analysts here and abroad have applied some analysis or loads of analysis as to how much the surcharge could be in order to obtain that systemic risk, that is a range of a certain set of assumptions and that range, which i indicated was some variant on certain percentage points up to maybe seven presented points above basel iii is what different studies have produced. that is not to say that is the one that gets eventually adopted. there are reasons to calibrate any such range. you have to choose a number somewhere and that is what is going on with the international process and domestically what will go on when the federal reserve does its rulemaking on the enhanced prudential standards but absolutely agree with the chairman you have to take into account that cost for the firm and benefits to the

firm. we have cost analysis with analytic tools we have available to us but what is important is not to lose sight of the constant not acting here. >> i understand that. but if you -- for instance, controller walsh is concerned as i am and i know chairman bair takes a different approach. under basel iii, i think it is called advanced approach to risk management. ..

>> in the middle of the biggest recession since the 1930s, the capital requirement will go up. they didn't and that's what i think it's important to make the kind of proposals on compliance that i made in my testimony. >> undersecretary? >> i think it is very important as we're looking at this surcharge because these institutions are competing internationally, it's absolutely critical that whatever is agreed is comparable across countries, and mandatory in every jurisdiction. and that's why we have put such an emphasis on having common equity which is of course the strongest most loss absorbing kind of capital we would like to see an international agreement, that has common equity and where it gives very little discretion to supervisors.

the other thing i think is important on the issue you raised, assets and how their rss. i think our institutions are concerned and we share those concerns. and that's why as i said earlier, as governor carrillo said, we're trying to put in place monitoring mechanism for the first time so that we will be able to have some visibility to help supervisors assessing risk. it will be hopeful. it doesn't go as far as the amendment but it is another way of trying to create a floor. >> thank you. i think we are all concerned about rules that are on the books that are not enforced by some of these other countries. >> if i could just add, i want to reiterate what governor carrillo indicated. the chance approaches have network. they were overleveraged, and then at the recession hit, when you expect the capital level to go up because the problem folds on loans and recession capital

kept going down. capital is still going down. report that i'll be happy to share with you investors have no confidence in advanced approaches. all of the effort in the basel committee is to try to put more objective constraints on the ability of these individual banks, essentially to set their own capital standards. i think the u.s. is very strongly pushing that. that is the direction to go. given the tremendous flaws in advanced approaches, it is very expensive to implement. i would just get rid of it. it is harmful. it is not helpful, and i think we can improve the current also one standard but if they're going to try to increase compliance one way is to get rid of the approaches altogether. >> thank you. >> i want to begin by joining my colleague in sangha by two sheila bair. i will say that my working relationship with chairman bair

has been an extraordinary beneficial one for me. and i just want to make a prediction now to chairman bair that she will be missed even by people who don't know that now. but i think that her tenure will stand out as an extraordinary example of the right kind of public service. i'm not sure i'll be able to get back. i'd like to give credit where it is do. mr. zubrow, i just want to read a little bit from what he said because we tend in hearing, focus on differences but we are to understand, knowing that we come from. on page three he had a quick -- recent initiative to design and reduce risk taken by u.s. financial firms. it's federal reserve supervision, off-balance-sheet activity being reduced, margins reporting, supervision, derivatives, central clearing derivatives, risk retention, prohibition. here's what he says. as result of these financial

crisis changes lehman brothers would've been subject to the same federal reserve capital and prudential supervision as jpmorgan chase, including extremely high capital charges for collateralized debt obligations and other exotic securities. a.i.d. ig would've been required to raged as a major swapper dissident and subject itself to federal supervision. countrified washington mutual would subject to the same underlying standard as national banks and would've been either significantly limited in making subprime loans are required to retain the risk of these mortgages. the fsoc would have been gathering data. these are important changes. i appreciate this acknowledgment. those are all things that are in this bill, and he knows would have substantially lessens the likelihood of those institutions that were major failures. and as he notes, apply some of the restrictions, all of the restrictions to the bank system to the unregulated. this is where the shadow banks system came in.

he also then on page five talked about what we did in terms of resolution of large institutions, which i continue to believe should be called disillusioned. that's a euphemism too far. and what he said in summary of the listing fees is the united states is head of the rest of the world. the fdic no authority to are already in place. old countries have no plan for orderly resolution. summit effectively announced their bank should be bailed out should a crisis agree. the u.s. is doing the hard work to make orderly resolution of large financial institutions a viable -- it's very clear from context, this is not a case where he is complaining that american different from the rest -- the rest of the world. is boasting. we are ahead of the rest of the world. and on page six has a heading, further insulation for taxpayers, and mr. dugan sets aside from decreasing the risk

of large financial institutions dodd-frank also reduces the risk that a large institutions that he would impose costs on taxpayers. so mr. dougal, i thank you for the. we have differences but i think we have to declare what they are. mr. carrillo, one point. it goes on to too big to fail. on the imposition of a capital charge. i notice one of the contributory factors you said could be considered would be an increase in the capital charge to offset the perceived advantage of being too big to fail. i differ with that because i do not think we ought to be reinforcing it. rather than charge people for what i believe is an increasingly inaccurate perception, even moody's doesn't. my own view on the rating agencies, when moody's finally gets its got to be good. what we have now i think is an increasing recognition that that is not the case. and i think that is one area, i understand we don't want to chargebacks excessively.

i would hope you would reconsider that. it does not seem to me, rather than charge the banks for inaccurate perception let's all make sure we dissolve the inaccurate perception. i would hope that would drop out. finally to mr. gensler. i've been concerned about margin requirements on sovereign funds, margin requirements, when the non-us subsidiary of a u.s. bank is dealing with a non-us entity that it could be a margin requirement, my own view that's a very -- do you under this statute had the authority to take that into account? and can you and your fellow commissioners i just with regard to market, and those particular cases where they would be international setting, a competitors disadvantage, make it go away? >> we are working along with the prudential regulators, because the actual have authority under dodd-frank to set the margin for the banks. we just have the non-banks. but we are along with the sec

initiating dialogue with international colleagues. >> you have existing statutory authority collectively to adjust if there might be a problem? >> i think we have existing authority. it has to be based upon rational reasons along with the administrative procedure act has us do it. >> i understand. assuming rationality, but you do have sufficient statutory authority do with the specific situations that we are talking about? >> along with other regulators who actually have the authority because we are not -- >> let me then ask you, i have 30 seconds, do any of the other regulators who have that authority and for industry specific situations where we are talking about a competitive disadvantage the authority would be there to take that into account? >> generally i think that's true. >> ms. bair? >> yes, we have the authority. >> thank you. i'm sorry, mr. walsh, you agree also? waiting doesn't quite make it into the record. >> yes, absolutely.

>> that i want to be. i don't always want to hear but that i wanted to hear. >> thank you. was morgan chase's testimony inside a valentine card? [laughter] >> yes, but there was no box of candy with it so it didn't have to report to the ethics commission. [laughter] >> thank you, mr. chairman. certainly there is wide agreement in capital and liquidity standards were most inadequate going into the financial panic of 2008, and clearly there's a conference of opinion they must be raised. but i think the question, particularly in this hearing, that has to be addressed is what is that kenya to the impact of raising those capital standards under basel iii? what would be the impact of extra capital standards to be assessed against the sifi institutions juxtaposed the 2000

plus pages of dodd-frank? i am uncertain that we know the answer to that question. i've heard many testify that we must have stability in our capital markets. i agree stability is a good thing but we have stability in our employment market for almost two and half years. unemployment has stabilized at roughly 9%. so this ability may be somewhat overrated. and clearly i think we have to look at the balance again of what ultimately will be the impact of this extra stability on our job creation. secretary brainerd, you confuse me on one part of your testimony. perhaps i'll give you an opportunity to explain. what i thought i heard you say is that it was critical that the

u.s. first maneuver in regulatory reform, but at the same time i believe i heard you does every other panelist talk about their fears of essentially a race to the bottom and what we know as regulatory arbitrage pics on having a little trouble understanding why it is mission critical to move first and why should we not move concurrently. did i misunderstand part of your testimony? >> let me just address both points that you raised. on the capital standards there was a great deal of consideration in the development of the basel iii capital standards to the macroeconomic impact of those capital standards. and our regulators get a lot of impact here on the u.s., and it was also done internationally. and there was broad agreement that i seen the analysis that the transition timelines which are quite generous in the basel

iii framework gives our institution plenty of time to earn their way to meeting those capital standards without having any adverse impact. so i don't think actually we are choosing between stability and growth. in fact, i think the real point here is that we will have much healthier growth if, in fact, we put in place a safe and sound financial system. with regard to the advantage -- >> let me interrupt you here if i could. chairman bernanke i guess about 10 days ago spoke before the international monetary policy conference in atlanta. when asked about the cumulative impact of the basel iii, dodd-frank, sifi charges, said quote, has anybody done a comprehensive analysis and impact on credit? i can't pretend that anybody really has. you know, it's just too complicated. so, i think what i'm hearing from you, secretary, is you may

know something that the chairman doesn't. >> with regard to the capital standards in particular within basel iii, there has been quite a bit of analysis of that. secondly, with regard to moving first, really i think we have a choice, and we have chosen as a nation to put in place very strong standards and then to work internationally to get other countries to agree on the standards. but in terms of implementation, we actually a greek -- >> what ushers the convergence of the standards? many of you have come before this committee to say that basel ii head disparate interpretations, disparity of compliance. and that was with basel ii. what is this assurance that there's going to be this uniformity of compliance? what is the mechanism? >> so, what we've done is first of all we've got an agreement neg 20 and fsb and the basel commitment, basel committee around the same standard, the same set of reforms, the same principles in all the three

areas that are under discussion today. seikaly their implication deadlines for most of those areas. and third process put in place to permit supervisors to have peer review and to hold other jurisdiction to account for those implementation deadlines. >> i just would say in the remaining time i do not have that michael gordon he has quote europe is not going to be under american supervision and they seem to be on a different timeline. i'm out of time. >> thank you. ms. waters. >> thank you very much, mr. chairman. i would like to engage the honorable sheila bair. chairman bair, as you know so many bad practices and a considerable amount of fraud has proliferated throughout the market servicing industry and

the years following the financial crisis. to be honest, i think of response of regulars could've been much quicker and stronger. for example, i was dissatisfied with the federal and agency foreclosure review released by regulators in april. and since you've been leading the charge for the loan modifications, i think the fdic would likewise disappointed let me read from the fdic, that press release. the inner agencies review was limited to the management of foreclosure practices and procedures, and was not by its nature a full scope review of the loan modification or other loss mitigation efforts of these services. a thorough regulatory review of loss mitigation efforts is needed. to ensure processes are sufficiently robust, to prevent wrongful foreclosure action and to ensure services have identified the extent to which individual homeowners have been harmed. so first, do you believe another

regulatory review is needed? is that what we need to deal with this? >> well, i just want to make sure it was clear what the scope of the review was. i don't think there was agreement among any of the regulars. right now pursuant to these orders, that are being discussed, there needs to be a look back. some of these major services need to do a thorough review of servicing errors retroactively. and identify harm borrowers and provide redress for the well as some type of complaint process. and we are in discussions with our fellow regulars on that right now. i would defer to mr. walsh who is the lead regular for most of the servicers, and has been playing a key role in this. but i do think it's a port for the good explain what was in was not covered. and also this is being coordinated with the justice department and state ag's on the law enforcement and. i think there's some hope this can all be packaged together so

there's one set of standards for both the prospective reforms to make sure we don't have these errors going forward as was the look back to make sure that borrowers that were harmed receive an appropriate redress. >> so common this recommendation about letting the servicers have outside consultants to investigate them is of concern to, i suppose, many of us. do you believe that outside consultants can do the job that is needed to be done, instead of a regulatory review? >> well, i do think that there needs to be robust validation process. so yes, we would like to see an interagency examination team reviewing sizable samples of the reviews that the independent consultants are doing to validate the were. i think an extra set of eyes

given the importance of this project will be helpful. >> mr. walsh, you testified to the senate banking committee in march that only a small number of wrong for foreclosures took place. do you still think that? and if the federal inner agencies review was limited, how would we know that? >> i think the key there will be the look back that chairman bair was referring to. the sampling that was done in those exams was to establish whether there were sufficient grounds to determine that the servicers had failed in significant ways and that remedial actions cease-and-desist orders, remediation plans were needed. as result of that sampling was to determine that that was indeed the case. now having done that, we have enforcement orders in place that will require significant follow-up, both implementation plans and also again, this the

look back process that chairman bair refer to and that we're working on on an interagency basis. and that will establish the wider scope of problems, if there are more substantial problems. the reference was only made to the sample. >> in that review, how could it be determined if a foreclosure was improper, if the review didn't look at how services software applies to the bar where payments are to look to see if the fee services charge were proper, or otherwise verified that service records were in fact correct? none of that was in the review, is that right? >> certain of those elements were looked at. these and other things were checked, but the task will not be to look at those things in the context of this look back review where you will drill down.

