking at the expense of the public and in due time another financial crisis. however the dodd-frank act provides the basis for a resolution framework designed to make it possible to result systemically important financial institutions without a bailout and without stopping at a systemic crisis. the in designated as a competitive advantage by an institution as too big to fail the heightened supervisory requirements placed in putting higher capital requirements and the need to maintain resolution plans seems to represent a powerful disincentive for large institutions to seek the status. the the key consideration in designating the firm should be whether it can be resolved in the bankruptcy process without systemic impact, provided we have sufficient information to evaluate the results of devotee is likely that relatively few

non-bank financial companies will ultimately be designated and subject to heightened supervisor requirement but we do need the information to make the determination. the liquidation of ortiz been called bailout mechanism by some and a fire sale by others. but neither is true. instead, it is, i believe a highly effective resolution free-market enhance his ability to provide continuity and minimize losses and financial institution failures. excess luggage is a problem that extends beyond the purview of the financial regulators to a broad a range of economic policies that encourage the use of that opposed to equity and this is where i hope the members of the senate banking committee can play a leadership role promoting economic policies including tax measures and fiscal reform that can reduce or eliminate incentives for excess leverage in our financial system and our economy. there are two additional risk management issues i feel should be high priorities for the financial stability oversight council under the mandate to identify and address the risks

to financial stability. first mortgage servicing divisions remain a serious area of concern. although the fdic does not supervise the largest fund services over four years ago we began identifying and trying to address the problems using the authority at our disposal. problems in the mortgage servicing or another result of the misaligned incentives in the mortgage process for the fixed compensation provides few incentives to employment cost the labor-intensive service and techniques that are necessary to deal with high volumes of the problem loans. not only to the problems represent significant operational reputation will and litigation risks to the mortgage servicers which we insure the also holding back the recovery of the u.s. housing markets. the fsob needs to consider the full range of exposure to the problem and the related impact on the industry and the real economy. we also believe the fsob needs to actively monitor interest rate risks with a full devotee of borrowers and financial institutions to set in volatile spikes in interest rates.

borrowers and depository institutions may be subject to sudden increases in the cost when interest rates rise, and they will inevitably rise. this issue takes on particular urgency now in light of the current level of interest rates and rapid growth in the u.s. federal debt developing policies that clearly demonstrate the sustainability of the u.s. fiscal situation will be of utmost importance in maintaining the confidence and ensuring a smooth transition to higher interest rates in the coming years. thank you again for the opportunity to testify about these critically important issues and i would be pleased to answer your questions. >> thank you, chairman bair. because we need to leave shortly, i ask that the remaining witnesses testimony be submitted for the record. we will now move directly to questions. senator shelby. >> mr. chairman, thank you for yielding. we are going down to the white house to meet with the president. i yield my time.

estimate senator shall become think you very much. i'd appreciate that as well as all of your cooperation in this process and many other matters. thank you. mr. chairman, thank you very much for holding this hearing. i think it's a very important topic, and i appreciate your doing this with all the witnesses. i know how busy you are and i'm grateful you are here once again to answer our questions. i'd like to see a win if i could on the process by which the council will be designated in the nonfinancial, non-bank financial institutions and. i think this is an important issue and i confess up front i'm hoping this council capps the narrow neck rather than the broad net and i think it is literally important we have a well-defined very objective process by which we make these designations. the notice of proposed rulemaking that cannot in january i would suggest lacked the specificity that we need to understand how this is going to

unfold as i think everybody knows reseated the statute and it didn't provide the kind of guidance on how the statute would be applied. i did several of you, maybe all of you, have acknowledged in your testimony the intent to provide additional guidance and i appreciate that. but i feel very strongly that the form of that additional guidance takes needs to be a new proposed rule and that new proposal needs to have a comment period and that comment period needs to be at least 60 days because we haven't had the chance for anybody to evaluate how this is going to be applied. as i would appreciate if each of you would confirm that it is your intent to issue a new proposed rule and to provide such a comment period. >> center, as the testimonies of indicated we will be issuing additional guidance that will be in the form of some public rulemaking, and we will be seeking a public comment a think the council has not yet landed

on precisely what that rule will be stifled and with the length of the comment period will be, but we want to make sure that we get sufficient public input as we think we have already obviously given the opportunities for public input i think as we provide further clarification as to how this process will unfold we will want to make sure we provide adequate opportunity for people to react and provide. >> i would like to underscore their has been no opportunity to respond yet on how the statute will be applied. so under the presidents exec of order call for all agencies as a general matter provide 60 days' that is a minimum that's necessary but i'm sorry i'm interrupting. >> senator, i think more details are necessary. i favor providing more information to the public and

getting robust in put and comment. i should say while we can provide more information in terms of metrics and criteria i don't think that we can provide an exact formula that will apply mechanically without any application of judgment. but the we are going to have to look at a variety of issues which cannot always be put into numerical metric. that being said, i certainly agree with you that we should get all the input we can from the public on this process. >> we support going after the commented devotees filled metrics and the comment period is something we try to adhere to in our rulemakings, so i think it's important to get a comment to provide more clarity and metrics. that said i agree with the german bernanke i think i don't think we can provide a complete guidelines. there needs to be an area for

