mr dudley, as i mentioned in my opening statement you gave a speech at the united states military academy at west point where you indicated the army continues to face significant downsizing risks most related to the stress of the euro zone. are hearing today has been called to consider the euro zone crisis and icy and sights on that issue. however you also spoke of another significant downside risk confronting our economy and that is continuing crisis. you stated mortgage refinancing is so severe that they are undermining the impact of monetary policy. you identified the number of measures that might comprise a comprehensive approach to housing policy including the elimination of barriers to refinancing and messages that enables borrowers who are under

water but continue to make their monthly payments and accelerate principal reduction over time. you stated, quote, i am encouraged by the recent decision by the h s a to make it easier for certain borrowers with high loan the value ratios to refinance. he hoped this initial step would be followed by others that collectively move in the direction of stabilizing prices. i believe this would not just because that economic policy but it would also extremely beneficial to taxpayers and affectively own the credit risks of those home loans guaranteed by fannie mae and freddie mac. completely agree with your policy descriptions. however when the acting director of the prior committee testified he has concluded that the use of

principal reduction within the context of a loan modification is not going to be the least cost approach for the taxpayer bieber and we asked mr. demarco to provide details but he has not provided that information. these are my questions. as you said in your statement taxpayers effectively own credit risk of loans guaranteed by the gee sps. do you believe enabling borrowers with loans alone or guaranteed by the g s es were under water to turn principle reduction would be in the long term interest of the taxpayers'? i want to make sure i get the mall in. we look in detail at the f h a refinancing proposal you referenced and even the faa estimates the program may help at the most 900,000 additional

borrowers. program that helps 900,000 borrowers adequate to contribute to the stabilization of the crisis or do you believe that significantly greater numbers need to be helped to yield the stabilization of house prices? finally, how is the failure to stabilize the housing market and help borrowers who are under water undermining the impact of the monetary policies implemented by the federal reserve and what of consequences to the economy? >> thank you. let me take your last question first. album problems in the housing sector undermine the effectiveness of monetary policy. it undermines the effect of monetary policy because the decline in long-term rates is not being fully taken advantage by households in terms of their ability to refinance their mortgages. people have mortgages better 6%

exempt cannot refinance because the value of their homes has fallen sufficiently far that their mortgages are worth more than the value of the homes so they can't easily refinance. this makes monetary policy less effective because if they could refinance they would get the advantage of where mortgage rates and put more money in their pockets. the second thing i would say is you could do some of these things for housing. it has two benefits. if you could stabilize -- if you took these steps you could stabilise housing prices and if you stabilise housing prices you would see more demand for housing and more demand for housing. the housing prices would go up and that would bolster household confidence because houses are very large proponent of the household balance sheets. they are stable or rising, we would feel better about the outlook not just for housing but their own willingness to go out and spend and consume.

we think this would be a very favorable for the housing sector. in terms of your questions on principal reduction, we think you can devise a program that for home buyers with mortgages that are under water, to get them to continue to pay those mortgages 4 principal reduction obviously the devil is in the details. you need good program designed we are confident that one can design a program that would be net positive to the taxpayer. in terms of the program you talked about, every bit helps. i would like to see the program brodeur so more households can participate because it would be helpful in stabilizing the housing sector and make monetary policy more effective. >> thank you very much. >> mr maloney for five minutes. >> i would like to welcome mr.

dudley. we're proud of his service to the country and to welcome all of the participants today and my colleagues. i would like to ask mr. dudley, what would be the impact on the u.s. economy and american taxpayers if europe experiences a deep depression? >> thank you for the kind words. if you point to a deep recession there would be significant consequences for the united states would the first would be in terms of our ability to sell goods and services to europe. we would have trouble exporting to europe and that would have consequences for employment and manufacturing in the united states. the second transmission channel would be the u.s. banking as we discussed earlier.