>> thank you, mr. chairman. i yield back. >> thank you, mr. chairman. i wanted to ask chairman bair and mr. tarullo on a point here, and it goes to tom holland, the president of the kansas city fed commentary on this very, you know, and you are struggling with. and that is as he said the funding advantage of too big to fail organizations have over others america $250 billion for the 20 largest banks in '09. at the federal reserve bank in kansas city, he says we estimate the ratings of funding advantage for the five largest u.s. banking organizations during the crisis and in '09 these organizations had senior long-term bank debt that was rated four notches higher on average than it would have been based on just the actual condition of the banks. would one bank given an eight notch up great for being too big to fail, looking at the yield

curve is four notches and it translates into 160 basis points savings per debt with two years to mature, and over 360 basis points for seven years to mature. this is huge. and it has a highly distorting influence on the market. now, i also noticed, mr. drew, you argue rational is that additional capital requirements could help offset any funding advantage derived from the perceived status of such institution. as too big to fail. we had a hearing yesterday regarding too big to fail, and i think some very well-meaning people believe that the problem is solved by this new orderly liquidation authority. and, of course, according to their logic because of the new authority, the institutions will not be perceived as being bailed out and the rating agencies will downgrade those institutions which is going to lead to higher

borrowing costs, thus eliminating that status. but i don't believe many of the fed governors believe this, and i believe many of the market believe it, and i start with you, chairman bair, and ask you for your perception on this. and how cheaply the orderly liquidation of sort impacts the and scope of this global surcharge in the future? and this global systemically important financial institution surcharge. >> well, i would just be too big to fail is a problem, and they were pop-ups there and these were made, the problem is that bailouts reinforce the perception. even widening funding cost between small and large institutions. i think we're making progress already. moody's has announced a number of banks and they're actively considering the bottom. >> they said they may. >> that's right. i think as we discussed before,

the fdic and the fed through implementation, they have the case to make and will make him that yes this can work, it will work and bailouts will be a thing of the past. too big to fail was will ingrained into market theme. it's going to take some while to get rid of it by to think ii and title i to take the steps to get rid of it over time. it's going to take some time. but i do believe that. and i think, i don't also see any alternative either. i think -- >> let me then go to mr. tarullo for his thoughts. >> i think as for the next 20 days every time i address you as chairman bair, i think chairman bair has only made the point that it's not an off on switch. that is, we've got orderly resolution of or in place now which the fdic is implementing. i think as i suggested the

capital standards are a complement to the orderly resolution of authority. and in order to get to market discipline, i think actually both of these things are going to change. if you think about it, if you end up in a situation in which counterparties truly believe that is not going to be a bailout forthcoming, those who advance credit to very large organizations are going to demand higher levels of capital than existed in the past. and so i regard the resolution authority and the sifi capital sir charles as couple very self reinforcing mechanisms which can move us along the road to what i think everybody out there on the panel and put it on this panel agrees with should be the end which is a limit any too big to fail reality our perceptions. >> i agree that should be our end goal. and the one concern i have is the way in which the legislation was written.

i'm afraid in some ways we may have reinforced it. and i say that because counterparties -- you can see right now in the market. i mean, clearly at the moment things have not changed. in terms of the way too big to fail is being perceived, and you see it by the basis point spread in the market. but my time has expired, and thank you. >> we will take one more on each side, and then when we come back, start with other members. >> i think we both agree that for our members, when we return, it may be a different panel but we will start questioning with those of us of our will not go again. we will start with those who haven't asked. >> after one what is on each cash to each site here we what this charge of this panel. so you can look forward to lunch off the hill. >> ms. maloney. >> thank you. i'd like to ask all the

panelists about the capital requirements and whether or not they will have a disadvantage on american friends. specifically i would like to start with chairwoman bair. section 165 of the wall street reform act requires the fed to impose heightened capital requirements on the most complex u.s. banking entities. and in your opinion should any sifi charge adopted under basel iii satisfy that requirement, or should american banks be subject to surcharge in addition to what is required under basel iii? >> well, i would defer to governor tarullo. he has said that the fed will be making this up with basel iii. i think at least for capital we've all made this very, very conscientious effort to make sure that the standards are harmonized internationally.

>> and, governor? >> well, okay. i'm sorry, the sifi surcharge will be on top of basel iii. i thought your question was would there be some in addition. >> no, no. >> i think whatever the sifi charges, the basel agrees to is what the fed implements year. is that correct? >> yes. >> in other words, maybe the fed should answer. >> the fed should answer. in other words, are you going to put an additional charge? when that it has advanced far banks? it would, ms. maloney got it would be an additional charge on top of the basel iii standards. but as chairman they are just noted, it is one that we are working in the basel committee to get agreement on internationally. so that comparable institutions in all the major financial markets would have a comparable surcharge. >> that is definitely a good go,

otherwise i feel that we would be disadvantaged. may i ask you any other panelists panelists whether you believe that there is a risk of predatory arbitrage with the requirements that we have in our country? and whether there's any risk that u.s. markets could be placed at a financial institution at a competitive disadvantage? >> yes, there's always a risk of that, and i think you heard from several of us, a number of your colleagues on both sides of the aisle that in the derivatives and margin areas, in particular i think that a number of us are concerned about that, which is why there's a need to accelerate work to get basic convergence on that proposition. >> would anyone else -- mr. dent, since derivatives is your area, could you comment on competitiveness?

>> with every regulator and treasure here, but i think that there's always that chance because one of the reasons why i think this nation didn't regulate this market is one of the five or six key assumptions while the markets will just go overseas. i do think this international coordination and good consensus on central clearing, on capital because that's part of basel iii. i think we are going to work together on the margin in approach. i think there's good consensus on risk mitigation techniques. there's frankly a greater chance of some of transparency initiatives. with swab execution facilities. new york is looking at so-called ots but they may be different than what we are doing here. >> honorable schapiro? >> i agree, there is of course always a risk of recurrent arbitrage. but it's also very significant

consensus among the g20, among the financial stability board members who have put forward the recommendations come in for the g20 commitments about what needs to be done. i think particularly andy otc derivatives, and while we have a lot of consensus or read a lot of issues that are at you as chairman gensler knows, trading platforms and transparency regimes i was speak to in particular where we are not exactly in the same place. but that's what its home port forced to continue to push, to lead task force and workgroups of international regulators and to persuade others to come to very consistent requirements along with the united states. >> and, mr. walsh? >> well, i guess i would just add to what others have said that commitments have been made to achieve consistency. and if we succeed in achieving consistency in the derivatives area come in the capital area, and as governor tarullo put out if people i shall deliver on this commitments in comparable ways, then you should not be an

arbitrage or race to the bottom problem. but, of course, it's challenging to do that in an international context and we will have to work at the. we also have to be careful here at home that as we integrate some of the dodd-frank requirements specific to us and the international commitment, that that works well also. >> my time is expired. thank you very much. >> thank you. ms. biggert? >> thank you, mr. chairman. i would note that is not a representative of the insurance industry on this panel. so i'll ask ms. brainard, you know when the president plans to finally nominate an independent insurance expert who will have a vote on fsoc? >> in fact we have our new director of the federal insurance officer, in place. i think three days i want to see. >> you have him budget i the insurance expert that has voted on fsoc which you all do. >> i don't have the answer for you on the timing on that, but i

will get that for you. >> all right. well, then critical, to the u.s. competitiveness, is the fy oh person, and i happened to be from ellis i'm happy he is there. so, he will proceed right away, three days you've been there now? >> that's why and i can get you the information on the expert as well. >> because this certainly what's happening in ustr on the trade agreements it's important that he be there. and into all of you, since all they represent federal agencies that are part of fsoc, can someone explain that understanding about fsoc proposed rules could impact insurance businesses which are regulated by the states? simply no interest person there to really let us know.

>> i think first of all the insurance commissioners from the states will be represented on fsoc, and as they go to the designations process will be part of that process. the other thing that we're working hard on just because this hearing is very focused on achieving international consistency is that we already have representatives of the naic on the international body, the i.a. i ask him and looking forward to having fia oh represent there as well. so resources and staff are devoted to ensuring that fsoc rules, when they are finalized, taking into consideration the uniqueness of the insurance? >> absolutely. i think given the importance of the state insurance commissioners, that fsoc will proceed and what it takes into account the unique nature of

this market and the way that it is regulated in the u.s. >> looking at the volcker rule, which several of you have addressed here, would insurance businesses be allowed to continue to invest in private equity? >> i cannot speak to how the volcker rule will be applied. as you know, that process is yet to come, and in particular, how it would be applied but that's something that is still under consideration. >> the key issue of the volcker rule is whether or not a depository institution is engaged in the activity come and then whether any insurance institution is affiliated with that entity engaged in the activity. if an insurance company is itself not the owner of a depository institution that it is not going to be covered.

>> chairman schapiro, would you agree with that? >> yes, i would. the volcker rule applies to banking entities, and so it would depend the structure of a particular insurance company. >> and then i would note that before the august recess, the subcommittee on insurance and housing committee operative old and insurance oversight hearing to further examine these related insurance issues. and i hope i think we have a representative of fsoc, which would be helpful. with that i would yield back. >> thank you. and undersecretary brainard, that is something that i think many of our members are concerned about, that that position is filled. and i note that the administration has put some ethical considerations up, but one of them was that they had not been involved in insurance operations, which sort of rules out a lot of people with experience. but at this time the first panel

is discharged. we appreciate your testimony. and the fact that the hearing was not a long hearing doesn't mean that -- we have your testimony which will be of great value to us, and we look forward to working with you in the coming months as we try to implement dodd-frank. thank you. >> the committee stands in recess until the votes are over. [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversations] [inaudible conversations] >> the hearing will come to order. our second panel is made up of mr. stephen o'connor, managing director of morgan stanley, and chairman of international swaps and derivatives association. and he is testifying on behalf of international swaps and derivatives association. mr. tim ryan, president and ceo of securities industry and financial markets association.

and we welcome you. mr. ryan. are faster hal scott, director of the program on international financial systems at harvard law school. mr. barry zubrow, executive vice president and chief risk officer of j.p. morgan chase. and mr. damon silvers, associate general counsel of the american federation of labor, afl-cio. so, mr. o'connor, we will start with you. >> thank you, chairman bachus, ranking member frank, members of the committee. for the opportunity to testify today. i would like to be begin by making five key points. first is to represent more than 800 there is from 56 countries, our broad membership includes

cooperations -- corporation, asset mix, governments, supernatural entities, exchanges including houses as well as global and regional banks. our members quietly -- score support the goals of dodd-frank and global financial predatory reform. we have work proactively with policymakers in europe and around the world of the school. second, we have made and continue to make substantial programs and implement the most important aspects of reform, those relating to systemic risk mitigation such a central clearing and trade repositories. third, further improvements can and will be made and i would like to note here that there is a high degree of consistency between u.s. regulations and regulations and other major jurisdictions on the systemic risk rules relating to clearing and predatory reporting. it's very helpful for market participants. on the other hand, there's far less consensus between the u.s. and overseas jurisdictions regarding matters outside these

areas. these issues way primary to the structure and they are critical to the viability of u.s. markets. finally, in addition to the potential systemic policy difference between the u.s. and other predatory regimes, there are equally significant time differences between jurisdictions. differences that will go a long way in determining the competitiveness of our country's markets. turn into some of the key policy differences, we believe the application and effective u.s. law and regulation should be as evenhanded as possible with respect to both u.s. and non-us institutions, and regrettably at this point it seems there will not be equal treatment of u.s. and foreign firms at the institutional level. in addition, our members are concerned about the potentially divergent approaches at the jurisdictional level. it appears out deregulatory jurisdictions are likely to adopt regimes that are different from our own in meaningful in material ways.

as i have mentioned these policy differences are not generally in the area of systemic risk mitigation, the primary driver of regular reform, instead they aren't in the area of market structure. here are some examples of the differences. banks operating in the u.s. will be forced to comply with section 716 of the dodd-frank act, so-called push out a vision which has no counterpart in proposed european or asian regulations. it is to support the removal of section 716 to resolve inefficiencies and competitive challenges and increased systemic risks that will surely result from such a requirement. and had the area of difference is with regard to electronic trading menus, at this point critical components of the rules have no regulatory to parallel in europe or other major jurisdictions.

