general george strong do something that which is absolutely enrage donovan. donovan had a very complicated relationship with roosevelt, too, because again they were from opposite parties. roosevelt's senior staff was decidedly worried about what they thought was the republican cast to the oss, that all the best and brightest he brought in for the best and the brightest from the republican party. angela henry stimson, the secretary of war, the secretary of navy and donovan said of intelligence service. and a lot of white house aides were thinking to themselves what are we doing here, running a farm team for the future presidential candidates? donovan wanted to be president at one point. frank knox had ran for president of the united states on the republican ticket. so the two men, you know, roosevelt like donovan, like his ideas but it was not a personal relationship. donovan never wanted to make it a personal relationship.

>> douglas waller, thank you for a terrific presentation and quite clearly a terrific book. [applause] .. sheila bair comments on the debt ceiling. at kennecott a senate pro forma session of c-span2.

fdic chairman sheila bair said if congress does not raise the debt ceiling it would be, quote, calamitous. the u.s. government reached the $14 trillion debt limit two weeks ago. she testified at a house financial services hearing on the financial crisis in 2008. this hearing is two hours. >> thank you, madam chair and chairman sheila bair, i want to welcome you. thank you for your years of service. i have enjoyed our conversations. as you know i am still concerned that dodd-frank hasn't ended too big to fail but left us with a number of massive institutions with lower-cost of capital that are during to continue to expand because their borrowing costs are lower. it is a 76 point advantage

according to studies. at the end of the day it is a system that enables the use of government funds in resolving an institution and relies on the prudence of regulators during a crisis to avoid over payment to creditors and counterparties. the fact that you have a lower cost of capital shows that it is human nature that the way we set this up there is the presumption, we have created additional moral hazards. i hope that this committee worked to eliminate the orderly liquidation of authority and move to more objective enhanced bankruptcy, i believe we can take steps in the meantime to tighten up the resolution authority and -- some of the intended consequences of this legislation. i appreciate your efforts and your thoughts today especially on this particular theme.

>> i would like to recognize mr. luetkemeyer for a minute and a half. >> thank you. in another life when i was a bank examiner our mission was to work in cooperation with institutions to ensure regulations are subjected. there now seems to be a shift in attitude of regulators. instead of a partnership i hear time and time again with relationships between financial institutions and regulators a moral academic gotcha. i heard stories of overzealous examiners that practice regulatory forbearance. one bank in my district has been profitable and sound for many years but was put in the problem list in recent examination. the examiner had been schooled in the previous day for not having done a good enough job predicting another bank he had recently been in had put on the list. that banks since then has had no

problems on the problem list similar to what it was prior to that. bottom-line is we need regulators to do the job. we need agencies to promote sound financial practices. no more, no less. what we do not need are overzealous examiners with no regard for any forbearance on upper management and refuse to recognize what is going on in the field or in our economy. i urge the fdic to look at practices and communicate with examiners and work with institutions so we can work to get the economy moving again. i look forward to the discussion a yield back. >> i would like to recognize the gentleman from texas, mr. canseco, for an opening statement. >> steering on the oversight of an important federal agency. my hope is today's hearing introduces an important

question. did the dodd-frank act institutionalize too big to fail or did it level the playing field and does allow a taxpayer bailouts that some politicians and regulators have argued? are am concerned recent developments including market data showing borrowing costs currently much lower at big banks and continuing question surrounding the fdic's new authority lead us to believe that too big to fail is very much alive and taxpayers could again be asked to pick up the bailout tax in the future. i look forward to hearing from chairwoman sheila bair on this important and ongoing issue. >> i would like to recognize our newest member, welcome to the subcommittee, mr. fisher. >> thank you for coming today and taking time for us. it is a pleasure to be here to

discuss the issues and concerns regarding the fdic and its role during the financial crisis. as the newest member of the financial services committee we are pleased to have the opportunity to deal with what will hopefully fix the problems in the future. i was not in congress in 2008 when the financial crisis roar across the communities of our district but as a small business under i fail to see its effects at the bottom dropped out of the economy. one major principle i did take away from those days was the access to credit. it is vital in helping our small business. until our financial institutions are allowed to responsibly do their jobs and loan money to qualified borrowers we are not going to see businesses creating new jobs. thank you for your service and a look forward to what you have to say today but too many times

