summer. we're trying to align these internships with school reform efforts. we have one of the problems that is happening, the reason we had a low-and graduation rate is we had three high schools that a couple thousand students each. in the reform effort we have broken down these schools and turn them into smaller academies and in the process developed capstone experiences and develop these high school. one thing we're doing is leveraging the summer program to facilitate the internship so students can have a meaningful work experience tied to their high school program. ..

>> also keeping our kids safe and out of trouble. and mine full-time i'm going going to stop before i -- thank you so much. thank you. [applause] >> we will not throw you out. come on now, charles. charles smith, director in hartford is here with me or today. he served in the capital workforce partners board since 2003 and has been chairman of the board since 2010. he has had 30 years of experience in management and individual group coaching, training and seminars. give us a little -- we have a little prop. good to see you. >> i, like the mayor, don't have powerpoint or any fancy handouts but i do have the best product ever. does anybody recommend --

recognize this brand of luggage? american tourist a. u.n. member in the late '70s they had commercials with a gorilla in a cage and they bounce this thing right and described it as it's indestructible. this is 37 years old and it's going through quite a number of plane trips. i have to say it's held up pretty well. but the point is that this was my first job, summer job, was at american tourist or. when i applied there, of course i wound up having to -- my kids are watching on tv. ride my bike uphill both ways five miles there and back. [laughter] and these kids get -- on my application i wrote down under values and going on to build a university and study a county. my assumption was that person a will take that and say let's find them in office job. what happened is they put me in the repair department. which is just about the lowest

of the low. and i had the best summer ever. so in the repair department i access to most of the factory, about 500 people. my boss complained because when things i had to do was deliver the repair to luggage down to the shipping department which was at the other end of the factory about five football fields down for my department. huc take me about 45 minutes to make that round-trip. now, most people it would take about 10. so he chastised me, but what i was doing was doing early networking. so i wound up meeting most of the people in that factory. fast-forward 37 years, that's one of the things i do at hartford is a lot of networking. so it seems to me i picked up some of my later in life skills at my very first job. i have some prepared remarks that my ceo gave to me but i think i would bore you to tears if i read those pics i really want to just kind of leave you with some themes.

by the way come one of the things i will say is that the increase in the city grant from 1 million, to 1.5 is when the first things he did as mayor. i was very proud of that. capital workforce partners saw about 30,000 people last year through its various one stop centers, and as mayor mentioned, i've been on this board for about eight years and it's taken me that want to get through all the acronyms. and so i think one of the best things that we do, we do a lot of good things, is this idea of the career competencies summer youth program. because of all the things that we do, and by the way, i've met a number of these young people and they're just astounding, this is as the title of this presentation says, i think the game changer. because in my mind we have an opportunity to create future

taxpayers as well as present once. but the idea of getting these kids off the path that they are on, in the state of hartford is about 50% unemployment rate. as the mayor said, we have one of the largest concentration of gangs in the united states. and so we come from the richest state, one of the richest states, and you win some of the poorest cities. the opportunity of this program, summer youth and the career competencies, really ultimately win the war we are right now we're just fighting battles. is astounding. so i want to give you a couple websites, capital workforce.org is one website to go to. and i think what you'll see there is a stunning transformation of governance. and we been through a journey. i will tell you off-line about that. but the other one is career competencies.org. it's a skeleton right now, but

we've actually installed this in about a month to get a lot more robust content. we've installed career companies in the city of hartford and we're working, slowly but surely we will unfold. is getting some traction. i.t. is that we want -- we went to employers and said when you are hiring high school and college graduates, what are the things that they are missing? and here's the things they're missing. basic skills, customer service, pure literacy, problem solving and decision-making, communication, personal qualities, job seeking skills. we just added financial literacy. we are working with travelers and ubs to create posters, go to this website and see some of that stuff. the idea is to change the culture of schools. there are for tears, and we hit kids between the ages of 14-24. i've had the pleasure of meeting half a dozen of these youngsters. one of which was, we were at the

new governor in connecticut was doing a listening tour. so i went to present something. i was standing in line was waiting to speak, and right behind was a 17 year-old lady who had been through our four tiers. let me tell you something. she was the definition of a disadvantaged youth. broken family, sister was a drug addict, family is scattered, and just, you know, on the path that we so often see of ever going anywhere. this lady was going places. she looked me in the eyes, shook my hand, very self-confident, and i would say with the course of my 15 or 20 minute interaction with her she was going places. that to me is what this is all about. so i think, i think that's pretty much what i want to cover. i think this is a game changer. we are surely not the only one that is doing this, and i've heard some similar words, but we are certainly out front on this.