as noted in greater detail in my written testimony, these rules could adversely affect u.s. competitiveness and the debt and equity of u.s. markets. and ironically, they will likely harm the intended beneficiaries of the new rule, the commercial end-users of derivatives. another important point relates to the proposed business conduct rules, the cftc's proposals seem to ignore the institutional nature of the otc derivatives market. moreover, the standards far exceed the protections required by the statutes and will be on the regulatory framework contemplate in other jurisdictions. these rules will further impair the viability of u.s. markets. another key issue is the issue of extra territory, today there are series concerns about the reach of the dodd-frank act outside of the u.s. and into activities that take place overseas. extraterritorial region exacerbates the problem created by asymmetric rules.

furthermore, it is inconsistent with congressional intent in limiting the territorial scope of the new regulatory framework for derivatives. as i mentioned there are also many differences, meaningful differences in timing between the various jurisdictions. it appears the u.s. financial markets will be subjected to a new regulatory framework will be for other jurisdictions. this will create an uneven playing field that could cause capitals to leave our shores and will be kabul to u.s. markets. to summarize, there are large and great differences in rates would reform efforts in u.s. and abroad. these differences have less to do with systemic issues -- risk issues and more to do with the structure of markets. policy differences that impose significant costs but offer few if any offsetting benefits, mainly decrease liquidity, reduction and growth capital, and the erosion of u.s. competitiveness, these losses will be measured in jobs and tax

ready. the best way to avoid the issues i have discussed and to protect the competitiveness of u.s. markets is to work with europeans and other overseas policymakers to ensure strong yet harmonize rules that are implemented along the same timeline. this will reduce the impact of any temporary or permanent regulatory differences between markets and mitigating the damage is out these differences will cause to the united states. thank you and i'm happy to answer your questions. >> thank you. mr. ryan. >> thank you, mr. chairman and members of the committee. in my written statement i have responded to the questions you asked in your invitation, so in my oral statement i want to focus on three major issues sifi warns, special attention. it's our hope that congress will agree with me and pressed for answers to questions i will raise to a combination of

further hearings by this committee and additional study by policymakers here and globally. first, who are the globally systemically important financial institutions, the so-called g. sifis. this is the so-called different question which includes the capital surcharge debate you had this morning. and impacts what action should be taken with respect to such firms. most of us think we know the firms preordained to make the lives. but at this moment no such public list exists. we do know there's a long list of firms who do not want to be in the g. sifi club. there are related questions that need to be asked on this topic. one, who decide whether firms should be on the list? number two, is this a domestic decision or globalization? three, shed countries without a

g-sifi have a say in the process? for, what would be the criteria and factors used to make these determinations? five, will this process be transparent, fair and subject to review and appeal? none of these questions have been publicly answered. second major question we would like to pose, and you talk about this all morning, regulators have spent a lot of time focused on the need and size of the special additional capital surcharge on g-sifis to mitigate risk. like the first question, this one has several related questions associated with it. such as, how large should the surcharge be, what type of capital should qualify to meet the surcharge, and will there be any mitigating factors or actions which might lessen the

need for a surcharge. since the financial crisis occurred, policymakers, regulators, financial services industry and consumers have all changed their behavior. we have been very busy making the system changes, but the industry and governments have failed really to understand or a sales the total aggregate impact of all of these actions. it's important for you to understand the enormous amount of change taking place in our financial markets today. of the witnesses will provide you with definitive figures, but it's really important to note that in the u.s. we have raised more than 300 billion of common equity while repaying t.a.r.p. with a $12 billion profit, the largest banks have significantly reduced their leverage, and the

wizards of increase over 200%. i can go through a long list that you all know the list of dodd-frank actions which are now trying to implement. sifi alone has filed over 100 comments during this recovery process. -- regulatory process. while we are working through the dodd-frank changes which significant modify the banking activities in the united states, we are also faced with comparable changes in basel which are trying to work through. one point i would like to make that is important, i want to echo a comment made yesterday by the general counsel of the fdic, which was also discussed this morning about the question of resolution of large systemically important institutions, certainly in the united states. we work very hard with history to make sure that that legislation was done in an appropriate fashion, and we're

hopeful that both in their states and outside the united states that that resolution scheme is recognized as something that is viable. so, might ask as to number two, the question number two is would like congress and regulators to postpone any decision on g-sifis capital surcharge until the industry has had time to implement all of the regulatory change is making their way through this system, and the affected parties, which include the private sector and government, conduct a study to see what impact this surcharge has actually on the financial institutions and on the economy. now, mr. chairman, one last comment. in your letter you asked us to specifically comment on convergence, accounting convergence. i can say that from a sifma standpoint we are -- gap in

international account standards, we are concerned with the application of iasb standards on offsetting, and we welcome the recent announcement by the u.s. announcement, in the u.s.a. be supporting the u.s. gaap standard that allows. again, they could only this hearing and asked me to testify. >> thank you. professor scott. >> thank you, chairman bachus and members of the committee. i am testifying in my own capacity and not purport to present views of any organization with which i am affiliated, although most of my testimony is based on work of committee in capital markets regulation. indeed, the less secure -- made recommendations to strengthen the competitiveness of our capital markets. let me address the issues you called on us to comment on.

let me begin with the volcker rule. the volcker rule was passed with the hope -- the help of chairman volcker that other nations would follow us, this will was ill-advised from start because proprietary trading is not responsible for the financial crisis. indeed, it was a source of probability. now it could have effect in making u.s. firms less competitive internationally. there is still time to dampen its potential effect, however, because finding papers house boundaries of the prohibition falls with the regulars. they can and should take a narrow approach to defining proprietary trading to preserve our competitiveness. but the derivatives world, there are major areas in which the u.s. proposals will be e.u. or the major competitor in this area. the differences include standards for membership in an ownership and control of clearing houses, the scope of

the end-user exception, and possibly accounting standards. we should put aside for now the initiatives we're taking that are in conflict with the e.u. these areas can be defined in concert with the e.u. and should be the subject of efforts to harmonize our approaches. in the meantime we can implement the nonconflicting initiatives on an appropriate timetable, as you know the cftc is call for comments on proper sequencing. we may have to make some compromises as well be you. but it is not tenable for us to say our way or the highway. for capital requirements we are now in the third version of the capital court of the basel capital accord. although it is very difficult to precisely quantify the impact, economic impact of basel iii, we know what will affect gdp in only one direction, down. perhaps up to $951 billion in the u.s. a low between

2011-2015, according to one estimate. although basil three is an international initiative, it has differential impact in different countries. testimony earlier today of acting comptroller of mr. walsh and governor tarullo frankly acknowledges this problem. but be on the uniformity problem, we should've learned a big lesson from our experiences of basel i in basel ii. the ability of basel ii determine the right amount of capital for giving a risk is highly questionable. basel iii is not a silver bullet. far from it. in my view we should use a long full facing time provided by the basel iii rules to re-examine how these roles can be more effective and implemented in a fashion to memorize impact. next i wanted to discuss designated sifis for

systemically important financial institution to dodd-frank requires fsoc to designate non-bank fronts a system important and thus subject to said supervision. along with the $50 billion plus banking organizations which are already subject to fetch a provision under dodd-frank. other countries are going through a similar designation process. different approaches to designation and different sifi surcharges could have a major competitive impact. does we should have a global approach your. our national process should be tightly coordinated with the work of the financial stability board, the operational arm. finally, resolution of failed financial firms remains an important and difficult issue with competitive implementations. chief among these is that diversion and visions -- positions on bailouts will alter the cost of capital. countries more willing to bail

out banks was over the cost of capital. we learned this from our competition in japan before its lost decade. furthermore, many of large banks have considerable cross borders and their fear can affect other countries in which they operate. some countries, protect local creditors, those banks can get a competitive edge as well. we should continue to work with the fasb to achieve a coordinated approach to these resolution issues as possible. thank you, and i look forward to your questions. >> thank you. mr. zuber. >> thank you, mr. chairman and members of the committee. my name is barry zubrow and i'm the chief risk officer of j.p. morgan chase. in the wake of the financial crisis, numerous steps have been taken to reduce systemic risk in u.s. banking. since some of my testimony was quoted so extensively earlier

today, i won't repeat those portions now. however, the important lesson to draw from all the actions taken in the last few years is that capital is one tool, but certainly not the only tool, nor a cure-all for ensuring that there is not a recurrence of a financial crisis. jpmorgan chase is not trying to avoid regulation. but we do have serious concerns that the regulatory pendulum has swung to a point that risks hobbling the competitiveness of our financial system and of our economy. basel iii is a dramatic increase in capital standards, focused exclusively on the largest banks. it focuses particularly on trading and other assets i could to produce systemic risk. at this point the best course for the system is not adding a

surcharge on top of the basel iii standard, but rather ensuring that liquidity, derivatives and other rules are written right and applied globally. one year after dodd-frank, other countries are still debating whether to follow suit. and there are indications they will not in many areas. lack of international coordination on derivatives, and the potential for extraterritorial application of the u.s. rules could prevent u.s. firms from serving our clients overseas. there's already evidence that basel iii will not be enforced this stringently a broad as it is here. nowhere has changed and more profound than in the area of capital where u.s. banks face a dramatic increase under basel iii. and i should emphasize that these increases effectively apply only to the largest banks.

to illustrate, jpmorgan chase into the financial crisis with capital sufficient not only to weather the crisis, but also to make acquisitions and to continue our lending activities. the new basel iii rules would require us to hold as much as we 5% more capital than we did during the crisis. let me be clear, jpmorgan chase supports basel iii capital standards. however, we believe that a g-sifi surcharge on the largest u.s. banks would be excessive and could impede economic growth. u..

>> could see increases of as much as 20% on a revolving line of credit. in conclusion, our holistic approach to risk management was one of the key reasons jpmorgan weathered the financial crisis as well as we did. my responsibility as chief risk officer is to look at all of the bank's activities across all markets. we believe the fsoc was intended to serve, in effect, as the chief risk officer for the financial system, analyzing and coordinating the impact of regulation on safety and soundness, but also on economic growth and competitiveness.

we believe that before any capital surcharge is imposed, the fsoc should review and report on the global regulatory reforms that have already been enacted and their impact on competitiveness. whether existing capital standards are being evenly applied, and the cumulative impact of existing regulations on safety and soundness as well as economic growth. we would expect that such an analysis would demonstrate that a g-sifi surcharge is unwarranted. thank you very much, and i look forward to answering your questions. >> thank you, mr. zubrow. let me say that ranking member frank acknowledged that he only read small excerpts which were most favorable to him, and we pointed out some of the things that were not so in line with --

>> we appreciate that, and i'm sure that he and others on the committee will take my testimony in its entirety. >> and, actually, since he likes your testimony so much, i don't think we'll have any problem getting him to go along with some of these suggestions. >> we certainly hope that he will be as enthusiastic about the conclusions as about the premise. >> thank you. thank you. [laughter] mr. silver? >> yes, thank you, mr. chairman. good afternoon. i appreciate on behalf of the afl-cio and americans for financial reform the opportunity to testify. the americans for financial reform is a coalition of over 250 organizations which represent well over 50 million americans. in an age of global markets, any serious effort to insure that we do not repeat the experience of 2008 must include the establishment of an international regulatory floor. otherwise every country's financial institutions are vulnerable to contagion from

radically-unregulated markets. as iceland, ireland, united kingdom and the united states proved in 2008. however, minimum standards are inevitably weaker than more effective national efforts. that's why they are called minimum standards. the united states, for example, has moved more rapidly on derivatives deregulation than europe has but has been less aggressive with private pools of capital like hedge funds and private equity. and we have been faulted for the weakness of our approach in regulating executive pay in financial firms. so while we hear this afternoon about the possibility that business would leave the united states because of the strength of our regulatory effort, over in europe parallel threats are being made about activity move ing to the united states as a result of european regulatory efforts. nonetheless, big banks have come seeking help from congress yet again. they say dodd-frank is too tough

compared to foreign regulation. now, it seems odd that a group of firms that the american public so recently rescued from bankruptcy now amid 9% unemployment and after seven million foreclosures, after record bonuses and amid rising ceo pay think they are the people whom congress needs to help most right now. nonetheless, here we are. so i will now address the banks' specific arguments. on derivatives we have heard that we will drive derivatives trading away from u.s. institutions. this type of argument has been used to oppose virtually every effort to rerail banks. -- derail banks. as a general matter, capital markets activity flows to well regulated markets where market participants have confidence in their counterparties and can benefit from transparent pricing. radically-deregulated markets attract brief bubbles before their inevitable comeuppance.