judgment and getting more detailed metrics. >> is it your view the form that should take would be a notice to proposed rulemaking? >> that's a good question, senator. i a understand there may be a legal issue with the ability to write rules with this kind of criteria versus guidance and i would defer to the treasury legal counsel on the format. we have the legal authority to do it as a rule i think the would be fine but i would be for you to the treasury on that. >> senator, i agree with nearly everything that's been said with german bernanke about the use of violence and the subject of factors with the exercise of reasonable judgment but that said i think more transparency in the specificity about this process would be very valuable and i think robust comment period would inform the process greatly so very supportive of that. >> senator, just comforting

chairman bernanke said is is metrics would be good to the metrics out to the public comment and we have generally 60 days. i think that's a good period of time with it is guidance or an actual if you delete your -- view on the guidance i think works very well. as long as we get the public in but -- input. >> it would be hard to think of something new to say. [laughter] but certainly going out again with greater detail and a greater clarity and seeking the views and pursuing a process of review and comment i think is entirely appropriate. let me just strong the urge that we go with the noticed proposed rulemaking by the mechanism we do this and we have at least 60 days. i also like to stress i think we

really have to have this as objective as possible. the implications for the firm being designated are huge as you know very well. it's really profound. and so it is perfectly reasonable for the firms to be able to expect to be able to anticipate whether or not they will be brought in bye virtue of these objective standards so i would strongly urge you to pursue that. if i have time for one quick additional question mr. chairman, thank you very much. i'd like to touch on specifically the question of mutual funds, and again i will say that by their very nature, their inherent characteristics i think is a general matter it is very unlikely that the mutual funds are systemically significant to the degree that would justify this is a commission. understand certain issues surrounding money market funds that occurred during the crisis are very important but also know that the sec has taken steps to address these in the rules of last year and a new set of rules

or regulations that are being contemplated now the deal with issues like liquidity and reserve, so my question is our money market funds under consideration for this designation and if so, why. mr. wolin? >> i think it is for me to be will answer that question the deputies of fsob have been putting together pachauri material and as we just confirm to you we are planning on putting out additional guidance for the public to comment and until we do that and get the responses from the public and until the principles have an opportunity to have these kind of conversations i think it is hard to know what the right answer to that question is, and we will move forward obviously with the public input and that fsob has been providing to date.

>> anybody else like to -- >> senator, i would say i think that the determination is an institution by an institution designation and not an entire sector, so under any circumstance i think we have to look at individual entities, and we held actually today's of, i'm sorry, one day of round tables this week exploring systemic risk issues implicated with respect to money market funds and how the investor and i think that would inform us that the sec as we go forward in making determinations about what further efforts we might make specifically with regard to the regulation money-market funds but also all fsob representatives were at that roundtable and able to participate in a very robust direction with the mutual fund industry as well as with european and other regulators. we will be well informed when we get to the process of thinking about institution by institution

designation in money market fund and mutual fund area. >> i see my time is expired something to mr. chairman. >> thank you, cementer toomey. >> -- senator toomey. >> chairman bernanke and chairman bair, title i had to our important cornerstones of the dodd-frank act. of the house republican proposal includes the repeal of title to and other legislation has been introduced in both houses to repeal the dodd-frank act. what do you think of the repeal effort? should we go back to the system of regulation that existed before the financial crisis? >> mr. chairman, as i sit in my opening comment, i think it there is no alternative but to move forward with a dodd-frank statute as enacted.

the idea that taxpayers continue to be on the hook in these moments of stress is one that is unacceptable, and i think the statute clearly puts an end to it and so we think that it's critical that in the kind of very as you discussed in your opening statement, orderly liquidation of 40, the resolution plans that need to be put forward to both the fed and the fdic that these are critical elements of making sure that we in the the two big to fail and that we make certain that the tax payers are not any longer on the hook. >> mr. chairman, it was clear, painfully clear in retrospect the regulatory system that was existing during the crisis was insufficient. there's been a long and process about how to reform the regulation. i would reiterate what mr. wolin said about the importance of addressing too big to fail.

chairman bair also mentioned this. the rate that the new legislation addresses this at a number of levels including enhanced oversight, tough capital liquidity requirements and getting rid of too big to fail would be a very important step. more generally, the philosophy of dodd-frank which is to encourage a systemic macroprovincial approach to regulation where broad systemic risks are taken into account as well as individual firm or market risks is ann portales debt and one that is being adopted globally as well as the united states. >> would be harmful to repeal the there's a lot of work going on now that is moving towards ending too big to fail. the tools are there, the implementation capability is there and i wouldn't want that work to be diverted, and i think that we pealing and trying to reverse back to the process we

know bankruptcy doesn't work. and so that will be an open invitation to the more bailouts if there is no alternative to that. so, we are working very hard to implement this authority to convince the market can and will be used. there is highly important and constructive improvements sponsored by senator dodd and senator shelby during the consideration. i think the vote was 95 in favor that put an additional safeguard like to call back the 40 so it is a very good provision that we are taking very seriously to implement and i hope we will be getting bipartisan support to continue that process. >> according to this chairman of the fdic who testified before the committee on tuesday as well as others, the fear of the federal bank regulators to address a significant consumer

protection issues contributed to the financial crisis secretary wolin and chairman bair, would you please discuss why we need in any consumer protection agency and how the new agency can identify and mitigate the systemic risks? >> mr. chairman, i think that it's very clear that failure of consumer protection are very much of the core of what caused the financial crisis we've just been through, and the federal government wasn't welcome quote to make sure that the consumer protection issues were well handled. the responsibility for the consumer protection was spread out across a wide range of agencies in the federal government, so it is critical in our view to make sure that there is an agency that focuses very intensively on the consumer protection issues to make sure that the consumers have the information they need to make