u.s. banks have a large exposure to europe. the european economy is doing very poorly as you suggest, clearly that would put stress on u.s. banks, capital and liquidity so that could have implications for credit availability in the united states. third, if europe were to go into a deep recession this will also be quite challenging for financial markets for the u.s. equity market and other financial markets so that also would have negative consequences to household wealth, consumer confidence and also affect the u.s. economy. >> some economists predict there will be a breakup of the euro. i would like to ask mr. kamlin and mr dudley how the break above the euro would affect u.s. economy and do you believe that will happen or won't happen starting with mr. kamlin and then mr. dudley. >> thank you, congresswoman

maloney. in reference to that, and as i said earlier, the europeans authority are deeply committed to their project of political economic unification and deeply committed to the perpetuation of the euro zone which means in turn that they understand the seriousness of their current situation and they plan to take steps needed. >> why aren't they taking the proper necessary steps to properly, that the crisis? many economists say they have enough resources to combat it themselves. do you think they need t.a.r.p.-like approach? if they don't, that their political problems should we come in and handle their problems for them? >> certainly not for us to handle their problems. they are -- they have announced a number of steps this past weekend in the past two months

to address their problems as announced last friday. a new set of disciplines on fiscal behavior to face constant investors -- >> what does their action on the action that has already been taken by the treasury and the fed and do you support the actions the treasury and fed have taken? >> i support the actions -- [talking over each other] >> team player. >> i think the way to think of it is the european authorities have their place. they have to do certain things to stabilize the situation in europe. >> my time is running out and i may have a few seconds left. mr dudley? >> two things. >> break above the euro. what would that mean? >> this is not something i anticipate. the u. of -- european youth

leadership is committed to the european union and they are going to take the steps they need to move towards greater fiscal integration. the political problem, maybe they are not moving as fast as some of us might like but they are moving in the right direction. the second thing i would stress is all the things the u.s. has done with the foreign-exchange group, this is about helping europe but helping ourselves. it is about ensuring the flow of credit to u.s. households and businesses. we're doing this for ourselves. >> time has expired. >> good question. very good question. began a second round of questions. to get into very specific question following up with miss maloney, let's say sobel -- let's say grease withdraws from europe. do you have the scenario, is that part of the scenario you

work through? walk through that process. >> we will characterize that we work through specific scenarios surrounding europe. continuously playing to make sure the federal reserve system can handle stressful environments and to ensure the u.s. banking system can ensure various stressful environment regardless of the source of that stress. the u.s. right now is in the process of federal reserve and the process of putting u.s. bank for a severe stress test. that exercise -- that stress might come from europe or some other source. i think our job is to make sure u.s. banks can withstand bad economic environment regardless of the source of that stress. >> mr. sobel. we have a scenario that six months to a year. what does the administration or

the treasury -- what do they foresee happening with this you're a crisis over the next six months or a year? so far so good. >> as i was saying earlier i think europe is making progress. they have put in place a number of forums and they will continue to further move ahead with reforms. europe is developing a fire wall to provide time and space while the country's are putting in place reform as they take hold. we will remain fully engaged to work with them and continue to support them, staying on the

reform path. the europeans are closely monitoring the situation. they talked about a review of the adequacy of their financial resources, back stopping in march to insure what i think is in for -- that governments have adequate access to affordable financing and banks also have adequate funding. >> that is your view over the next six months to a year. mr kamin, and hope you have a better answer. >> obviously it is extremely difficult to plot out -- >> that is why i am asking the federal reserve. understand -- play this out for the next six months to a year.

what do the american people expect to see? give us a range. >> a great deal depends on how european authorities follow through on the commitments that they have already stated. they have a very selection of items that were gone in friday's summit involves e.u. or intergovernmental agreement among the seven -- the 17 euro zone countries plus additional countries in the e.u. but not the euro zone. to work out to agree on a system of financial discipline, to consider a bilateral loan by europe or the imf in order to facilitate their lending, in order to move up -- [talking over each other] >> those of the items on the european agenda. what we look forward to a over the next week and month is their implementation, is there agreement on those items which

in some cases require their ratification by member states or implementation of those, that is the process we are looking for. if we put these measures in place there is a chance or perhaps a good chance that eventually that will build the confidence needed. if they do not succeed in the near-term achieving that follow through and that disheartens markets and investors then we see more adverse outcomes but that is the framework we are using, progress made by europeans. >> mr dudley. >> i agree with what steve said. the devil is in the details. we have a broad outline of the way forward and we have to seize the details how they will implement and see the political process support it. that will be critical over the next three to six months.