in addition, there are some kinds of derhode islandtives -- derivatives businesses we do not want. we do not want the next aig. we should not want the united states to retain a dominant position by guaranteeing that monopolistic profits at the expense of our economy. we have heard that the volcker rule in section 716 of dodd-frank will impair the competitiveness of u.s. financial institutions, apparently by lowering their rates of return. this argument ignores the basic principle of investing that seeking higher returns exposes a firm to greater risk. moving up the risk/return curve is not a good idea for too big to fail institutions though it is in the interest of those executives in those firms with stock-based compensation who benefit from the heads i with/tails you lose nature of allowing firms to place bets in the securities markets. an capital requirements the

basel iii is a one size fits all backstopped by an absolute leverage limit of 33 to 1, an extraordinary high level. here congress should ask, do we want the united states to have a robust, size-based system of capital requirements for our banks, or do we want to be no better than the global minimum standard that does not impose higher capital requirements on larger institutions, thereby not addressing the problem of too big to fail? finally, we hear that we cannot implement the resolution authority process envisioned in the dodd-frank until we have a comprehensive international resolution authority. this argument is a red herring and will be used in the future to promote new bailouts. it is a red herring because the resolution process in cod-frank -- dodd-frank is focused on the parent company. the break up and winddown of the failed u.s. parent occurs in u.s. law. real progress has been made, great credit goes to the witnesses in the first panel, particularly to the fed for

their work on basel iii, but a minimum standard is just that, a minimum. the measure of u.s. financial regulatory policy should not be whether we manage to meet the global minimum. the measure should be whether we have insured that the financial system is a contributor to sustained, balanced growth in our real economy. international deregulatory whip sawing and infinite delay of the kind recommended today by my fellow witnesses may temporarily increase some bank profits, but the price will be another cycle of economic crisis and job loss. thank you. >> thank you. and thank you all for being so patient as we left, i think, this morning to go vote and finally came back. the chairman and the ranking member had agreed that we would not start at the top again, but would go to those that are here that did not have the opportunity to ask a question this morning. so we will go to mr. electric

meyer from missouri, he's recognized for five minutes. >> thank you, madam chair. mr. ryan, with regards to the foreign account tax compliant act fatca, i wanted the talk to ms. braynard this morning about it, but since it's affecting you and your industry, i would like to pose a question to you with regards to under fact the firms will be required to report the irs on u.s. clients or face heavy withholding tax on u.s. assets and treasury bonds. as a response, they have indicated they will sell or stop buying u.s. bonds. this will undoubtedly hurt companies not only in my state, but across the nation. and we're curious as to what steps that you would see that the treasury department needs to do to prevent fatca from having

a negative impact on u.s. capital markets? >> and i'll be able to move quickly on this issue for you because we have multiple committees working on this issue, and we have not come to a conclusion. so what i'd like to be able to do is to submit our views for the record after the hearing. >> okay. um, it's kind of, it's kind of a major impact on the ability of, of investments being made by foreign entities and american who are purchasing through their foreign entities into this country. and that can have a dramatic impact on the amount of capital that's available in the marketplace if suddenly the foreign entities stop purchasing it, so i think it's a pretty pertinent question to the title of the hearing today. so i appreciate that. with regards to the fiduciary rules coming out of dol, of all

places, with regards to the ability of some securities folks to be able to sell different types of securities, what kind of -- where do we think we need to go with that one? >> you probably looked at my resumé because i've repotted myself many times. during the reagan administration, i was solicitor of labor, so i've had a lot of experience we race saw and with dol. we have spent quite a bit time with the department of labor and other bureaus of the government, basically, trying to get the department of labor to withdraw their proposal and repropose. we'd like to see it better coordinated with other similar work that's taking place now with the securities and exchange commission as a result of dodd-frank. and we are especially concerned about their effort to, for the first time ever, regulate at the

department of labor iras. >> okay. professor scott, you deal a lot with your director of -- you're director of the program of financial systems at harvard. just kind of curious, what is your thought process on the, you know, with dodd-frank it seems as though we have a lot more connectivity between all the different larger institutions. they've gotten bigger, and by putting other weak institutions, they've absorbed -- to me they have gotten bigger and weaker. and in discussing this we've also seen the connectivity between our banks here and those country over in europe, especially some that are in trouble. and this morning we saw that greece, or the headlines in the paper anyway with greece indicates one article had a 50/50 chance that they would default. i think moody's made the comment this morning there was a 50/50 chance they would default. what do you see the impact of that -- i know we're talking about regulations here going that direction, but impact of

them coming this direction and our ability with this dodd-frank bill which has caused the connectivity of all these bangs being -- banks being even greater, how is that going to impact everything? can you shed some light on it? >> you're focused on the issues going on in europe and what their impact -- >> right. well and, also, we have some regulatory issues here that have, i think, impacted that by tying everybody together even to a greater extent. >> well, i think american banks hold a lot of sovereign debt of the countries that we're talking about directly or indirectly or derivatives of sufficient debt. so i have -- of such debt. so i have not studied this in depth, but i believe there would be if we're talking about any kind of restructuring or default of that debt which, of course, in the mix of argument at the moment that we would expect that it would have some impact on our banking system. that being said, it would have a

lot more impact on european banks in terms of their holding of this debt. so, you know, overall whether it would rise to the level of concern i don't know because i haven't looked at the statistics enough. but i would think we would have some concern with the impact on our banking system. whether it's severe or not, i don't know. >> i see my time is over, but i would think it would have a pretty significant impact when you have, the latest figure i saw was $1.3 trillion in investments in our banks in those countries. that's pretty significant, and if domino effect keeps going, we're going to be at the end of this line of dominoes. so thank you, madam chair. >> thank you. mr. miller? >> thank you. >> five minutes. >> thank you. i joined this committee in 2003 and remember that by the end of 2006 certainly early 2007, it was very apparent there was an enormous problem in subprime mortgages, that there would be

an enormous number of defaults, foreclosures, that because house prices had stopped appreciating, it would not be possible for those homeowners to sell their homes or refinance their homes. and we were assured by the financial industry throughout 2007, really through september of 2008, that there was nothing to worry about. everything was under control. and because of that experience i have not always known who to believe since then. and i may have very well have disbelieved some things that people told me that were true. as a result of that experience. but it is very hard to tell what the liability of some of the banks really is for what has gone on in many mortgage securitization. mr. silvers, if you may change hats for a second, the congressional oversight panel said in november of last year that the potential liability for the chain of title issues for mortgages that ended up in

securitized pools was sufficiently serious and uncertain that it could threaten the solvency of the banks. sheila bair said that rough he the same thing -- roughly the same thing just a month ago. and within just the last few days it appears that the new york attorney general is investigating bank of america at least for, for those very violations of potential violations. mr. silvers, what is your current estimation of the potential liability of the securitizers which were the biggest banks for chain of title issues? >> well, as you said, the congressional oversight panel's report on this matter, the panel which i was the vice chair of, found that there were certain key issues it was not possible -- we could not answer partly because we did not have the investive authority, partly because they involved somewhat complex legal issues. however, the statement that you

were quoting which i believe is still the case is that if it turned out to be true that the, that systematically title was not properly conveyed to the liens on the properties that it securitized, and if it was also true as a matter of law that the lien did not fall in some equitable fashion the note, that -- and that would implicate a series of very significant issues associated with the remmic doctrine in our tax code, and it would also implicate some questions in new york trust law. >> okay. >> if all those things went wrong, meaning wrong from the perspective of causing liability, and it turned out that the -- it turned out that effectively the properties in the securitization trust did not have, did not have lien, they would not -- the trust did not have liens --

>> instead of being mortgage-backed securities, they were unleveraged debt. >> it turned out that the mortgage-backed securities were not mortgage backed, and it turned out that could not be cured as a result -- without incurring vast tax liabilities for breaching the remmic structure. then potentially between the tax liabilities involved and the possibility that the holders of the mortgage-backed securities would be able to call upon their right to repurchase the lopes at face value -- loans at face value, that you would be talking about liabilities back to the securitizers, to the institutions that put those trusts together, in the multiple hundreds of billions of dollars. well in excess of the numbers that were cited by my fellow paneltists in -- panelists in terms of the banks. >> how has jpmorgan chase reserved for that potential liability? >> >> i think as mr. silvers responded to your question there

is a long chain of different things that might have to have happened in order for that liability to actually have come down. and so, you know, we certainly do not think that that whole, long series of events actually, you know, did occur and, obviously, if -- >> so you see it as a long shot. and you've reserved it, if at all, as a long shot. >> that would be correct. >> okay. let me ask you about other pending litigation. there are a couple of insurers of the bonds, ambak, another that has sued jpmorgan chase really for conduct of bear stearns. that bear stearns sold mortgage-backed securities but then pursued claims against the originators of the mortgages to buy the mortgages back, and instead of making them buy it

back, took a monetary damage, monetary damages. even though they no longer had equitable -- excuse me, beneficial title, beneficial ownership of the mortgages, they kept that money and said not a word to the investors. that lawsuit appears to be pending, it's perhaps moving to trial this fall. how has jpmorgan chase reserved for that litigation? >> um, i'm generally familiar with, you know, some of the litigation in this that area. i don't know off the top of my head the exact way that we have assessed the potential and/or possible liability under that case which, as you noted, you know, originated originally with activities that bear stearns pursued. but we'll certainly be happy to get back to you and give you a specific answer. >> okay. >> gentleman's time has expired. the gentleman from arizona is recognized for five minutes. >> thank you, madam chairman.

this morning, and i don't know if any of you were able to hear some of the testimony this morning, but one of the, our current pop culture favorite phrase is regulatory arbitrage. and i was going to, actually, start with mr. scott. i thought we'll go from the academic. will you give me, first, some international but also even some domestic examples? >> yeah. examples of regulatory arbitrage. well, we've had many in our history. when the united states imposed very tough requirements on banks in this country in the '70s, we spurned the creation of london as an international banking center. when the united states, in if -- in my view, overregulated its equity capital markets and our committee has documented this extensively, a lot of the business in those equity capital

markets moved abroad. and particularly to london. again. and the severity of this is once you get whole businesses moving someplace, even if we readjust our policies or london gets more aggressive on theirs, people don't come back. they kind of stay where they are. so i think we've had a number of very important examples of regulatory arbitrage in our history in the financial system. >> okay. madam chairman, to the panel and, actually, it was congressman is it miller that was just speaking that kicked one off in my head, and i this think of one domestically, and tell me if this might be true, and this might be a question for my friend from chase. if i'm in a state that has a 91-day state of default compare today a state that may use a mortgage document that has a six month right of redemption, should there not be a different in the pricing of those loans, those 30-year home loans between

those two jurisdictions? if both of those actually have a regulatory arbitrage, um, just in the my cost of a foreclosure and my liabilities? is. >> i think that you're certainly correct that, you know, given the application of, you know, individual state laws and in some instances individual county laws to, you know, that home financing marketplace can have an impact upon, you know, how we assess risk and, ultimately, would, you know, expect that risk to be reflected in the marketplace. i think in addition it's worth noting that, you know, going babb to your question -- back to your question about historical examples of regulatory arbitrage, there certainly was a significant amount of regulatory arbitrage in the united states through the disproportionate oversight, you know, of different financial institutions and certainly one of the things that, you know, we are now, now

have is the fact that the federal reserve boards has overall, you know, responsibility for oversight and supervision of the large financial institutions in order to avoid that sort of arbitrage. i would cite on the international side, you know, that one of the things that we're very concerned about is a former regulatory arbitrage between different countries where different supervisors and regulators will apply different standards for measuring risk-weighted assets under the basel iii accord such that the application of models and analysis of risk-weighted assets may result in a lower rating or a lower ranking of risk in some jurisdictions than what we would anticipate will be applied here in the united states. >> madam chairman, you actually beat me to sort of where i was

going to go. okay. if i have that different risk ranking, how much of that is also in the quality of we'll call it enforcement? you know, if i have -- whether it be a derivative trade or a home mortgage -- if i have a different enforcement in the rules in the greece or some place in europe compared to if i do in iowa, how much will you look into when you're doing risk analysis? not only saying, okay, we lined up on basel iii, you know, rulemaking, but we belief there's a failure of -- believe there's a failure of enforcement? is. >> we -- i think that's a very good question, congressman, and certainly that does need to be a factor in our analysis of, you know, how we assess risks that we take, you know, in different jurisdictions and, certainly, you know, in the potential for enforceability of contracts around the world. >> okay. madam chairman, if anyone else

has something to educate us in our -- >> i want to take -- i don't want to take anybody's time -- >> mr. ryan, yes. >> thank you. for us i think this is not specifically regulatory arbitrage, but we're in the middle now of trying to implement dodd-frank which is a massive assignment for the government and for the industry. and disparate application of dodd-frank by various u.s. agencies is a real issue. we've recently sent a letter to secretary geithner outlining over 20 absolute dead-bang conflicts in regulations that are now being offered by various u.s. agencies. and to mr. zubrow's comment about --