and didn't get into the high school level, and you know, last year we probably, i think we saw, we employed about 1900 kids at these various tiers, of which about 100 company the 150 were unsubsidized. we need to work on that number, all right? out of that, so 2000 people, but we actually turned away another thousand. as i said, 50% unemployment, all these kids are employed in games, so i don't know what the actual number is of the total population but we are attempting to win the war with us, and i think it is a game changer. so with that, i think i will see if my time -- it is running late. >> thank you. thank you, charles. [applause] >> we have one more presenter, but i think our youth in this country are so critical that i want to stop and just, if

there's anybody to have question, we'll be talking to use in the second with education, but any questions or thoughts? mayor, your program sounds kind of rich. coming, that's a big commitment to what didn't get funded because you did this? [laughter] imai, that's a sophie's choice will have to make. >> i guess what depend on who you're talking to. every agency that didn't get as much as they wanted. i'm sorry. it depends on who you would ask. i'm sure that every agency that didn't get funded to the level they wanted can look at this, or any other decision, appropriation to say that's where the money went. that at the end of the day we have to invest in the future of our country. i am doing it in baltimore. we all have to do in our own respective cities. we have to make that investment.

it's too important. this is a population pepfar too often is underserved, so, you know, we can't turn our back on them, particularly when i have seen with my own eyes, with our own experiences that these young people want to contribute to society. they want to be self-sufficient. they want to live within the law. if they could just see a way, a pathway to get there. luckily, when you spend money on youth programs you don't get a lot of flack, but, you know, it's just with anything. you have to make clear what the priorities are. been a great. thank you. any other -- yes, sir. [inaudible] >> and we've seen a lot of

results there. our homicide rate dropped below 200, which in baltimore hasn't been seen since the early '70s. and our juvenile homicide, juvenile violence has dropped significantly as well. when you look at how we get to those numbers, it's a combination of a lot of things working together. to ensure that this population gets on the right track. >> that's the second time i've heard about juvenile homicide coming down, so i think that's great, that's great news. so thank you very much. i appreciate this panel. [applause] >> on the home lab for the preconference session is louisville mayor greg fisher. mayor fisher will speak about his 55,000 degrees program, a commitment established in the city to prepare the future workforce through educational attainment. he entered the office of mayor with a breath of business knowledge and experience under

his belt. in 1980 come he cofounded servant international, helped the growth of his company into a worldwide corporation. also founded iceberg ventures, a private investment firm, in 1999. helped create over 1000 jobs so he knows how to do that. he has been an active investor and board member in new grants companies, in many industries. louisville wants its public-private partnership in october 2010 with a mission of adding 40,000 bachelor degrees and 15,000 associate degrees. tell us more, mayor. [applause] >> mike, good afternoon, everybody and think you for the opportunity to present. bring greetings from the great city of louisville. i will give you a few facts on the. first, we merged our city and county governments about nine just go. where the last major big city to do this with about 750,000 citizens, about 385 square

miles. our public school system, jefferson county public schools, is about a billion dollar operation, 100,000 students. are unemployed rate right now is about the national average, about 8.5%. and we've got for economic clusters that we'd are the best in the world at or feel we can be the best in the world at to focus our economic development efforts on those. one is lifelong wellness and aging care. the second is advanced manufacturing where we have a project working with our sister city of lexington, which is about 60 miles away with mayor jim gray. where develop a regional economic develop strategy with the help of the brookings institution and the city of louisville is using some of our money that we receive through bloomberg foundation grant to help with that as well. to have the largest restaurant company in the world in louisville that mayor rawlings knows all little bit about, former ceo of pizza hut right here. so we are pizza hut, yum brand is pizza hut, taco bell, kfc, et