>> you are talking structurally. let's talk about the institutions. >> the important thing to recognize is european countries put their fiscal houses in order, the banking problems in europe become much more manageable. because why investors are worried in large part because they're worried about the sovereign debt holdings those banks have. european countries put their fiscal houses in order this will go along way toward solving the european banking situation. >> very much so. in addition to that, that is the critical challenge of european sources. at the same time there's a parallel process that will go on in european banks as they strive to a in capital requirements and there are some risks much talked about in the media how they will

achieve their requirements. will they do it through the leveraging or capital and that is another process we will be following. >> my time is expired. mr. cummings is recognized. >> the federal reserve a couple years ago during the u.s. financial crisis and act as lender of last resort to the banks. the fed played a central role containing the crisis and stabilizing the american economy. why was it important for the central bank of the united states, to the european financial crisis? >> what we saw was a complete loss of confidence in private sector financial firms to engage with one another. so is very important for the federal reserve to provide a backstop for of funding so people are more willing to actually come back into the market to engage with one

another. >> that was evidence of that? >> the problem was a breakdown of money markets and as a result of that is a supply of credit to households and firms and those around the world and that -- the u.s. economy and why we intervened. >> during the 2008 financial crisis the fed proactively took steps to prevent -- the united states and in hand long-term fiscal problem but that did not prevent action on the immediate financial crisis at hand but european central bank is not doing that in europe. according to testimony we heard yesterday, the ec be is aggravating provincial for default. according to desmond whacksman, quote, there's the very real risk that continuing to surprise

substantial fiscal tightening will lead to a very deep economic recession, the recession would make it difficult for countries to reduce their budget deficits and would undermine their political willingness to remain within the euro. yesterday the european affairs minister thinks that the ec be should become a lender of last resort during the european crisis. do you think that the ec be should let up on austerity and start being a lender of last resort? i will take the answer for all three of you. >> i think the ec be is being quite aggressive in providing being a lender of last resort to the european banking system. they have introduced a three year lending facility where they will provide loans for three year period with unprecedented

length of time. they brought on the collateral eligibility requirements so it is more easy for european banks to bring collateral to the ecb to get funding but where the issue is in europe with regards to the european central bank is their ability to buy primary debt issuance from the sovereign countries and this is prohibited by treaty. is prohibited for the ecb to bar sovereign debt issued by countries in the primary market and some people arguing they should start doing it anyway but the head of the ecb points correctly to the treaty which prohibits such activity. in terms of back stopping their banks that are providing lender of last resort to the bank. >> i agree with everything president dudley said and done with that a point. first of all, in responding to the decline in economic activity we have seen in europe in recent

months, the ecb lowered their policy interest rates by apple of times, 25 basis points so they're taking action to boost monetary policy in response to financial and economic strain. additionally while they are indeed as president dudley said prohibited from buying sovereign bonds directly in the primary market from government they are not prohibited from buying secondary markets. and other words from other -- and they have been doing so for some time. they are very much committed to acting as lender of last resort for banks and supporting the european economy the way they do. so a lot of the heavy lifting will have to be done by government and fiscal authorities in order to fully address this. >> mr. kamin, do you think it

will be necessary for the ecb to purchase country bonds to stabilize? >> they already are purchasing bonds. as i said in the secondary market. that appears to have been helpful to some degree. >> miss sobel? >> when one works at the u. s treasury one is trained not to talk about monetary policy by a% for banks. even if i agreed with everything my colleagues have said i would say the ecb played an important role in financial stability and we look forward to a continuing. >> going back to mr. kamin do you think the ecb needs to increase the purchases of country bonds? >> much depends on how the economic situation falls going

forward and in particular how european authorities follow through on the announcements they have already made. >> don't you think that would help to avert a crisis? >> as i say ultimately what is required to avert crisis and get it under control is a concerted action by european authorities and certainly fiscal and critical, the ecb will play some role but what that role will be is not for me to judge. >> thank you. >> mr. dowdy from south carolina. >> i want to thank you for your leadership on this issue which is unparalleled. data series of questions including whether or not the breakup of the euro -- the devaluation of currencies as i

