>> good morning, i would like to call this hearing to order. today marks the first anniversary of the dodd-frank reform and consumer protection act. the act was a direct response to the worse financial crisis to the great depression. it created a foundation to protect consumers and investors

to mitigate future crises. i am pleased to have an architect of this reformation, barney frank. and i welcome the panel to discuss steps they have taken to implement the provisions of this important law to enhance your agency's oversight of the services industry. but congress must also do its part. as chairman of this committee, i am committed to rigors of oversight of the implementation process of restoring american's trust in a credible, financial system. well, as it appears that the meeting on wall street and even some here in washington have already forgotten the real cost of inadequate financial regulations, i have not.

and neither have the millions of americans who lost their jobs, their homes and their savings and who are still waiting for their recovery. unfortunately these reforms have been under constant attack since the bill was signed into law. . .

passing the act was a monumental achievement. there is much work to be done. this will take time, but we know it to the american people to get it right. i think are -- i think our witnesses again for being here today, and i look forward to your testimony. >> yesterday in touraco -- "the

wall street journal" -- for millions of americans, the one- year anniversary provides little comfort as they continued to deal with the harsh economic reality with no innovation, and the growth, and virtually no job creation. the unemployment rate remains above 9% with more than 14 million americans out of work. secretary timothy geithner roche the ed obama administration had expected backing from both sides of the aisle, when the debate began, implying there was not in need. the truth is there was a great deal of agreement on a number of

issues, until the white house decided the only issue that mattered was the creation of a massive new consumer bureaucracy. chairman dodd and i agreed to create a consolidated banking regulator with the authorities of the federal reserve, occ, ots, and fdic would be joined in a single entity. it had the name of the financial institutions regulatory authority. there was strong agreement that the current regulators had failed and radical reform was needed. also agreed to elevate consumer protection, to equal status to provincial regulation. i've proposed, given the company -- given the consumer protection division. we agreed to permit non banks to be supervised and subject to

enforcement. we met the administration more than halfway on a number of issues. any hope for a bipartisan agreement evaporated when the word came down from the administration that it was going to be their way or the highway. a similar dynamic was worked -- was at work in the agricultural committee where senators have agreed on a bipartisan derivatives title, until the former senator from arkansas was told there was not going to be any compromise. secretary geithner also wrote senior republican negotiators on the senate banking committee were not a deal or are unwilling to define a course set of reforms that could support. the first thing the republican members of this committee was to draft a set of four principles to guide our consideration of and regulatory reform.

these principles that i have referenced would address all the major issues, including systemic risk regulation, provincial regulation, consumer protection, and derivatives regulation. also, republicans filed hundreds of amendments, and prior to the bill's markham, we were informed that not a single amendment would receive democratic support. it was their way or the highway. secretary geithner are also wrote a piece, "we have already turned a profit on the tarp investment made in banks." preferencetarp's ability are suspect at best. the tax payers will still takes

losses on auto bailout programs. tarp used taxpayer dollars for risky investments. i wish of the terms on any investment must adjust for risk. i believe such a and i wish would show tax payers were not adequately, kurt -- company -- compensated. what matters most is the long- term impact on the overall economy. on that basis, the record has not been good for american families. since tarp was enacted, the unemployment rate has reached an stayed at record levels, lending remains stagnant, and americans facing foreclosure. secretary geithner took place -- took credit for the banking regulations, as the most important step toward diminishing the risk for future

crises. i have been arguing that capital standards have been inadequate, while some bank regulators actively sought to increase bank capital standards and others remained on the sidelines right here. one of the regulators who did nothing to improve bank capital standards before the last crisis was the president of the federal reserve bank in new york. the new york fed supervisory responsibilities pincus cleave it the largest financial institutions that receive the largest tarp bailouts. who was that president that failed to oversee our largest banks? none other than our current treasury secretary. secretary geithner byrd wrote that the regulators have outlined major elements of reforms to bring oversight transparency and greater

stability to the 600 $600 trillion derivatives market. main street businesses had nothing to do with the financial crisis. dog-francs -- dodd-frank will impose huge costs when they least can afford it. secretary geithner ur said the administration has started the process of winding down freddie mae and -- fannie mae and freddie mark. actually, their shares are increasing. with other government programs, including the federal government now controlling 97% of the market. housing finance reform has not even begun in the congress.