washington is not the answer. it is the problem. we need to do what is right. >> i would like to recognize mr. westmoreland for an opening statement. >> thank you for calling this hearing. this is a very important hearing and before i began or continue to comment i would like to fill out some numbers. 63 is the number of banks that failed in georgia since 2008. twelve is the number of bank failures in georgia in 2011. ken is the number of banks headquartered in my district that have failed since 2008 including this past friday. this number is much larger if you factor in the banks that fail battle we have a branches in the district. these numbers are unacceptable. therefore today i will be introducing a bill to direct the inspector general to study

fdic's agreements, banks failing due to paper losses, lack of an ability to modify or work out loans and application of the fdic policies by examiners in the field. this is not only vital thaw for surviving banks but the fdic and this committee can learn from the problems that face georgia in the last three years. it is my hope the fdic and my colleagues will support this bill so we can have an honest assessment of the fdic's handling of this crisis. georgia is in a vicious cycle going the wrong way. there were more right downs and more failures. i have bar a lot of money from banks and i know there will be more failures in georgia this year but i am here to say that when the georgia bank fails my office will be here searching for answers and holding the opprobrium regulators

accountable and with that i yield back. >> that concludes our opening statements. i would like to introduce sheila bair, chairman of the federal deposit insurance corp. for the purpose of an opening statement. thank you for coming today. >> thank you for the opportunity to testify on the banking industry and federal deposit insurance corp. and future challenges to our economic and financial stability. much has been written and said about the recent financial crisis and the factors that led up to it. my written testimony summarizes four factors that i consider the most important. excessive reliance on debt financing, misaligned incentives and finance legal and regulatory arbitrage and inadequate framework that allows financial companies to become too big to

fail. the fdic was created in 1933 in response to the mysterious financial crisis in american history. our mission is to promote financial stability and public confidence for bank supervision, deposit insurance and the orderly resolution of failed banking institutions. working with regulatory counterparts the fdic has played an instrumental role addressing the recent crisis. our actions helped restore financial stability and paved the way for economic recovery. my written testimony includes comprehensive account of those actions. i am proud of all that the fdic accomplished in the past five years. my greatest satisfaction is the knowledge that through 368 failures including the largest failures in fdic history we were established to protect, we maintained the fdic's 78 year record of no losses to any depositor and did it without borrowing a penny from taxpayers but we still have important work

to do. our first task is to follow through on the dodd-frank reforms that will end too big to fail. at the height of the crisis we lack the necessary tools to resolve large complex companies in an orderly manner and are forced to offer as a government bailout that insulated these from the market discipline that applies to smaller banks and practically every every other private company. too big to fail represents state capitalism. the result is likely to be more concentration and complexity in the financial system. little more risk taking at the expense of the public and another financial crisis. the dodd-frank act provides the tools to restore market discipline and put an end to the cycle of government bailout under too big to fail but these tools will be effective and systemically important institutions will be resolvable in the next crisis only if regulators should encourage today to fully exercise their authority under the law. the success of the new resolution framework will critically depend on the ability

to collect information about whether they are resolvable under bankruptcy. it will also require the willingness of the fdic and the federal reserve board to actively use the required structural changes that better align legal entities and spending well before crisis occurs. unless organizations are rationalized there is a real danger their complexity could make sifi resolution more difficult than it needs to be. these authoritys of being shaved now and there will be more process if properly implemented. they can make our financial system more stable by restoring market discipline to systemically important institutions. if we fail to follow through on these matters when market conditions are relatively calm we will have no hope of preventing bailouts in the next crisis. testimony described the role played by extensive leverage among banks and non-bank financial companies bringing the crisis about. strong capital standards are

fundamental importance in maintaining a safe and sound banking system that supports economic growth. supervisory processes will lack risktaking to some extent and restrictions on activities can be difficult to define and enforce. hard and fast objective capital standards are easier for supervisors to enforce and provide an additional cushion when the stakes are inevitably made. skeptics argue that requiring banks to hold more capital will raise the cost of credit and impair economic performance. the experience of crisis shows the social cost of debt financing are extremely high and the lack of adequate capital cushion makes spending cyclical. there will always be business cycles and massive the leveraging which occurred during the financial crisis led to the most severe downturn since the great depression. loans and leases held by fdic insured these decisions alone have declined by $750 billion while unused loan commitments declined by $2.5 trillion.