have said and heard your questions. i'm inclined to give you my time. >> i'm inclined to take it. >> i would like you to more fully develop that and any other ideas that you think are of the moment. i would yield to the gentleman from north carolina. >> i asked earlier about this notion of what happens and sobel -- what happens in greece and the federal reserve and treasury, you don't want to be out there saying you put us into the books so to speak. you priced in this and the extension of the swap line is in anticipation of grease the folding, whether or not the term default is used. areas some notion that what will happen without a panel of

experts, greece will basically -- was an ongoing process with other participants, very significant write-down that is in essence it default but through some other terminology, contracts are not triggered as we have just seen with this last round. let's price this in. let's say that process happens. what we have seen is a vote euro zone puts in place policies proportional increase that appear to be failing. what would it take? what would you suggest it would take for spain and italy to not go through the same challenge based on existing problems? if those policies are not

reported in portugal, greece and ireland, what makes you think -- >> it is too soon to say whether these countries will sustain the fiscal adjustment they have put in place. the outlook is different for different countries. the second thing i would say is the swaps have nothing to do with whether greece lead the euro or not and stocks were put in place for a different reason. we were seeing that european banks have difficulty obtaining funding and as a consequence of that there were liquidating the dollar book of assets in the united states. this was tightening credit availability in the united states which was going to have a direct impact and allowed to continue on the u.s. household and business. it was really about the funding

of european banks and the consequences of that on the united states. whether greece leave the euro or doesn't leave the euro that was a memorial -- immaterial. >> the policy in portugal, ireland and greece you believe are working? >> i won't make an assessment -- [talking over each other] >> worse now than it was before the policies were put in place. >> two things. as you go from peripheral countries to the court, the debt challenges become more manageable. if you look at spain or italy or the debt to gdp ratio or the deficit, they have to do substantially less than what grease had to do. from my perspective, what spain and italy need to do is a completely achievable. question is the political will to implement fiscal austerity

and a reasonable time frame and convince market participants that they can do so. one problem we have is it will take time for countries to implement their programs and therefore it will take time for market participants to be convinced that there on a sustainable path. the question is how to get from here to then when they have a chance to implement the program. >> you mentioned money-market funds in your testimony. please expand upon that. in the downturn, in the financial crisis of 2008-2009 the federal government stepped in and in essence directly insured money-market funds of there is a belief among consumers in america that these are protected assets when in actuality they actually are in the market. they just performed very well over a long period of time and only once broke:00 in the last

generation. explain if you will, expound upon this money market exposure and why these swap funds are obtained. >> first, money-market funds are extremely important provider of dollar liquidity. both the u.s. financial markets and financial markets around the world. so many europeans rely heavily on lending and investing by u.s. market funds in these bank cds and commercial papers and the like. that is an important source of dollar funding in order to provide funding to firms and businesses in the united states and abroad. by the same token, lending to european institutions comprises a large fraction of the u.s. money-market fund portfolio.

the money market funds have been substantially reducing their exposure to the most vulnerable peripheral european economies so that is no longer a source of risk. that said they have very substantial exposures to core european economies. that poses a number in the event the financial strength in europe was to find -- intensify money-market funds would be expected to further reduce their exposure to those banks which would increase their financial straits. this is a problem that has received much attention. u.s. investors in money-market funds might take their funds out and the money market fund in difficult situations. this is something that other agencies are very alert to and that has been an important

consideration for the oversight committee and they are working on all regulatory agencies are interested in this and the sec has final regulatory authority for these money market funds. they are working for similar forms. >> the swap line is about direct american exposure in that regard. >> the swap line is about exposure in that regard and many regards. its point is to make sure -- to continue providing credit around the world that u.s. household firms and by doing that we strengthen the liquidity position of these institutions and by doing that we make them appear to be safer investments on money-market funds.