[audio difficulty] >> within dodd-frank issues. so you don't have to go beyond the borders of the united states. >> gentleman's time has expired. mr. carney from delaware, you're recognized for five minutes. >> thank you very much, madam chairman. just joined the hearing, just walked in, so i missed all the lead-up to this. but i was present here this morning when we had the panel of regulators and the discussion, most of the discussion this morning was on the cumulative effect of dodd-frank regulations and so on, capital and liquidity requirements and sheila bair in particular said that she thought that the capital requirements were on the low end. and the governor from the fed,

mr. few rule low, i spoke to him afterwards, and he suggested he agreed. we had some back and forth on that. this question may not be germane to the discussion that preceded my arriving, but we have some expertise here at this panel, and i'd like your view on that question. if i could. please. >> the answer to this question is not simple in part because of the exchange that just occurred. if your capital requirements, if you are looking at risk-weighted capital requirements and you get into the interspaces of that and it urn thes out -- turns out it's being used to pretend you have risks that you don't have as we saw in basel ii around mortgage-backed securities, for example, then you may look like you have really strong capital requirements, but you don't. okay? the with dodd-frank -- with dodd-frank, you know, some of

this is still being put in place. there are principles that are very good. one of them, for example, is at least dodd-frank embodies the principle of size-based capital requirements. that we've just learned we tend to like to bail out large institutions, so we charge them a larger capital rate. that counterbalances that their cost of capital is subsidized by -- >> so it's a good thing. >> so if i could stop you there. so one of the questions i had of the governor was just that, those sifis that are on the borderline, you know, and whether or not they would be subject to the same capital requirements, the big, big sifis, if you will. and the answer was, no, that there was a gradation there, and it seems to me that you're addressing that. >> in i think sliding scale capital requirements are a really, really good idea. i think that a cliff structure or a binary structure, you get into this argument of i'm on the

line. >> right, right. >> and the sad thing about people that are on the line is that when they are setting the rule, they're likely to be exempted, and then when the crisis comes, they're likely to be bailed out. if you have more of a continuous approach, then the kind the governor, i think, spoke to you about, then you're more likely to have a consistent approach. >> others? please. >> so i, i think that the -- >> by the way, your name and your paper was quoted profusely by the ranking member, i might say, and somebody asked whether it was, came on valentine's day with a box of chocolates, and he said, no, the candy department come with it. [laughter] i say that in a complimentary way. >> we did have some comment about that with chairman bachus earlier when the panel started. um, and i think that it was

acknowledged that the ranking member, you know, selectively quoted from the paper, and we hope that he will, you know, also endorse the conclusions of the testimony, you know, as well as the premise of it. um, i do think that the question of capital is a very important one, and as we've tried to say in the written testimony and as i said, you know, here earlier this afternoon, you know, capital is one tool in the overall framework of how large, systemically-important financial institutions have to be regulated and managed. but it's not the only tool. and the basel iii capital levels that have been, that are in, being enacted, a 7% level of tier one common equity, you know, are much larger than what any of the financial institutions operated under, you

know, going into the financial crisis. for jpmorgan chase that would be an increase of, you know, roughly 65% to meet the basel iii standards above what the prior minimum standards were. um, and, in fact, you know, we, we think that the basel iii, the basel committee and the implementation of basel iii, you know,s has done an enormous amount to both increase the amount of capital in financial institutions, but also the quality of that capital which is equally important. and, you know, our view is that at this point in time to add an additional sifi surtax on top of that, you know, is both unnecessary, but also has the opportunity to threaten growth in the economy which we think would be very dangerous to the financial systems.

>> gentleman's time has expired. the gentleman from illinois, mr. manzullo, is recognized for five minutes. >> i thank you, madam chair. by a showing of hands, could you tell me how many of you there agree with this statement? proprietary trading and private equity and hedge fund investing were not responsible for the financial crisis and, indeed, were the source of profitability to banks during the crisis. the losses to banks resulted from bad housing loans and investments in pools of those loans, traditional banking activities. how many would agree with that statement? well, mr.-- >> i'm glad they're endorsing my position. >> you've got it. [laughter] i was going to say, those are your words on page 4 -- >> familiar from prior testimony. >> and did you notice how deliberatively he raised his hand to -- >> it's really a payoff.

we're all hoping to get into harvard. >> is that what it is? is no chance. but, professor scott, i, you know, that's a very simple answer to a very complex issue, and i agree with that 100%. if the fed had exercised appropriately its jurisdiction over instruments and underwriting standards and not waited until october 1st of 2009 to set forth the rule that requires written proof of a person's earnings, would we be in this mess now? >> um, i'm not really prepared to answer that specific question, but i think the thrust of it is that the standards for making loans were low.

people got caught up in the bubble. this has happened over and over in the history of banking. people get enthusiastic, they lower the standards, they think things are going to keep going on as they are and, boom, there's a burst. people are caught short. it's almost always in lending which is the core function of banks, okay? if so the point i was making -- so the point i was making is this is still another crisis about london really. it's not a crisis about private equity, hedge funds or proprietary -- >> and you sate that, you state that so correctly. i'm sorry, you're in the -- >> no, go ahead. >> the, we had before this committee and before the house in 2000 a gse reform bill, and it didn't go anywhere. 2005 we had a gse reform bill, um, with the royce amendment

that really would have tightened things up with regard to lending. that didn't go anywhere. it had passed the house but didn't go into the senate. we had numerous hearings here with the president of fannie mae showing how they cooked the books in order to make themselves eligible for the pensions down to two or three mills to come within that particular window. and it just appears to me that the evidence was out there. both presidents bush and clinton encouraged the gse to buy up subprime and alt-a loans into these packages. and the reason i quoted your statement -- and i'm glad you recognize that you are, indeed, the author of that sentence on page 4 -- is the fact that that really is the core reason for why we're in this financial

crisis today. dodd-frank addresses a lot of issues, and that's fine. they're interesting, but do you, do you believe that the power existed within the federal agencies that they could have stopped these bad loans from taking place in the first place? without any further legislation? >> definitely think they had the power to maybe not stop them, but certainly -- >> curb. >> -- raise the standards for making loans. i mean, that's the essence of bank supervision. so if a bank supervisor feels that bank is taking too much risk, is not controlling its risk, its job is to go to that bank and say so, and the bank works with the regulator to try to address it. they didn't do that. on the other hand, congressman, we were all in a housing price euphoria. so, you know, it's -- looking

back it's obvious, okay? but at the time if you really believed housing prices were going to keep going up which almost everybody did, the pressure to raise those standards was not very high, and there would be political pushback in any event if you tried to lower the standards in a way that deprived certain people from getting loans. so i think that was the reality of it. >> appreciate that. wasn't that a great answer? >> can gentleman's time has expired. [laughter] the gentleman from texas, mr. canseco, is recognized for five minutes. >> thank you very much, madam chairman. mr. o'connor, you mentioned in your testimony the divergence in rules between the european union and the united states in regards to interaffiliate derivatives

transactions. if i understand it correctly, as it currently stands in the united states a financial institution helping one of its affiliates hedge their risk through derivatives would essentially have to post margin to itself. is that correct? >> that is currently the case. so, with the proposed rule set. so, um, in the e.u. currently the commission is considering exemptions for certain types of interaffiliate transactions. so these are effectively two subsidiaries of the same parent company. in the u.s. such an exemption has not yet been given which could result in two parts of the same firm having to clear faith between them post margin between themselves, yes. >> so what we could end up with is derivative trades instead of being conducted between a company and its affiliate, they're conducted between nonrelated companies if case is

where a affiliate has to post a margin with its parent company, thus increasing systemic risk and a flight, fly anything the face of what dodd-frank was intended to do, is that correct? >> it certainly would increase costs, um, and not directly effect systemic risk, but if such margin had sob segregated -- had to be segregated, for instance, that would be taking money off the institution's balance sheet that could have ordinarily been put to other uses such as lending or other things that would have a beneficial effect on the economy. >> in your opinion is this worthwhile? >> no. >> okay. and, um, does this rule make sense? >> this rule needs -- no, this rule does not make sense to me. >> okay. thank you. mr. ryan, do you feel the same

way, or do you have another opinion? >> no, i agree totally with mr. o'connor. >> okay. mr. zubrow, is that your answer also? >> congressman, that is correct. um, i think that that rule does not make sense. i would also point out, you know, i think that your example of how it could lead to an increase in systemic risk, you know, was really predicated on the assumption that instead of having a firm engage with transactions with affiliates, that instead a firm might have to, in effect, do a three-legged transaction where it goes outside of it affiliates in order to lay off certain risks as a way of transferring risks within, you know, amongst its different entities which would, obviously, increase, you know, the overall exposure to, to, you

know, risk and credit risk, you know, across the system. in addition i think, you know, as you're aware, you know, there's also proposals that are competing between what the u.s. has proposed and what it appears europe is likely to propose as to the types of collateral and margin that could be posted for different transactions, and the u.s. proposals, you know, limit the amount of margin that could be posted to, you know, instruments that are basically denominated in u.s. dollars. and so, therefore, you know, if there is extraterritorial application of the u.s. rules to, you know, foreign entities be they affiliates or end customers, um, we would be asking european clients to be posting, you know, u.s. dollar securities as opposed to, you know, european bond collateral

or government collateral or currency which would, obviously, be the natural currency in which they would have their assets. >> let me, let me just clarify what you just said. so even if these rules are harmonized across borders, is the restriction and cost increase on affiliates, on affiliate trades worthwhile, in your opinion? >> if they are harmonized in a way that requires posting of margin in between affiliates, you know, then we would not think that that was worthwhile. >> all right. thank you very much, and i yield back my last nine seconds. [laughter] >> thank you. i recognize myself for five minutes. and this question is for mr. o'connor, and i think mr. ryan has had some part of this in his statement. um, does the swap pushout provision decrease market

liquidity, and does it impair safety and soundness, increase systemic risk, make it harder for the large banks to resolve? are you aware of any country besides the united states with a sophisticated derivatives market that's planning to adopt such a pushout requirement? >> um, thank you for the question, congresswoman biggert. answering the second question first, no, i'm not aware of any jurisdiction that is adopting a rule that would be similar to the pushout rule and, yes, i agree with those points that you make, namely that requiring banks to move past their businesses outside of the banks into differently-regulated entities adds to systemic risk in the sense that, um, two entities now need to be managed by the bank from a liquidity and capital point of view and, also,

customers of the bank that typically would engage in derivatives transactions under one agreement, credit exposures, would now have to trade across two and, therefore, there's an increase in counterparty credit risk within the market which adds to systemic risk. >> wouldn't this put us then at a real disadvantage in the global economy? >> >> in my testimony i included that as one of the examples that puts the u.s. as a competitive disadvantage, yes. >> thank you. mr. ryan, would you like to comment on that? >> well, i concur totally with mr. o'connor. it's interesting that the end result here from not only dodd-frank, but some of the things that are going on in basel that, in effect, we are pushing risk out of the highly-regulated,

highly-capitalized environment and into shadows. and it's predictable that in the future that will be an issue. so as to your question could it or will it increase systemic risk, it's entirely possible. >> so should it be repealed? >> i -- we're not pushing for any repeal of dodd-frank right now. the industry is really -- >> i mean this section. >> 716? you know, we were against it totally during, during the enactment of the statute, so if it disappeared, we'd probably be very happy. >> okay. then mr. zubrow, your testimony was, made a lot of this morning. i would just, you know, on page 2 of your testimony you talk about the regulatory pendulum has swung to a point that the risk of hobbling our financial system and our economic growth. and you say that u.s.

policymakers should focus on how much the regulations they've proposed collectively reduce risk taken by financial firms and how this collective impact is likely to result in reduced u.s. economic -- the economy and job growth. and how many of these regulations are being rejected by other countries. could -- what's, what's putting u.s. firms at a competitive disadvantage? is it the -- does fsoc have anything to do with this? is the fact that the fsoc members are not coordinating or thinking in the context of the global marketplace have, cause any problems? >> madam chairwoman, i think that, you know, you are exactly correct, that the fsoc has a very important role to play here, and it is really within their purview to be able to

analyze and assess what is the cumulative impact of all of the regulations that are being proposed under, you know, dodd-frank but also the additional regulatory activities that the different supervisory agencies as well as the basel committee, you know, are imposing upon, you know, the financial system. and so, you know, i think that it is very important that the fsoc do a study in order to really be able to assess what that cumulative impact is and have we accomplished enough already in order to feel comfortable that we have a much safer and sounder banking system. there's, obviously, it's all going to be in how the rules are, are ultimately promulgated and implemented, but so it's very important we constantly step back and look at what that cumulative impact is and how it's impacting, you know, the

economy. >> thank you. and with that, i would ask unanimous consent to enter into the record a statement for the record by the institute of international bankers. without objection, so ordered. and think that we will give you a rest here. i think you've been here for a very long time. unfortunately, we haven't had probably as much time as we would have liked. i think we'll remember that maybe sometimes having such an important hearing on what we call getaway day is not the best idea. so, but we are thankful that you stayed and gave such great testimony. we really appreciate all that you've had to say. so i would note that some members may have additional questions for this panel which they may wish to submit in writing. so without objection, the hearing record will remain open for 30 days for members to

submit written questions to these witnesses and to place their responses in the record. and with that, this hearing is adjourned. [inaudible conversations] [inaudible conversations]

[inaudible conversations] >> this afternoon u.s. trade representative ron kirk talks about global markets, jobs and the american economy. he'll be joined by former federal reserve chair alan greenspan and former agriculture secretary dan glickman. we'll have live coverage at noon eastern. a half hour later c-span3 will be live with a discussion of the impact the war on drugs has had on the african-american community. community representatives will look at alternative solutions. and on c-span this afternoon the republican leadership conference, a number of presidential candidates will address the group including herman cain, ron paul, michele bachmann and rick santorum. live coverage beginning at 12:40 eastern. >> the times sort of ordered the world when i was growing up.