trillion's more in capital closed from loss for the securitization market and other shadow providers of credit. i would also like to highlight the urgent need for congress and the administration for rapid growth in u.s. government debt which doubled in the last seven years. financial stability critically depends on public investor confidence which can never be taken for granted. there's no greater threat to our future economic security and financial stability and an inability to control the size of government debt but as strongly as i feel about this i feel just as strongly that a technical default on government obligations would prove to be calamitous. any signal policymakers might fail to make good on these is destroying the inviolable trust investors have placed in our nation for more than two centuries. i urge congress to reaffirm this by committing to responsible increase in the debt ceiling. as i conclude i want to share one of the central lessons i have drawn from my experience as

fdic chairman. the most important attribute of effective regulation is the courage to stand firm against week practices and excessive risktaking. it is during a period of prosperity that the seeds of crisis are so. overwhelming pressures placed on regulators to relax capital standards, prevent riskier loan product and allow higher concentrations of risk on an off-balance sheet. the history of the crisis shows many examples with too little conviction when they failed to use the authority they already have or failed to ask for the authority they needed to curtail their mission. as the crisis developed many in the regulatory community were too slow to acknowledge the danger and remained behind the curve in addressing it. regulators are never going to be popular or glamorous whether they act in a timely manner to forestall a crisis or fail to act to allow it to take place. the best they can hope for which he is the knowledge the exercise of statutory authority in to its

fullest effect and interest of financial stability and the broader economy. i will be happy to answer your questions. >> we will now begin the portion of the hearing for questioning and i will begin. mike five minutes of questioning. we have ongoing discussions with you and your staff concerning the relationship of the fdic and c ip before consumer protection and the fdic recently announced a consumer division in the corporation. i am interested in how it is going to work in relation with c f p be. if there are regulations understanding smaller institutions are exempted out in the theory, do you envision a consumer protection within the fdic that then takes the regulations that come from the cfpb and modify them for other institutions? do you have coordination here? are we creating a two tier

system here? >> under the statute, less than $10 billion the regulation and supervision enforcement remains with the primary bankers. we have smaller banks. we will ensure the institutions stay with examination worse than a cruel. we never had the ability to write consumer roles for the fed and howard is being transferred to the cfpb. we have never had the ability to write the rules. we have coordinated with them and provided input and comments and examined the enforced rules they promulgate. i think the cfpb director, when that person is installed, will be on the fdic board and that will ensure court may appropriately. i am hoping this will also increase the understanding of the cfpb director on broader

banking issues. some concerns that the fdic and perspective in the period that we have to deal with on a day-to-day basis. in terms of creating the new division i want to emphasize that it does not create new examination staff but the examination staff reported strictures in the region, this is an organizational change. very few additional administrative staff to support the organizational separation, consumer into positive rejection from risk-management. it was more to make sure the board had upper. policy focus on consumer and i would say the focus is for more effective consumer regulation. i am sensitive to the turns of community banks that have fixed -- as well as risk-management, that there has been more than there should be on the violations because members expressed concern about -- and reporting violations or what

have you. we have tried to focus the examination on those areas where there is consumer harm and it has been a good outcome of this policy level focus of the fdic on the consumer so i think this will be a way for us to better -- have better focus on consumer protection for making that effective. and to also coordinate with the new consumer agency which will have somewhat of an advantage. >> i want to go to another question quickly but it sounds like the structure being enacted while these institutions are exempted. it sounds as though they really aren't going to be exempted which is their fear because -- their fear of the unknown more than anything else because it will be coordinated through

institution. [talking over each other] >> the examination of several exemptions, it preserves what we have always done which is the examination of the primary banking regulator will be the entity that examines consumer rules. the consumer agency now has rules for all institutions. whatever rules they write will apply -- i have spoken in favor of two tiered regulatory structure as appropriate and we will have the ability to engage in consumer agencies because that person will be there as well. >> over the last several years there have been increasing consolidation of the banking industry, opening statements talked about the large institutions and smaller banks and smaller institutions and community banks are concerned about being able to staff the regulatory issues and legal issues they see in front of them.