>> thank you. miss maloney. >> what is the single most important thing that europe could do to prevent a banking crisis in the united states? mr sobel, mr. kamin, mr dudley. >> let me address the question of the single most important thing europe can do and i think that it is clear that europe needs to pursue a comprehensive strategy to overcome the crisis. what i think needs to be done in a nutshell is companies -- countries have to reform. they have to stick to their reform plan. it is about implementation. it won't be easy. that is a first prerequisite for restoring confidence. secondly, at the european level there needs to be further

progress and strengthening of foundations of the euro zone. we saw that last week, steps with regard to the fiscal compact. and third, mr dudley was suggesting a minute ago it takes awhile for reforms to take hold. they need to get from here to there. this is where the issue of the european firewall comes into place. firewall that has to be strong and credible and it needs to be there to ensure countries have access to affordable financing for rates. and it is important that banks in europe have adequate capital and access to affordable funding. >> mr. kamin, mr dudley.

>> i agree with what sobel said. there is no single magic bullet. what is needed in order to address this crisis is decisive action and follow through by european authorities. >> do you agree with the majority witness may -- europe may need t.a.r.p. program. the you agree with that statement? >> i'm not sure what that might be. >> i think you know what t.a.r.p. is. do they need a t.a.r.p. program? >> if by that you mean sort of injection by european authorities in to the banks, that represents part of the agreement that was concluded a month and a half ago by european authorities. it would raise capital standards for banks and if those were not met the then government might inject some form or another. that is already in the cards.

that by itself is not enough. they have to work on fiscal positions in the government. >> thank you. [inaudible] >> countries do what they have to do in terms of demonstrating at they are committed to getting their fiscal house in order on a sustainable long-term basis. and lastly some of these countries need to take steps to improve their competitiveness and do structural reforms to the labor markets because it is not just a fiscal problem but a competitiveness problem. >> i would like to comment on a strategy that came out of the

2009 g 20 where they agreed to triple the fund's capacity and in response to that, congress approved $108 billion line of credit to the i m f and some republicans have come forward with a proposal or legislation that would rescind the imf's authority to spend any of the $108 billion contribution to the imf european strategy. let's start with mr. sobel. can you explain the terms and conditions associated with the imf financial assistance to the nation? and what does imf assistance signal to the rest of the world and to other financial backstops to help in this situation?

>> thank you. in my testimony, i indicated that the imf funding plays a vital role in the system, helping countries. when countries face stresses and difficulties they frequently come to the imf against the background of loss of access to financing which imposes a very deep stress on society in the economy as a whole. but imf comes in and works with countries to develop more orderly path to restore growth and vitality. they do so first by developing

economic conditions. the money is tightly overseen. quarterly performance criteria on fiscal and other indicators to make sure the country is moving on track that will restore it to stability and in addition to fund to provide financing and that allows the country to make a more orderly transition towards resumed growth. that is in the country itself. but when a country has problems, especially a large one it has ramifications for the neighbor and a global economy as we saw in 2009. the logic of imf assistance is not only to help the country but to lessen the impact on the

global economy which is the very much in our interest and as we indicated earlier, from the vendor point of the united states one of the problems is from the deteriorating situation in europe. it hurts u.s. experts -- exports and constraints financing to businesses or stock markets and the like. the fund supports the global economy can be very vital in helping promote international financial stability. >> will the imf loan fixed crisis? >> i don't think -- [inaudible] >> we have said very many times

that europe has the primary responsibility for addressing this problem. it has capacity to address this problem. we welcome fiscal action they have taken. we welcome the actions they have taken to put in place stronger governance framework and we welcome the creation of the firewall. we have been very clear that the imf cannot substitute a strong and credible european firewall, decisive and forceful european response to the crisis. >> what would happen if republican legislation passed that denied funding from the united states to the imf? >> in my view, the imf help

serve u.s. interests and our interests in sustaining global financial stability which is important to the health of our economy. so europe has to act. it can be a tool for helping achieve the world economy. and we want the imf to have resources to do its job. in 2009, congress approved a $100 billion increase, to borrow as well as modest increase in our quota. and the global economy. the backstop the rule of the

fund, it goes back to 1962 which is when the swap lines were created as bill was mentioning earlier. this is final to promoting global stability. if we were to withdraw our funding i think it would harm -- it would weaken u.s. leadership in the institutions. i think it would put our standing funds in jeopardy and i think it would cause the fund to look to others to play a more influential role in its operations and activities. our support for the imf is very important. >> thank you very much. >> thank you. the vice-chairman from new hampshire is recognized for five minutes. >> thank you, mr. chairman.