secretary geithner claims that the success will depend on making sure that we can write sensible rules that will promote the broader economy. political connected unions and groups were among the biggest winners under dodd-frank. at contains an assortment of compensation requirements that harms shareholders by empowering special interests and encouraging short-term thinking by managers. 50 years ago president eisenhower admonish us all the guard against the acquisition of unwarranted influence by the defense industry and the pentagon. i am afraid that his words have gone unheeded in this context in that the only thing dodd-frank has accomplished is create an analog to the military-

industrial complex. it has created a cottage industry for lobbyists. it has turned the financial regulatory landscape into a nightmare. secretary geithner claims republicans are blocking nominations they can kill or form. senate republicans have been clearer that the structure of the bureau of consumer financial protection needs to be properly reformed before we consider a nominee to lead it. we have urged the president to adopt three specific reforms. establish a board of directors to oversee the bureau. diversifying the leadership of this powerful fledgling you're saying would ensure that consideration of multiple viewpoints. secondly, subject the bureau to the preparations process to ensure that the bureau has an effective oversight and does not

engage in wasteful spending. third, establish a safety check for the provincial regulators. one of the best consumer protections is a safe and a sound bank. i believe the most serving claim made by the secretary is that republicans for the forces of opposition to reform. the statement reflects the unfortunate view that anyone who does not support their idea of reform must be against any reform. that is nonsense. as i have explained and reiterated, there are numerous areas where republicans and democrats could have easily reached an agreement. unfortunately, the administration decided that there would be no compromise. the result was a bill that this hearing reports to celebrate. i do not believe that the american people are in the mood to celebrate yet. thank you. >> representative frank, i

welcome you today as one of the architects of the wall street reform bill. i want to thank you again for all your hard work. i know you have to get back to manage a bill on the house floor, so please begin. >> thank you. i am glad to be here, and i was struck by the bipartisan tone of the ranking member's statement. he was critical of the bush administration. i might not have anticipated that. as members remember, it was year of 2008 that we were summoned by secretary paulson and chairman bernanke to do the tarp. it was a bipartisan response to that that the judge, was very critical of the tarp. i think he was unfair to the

bush administration, but i appreciate the bipartisan nature of his criticism. i would note he said -- secretary geithner said -- rebutted that with reference to the automobiles. he said it was from the banks. we have not yet recovered the money from the automobiles. ford was not seeking any of the funds, actively supported that. the supply chain would have disappeared. when we talk about enhancing manufacturing, that was the single biggest thing that we did. i would say that the gentleman from alabama's description of the process does not cover what

went on in the house. i was not privy to those discussions. it was not a case where the administration told us to go forward. on the consumer bureau, i was the one he said the solution he talked about, namely, elevating the status bureaucratically of a consumer protection function with in an entity that was primarily a bank regulator would not work. there's a difference between having a regular and having it as one of the things that bank regulators do. the largest singular show of authority to protect consumers that existed before this law was passed was in the federal reserve, and when we questioned the fed, had little to do with it. i would note that i was struck when the senator from alabama talked about it, that he appeared to think that mr.

geithner was more important in the bush administration than the president's appointee. he served under ben bernanke, he worked with secretary paulson. if there is criticism, it goes to all of them. i think it is important that it be independent, that it not be a second thought from the bank regulators, whether one banking regulator or individuals, and i believe that will make a great deal of sense to give the consumer -- the gentleman said let's give them equal status tree you give them an equal entity, subject to others. the bill itself had a common theme. one criticism was that the bill was to create. we probably exceeded the attention span of some members

of the congress, but i guess they can wait for the movie. we are dealing with an interconnected system, and we dealt peace mail, and there was a central theme and it was that by sources of liquidity outside the banking system and by increased information technology, people in the industry have figured out a way to engage in lending while appearing to escape the burden of risk. they appeared to be able to afford risk themselves. is that not all white. it exploded on all of us. done is make people be responsible for their risk. one issue that has come up, and i dealt with this with some of my friends, risk retention. i urge people to look at a book, when people make loans and have no responsibility for whether or not they are repaid