how do you see this playing out in consolidation. is it concern for you? it is a concern for mainstream america. >> it is the concern. we have a community banking advisory committee and talked with them a lot about this. dodd-frank did have important reforms for community banks with the positive insurance limit for $50,000 advocated by community banks and help them address funding are having a higher deposit insurance moment. it has been $4 billion in assessments over period of time. an assessment of fees. there were some positive things in dodd-frank. there are concerns on the durbin amendment that i mentioned under your leadership on that issue. we were trying very hard to make sure the law is implemented which was to insulate from last

year the reforms that were targeted at larger institutions and we will continue that focus. obviously we are very concerned about the cost as well, and i think with this implementation we will talk about that more later. to get the costs of banks for higher capital. >> thank you. this maloney? >> thank you for holding this hearing and giving us the opportunity to be with sheila bair one last time. i would like to ask you to respond to what critics have claimed, that the new order liquidation authority promotes bailouts because it allows the fdic to take creditors 1 hundred cents on the dollar. isn't it true this is erroneous in light of the fact that the

law requires the fdic to ensure that creditors their losses? and secondly the fdic's authority to pay creditors more than they would have received in a liquidation bankruptcy is very limited. it is subject to the requirements -- your comments please. >> it is important and we clearly have a job ahead of us in terms of educating folks about our process and assuring them that it is every bit as harsh as bankruptcy. the same creditor priority that you see in bankruptcy. the statute limits the ability to differentiate among creditors in a way that is consistent with powers under our traditional receivership powers and basically two situations to continue central operations, that would be things like

keeping it services go in or paying security people or employees. that is also recognized in bankruptcy. and whether it is to maximize value. that is a mathematical determination. we see this in bank resolutions frequently. they will pay a premium to cover all insured and uninsured deposits because it appears franchise value for the larger uninsured depositors actually makes more money for us maximizing the recoveries to cover the uninsured deposits to the acquirer as opposed to imposing a loss of those uninsured depositors because we're making more money with a premium that be acquirer pays. that is an example where you would maximize value by differentiating and that is a mathematical formula. to emphasize it more, we have said in an internal rulemaking that we don't think there would

be any situation where a longer term creditor, longer than a year would maximize value or be necessary for essential operation and for unsecured creditors shorter-term they will take losses as well but they would have to meet these narrow tests. we have tried very hard to assure people that the losses are imposed on creditors will be as much as bankruptcy. there is $0.97 on the dollar issue that comes from reports, analysis that our staff gets on the layman bankruptcy under title ii. $0.97 is a reflection what we think the recovery will be for senior debt holders based on the capital cushions and subordinated debt questions that exist at the time of this -- with the losses will be on the bad assets. so the recovery in lehman will be driven by the amount of

equity and subordinated debt out of the senior debtholders but and the matter of market discipline i would think senior debt holders want to protect themselves they should look at the capitalization -- equity capitalization levels -- [talking over each other] >> to put it in a framework that will help us could you explain the extent to which having the orderly liquidation of 40 during the financial crisis could have prevented bailout and mitigated the effect? >> we have the ability of you have time, lots of time with lehman, lots of alarm signals before the institution failed. in our process under dodd-frank, all systemic entities including bank holding companies will have to have resolutions on file with us. we have to have a blueprint on resolve authority prior to any time we get into trouble. you can see the bankruptcy

trustee and others analyze the lehman bankruptcy continued planning to resolve these larger conflicts at financial institutions. there would be a game plan in place. in any institution months in advance we anticipate an ongoing presence just as we do with larger bank holding companies. just the fact that there was a resolution process that would have imposed losses on shareholders and creditors would have replaced management. that would have been a strong incentive for the leadership at lehman to seldom sells at reasonable prices. we see this all the time with banks. banks know that if they fail their shareholders are wiped out and creditors wiped out, their executives lose their job. it is a powerful incentive to take care of yourself with 25% of thanks on the taxpayer lists because they go out and capitalized and are very motivated. that will be an important factor