mr sobel, when i was here earlier during your opening remarks, i thought i heard you say that the imf has great reimbursement of repayment. so i wanted you to clarify that for me and ask you a follow-up question. >> thank you. the imf in my perspective is a very unique institution. let me just cite three factors. as i just described, it can set the macroeconomics conditions to a country that helps the country get back to growth but can also help ensure the country gets back to growth and through this

quarterly monitoring process, that helps ensure of fund's resources are safeguarded. secondly the fund is preferred creditor. everybody in the world, all countries recognize that the fund is first in line to be repaid and its repayment record is excellent. third, it have a strong balance sheet. very strong balance sheet. it has good reserves and has the ability to set conditions and has preferred creditor status. that is not only good for members of the fund but another dimension of this, when the imf

draws on our resources and provided to another country some people think you are exposed to that country. we are exposed to the balance sheet when the fun it draws resources from us, we get a liquid interest-bearing and cashable claim on the imf and its strong balance sheet. those were the reasons i was outlining that i feel the imf -- claims were fully secure. >> the reason i ask is in today's washington post article, i don't know if you have seen it yet but it was in title will u.s. taxpayers' vote for bailing out europe there is a quote from anthony sanders who is a professor at george mason university who said i expect $100 billion which is money i believe that is a line of credit we issued to the imf, to be used

and not be paid back. is what he said. i am curious about two things. number one, why all of a sudden there would be this shift in expectation of it not to be paid back. and number 2, statements made by [speaking in native tongue] followed up by the president of the united states suggesting that no additional funds should go to the imf. i'm curious to know if that line of credit should be withdrawn in your opinion. >> first of all, i think that the actions taken by congress in approving the $100 billion in 2009 which was signed into law shortly thereafter was a vital

step. the announcement was instrumental in contributing to dispensing global stability in 2009. was very visible at the time and i strongly support that action. >> he would agree we are somewhere different today than in 2009? europe is somewhere different today? >> absolutely. my point is we want the fund to have the resources to do with job. the nab is part of that and we strongly back that. again i am firmly of the belief that our claims in the imf are extremely secure. i think the repayment record of the fund is stellar. i will be happy to sit with your

staff and document them. >> i know -- >> i just want to say we will be repaid. the nabbed line so far that the imf has drawn, $6 billion from the nabbed line. >> professor sanders made that statement yesterday in testimony. it is something i would probably want to follow-up on. the final question i do have is in the case of greece and ireland and portugal their debt to gdp ratio after receiving assistance packages i believe actually increased war grows. i understand your point about the impact globally that imf has, it doesn't seem countries get the point that after they receive a loan or a bailout, they are not fixing their debt

to gdp ratio which quite frankly is the same problem we are having in the united states. in a short amount of time, can you tell me how one would argue bailouts are working? if that ratio is increasing, not decrease in? >> i look forward to working with you after this hearing. when growth is slowed in this economy that has had the effect of depressing revenues and automatic stabilizers. >> turn on your mike. >> okay. basically, to push deficits up in the short term. meanwhile these countries are taking action to bring their

fiscal houses in order against background of the cyclical downturn in the fiscal position. the point i made is imf support provides more orderly transition to restoration and the fund closely monitors and reviews performance to make sure the country is on track. >> would be shared yield? thank you, mr. chairman. what you are saying -- you are saying the debt in the short-term is going up but these countries are taking longer term measures to stabilize their economy and improve their pro-growth economy, reduce expenditures. can you tell me in your opinion, if that is what we think should be a standard for us to be loaning money to the imf, are we

in fact as a nation in imposing the same standard on ourselves? is the president of the united states imposing that standard on our country? >> i didn't come here today to -- >> it was a tie between europe and the united states. [talking over each other] >> please hit your microphone. we cannot hear you. >> the administration has put forward bold fiscal plans to restore, to promote growth and restore fiscal sustainability and consolidate the deficit. >> i would love to have that list. i look forward to working with you as well and when we do get together and would love to see that list.