-- that is a market incentive. i have been told by my friends in the banking industry, the regulators will tell you what is a good loan and what is not. we are on the markets' site here. i do not want to depend on the regulators to look at these loans. there are still loans that could be made properly or not, and if you rely on the discretion of the regulators, or t-bill market incentive in attention. if that is the case, for securitization, there's testimony before this committee, it was talked about securitization. that was 1986. if securitization without risk retention, which is not a viable taxation without representation, if that is

necessary for there to be a housing market, what were people living in before 1986 proved worth their no loans made before 1986? i am for an exception for those loans that are solid, but the notion that risk retention is an impediment -- that is where we are the concept. he cannot get insurance without risk retention, and some of my friends are falling into that trap once again. as to derivatives, the law does not mandate any requirement that half of its people who are the users of the commodity in question. it gives full discretion to the regulators to make differences and to focus on that kind of transaction that aip engages in with other institutions.

i would add -- if you want me to insert cards, i can do that. one of the things we have done that is and how rebecca cftc, and if it gets the funding to do this, to deal with speculation. there is a legitimate argument about speculation. it is probably the case that 30 years ago and may not have done so so much. what has happened is there is a greatly increase the amount of liquidity and great sophistication in information technology. if you look at the charts, individual commodities, it tends to be more of a uniform --now it is more individualistszed. there was an investor in the home heating oil business -

speculation- does add something to the price of oil. one of the issues is, will the commodities future trading commission exercise the powers we have given it to put limits on people who are not end users, so we are not trying to -- if you are somebody who never goes to a barrel of oil, if you are that category, we want to limit the amount you can buy, because we are told billions of dollars will be lost if they cannot trade in the financial area. where do those billions of dollars come from? those are two areas. whether or not we deal was speculation and risk retention, that is where i intend to keep pressing. i have thought the business people, and the leading business people last week, and i and a

stand people who think we have too much regulation, but the analog is to the pharmaceutical industry, where the major harmaceutical confempanies provide the fda enough money to carry out. the worst is that regulations on the books and have authorities that are not able to deal with them appropriately. this nickel and diming of the sec and the dftc does grave harm. for people who are prepared to have america a sustaining or, i was encouraged when the gentleman from alabama spoke about the military-industrial complex.

we cannot find $150 million for the cftc. the sec, that is an area where there is the tax payer money. fannie mae and freddie mac. i am impressed with the on- again, off-again nature of this with my colleagues on the house. my republican colleagues in the house talked tough about fannie mae and freddie mac when they were in the minority. when they are in the majority, something happened. they are affected by a strange kind of paralysis. last year when we dealt with this bill in conference, the republicans offered the hensarling bill, as amended. we said it was not germane. we it has been seven months into the session with republicans in

the majority. arling is a member of the majority. said. what mr. bauchus we would like a comprehensive bill. can we get a comprehensive bill? i do not think so. republicans in power in the house are much less certain. where are we? i will say i am somewhat embarrassed by this failure of memory, once he became a member of the majority. the gentleman from alabama blamed the obama administration. i feel like humphrey bogart, when it comes to fannie mae and freddie mac, republicans cannot

proceed without obama. why have we not seen that? because of obama will not let them do it. a recent entertainment and elegy was wilson, in which the republicans of the house are geraldine annika obama is the devil. the chairman said that he was asked by the obama administration to wait. i have checked with the administration. he misunderstood them. no one in the obama toinistration has passeasked hm wait. i have a role that i try to fall myself. no matter how tight the quarter you are in, avoid saying something no one will believe. the notion that they are not acting on fannie and freddie --

esther garrett said it was not a simple problem. the republicans in the house have a bill opposed by everybody who is dealing with the housing market. that collection of radicals, all disagree with the plan, all think you have to have a more comprehensive approach. the republicans have this problem, their ideology and reality are having a heck of a fight. ideologically, mr. bachus says he cannot do anything until the obama administration lets him. the only time since 1992 that the congress has acted on fannie mae and freddie mac was in