>> page one producer and director andrew rossi takes an inside look at "the new york times" through the eyes of the staff. >> i came into it without a grand sort of sense of what the solutions are, um, for traditional media. um, i came in with a desire really just to observe. >> he'll talk about his new documentary sunday night on c-span's q&a. blackberry users, now you can access our programming anytime with the c-span radio app with four audio streams of our programming; public affairs, nonfiction books and american history all commercial-free. you can also listen to our signature interview programs each week, and it's all available around the clock wherever you are. download it free from blackberry app world. white house chief of staff william daley talked to manufacturers from across the country this week about the economy, job growth and u.s.

competitiveness. nearly 400 manufacturers met in washington, d.c. for their annual summit. mr. daley's comments to the group are about 40 minutes. [applause] >> thank you very much, jay. for that introduction and your kind words. running the white house, the world, jeez. [laughter] i wouldn't have taken the job if i thought it was that. [laughter] let me, first, thank jay not only for giving me the opportunity to come and meet with you and to listen to you after i make some brief remarks, but for the leadership he's given them. is respected, obviously -- jay is respected, obviously, not only because of the organization he represents and the people who are a part of that organization who really do play such an important part in the economy of our country, but as an individual who's respected across the political divide,

democrat or republican. but also at both ends of the street, street being pennsylvania avenue, on the hill and now the executive branch. and those agencies of the educative branch that deal with me and deal with him. so i appreciate very much, jay, your leadership and the encouragement which you have given the administration and the direction and advice which you have given us. i appreciate it very much. also like to acknowledge mary ann for her presence not only here today and her leadership of nam, but also her presence on the president's export council and the leadership she provides for that. i appreciate that. i also had the pleasure as was mentioned by jay that as commerce secretary to deal with nam a while back. the economy was a little better. we're all feeling much better about things. maybe it was because we had a different commerce secretary, i don't know. [laughter] maybe that's, you know, the

reason. [laughter] at least in my opinion it might be. let me make a few comments. i've had the pleasure of being chief of staff to president obama, now, for a little over 150 days. um, about six hours and 12 minutes or something like that. [laughter] i called jim baker who was at least in sort of washington parlance viewed as kind of the typical or the best chief of staff that everybody looks to. it may be because he went from there to treasury and then secretary of state and had a very successful career. but i called him for advice as i called many of the other chiefs of staff for different presidents and, obviously, he was the chief of staff to ronald reagan quite a while ago, most successful. and he said, he answered the phone, and he said, congratulations, you got the worst blanking job in if america. [laughter] i said, gee, somebody told me it was a good job. he said, but the real advice i

will give you, he said, you know, times are different. the real advice i will give you is just remember the most important part of your title is staff, not chief. and, trust me, i have remembered that now for 156 days. but it is a great job, and it's a great job to not only work for this president, it's a great job to serve in government. much often maligned government employees. but it is an honor to be part of an administration that is fighting every day for the american dream and at the same time we have men and women fighting around the world on behalf of our values and to protect this great country. so it truly is an honor. and these are historic times, and i'm honored to represent president obama at gatherings like this to meet real people who don't live in washington. as i call you, normal people that i don't deal with every day, and that's great.

let me just make one very simple statement. our president believes strongly in american manufacturing. he believes that manufacturing has helped, obviously, build our middle class and has kept us strong and able to defend ourselves both economically to the changing world and defend ourselves in real terms in battles around the world. the manufacturing jobs have helped make the american dream a reality for millions of families around our country. we all know and you know probably better than anyone how the world has changed. there are some who say that america doesn't need to make things anymore. but our president subscribes to the opposite view. in the 21st century, american manufacturing and the growth of it is vital, it is essential to us. if we build products here, we obviously create jobs here. and innovation, therefore, will continue to happen here. and that's how we keep our economy strong in the 21st century. over the last few years, we've

faced unprecedented challenges. the financial crisis of 2008 was unlike anything most of us have ever experienced. we heard about it from our parents, maybe our grandparents. i'm sure you all remember our economy and what it was like in 2008. and many of our great american companies, names that have been around for years, were on the verge of collapse or did collapse. president obama worked with nam and with manufacturers across america to help you weather the storm and put our economy back on track. gdp has now grown for seven consecutive quarters. the private sector has created over two million jobs in the last 15 months. obviously, these are difficult times. there is some growing confidence that we are coming out of this terrible times, much slower than anyone wanted, obviously, but i think we are moving in the right direction. there are, there are serious questions, though, about how

fast we're moving and are there ways to get us to move faster. these questions are being asked with deep urgency by you as business people, by leaders in government, by leaders of government around the world. every day the president hears from people, citizens who want to know that they're able to find a good job with some good job security, that they'll be able to give their kids the education which they need and the opportunities which they dream of for their kids and grandkids. and he hears from businesses who want to know that as the world changes we will be able to stay competitive. the challenges we face didn't develop overnight and, therefore, a full recovery will not happen overnight. but there are steps we can take to speed the recovery and put people back to work and insure that america remains the best place in the world to do business. i'm happy to say that you have been a powerful advocate for taking these steps. you have supported new trade agreements with korea or colombia or panama.

you've supported trade adjustment assistance and the trans-pacific partnership and thanks in large part to your leadership, we've finalized many of these agreements, and as soon as congress approves them, we'll open markets abroad and, therefore, have opportunities to create jobs here at home. you have supported measures boosting immediate growth and job creation. for example, with your support we enacted 100% expensing for all businesses for this year. that will provide about $150 billion in tax relief to two million businesses this year and next. you have called attention to fixing the tax code to promote long-term growth, and during this year's state of the union address the president said that by reforming the corporate tax code we can help our companies compete globally. he called on congress to get rid of the loopholes, level the playing field and use the savings to lower the corporate tax rate for the first time in 25 years without adding to the enormous deficit.

and you've pointed out the other ways that we can remove barriers to your success. thanks in part to the suggestions from the business community, president obama directed his staff to go through the regulations which are on the books and find the ones that are out of date, unnecessary, excessive or in conflict with other rules. ..

>> these are just a few of the many steps we've taken to strengthen the economy. president obama supports investing in 21st century infrastructure, passing bad reform, reauthorizing clean energy tax credits as well as expanding the tax credit and making it permanent. we chose these priorities because companies like yours have said these are the tools you need to compete in the global marketplace. and, therefore, have an opportunity to put more of our fellow citizens back to work. of course i'd like to take a moment to recognize that all these programs require support of congress. we do hope congress acts quickly. we simply do not have time for more political games or for what we see here as business as usual in washington. we can't afford to miss the opportunities which are before

us. as business leaders you understand this better than anyone. when you're industries and companies face tremendous challenges over the last few years you didn't accept the status quo or resigned herself to failures. instead you laid out and being implemented plans for success. that's exactly what the president has said, when it comes to getting our economy back on track, quote, the answer is to place a bet on entrepreneurs and workers. in the beginning of june president obama went to toledo, ohio, and toward a factory that builds jeep wranglers. he reminded us in 2009, detroit should've been allowed to go. instead the obama administration helped rescue the american car companies and today a resurgent auto industry is supporting manufacturing jobs all a long as obliging. last week to present went to alexandria campus of northern virginia committee campus where i know many of you joined him. he announced a partnership with

transgender community colleges and companies to make it possible for 500,000 americans to get credentials for manufacturing jobs. that program is going to help meet your hiring needs and that our workforce for the 20% you. i think all the leaders here today deserve a round of applause for making that happen. [applause] >> and finally just this past monday president obama went to north carolina, a rapidly growing company which produces some of the most energy efficient leds in the world. he also met with his council on jobs and competitiveness which includes senior leaders from nam, gm, boeing, procter & gamble. discuss ways to streamline regulation with programs like the better buildings initiative which will save businesses up to $40 billion a year i supporting countries that manufacture energy efficient products.

as you all know every moment of the president's time is rather precious. i think it says something that this president is facing manufacturers all over our country, to speak to them in to listen to them. he wants to highlight the success story that are happening in companies like yours. because manufacturing is leading a recovery. and he also wants to hear what we can do to make it easier for you to succeed. because you are the ones who made it through this worst financial crisis since the great depression. because you are the ones who have made it through this, you're the ones who are growing your companies pick your the ones who are building products and creating jobs right here in america. as the president put it, and you know better than anyone, americans do not quit. whether it's an out of work parent and one in a committee college or a ceo of finding new and innovative ways to keep building products here in the u.s., americans are doing everything they can to tackle the challenges before us. and that's why the president

believes that our future is bright. it's why he's worked to pull the economy back from the brink and helped rescue industries like the auto industry. that's why he's investing in education and promoting our exports. that's why he is committed to cutting taxes for working families and helping small businesses trying to find access to capital. and removing the unnecessary burden that's stands in your way of growth. so i'd like to close by asking each of you to continue to be an ambassador to those here in washington. you do this once a year. it is an important event, because again, the people here in washington here from normal americans when you come to town and talk about the things in your life, in your business, that affect you that are not being done or may be done to you here in washington. but at the same time we need you to be an ambassador back to your communities. we create a wide variety of tools that will help manufacturers succeed.

we rely on you to spread the word so that companies can take advantage of those opportunities. this recovery hopefully continues step by step, we're going to have some good days, but we'll also have some setbacks and bad days. but i believe that ultimately if we work together we will emerge from this experience stronger and more competitive. we will win the future. we will keep manufacturing strong today, tomorrow and decades to come in this new century. and with that in mind, i once again thank you for inviting me, 90 for what nam has done far country. thank you for the outreach jay timmons has given to us and other agencies within the federal government and i'd like to open it up now if i could to take some questions and hear some comments, not too many criticisms, but i will take them as i'm trying to solve the world problems. and really do appreciate what you do to strengthen this economy during this difficult time.

thank you very much. [applause] >> if you could maybe identify what company you are with and where you are from. >> my name is erica martin. [inaudible] >> that's a company. we will come back to it later. [laughter] >> yes, ma'am. >> that's what ask people to identify themselves. [laughter] >> i am with new page, the largest manufacturer in north america and we represent -- where are you headquartered? thank you.