during the crisis. it also provides a defense against blackmail. during the crisis lot of institutions are coming in and saying you will have these problems and there is no orderly process to put them into. now we have these emergency situations to provide temporary liquidity support that their shareholders and creditors are all exposed to loss and their boards are not and under dodd-frank there is a clawback of two years of compensation. [talking over each other] >> there are a lot of tools that we had to see what we would have in the future that we didn't have. >> the gentleman from ohio, mr. renacci. >> thank you for being here. i want to focus on the composition of your board of directors and under dodd-frank the new composition includes the director of the cfpb being one

of the members on your board. coming from the private sector and the business sector and sitting on many boards i was always concerned and the setup of all boards i was always concerned about direct or indirect conflict of interest. knowing that you are going to have to work on a regular basis, one of the individuals which would be the director of the cfpb i am concerned there would be a conflict of interest especially when it comes to your seat on the financial -- because as we know right now, f dot can review the rule but it takes two thirds to do that. i know my colleague mr. duffy introduced some legislation last week or the week before to talk a little bit about this. when you have to work with your

board on a regular basis and then you go over to fsoc and you take seven of ten to box a rule by one of the directors who sits on your board and that person also has a vote out of ten and you would have a vote out of ten, you start to limit the ability to have oversight by using the financial stability oversight council. so my concern is when you have that conflict of interest, is it a good policy or procedure? i drafted a bill that i will introduce next week which is to replace the director of the cfpb with the chairman of the fed. i am doing that because i believe we need to focus on safety and soundness and get any perceived conflict of interest out of the way.

i want to hear your thoughts on that potential conflict of interest. >> it is a good question. a lot of people consulted with dodd-frank about who would replace the t s and the fed was one option. and reciprocity, that would be helpful. i think the advantage in the argument for putting the consumer bureau head on the fdic board is -- it might send the ties that person with safety and soundness issues that are associated with the cost of insurance and their intersection with consumer protection. there is a close connection, two side of the same coin. people were worried about the consumer bureau head not being aware of the larger context of bank regulation. it might indicate that person to have them on the fdic board. that is the argument for it. if you go to a commission

structure for the cfpb that might be a nice thing to have as well. we are fine with it. earlier iterations were fine with that too and we would like some reciprocity if that was the structure. in terms of the conflict i would point out that fsoc has the ability to intercede with the regulators. if they think one of the regulators is doing something that could create systemic risk it is not addressing systemic risk. there could be conflict with the o occ, if the fsoc was going to intervene, you could make the same argument. these are difficult questions and i think we could live with that right now. >> as you mentioned you would bring on that directors so they could bring in a safety and soundness aspect. i read the cfpb mission

statement yesterday. out of 764 words there's no talk about save your soundness in their mission. >> they don't feel it is the best bang for customers. similarly consumer abuses can have profound safety and soundness applications. there needs to be a lot of cross communication. >> in regard to the orderly liquidation of the already there have been a number of examples. i have continental illinois's bank, 14 statements, took seven years to resolve at cost of $1 billion. washington, four forty million assets and fifty bank employees. citigroup, $1.9 trillion in assets. the time and energy, the staff needed. i know i am running out of time but maybe i can catch you on the second round. i want to find out how you

believe that our time will take to wind down simple institutions and how you will be able to exercise authority over much larger institutions. i will yield. >> we will give you lots of time to think about that. mr. baca from california for five minutes. >> thank you. i at this than the fdic has regulated internal report proposals to implement an orderly liquidation authority. could you briefly discuss these rules particularly to the extent to which they would align orderly liquidation process out of bankruptcy or failed bank resolution and inshore creditors bear losses for the institution itself to not survive? >> it is in the claims priority that we follow, the same claims

priority that has fallen in bankruptcy. the government would need to find liquidity support to keep the institution operational as it has broken up and paid off the top for any other expenses so it really is the process that is every bit as harsh as bankruptcy and resembled bankruptcy and claims priority and we need to reassure folks on that. the purpose was to end too big to fail, not reinforce it. the rating agencies on this, some decided to continue to have a bump for larger institutions and we say to them, the statute free of its bailout, i think congress is going to do it. they can't imagine the congress or the regulators can that congress would step in. i know you don't want to do that. you don't want to face the secretary of the treasury or the chairman of the fed asking for