cetera going on inside we have one of the breast local food movements going on in the country as well in terms of local food and innovative healthy eating around that. and then last is -- bourbon, we call it food in kentucky as well. [laughter] 95% of the world's bourbon comes from kentucky. the other 5% is counterfeit. remember that. [laughter] in logistics is our other, ubs global hub is located in legal. a couple things, i'm a relatively new mayor, about 11 and a half month ago. are keys for success revolve around lifelong learning. and when i see lifelong learning i'm pulling education into that and innovation and jobs. all time back to the joint learning that everybody is born with. and the second is out to be even healthier city, not just physical health but emotional health, spiritual health, and environmental health as well. been the third is, some people,

some political advisers say don't say this but i said i'm going to say anyway. our 30 is how can we be an even more compassionate city. none of us have all the money in the world to solve our problems these days but hopefully with unlimited love in our communities, unlimited compassion in our communities. where friends can help friends, strangers can of strangers. and i can tell you, all my fellow mayors, every time i talk about compassion and love, this past weekend i talked about a lot with the martin luther king activities, people nodding their heads. and i think elected officials need to talk more about how people can help each other and go to some of those true values that are inside of everybody. so before i start my presentation, just a final shout out on compassion, we had a very important birthday in louisville a celebration this weekend, national birthday today and that is one of our most famous sons, and that is muhammad ali. he turns 70 years old today. give it up for the champ. [applause]

so think about all the kids that you might have in your community that are running around and they've got a little bit of a lid on them and they might have a little bit of an attitude, and that's what muhammad ali was in louisville. he was born in 1942, but here's a kid that was mouthing off in high school. i'm the greatest, i will be the greatest. we all have one of those in our city. maybe more than one. but somehow this guy made it happen. not just the sportsman of the center but one of the greatest humanitarians of the century as well. and i say that not to brag on louisville, or not to brag on all the, but i think it's reminder to all of us what kind of greatness is within each person, especially each kid that need the type of inspiration, motivation that we as adults can provide. so the next time you run into one of those kids, encourage them. show him the way.

you never know what's going to happen, so happy birthday to mohammad. all right. we are going to talk a little bit in our educational commitment today, commitment to preparing the workforce through educational attainment. and let me just our with the basics. everybody in this room knows this, but when i talk about lifelong learning, education obviously is a big part of that. education leads to innovation and leads to jobs, leads to higher quality of life. we all know that. educated workers and illegal just like everywhere else earn more, and when some basic stats by. we all know the percentage difference between those with a bachelors degree and those without a bachelor's degree. just a high school degree. it is to the point, folks, where if you have a high school degree, you might be able to survive. maybe just get by. if you don't have a high school degree, and as you all know, 30% of the kids are not going to graduate from high school in our country. that's average.

and fortune we are average in that area right now. those kids are not going to make enough money just to make ends meet. so the times have changed as we talked about before, in terms of the income mobility of students now, all coming out in the past couple weeks about income mobility, social mobility is more limited in america now than in europe, in canada and many other parts of the world. so education is the key. and, obviously, when will we learn? we've been talking about that for a long, long time. now, what drove this was when we merged we worked with brookings on a project called the greater louisville project that takes stock of how we were before merger, and then how our city/county evolve after merger. is merger worthwhile? doesn't make any sense? we want to be able to have the data to prove that it was or that it was not. we identified three key drivers of change.

you probably have the same three in your city. education, real deep on that. jobs come and quality of life. so we set a goal to move legals percent of college educated adults to the top tier of competitor cities and nations. that's what this 55,000-degree program is all about. it's 55,000 more college degrees in louisville that normally would have been by the year 2020. so we go back to some numbers and try to understand what that's all about. when we started this program year ago, we had 116,000 bachelor degrees in the committee, or about 30% of working age adults. we need another 40,000 degrees to reach a 40% goal for that. than 38,000 roughly associate degrees, or 7%. so we're shooting for 15,000 more goals there. that gets us 50% of working age adults will have college degrees in our city. so we are going to basically go

from 155,000 degrees right now, the 210,000 in aggregate out of a population of 750,000 total citizens. the key behind this, we are off to a good start. we're just about 60 months into the program so it's early, but all the indicators are moving in the right direction. it all revolves around what we call the mayors education roundtable. that's bring everybody in the community that can influence education together to be heard and then to act as one. it's a relatively new mayor again, look at what's going on in your community and you see all these different activities going on, but they are not aligned in as much as they should be. so i believe one of the jobs of the mayor is to align the resources in the communities for maximum effectiveness. everybody is us complain we don't have enough money, we don't have enough this, we don't have enough that. well, once we get better at what we do have, then made when we