[inaudible] very aggressive regulations coming out. they're going to dramatically going to place the fact is that we even have to close a facility. >> is there a specific rule or rig that may be coming out? [inaudible] in 2007 we spent about -- [inaudible] to meet the regulations at that time. they will potentially be another $15 million investment in a facility. so those are the kinds of things we're talking about. [inaudible] >> i do appreciate it. as i said in my remarks, and since i got here it seems as though the number of regulations and rules that come out of

agencies is just overwhelming. i'm saying something that you sure know. a number of, to be very frank with you, a number of epa rules are a result of a lot of litigation, not a partisan comment but in some people's minds there was very little action out of epa implementing legislation passed by congress. during the last, previous eight years, before this administration. so you had numerous lawsuits on top of lawsuits on certain regs. and a lot of what is being implemented and acted upon it is result of a backlog of cases, judicial cases that are now requiring the epa to do certain things and move forward on certain things. i'm not saying that as an excuse. it's a fact of life. a lot of the issues around a lot of scientific evidence in our opinion was ignored.

we can debate scientific evidence but a lot of it may have been ignored over a certain period. that's at the heart of a lot of these. but i hear the message. as i mentioned the president has been very strong. we've record each of the departments. there's some independent agencies, there's a debate going on right now whether we are the authority to order them to do this sort of review that we've ordered the cabinet agency do. and every scented -- present plans to omb to do this sort of review that i mentioned that we saw in one agency with osha and try to get rid of the redundancy in the overlap. but there is an enormous number of rules and regs that are kind of in the pipeline that come out and we're trying to bring some rationality to them, especially at a time of economic crisis. and impact that they can have on those. we have been very strong. cast some steam who runs the

group within omb to reduce all of these, we looked at the cost-benefit of them. we analyze that very heavily. and with a great priority on. that some rules, the cost of them only the benefit side by legislation. but as far as our attempt to try to get control of this, and try to make sure that each of these rules that are being proposed as a cost-benefit analysis done, that's really rigorous, we are doing that. but i appreciate your comment. yes, sir. >> thank you very much. my name is albert. i'm from madison, wisconsin. we were producing coast guard ships. now we are pretty common of

construction all around the world. what issues were having right now -- [inaudible] the president said many months ago that he wanted to see, or he wanted to double exports in the next two years. and we are all for that. but with all these trade barriers, we can't do that. and there's a lot of finger-pointing come and really as a businessman, we go beyond the point to get somebody that will get the job done. but while the finger-pointing is going on, we have competitors that are as challenging trade agreements all around the world, especially some of the hot emerging markets like colombia, panama, south america, and we are being left in the dust. and our employees are beginning to see that as well. almost as we are getting ourselves from getting out of the gates.

in your opinion, or what you see, will the finger-pointing stop anytime soon, and are we going to be able to move forward? >> finger-pointing will never stop you. but these trade agreements will get done. they are is -- and i as was mentioned, in 1993 i came into the white house, special counsel to help passed the north american free trade agreement. when i was commerce secretary, trade for china was approved. personally believe those two things were probably the most important economic things that happen in those eight years in that administration. yes, this controversy around trade, no doubt about it. tremendous controversy, and as you have difficult times as happened around the world, the support for free trade or fair trade diminishes. as we have seen, around the world. so protection is action by

countries during difficult times increases exponentially with the crisis. so we have seen a lot of that. we've been very aggressive, this administration into a half years that we've been here in enforcing our trade laws. building a consensus for trade. the difficulty is, and your comment about your workers beginning to grow and understand this is an incredibly important, let me just take a couple of minutes, i don't want to sound like a long winded washington person, that it is a subject i feel very serious about because past involvement. we've lost the sort of coalition, and the public, no politician loses an election because they voted against trade. okay? so, you know, most people, it's an easy thing. it is a vote that's a no-brainer if you're just looking at raw sort of politics. to vote against a trade deal.

people who do vote for trade deals it's often around a negative result of that. the last poll in "the wall street journal," not exactly -- had almost 70% of american people having a very negative attitude about trade. i do believe that's result of the tough economic times. people know that. but we've got to broaden support and understanding of trade. it is not a win-win situation. people do lose from these trade agreements, no doubt about. temporarily, companies get challenge. we've got to redo, rethink. we've got to see their our challenges as a result of this. one of the things we're fighting for heavily in these, with these three trade deals, panama, korea and colombia, is a trade adjustment assistance package. we think it's important in when it is too big, too small, whether it is effective or not

but we think the court also to say to the american people when this impacts of these deals, we've got to be there to help temporarily to help people. and encourage them to be retrained to move forward. so i think in trying to build this consensus, and we do appreciate the fact that nam is supportive of that, that that's got to build this coalition that's not just trying to figure out to get them in a number of politicians to vote for these things. you know, and then move on. but companies have got to say to their employees, and this just isn't a union, yes, unions have had problems with trade agreements for ever, okay? but workers, you've got to understand, that there's a challenge, we've got to do a better job in which we been very aggressive about, we being the government come in and forcing the trade laws that are on the books. highlighting the fact other countries are very protection. look, the fact is people complained about the u.s. being protections. look at the amount of imports we

have in this country historically. we been the most open ended and it's been good for our economy over the 50 years, 60 years since the war. so we've been helped by that. but it is a very controversial difficult thing. i do believe and i'm very confident these free trade deals will pass as a ta a. and then we've got transpacific alliance to try to do, doha is not the but that's probably a pretty heavy lift for the world right now. at least for china, brazil and libya. i'm confident it will pass. but let me say i think it's important you all as you visit the hill and talk to members our talkback in your commuters that you talk to the politician but you're also talking to your workers. there are negatives, no doubt about it. we've got to protect that but the positives i think out with the overall economy. yes, sir. [inaudible] >> a couple more, yeah. i've were probably regret saying that.

[laughter] >> good afternoon. [inaudible] my question relates to taxation. last fall the president was a very courageous move by extending the tax cuts, it was very welcomed by the community. but as a struggle to maintain our competitiveness in the world, our corporate tax structure -- [inaudible] >> we are coming as i kind of the mentioned, we have done a deep dive to try to come up with a corporate tax reform package. there are winners and losers. everybody says lower the taxes, great. there are some smaller businesses that may have their taxes go up by virtue of that. you may be able to get more taxes out of ge or the big ones also. but whenever you do one of these there are winners and losers. and it's a bounce to try to get

right because you have to be deficit neutral. so i'm confident that out of this budget negotiation and deal that i think has come in order, not only to extend the debt ceiling, which i think, i know there's some people that think that's not a big deal if we default. generally i know your bankers think it's a big deal if you default. so, i take out of that deal will come a serious attempt on corporate tax reform and personal tax reform. look, the president has been very clear. he believes we need -- in spite of the fact that extending the tax cuts that were enacted in 2001, remember the previous administration extending those, and believing that was better because of that middle class and the business incentives that were in it, that at some point, you know, those of us who have done quite well over the last

number of years after that to pay more and for all the expense of this country. it's pretty simple when you look at why it is, why went in 10 years from a budget surplus to budget deficit. but at some point we've got to face up to the fact that yes, we've got to cut expenditures, and we've been doing that substantially to the point where, you know, it's unprecedented and in some of the spending, not in the entitlements yet but on that what is called nondefense discretionary, which is only about 12% of the budget that's been cut rather substantially. and there are people who feel the impact of that. but we have been solid in that need to do that, and to do it in a wise way so it's not just about cutting. no business gets in trouble can just cut its way to health. got to cut, take some of that

money as you cut and invest in things whether it's people or investment in technologies that are going to hopefully bring every turn back. so, so it's a difficult balance, but i think out of this budget discussion and resolution in order to pass the debt ceiling and to begin to address the deficit, both corporate and individual tax reform needs to be looked at seriously. yes, sir. >> thank you very much for coming. [inaudible] we are a 130 year old company. with all due respect, actions speak louder than words. [inaudible] i will give you a small vignette we are going through i think is played out around the country thousands of businesses and thousands of towns.

i've been trying to install an upgrade, and this is a good thing, reduces the carbon footprint, reduces our energy costs, makes jobs, good for the committee. >> where are you located? >> in massachusetts. and like i said, we started in 1880. we've been generating power since the turn of the century. [inaudible] we had a project ready to go. it's been on hold for about two years because of fishery issues. u.s. fish and wildlife held us up. we started making roads with a state and coming round to our site, we put a letter out, made a ruling. in october 2010 to take

jurisdiction. we just appealed that. well, i say we appealed it in october. i went to court january 3. last night -- on my blackberry i got of the ruling, over will. let me just reach this -- read this. this is from the judge. given the state of the law, here in expand we are inquired to affirm an exercise first jurisdiction over the dam in question. we do so without much enthusiasm. there's something the law called deference, and it is inferred, deferring to the u.s. fish and wildlife. and have something held up for this long that's good for the country, good for my business, you have the president and the

governor and tout renewable energy, and no one in the government is telling it to possess this and you'd the other government agency tragedy of the you can't go on. this is one small vignette. there's thousands like this around the country that are happening with the government, continues to throw sand into the gears of progress. we've got to change this. >> obviously i can't comment on individual? cases. [applause] >> there's not much i can say to you, to be frank. it is your typical sort of bureaucratic stuff that's hard to defend. sometimes you can't defend the defendable. all i can say to you is, first of all, we will look into it and see if there is anyway to bring some reason to what's happened at this point. and what's the logic of the

delays, what's the logic of sort of impacted that's having on your decision-making. and see what i can do. yes, sir. [inaudible] >> that's all right. [inaudible] >> the fact of the matter is, based on what the legal decision i read about midnight last night, we already spent well over $100,000 fighting this, the only course i have got is to go to the supreme court. the supreme court is not, is not going to do this. the chances of getting in front of the supreme court is nil. so, we've got to look at some other measures, some other ideas that we can do, but i'm just not going to lay down. this is an example, standard

migration in the rivers is a problem. they put in a million fish above our dam and they have had one recorded fish come back to the mouth of the river over the last 20 years. one. if gm -- how long will they be in business? you can't continue to find federal agencies that are not spending taxpayer money wisely. that's ridiculous. [applause] >> thank you. yes, sir. >> i told you i should have quit before. [laughter] >> yes, sir. >> jim baker's advice notwithstanding, i will call you mr. chief. first, i think, i would say that it's been encouraging over the

last 150, 180 days the administration has done things which are more positive. i have to say that. i want to compliment you for it. here is the thing though. there's been a lot of talk about uncertainty about businesses sitting on the sideline. and i think it is this, is that there's been a feeling of unprecedented high between business and the administration. you know, i think the administration may feel differently but i would say all the people in chimp they would say that. and it would help us if not one particular item if the president would say look, i put manufacturing and jobs as my highest priority, and i will do nothing but -- or promote anything in terms of policy or regulation or acts that would

make it harder to manufacture in the united states. if you do that i think would make things more certain and bring more of this cash out of the sod buster and i wonder what we could do to help them do that. >> you know, i appreciate that, and a version of that he has said, but to be frank with you when you have a system and a government that grinds on and this is probably a complaint that probably the last of ministers would have, that to get control of his government at times is very difficult. in things that even as a result of a lawsuit result of legislation that may have been past five years ago that called for one main fish to be put in a river, and, therefore, the affects of that happening a few years later it's very. this president has been, yeah, there's a balance obviously right now of, you can try to solve pollyannaish, that things are great, even though personally, i'm an optimist. i believe this economy of ours

is better than the perception right now. we did have three good months of job creation. we had one really bad one, no doubt about it. we have seen to react negative news much quicker than positive newspeak we don't want to believe the good, whatever reason. we could all psychoanalyze ourselves. but i think your observations at the beginning, i think there's no doubt that during that very difficult period, i mean, welcome the president stated but he didn't tasha he didn't go to washington to run a car country. he didn't come here to take over and then be part of the t.a.r.p. program even though it didn't part of the last administration to basically have the involvement in banks that he had, but it was by virtue of the financial crisis that the american taxpayer stepped up and

are still paying the price for basically a financially driven recession, deeper than anything but the great depression. it wasn't a result of manufacturing get in trouble, it was -- and i have been in financial service sector. it was much access in that industry, and lack of regulation. you know, there's another extreme here of, you know, the pendulum swings too far and in some people's mind, if you're a client of bernie madoff i think he probably felt that the regulars didn't do a very good job in overseeing that situation. and in the financial world, many people believe that the ability of regulators to understand this very complex and difficult changing -- most financial regulations were enacted closer to the civil war than they were to this period of the financial

crisis. so it got out of why. how to get that balance right between sound regulation and overbearing revelation, i do think right now which have also a situation where everybody covers their behind, and it's easy to say no if you're a regulator, i don't care if you're in a banking business or a regular in other industries and say no, uncover your but they don't end up on the front page of bloomberg. and that's bad because risk taking by you, risk-taking by others is what drives this economy. and those in government have got to be able to respond to that and give you a little more wiggle room. and not do stupid things like some effort today, maybe. on that, i do have to run. let me again thank you as an organization for your being here. it is important that you come and we here. and people on the hill and i thank you for the support of

those things that you've been helpful to us and bringing to light, and your questions today. thank you very much. [applause] [applause]

>> british chancellor of the exchequer george osborne said this week the british bank northern rock will be put up for sale three years after the british government stepped in to support the mortgage lender. speaking to an annual gathering of bankers, mr. osborne also said it was time for the banking and financial sectors to stop relying on british taxpayers. his comments are about 25 minutes. >> the chancellor of the exchequer, the right honorable george osborne, member of parliament. [applause]