$700 billion. so i think the tools are there to require credible resolution plans and require structural changes and downsizing. if they cannot come up with a plan to resolve in an orderly way, is designed -- >> is that a downside? >> some of them are already. it is jointly with the fed and the fdic and fsoc can also get a majority vote if necessary. >> it seems many people overlook or underestimate the importance of rapid resolution or living will requirement which the fed and fdic are jointly in process of implementing. can you discuss the importance of a living will as an ongoing regulatory tool that will help appropriate risk-management and mitigate against failure of

complex financial institutions. and the orderly resolutions, hopefully rear events at large financial -- >> it is a requirement. the fed and fdic require they have plans in place that can show orderly resolution in bankruptcy process, very high standard. for several institutions to require structural changes, they have thousands of legal entities accumulated over the years through acquisition activity or what have you that they never bothered to rationalize. getting their business operations aligned with their legal structures so if they start to fail there is a strategy that markets them in marketable pieces is going to be a key part of this. for the national operations there may be a level that is required that they need to

separate themselves in certain foreign jurisdictions or have significant business. there are several banks already that operate with the senior models that do so quite profitably. it may not be part of them but it is the kind of thing we need to look at and record for some that can show they could release them on an orderly way even in an international context. >> thank you. i yield back. >> mr luetkemeyer for five minutes for questions. >> recently the fdic completed small loans with different programs, under 2500. can you recap your findings on that? we were very pleased. it was very successful.

delinquency rates were a little higher than they were other forms of lending that default rates were very much in line. i think the banks were very pleased and the information we have made more available to banks in the jenna role, there is a real need for small dollar credit right now. the options that consumers are not good that could be high cost and heading through the model to provide decent price lending was important to us and we were pleased as well as the banks in their success. >> what interest rate did you see on the small loans actually work? what interest rate? >> these were consumer loans. [talking over each other] >> they were below 36% which is pretty high. we will actually give credit for

those -- >> did they make any money than? did they think they could make any money? >> they did make money. they were lower than 36%. usually 12%. >> my information says after two years they found the interest-rate cap was not probable for participating banks. after two years the fdic program by my information's says after two years your pilot program should interest-rate cap was not profitable for participating banks. >> there was no interest rate cap. there was no interest-rate cap. if there is the items that says for the pilot we wanted 36% but that is a voluntary program. if we could look at the document you're looking at those were profitable. >> we will work out the difference later. with regard to the insurance fund, house all are we right

now? >> we are in negative territory. we should be in positive territory by the end of the second quarter. at an end of the first quarter there was negative $1 billion from a trough of $9 billion in 2009. it is improving. the banking industry is improving and insurance funds represent our equity position but not our cash position which is $47 billion. it should be in positive territory by the end of the second quarter. >> the you anticipate future assessments? >> we had a schedule of three basis point increase that we did not impose because the industry is recovering and losses are going down. >> with regards to interchange fees we had ben bernanke in front of us and asked whenever your regulators go in and look at the bank and chalk off 13% of your income are you going to forget that loss of income or

require them to make it up? he really had no answer to that. it is up to the banks to decide how to do that but we want them to be capitalized. that is true. his regulation when he comes up with an interchange the rate will have a dramatic impact on the bottom line for a lot of institutions. what is your thought on that? >> we are concerned about it. they were implementing a provision in dodd-frank and doing it consistent with the statute. we are very concerned about it especially with community bank impact. community banks under $10 billion in assets are not supposed to be subject to cap but the practical matter can you really protect them particularly if network provider is not required to take -- they continue to charge. we also think $0.12 is too low and the letter i am happy to share with you, they should take anti-fraud measures into

account. we also think they should do more to take any incremental cost of small banks for debit card usage. the cost structures can't remain with large institutions. i don't know how they will come out with it but if this goes final, congress may or may not take more time with this. that $0.12 is higher and we hope they can find legal justification requiring that that protect smaller banks. >> just one comment. i appreciate your coming in, is important to retain adequate level of capital. my dad told me that a long time ago. he lived to be able to explain why it is a good thing and show why it worked. thank you for your comments. >> mr. scott from georgia?