2007, 2008, when i was the chairman, and we got together a bill at the request of the secretary paulson, which president bush signed, which gave the secretary the authority to put them in a conservatorship. i agree with mr. shelby had too much of the market, but at least it is not that cost on us that it was before. they are behaving in a much more responsible fashion today. mr. chairman, i appreciate this opportunity. >> thank you for coming over here today. the need to get back to the house. senator shelby has a couple -- >> i feel at home here today. i count nine of my former colleagues here. >> a few observations. congressman frank and i have

sparred over issues over a number of years. i agree with him that there is a difference between managed risk and speculation. i think we agree on that. speculation will cause people to get into trouble. managed risk will help people. as far as fannie mae and freddie mac, the congressman knows when we were in control here and i was the chairman, which pushed hard for a reform of fannie and freddie. we got it out of committee. we pushed hard, we will continue to do that. i do not know what is going on in the house. i can tell you, we -- sooner or later, we hope to do something

substantive with fannie or freddie. we recognize they are the only game in town as far as -- >> i remember that in 2005 and 2006. as i remember, your poinopponent was mr. oxley. >> he had a weaker bill. he must have helped him. >> people said i was in the minority. if tom delay was susceptible, we would not have gone to the war in a rock and he would not have gone to the dance show. that was when the republicans were in power, and we work

together in 2008. we had cooperation. i think we stopped the hemorrhaging. if you look at the people that president bush put in power, they will tell you the problem we are facing is losses incurred before it went into conservatorship. since then it has been functioning in a much more conservative fashion. >> i will now call our second panel today. [laughter] we will keep the introductions brief. second panel, please come forward.

i will keep the introductions brief. mr. wolin is the assistant secretary department of the treasury. ben bernanke is the chairman of the federal reserve system. gary gansler is the chairman of the commodity futures trading commission. marty gruenberg the acting chairman of the fdic. i also welcome you back the

senate committee room. mr. john walsh is acting comptroller of the currency of the office of the comptroller of the currency. i thank all of you again for being here today. i would like to ask the witness is to please keep your marks to 5 minutes. your full written statements will be included in the record. secretary wolin, may begin your testimony. >> i appreciate the opportunity to appear before the committee. one year ago the president signed into law a comprehensive set of reforms for the financial system. were enacted in the wake of the most devastating crisis since the depression. in the depths of the crisis, the economy lost 800,000 jobs per month.

credit was frozen. markets were barely functioning. the administration and its predecessors put together a strategy to further pare the system. as a result, the u.s. financial system today is stronger, or stable, and better able to fuel growth. and ordered to protect our economy and create conditions for prosperity, we needed to put in place comprehensive reform of the financial system. that is why we proposed, congress passed, the president signed into law a sweeping set of reforms. the thought-franc wall street for a consumer protection act make changes to the structure of the u.s. financial system to strengthen safeguards for consumers and investors and to provide better tools for limiting risk in the major financial institutions and financial markets. the core elements of all were

designed to build a stronger, more resilience financial system, less vulnerable to a crisis, more efficient in allocating resources. these reforms responsive to the we this is that together brought our financial system to collapse. they include tougher constraints on excess of risk taking and leverage, stronger consumer protection, comprehensive oversight of derivatives, and they knew orderly liquidation of darby to wind it down a failing financial firm in a manner that protects taxpayers and the broader economy. this that you created three new institutions. the financial stability oversight council to identify, monitor, and respond to threats across the financial system. the office of financial research, to enhance the analysis of financial data to policymakers and the public.