>> well, my lord mayor, ladies and gentlemen, it's an honor to be invited here to speak to you again. i congratulate you, lord mayor, on your successful year in office. we all think you and barbara for the hard work you have put into promoting this city and to regenerating spittle filled into supporting your charities and into representing our country. thank you very much. [applause] >> it's good also to be here with the governor of the bank of england. as the lord mayor said, all of us this week and would have seen with pleasure the queens birthday on this list. can i say a wonderful it see an night, so it was contribute so

much to the british economy for so long, so if you can distill decades of wisdom into a clever turn of phrase, who knows when the price is right and only question is why didn't they get one hears ago? [laughter] congratulations to you too. [laughter] i'm tempted to say nice to see you tonight, but you might think i was talking about the end of the not inflationary decade. [laughter] those were the days, governor? mervyn, your honor is richly deserved and there is really no one who has worked harder to get our economy back on track, and we thank you. [applause] >> lord mayor, ladies and gentlemen, a year ago standing here just five weeks after the government had come to office, i

spoke about the financial crisis and i quoted what winston churchill had said in this very room in the middle of the second world war. now, this is not the end. it is not even the beginning of the end, but it is perhaps the end of the beginning. and i believe that the sentiment of cautious optimism has been borne out in the 12 months since then. the british economy is recovering. output is growing. the necessary rebalancing of the economy, away from debt fueled consumption towards investment and export has gained momentum. half a million new private-sector jobs have been created, the second highest rate of net job creation in the entire g7. today's unemployment figures showed 88,000, the fastest pace for more than a decade. our budget deficit is now falling from its record highs,

stability has returned, britain is on the mend, but it will take time. external shocks have made that recovery more difficult. the dramatic and debilitating rise of the world's oil price, up almost 60% since last june, the terrible japanese earthquake and impact on the supply chain, the ongoing crisis in the euro zone, our largest market for british goods and services, the softness in the u.s. economy, across the world, choppy economic waters have become choppier since. but the truth is this. even without the substantial headwinds, the journey the british economy has to travel would be a hard-won. as i said at the time of the forecast last november, recovery was always going to be more

challenging than after previous recessions. but we are seeing the unwinding of debt built up over an entire decade. of all the major economies of the world, britain was the most over borrowed. our families were more in debt than any other in the g7. our house price bubble was bigger than america's. our government deficit higher than that of greece. and the balance sheets of our banks went from around 300% of gdp in 1998, to a staggering 550% just a decade later. now, those bank balance sheets are shrinking. not just because of the new rules of regulators, but because the markets and sells demanded. the money and credit growth remain weak. and that acts as a powerful drag anchor on recovery. here is a striking fact about the british economy over the

last six quarters since the recession ended. a fact little understood but crucial to understanding our challenge. for five of those six quarters since the end of the recession, the financial sector has continued to contract. while our economy as a whole has grown by 2.5%, the financial sector has shrunk i 4%. now, take the financial sector out of the equation and growth during the rest of the recovery has actually been above its average rate over the last two decades. but the financial sector into the equation and economic growth has been below trend. our banking system fueled the boom, and now it is slowing the recovery from the bust. now, that might surprise you. look around the city today and activity is growing. investment banks are hiring again, and they are hiring here in london.

there's some 25,000 more jobs in a square mile than a year ago. i have seen a. i've been to the openings with new headquarters and new buildings. funds are out there investing, law firms, insurance, they are all busy. and this year, for all the doomsayers who warned of decline, london has topped the global of financial centers. we are officially the number one place to do business. so instead of talking ourselves down, we go around the world and talk ourselves up. of course we've got to stay in full position. that's why even in these times we have committed to the multibillion-dollar cross railing, the greatest urban infrastructure investment in the western world today. we have changed our taxation over those earnings so that multinationals are moving back to britain instead of leaving it. i've made it clear that the 50%

tax rate i inherited must only be temporary, not permanent and some politicians now propose. and this week we are publishing plans into the uncertainty of a tax rule and the treatment of non-domiciles and said that new plans to encourage their investments. all this activity, you see in the city today is very welcomed. but sadly it does not compensate for the many billions of pounds been shed from the balance sheets of our banks. and economist warned us that this would be the case. that recovery from recessions with a financial crisis are always slower than recoveries from other less severe recessions. so how can government respond? well, for a start we have to avoid that well trodden paths from banking crisis to sovereign debt crisis.

unsustainable boring -- borrowing under banks must not be by unsustainable borrowing by a government. i have promised you here, a year ago that we would take conscious and determined action, and we have. the benefits are there for all to see. in a world where so many countries are seeing their credit ratings, our countries aaa credit ratings have come off negative outlook and been affirmed. we have a deficit larger than portugal, but virtually the same interest rate as germany. that is a huge stimulus our plan delivers to our economy. and advancing our deficit reduction plan would take that stimulus away. that was the verdict last week. and in the recovery from a banking crisis, stability and low market rate our precious, hard achievements and we will do nothing to undermine them.

instead, we should try to manage in nature and the pace of the deleveraging. now, and a large part of the rapid buildup of borrowing with better banking sector consisted of many form one part of the financial system to another. that can be reduced without directly impacting the real economy. even if it reduces the measured contribution of banking to gdp. what is crucial is it that this inevitable process of deleveraging does not strangle the supply of credit to businesses and families who need it. and we are taking action to ensure that this doesn't happen. we are resolving regulatory uncertainty and encouraging capital investment in a banking system so that deleveraging is not only achieved through smaller balance sheets, energy 20 and the basel committee, britain has successfully argued the higher capital liquidity status, but crucially the standards that are phased in

over a long time period. and a new financial policy committee have been mandated so that an overview of our financial system and watch our own regulators do not act in a procyclical way. we have struck numbered and deal with the banks to prevent small and medium-sized businesses to become the innocent victims of shrinking balance sheets. and i very much welcome the commitment from the task force as the new business growth fund that is now investing in britain's businesses, but the bank should also be in no doubt that i will use every tool available to me to hold them to the published lending commitments that they made. lord mayor, the government can also actively help to rebalance our economy by being unequivocally pro-business and pro-enterprise. our plan for growth has sent out a new wave for supply-side reforms, to restore britain's competitiveness.

we are investing and apprenticeships, cutting employment tribunal cause, reforming pensions and anti-growth planning rules. we are reducing regulation, creating a green investment bank, reform the education and welfare system, and taking low-paid people out of tax. we are actively pursuing, as a lord mayor said, the lowest business tax rates of any major western economy, a 5%, 5% reduction in the rates of corporation tax in the space of just four years. from shanghai to seattle, investors can see that britain is open for business. and so while the gradual unwinding of the debt, creates powerful headwinds, all this demonstrates that we are not powerless to respond. but the legacy of the financial crisis does confront us with a very simple dilemma. what you might call the british dilemma. as a global financial center,

that generates hundreds of thousands of jobs, a successful banking and financial services industry is clearly in our national economic interest. but we cannot afford it, to pose a risk to stability and prosperity of the nation's entire economy. we should strive for global success in financial services, but that success should not come at an unacceptably high price. we should be clear that we want britain to be the home of some of the world's leading banks. but those banks cannot be underwritten by the british taxpayer. i stood here last year, the uncertainty hanging over your industry was causing real damage, that it couldn't be resolved overnight, but that i owed you a process that would lead to a conclusion. and one year on i believe we are much closer to an answer on how

we can achieve a successful competitive financial services and a healthy balanced economy. there is a growing consensus about what is the right culture of regulation, have international rules should apply, and were successful banks the again. first, the culture of regulation. the failure of the tripartite system is not a series of unfortunate accidents. i believe it was hardwired into their design. the decision to divide the responsibility for setting system financial risks from the responsibility or applying that assessment to particular financial institutions created a world where no one was in charge. and yet at the same time, the system required endless talks ticking and costly processes. we had the worst of both worlds. this new government proposes that for a complete a new culture of regulation. tomorrow, we published our white

paper and detailed draft legislation. a permanent financial policy committee will be established inside the bank of england their it will be set by parliament and refined by the chancellor of the day on an annual basis. and it's job will be to monitor over all risks in the financial system, identify bubbles as they develop, spot dangers interconnections, and deploy new tools to deal with excessive leverage before it is too late. this has never been done before. the committee will work alongside a new regulation authority that will also fit in the bank of england. this will assess the safety and soundness of individual firms. i've heard your arguments the insurance companies face different risks so i can announce that we will set a specific statutory objective for them. the operation of markets and the protection of consumers will be the responsibility of a new

financial conduct authority, and i'm delighted that last week to bring valuable, indeed invite the experience as hong kong's market regulator will be the new ceo. we have listened to representations and i confirmed tonight with what is protecting consumer interest, the financial conduct authority will have a new primary duty to promote competition. it's a result of all these changes, lord mayor. it simply some broad plate or some doors have changed that we will have failed. we don't undertake the institution of change for the sake of it. we do it to change the culture. we want to move away from the tick box mentality of the current system where there's no shortage of costly regulation, but too little room for him valuable judgment. in its place we will have clear lines of accountability and the space for regulators to exercise judgment. you will have the freedom to

innovate, to grow your business, and compete in the world. you will be constrained if you put taxpayers or consumers at undue risk. this new culture of regulation is the first step towards solving the british dilemma. but getting supervision right in one country is not enough. we are particularly exposed to financial stability, instability elsewhere in the world. and you are all exposed to fierce overseas competition. and for both these reasons, global standards are strongly in our national interest. so we want to see the full implementation of the new basel standards right around the world, including here in the european union. it's vital that those european union rules give national regulators the discretion to add to the basel requirements when national circumstances require it. this is what the committee

themselves recommended. it would help do their job. we need european coordination to enforce common rules in a single market. and it's good news for the headquarters of the new european banking authority is here in london. we support the efforts to make this years stress test more credible than last year's. but we will also as a government always fight hard against badly thought through european regulation that undermines europe as a location for wholesale finance, or london's role as this global center for it. that's a fight we want on the regulation of hedge funds. and we're still fighting the new derivatives regulation. pay in the financial services sector should also be regulated internationally. to avoid a race to access. britain now has world meeting

standards of pay transparency, and the financial stability board have come up with good principles, but they must now focus on their consistent implementation. so, lord mayor, these are the first two steps of solving the british dilemma. a new culture of regulation that judges unacceptable risks while creating the space that innovation and commercial success. and an agreed set of international rules to make the global financial system safer and protect us from competitive arbitrage by other financial sectors. but history teaches us the risk can never be reduced to zero. we cannot help to abolish boom and bust. so the british dilemma will remain as long as taxpayers are first on the hook if things do go wrong. when this government came to office there was no agreement in this country about how this too big to fail problem should be addressed. indeed, i have sat at this very

dinner as a guest, listening as one speech from this lectern was completely contradicted by the speech that followed. and that's why when i first spoke year i announced the names of five highly respected individuals whose job it would be to listen to all sides of the argument, proposed solutions and help bring an end to the uncertainty. the independent commission on banking has now published its interim report, and i want to pay tribute to sir john vickers and his fellow commissioners for the actual job that they have done. it has commanded respect at home a huge interest a broad. and independent commission on banking is put forward to particularly important proposals. built in instead of bail out so that private investors, not taxpayers, bear the losses if things go wrong. and a means fast around better

countless high-strength banks to make them safer and to protect their vital services to the economy if things go wrong. today i have told the commission that the government endorses both of these proposals in principle. of course, the commissioners are still consulting and preparing their final report, and i won't preempt the conclusion. we will judge the final proposals in practice i guess these following conditions. all banks should be allowed to fail safely without affecting vital banking services, without imposing costs on the taxpayer, in a manner applicable across our diverse financial services sector, and consistent with e.u. and international law. in line with the interim report we agree with the need for further capital requirements of systemically important banks, but i agree with the commission that outside the ring fast its best an internationally. i also strongly welcome the commission proposal on increasing competition in retail

banking, for healthy competition is a powerful defender of consumers interest. lord mayor, we'll make these changes to banking to protect taxpayers of the future. but we still have to clean up the mess of the past. taxpayers today on a large part of the banking system, and under our guarantees to pass the rest of it. it's time we started to blend our exit. so i've opened a credit guarantee scheme to early redemption. i'm pleased the banks are taking up the opportunity, and that their head of schedule everything the bank of england. this is a sign of confidence in our banking system. and i remind everyone with deposit that we have increased the level of deposit insurance to 100% for sums up to 85,000 pounds, and we've made clear there is no implicit taxpayer guaranteed for some above that level. once all these other forms of

subsidies are removed, our direct shareholding in banks still remain. it will take some time, possibly several years before they can sell that all. but we can start that process, and i can announce tonight that on behalf of you, the british taxpayer, i have decided that northern rock up for sale. images of the queues outside northern rock branches were a symbol of all what went wrong. and its chaotic collapse did great damage to britain's international reputation. it to return now to private sector would help to rebuild that reputation. to be a sign of confidence and could increase competition in high string banking. we could start to get at least some of our money back. the sale process will be open and transparent, in line with state aid rules, any interest in can bid for including neutrals which this government is actively committed to promoting.

we will continue to own northern rock asset management, the separate bad bank. and all this does not mean that other options return northern rock to the private sector have been ruled out. but the independent advice i've received is a sale process is likely to generate substantially the best value for the taxpayer and should be explored as the first option. and he'll be a very important first step in getting the british taxpayer out of the business of owning banks and a sign of confidence in the industry. lord mayor, last year i came here with debate raging about the questions of regulation and the future of banking. i was not because of them but i did tell you it was my job to try to resolve them. and i said that our goal should be a new settlement between our financial system and the british people. a new settlement where the city