thank you, mr. chairman. >> i thank my colleague for the committee's information. we requested mr. sobel's to. treasury who could have answered that question more sufficiently. one final question we have going on, if i could just ask one final set of questions. in your written testimony you said the european situation were to deteriorate further financial markets would become more stressed and you go through the scenario of the american economy and say this is bold language for the federal reserve at a time that u.s. unemployment is very high this is a particularly unacceptable outcome. the extreme financial march would be impaired. strong language for the federal reserve. in the event of that scenario, that the european situation were to deteriorate further, what is

the fed prepared to do to prevent this outcome? >> i think my language was more about how unacceptable the high unemployment rate is, if the unemployment rate were to go higher because of the events in europe that would be very unsatisfactory. >> to be specific and my time is limited, i will read you the whole paragraph. that is not what the reinstatement says. >> i will stipulate to your interpretation in the interest of time. the federal reserve is doing what we think is appropriate to support lending in the united states and that is why we have engaged with foreign-exchange swaps with five other central banks. i don't think we contemplate any other action at this time to do anything else in terms of providing assistance to europe. is really their problem to solve from the federal reserve

perspective. the ecb has liquidity in place in terms of the eurocurrency. they have swap lines we think are very sufficient to provide dollar liquidity. i don't anticipate even if the crisis in europe were to worsen, further steps on the part of the federal reserve and this time. >> mr. kamin, sovereign debt held by u.s. banks to prevent this further deterioration? >> i will defer to president dudley who is on the federal market committee. >> i can't obviously speak for my fellow members on the committee but -- >> the bar to doing that would be extraordinarily high. i cannot imagine circumstances in which we think that was an appropriate action from a monetary policy perspective. we have the legal authority by foreign sovereign debt.

this is surrounding the ability to conduct foreign-exchange. we have a small portfolio that we run with the treasury that represents our foreign exchange reserves and we have never gone out and bought large portions of foreign sovereign debt in the history of the fed that i am aware of. >> would you consider accepting european sovereign debt as collateral against -- >> against additional -- we need to be secured to our satisfaction and we do take a lot of care in the discount window lending and other lending to make sure the collateral we give is appropriately hair cuted and the federal reserve will protected. that is why despite the large amounts of some as the federal reserve dispersed during the financial crisis we did not lose a penny. we have no credit loss whatsoever -- [talking over each other] >> i would not rule it out. of the collateral is good

collateral and appropriately haveed i would not rule that out. >> even if we are not triple-a-rated? >> we accept collateral that is not triple-a-rated. the quality of the collateral and appropriateness of pricing of that collateral and the appropriate level of hair cuts. you have to have protection in the size of the hair cuts so that is important but i would not categorically pulling out. >> should european banks consider equity raising? >> you would have to talk to the european banking authorities but the stress test did suggest the capital needed and equity raising, i would think pat would be a welcome part of that because they raise more equity and do less delivered in. >> that would be -- >> my personal preference. >> they are already considering raising that as one of the ways to achieve there higher capital standards and that is the point.

>> with that, a realize your time is very important. we have votes on the floor. members had ample opportunity to ask question this morning. this hearing was about proper oversight from congress, what our political branch and treasury is doing to address what is happening in europe and what we see on the front pages and raises great concern across this country and around the world. we also want to see a range of options from our central bank. we realize with this hearing that there are enormous number of questions about them. but we do see that our central bank with new york fed represented here today and the governor, board of governors, have certainly looked at the

risk associated with this and have a range of plans that they can pursue and the number of policy options that they have. that is very clear. we do not see the same level of planning for the treasury and that would be an additional question we would have here on the hill, what the treasury would consider going forward and we hope to have additional oversight to make sure we have that disclose to the public. we thank you for your testimony. thank you for your willingness to engage in these discussions. we realize the discussions were broad reaching this morning but we appreciate your willingness to be here. thank you for your service to our government and our people and with that this committee stands adjourned. [inaudible conversations]

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