the consumer of financial protection bureau, the help consumers make informed decisions and protect them from abuses in the marketplace. we are far along in standing up these institutions, and they had each begun to play their roles. as we move forward, we must continue to move quickly but carefully, taking the time we need to get things right. we must make sure our efforts are coordinated. we must make sure to take care to regulate firms in matters of her free to the risk posed to the system. we must be sure to work to improve the defect in this of regulation as we write a new set of rules. we must work with partners creigh level playing field with the high set of standards. we must make sure regulators have the funding they need to do their job. a year ago, dodd-frank was enacted. these reforms were an obligation, not a choice.

without them we could not build a system we need. a financial system with the stability and resilience necessary to support our economy and to protect it in times of stress. thank you, mr. chairman. >> thank you. >> thank you for this opportunity to testify. on the anniversary, it is worth reminding ourselves of what congress passed the reforms. the financial crisis was unprecedented in its scope. some of the world's largest firms collapsed or nearly did so, sending shock waves to the financial system. critical markets came under enormous stress. asset prices fell sharply. the crisis in turn wreaked havoc

on the economy's causing sharp declines in production and trade. extraordinary actions by authorities around the world helped stabilize the situation, but three years later the recovery from the crisis in the united states and other countries remains far from complete. in response to the crisis we have seen a rethinking of financial regulation in the united states and around the world. among the core objectives of the effort are enhancing regulators' ability to monitor threats to stability, strengthening both oversight and resolve ability of important institutions, and improving the capacity of financial markets and observed shots. first-come the bett

that is an approach that supplement traditional supervision and regulation of individual firms or markets with consideration of threats to the stability of the system as a whole. the act created a council of regulators to identify and mitigate threats to the stability across a range and markets. the council's monitoring efforts are well under way, and this is created a cost of atmosphere of coordination among agencies. the council is moving forward with responsibilities including rules where it will be able to designate utilities for additional supervisory oversight.

for its part the fed has made organizational changes to promote a macro approach. among these changes is the establishment of working groups to oversee the supervision of a large banking firms and utilities. this has a strong focus on the development that has implications for stability. we have created an office policy and research to help coordinate our efforts to identify risks to the broader system and to serve as liaison with the council. the second objective of the reform is the madigan threats to stability imposed by the too big to fail problem. here in the act takes a two- pronged approach. this includes enhanced risk based requirement, credit

limits, stress testing, and remediation regime and activities restrictions. the fed and other agencies face the challenge of aligning regulation with international agreements. these efforts are going well. the federal reserve and expects to issue rules over site of cfis this summer and we are on schedule to implement basel 3. and being too big to fail requires allowing a cfi to fail. the second part of the act empowers the fed and the fdic to reduce the affect on the system in the event of a failure to tools such as liquidation of authority and approve a resolution planning. the federal reserve is working with the fdic to thecfis prepare

for resolution by adopting living wills. the joint rule is expected this summer. reducing the likelihood of a severe crisis requires strengthening the resilience of markets an infrastructure. toward that end, provisions to improve the transparency and stability of the derivatives market and strength since he th -- strengthens the parts of the infrastructure. we and other agencies are moving this work for in consultation with the corporate foreign regulators. u.s. agencies are working to address structural weaknesses in areas not as easily addressed by the at, such as taconic repo -- such as the repo market.

the fed is committed to the promulgation of rules that are sensible, protect smaller community institutions, and promote the sound extension of credit in the service of economic growth and development. the full transition to the new system will require more work by the public and private sectors, and we will learn lessons along the way. as we work together to implement reforms, we must not lose sight of the reason why we began this process, which is insuring access events like those of 2008 and 2009 are not repeated. thank you. >> thank you, chairman bernanke. german schapiro. >> thank you for inviting me to test a lot -- to testify. following the worst crisis since

the depression, congress passed legislation that is reshaping regulatory landscapes, reducing risk, and helping to restore confidence in the system. the ftc was given new responsibilities, and in past years we have made significant cross -- progress. we have proposed or adopted rules for about 70 of the mandatory provisions that were assigned to us. in my prior testimony, i outlined in my prior testimony i outlined efforts to establish a process to not only get the rules done but get them done right. we created internal cross disciplinary working groups to coordinate the rulemaking process and facilitate our actions. we increased transparency and