>> thank you. i want to start by thanking you for the excellent service you have done as chairman of the fdic and responding each, call your office. you get right on the phone and talk with me and help us to handle -- my state of georgia has had some serious problems. we have set the nation in bank closures but i want to ask you this first question. a number of banks -- community banks in my state of georgia are under regulatory orders from the fdic and these orders are driven primarily by the performance of their loan portfolios and capital levels and these regulatory orders often require a bank to reduce their concentration in real estate loans to some artificial level and that is forcing them to not

renew even performing loans to some borrowers. that seems to hurt everyone especially in states like georgia that are so centered on real-estate. the bar has to find a new bank which we know is difficult in these economic times. the bank loses a performing loan. surely there is a better way to and forced fdic rules and regulations so that they don't hurt the very consumers that are designed to protect and the banks that are designed to oversee. what might you say would be a better way? >> thank you for asking that question. our policies are not consistent with what you were being told. i will send this to all members here. specific examples where you feel our policies are not being applied by our examiners are personally want to know about it. i do conference calls and visits

the region. i cannot tell you how focused on have been done this and the rule is simply this. if the loan is conforming, if you have cash flows making payments on that loan it doesn't matter what the collateral is. if it is a loan it doesn't need to be written down, is a fine loan. if you are refinancing even if the collateral has gone down, continued to make payments you don't have to write down that low even -- if you are extending new credit and new money, the basic needs to make an appraisal, you are extending new money and that is the basic tenets of banking but regard to existing loans, if the borrower is creditworthy you don't have to do of appraisal or do a write down. that is part of the hearing. it is frustrating and if you have specific examples i want to know about it.

>> let me ask specifically what should my banks in georgia do? you are saying that is not the way it should be. they are saying it is. >> we have a confidential process to review our confidential basis. they can call the editor of the division of risk-management, alexander thomson is the head of management, there are any number of avenues to bring this to your attention. we want to know about it. i have found a couple of cases where policies are corrected very quickly. other times, we had some problems. there may be a different perception of creditworthy borrowers and there can be judgment. we individually review every single one. >> thank you very much. last week two more banks failed in my home state of georgia.

georgia community bank and park avenue bank. this bring the number of banks that have closed this year to ten which is by far the most than in any other state and this is not unusual news as banks in georgia continue to struggle. can you tell me what in your opinion makes small banks vulnerable to closure? >> early on we have a lot of failures of banks that had grown too fast that had taken brokered deposits and run their balance sheets quickly and particularly made a lot of lending which is something that generally is not good unless you have carefully managed that exposure. later as we progress into economic troubled times we have had you are seeing more to come from risk-management but there is coming to economic conditions

as well. if the loans are mounting and the capital position to ensure those losses raise additional capital there's not a lot we can do about it. and we have a process that we follow and it -- >> are there any specific things you can say right now that the fdic can do to assist them? >> we do try to work with them. we have a different role than they do and it is not a confrontational role and we don't want that. they need to understand what is going in the bank and talk to management and listen to management. they must exercise judgment about the health and safety of that bank. that should be informed by robust conversations with bank management and the board and we do that and anything we can do to help them recapitalized is in

our interest. it costs money every time a bank fails but nonetheless if they can't raise capital and the losses are balancing, if you close the bank the losses will go higher. that was the lesson we learned in the s&l crisis which is why we have -- >> thank you. thank you, madam chairman, for your generosity of time. >> mr. westmoreland from georgia for five minutes. >> in a meeting i had two weeks ago with your staff they informed me it is unlikely that the fdic will wind down the loss of agreements in a georgia. setting aside my strenuous objection to this, i have serious concerns about the loss of agreements that will begin to mature in two years as the stock date of an agreement approaches. i have serious concerns that the banks with these agreements will

begin to rapidly sell off assets to take advantage of the agreement. this could lead to another downturn in real estate and make it harder to obtain loans. what is the fdic's plan for these? >> the majority -- i am not sure about your figures. the majority of the loss share -- the maturities of the loans, the estimates of when they expire based on what the majority --masturity -- it will get that in the market. that is not howard works. we think the loss share prevent a lot of property going home to the market. it facilitate the ability to sell the whole bank to another insured depository institution. if we had not provided lost share we would have taken the

assets and sell it on the open market. or hold it ourselves and manage it which is costly and difficult. the loss share has helped it in the hands of structure depository institutions. the loss share agreements i want to emphasize we have stringent rules from loss shares, if the loan restructuring will have greater value than a foreclosure we want the loan restructuring. we have specific rules about that. if they don't do that they can lose their lives share payment. >> you might send folks with your regulators who do the work in the field and see where the disconnect is. >> if you have specific examples we would love to hear them. >> the problem giving these

examples is the banks are afraid of retaliation. we would be glad to give you examples but trying to get these guys to come forward i have been trying for -- to do for a long time. there for retaliation. if you think the loss sharing agreements are helping, that could be the problem. because they are not. i don't want to cut you off but one more question. despite the occasional with service some of these regulators give for talking about their community banks to continue to be able to provide service for small business continue to downgrade loans not based on the current status of the low. some of these loans were performing loans the based on

the scenario where there is no economic recovery and virtually every examinations ends with significant downgrades not supported by professional outside loan or independent accountants, if the fdic is serious about allowing banks to serve their customers why are banks being second guessed on the best documented loans? i don't understand how a bank can get all as on a report card and six months later get all fs and do everything because the board member crooks. >> hard to respond with that knowing about the individual case. i would say as i said before if the loan is performing for the bar work continues to perform it is a good loan. even the federal has gone down. if you have examples i want to know about them. i will assure the banks there will not be any retribution by bringing this to our attention.

i really don't know what else i can say. the examiners need to eckert -- exercise independent judgment. the bank management understands -- bank managers are not always right and there have been some big mistakes. hopefully we are through this but earlier in this crisis we have a lot of dramatic downgrades from supervisor ratings to ones that had troubled status. we are putting more of an emphasis on forward-looking camels and asking banks distress portfolios and conditions from a risk-management perspective. that doesn't mean if the economy tanks unexpectedly that they have to hold more capital. we want them to be prepared. >> i appreciate those comments but i really hope some of your senior management or whatever it can go into these banks.

as my colleague from georgia mentioned, we have a tremendous amount of consent and cease and desist on the problem bank list that is still to come. this is sucking wealth out of these communities into the immediate right down, is doing a reverse situation on our local economy killing us. we need some help. thank you for your generosity. >> i will go you one further. happy to go to your district and meet with bankers and help. >> i will take you up on that. >> mr. carney from delaware for five minutes. >> thank you, madam chair and thank you for being here today. i want to add my voice to those who expressed concern about banks' being told they have to do away with performing loans and not creditworthy borrowers

getting access to that. and like to take you up on your offer to entertain those -- that discussion. i have heard a number of times from borrowers and thanks. i want to touch on a follow-up on a couple questions. the first one is you addressed the issue of bailout of banks and with the tools are that you have today that you didn't have over dodd-frank. the question is are you better position today, are regulators better position today to prevent government bailout of troubled financial institutions than they were before? if you could highlight those things, how the incentives have changed and tools have been strengthened. >> we have the authority to resolve the entire financial institution before the reviewer authority went to the bank. now it is a large bank holding company with a list of authority

to put into receivership. if that would avoid systemic consequences. as i said before the process is every bit as harsh as bankruptcy. any temporary liquidity support that might be provided is paid off the top. there's no guarantee of liability. all creditors are exposed to loss. there are low chances of loss after the government got repeated completely. that has to be an offense against the industry. there is no way taxpayers -- there are bells and whistles on this and we pushed for that. we actually wanted an assessment to provide the liquidity in advance. we did one treasury for the liquidity support. we didn't get that but nonetheless even if there is temporary borrowing that gets paid off the top and the unlikely event of losses after being paid off the