complain about what we don't have will be a lot more effective. but this education roundtable includes university, technical logical present. we have eight major universities inner-city. 23 people total our office, including the school superintendents both public school system and our private schools. top civic leaders, leaders of large movements and workforce preparation, business, youth development, et cetera. one of the changes of this board is not just identifying what our problems are, and where we going to go but it's developing a common language around the community. so when we talk about 55,000 degrees or 15,000 degrees, people understand what that is. this really is hopefully that embarkation of a culture change as well. when we're trying to take this large a leap and percentage of adults with college education, this is the type of thing when you're going to cocktail parties, somehow come up and ask

my, what is your company doing with a 55,000-degree program, and you know. so we're constantly reinforcing the language of 55,000 degrees and all the common elements that go into that. yesterday, these past three days the martin luther king festivities are going on around in louisville. i've spoken to i was blue in the face about 55,000 degrees. you cannot speak enough, because ultimately this becomes a very personal question to people. it's not some big lofty government goal that we all hear so much about. the question is, what are you going to do about 55,000 degrees. so this is the type of challenge we put out there and provide mechanisms to get that job done. now, how are we going to get there? one is to create and support a college going and college finishing culture. i want to emphasize college finishing. we don't really have that much of a problem with a college

going culture. we have is he probably people finishing college. we have 90,000 adults, for instance, that have some college but not completed. with some kids that started the dropout. people know they need to go, but they may not be ready to go. we want to use the business communities to accelerate again. so if you 90,000 folks in the workforce that have some college, you might have a couple dozen that work for you, what's your personal mission to get those folks with their college degree? we want to prepare students for success in college career, citizenship and life. all of these type of skills, both saw skills we been talking about today, but then also making sure these folks are ready to go into college at the same time. we've got to make postsecondary education both accessible and affordable. and you all know lots of times people just say, college is out of my reach. if they have, especially from a

family culture that doesn't buy you or does not have a tradition of college goers, they don't think they can go. and the facts are, the data shows, i believe this came from some of the work from the gates foundation, by the time a child is 10 years old, 10 years old, they will have in their mind that they're going to go to college or not for them. when i'm with nine year-old, 10 joe, 11 year-old kid, i asked them come where you going to go to college? and the darndest things come out of their mouths. i'm going to go to harvard and i'm going to be a doctor. i'm going to go to howard and i'm going to be a social worker. and other kids would just look at you with a blank look on their face. you really understand that data, but nobody has talked to them about that before. nobody has painted that picture for them before. so your role as an elected official or someone on staff in terms of encouraging and say you can do whatever you want. you see people's eyes light up. you see their mom, it usually

their moms with them and say thank you, mayor, for saying that. we will get on a. so don't under estimate how you can intervene at the early point in people's lives to convince them that they, too, can go onto college. then fifth is to increase educational persistence, performance and progress. so when people start, they finish. all right, where are these degrees going to come from? we talked about encouraging adults, especially those with some college credit hours to complete their degrees. 90,000 adults, 750,000 citizens, you do the math for your city. no doubt you have a big number as well. increasing the graduation rate of our existing college students and graduates. eight universities in the city, the most well-known is the university of louisville. they've made tremendous strides in their six-year graduation rates. it's how we take a look at that, at all types of programs that put in place from having a more attractive campus life to really

focusing on retention for the freshman and sophomore year. inspiring more high school students to attend college. where this great program called close the deal. we identified six high schools without a high percentage of at-risk kids. when we started this program, 18%, only 18% of those high school seniors were applying to go into college. now after four years in the program, that number is up to 85%. that's simply -- [applause] >> that does deserve a little love. that is because the city has gone in with a lot of partners and painted the picture for them. number one, that it's college or military, and if you're not doing it, here's what your life is going to look like. if you are doing it, here's what the possibilities are. i type into them how many of you will want to ask a didn't have kids, i asked the crowd. bottom line, if you're not going

beyond high school, you're not going to be able to have kids. and i talked to each other a little bit. so i don't care if you don't love yourself, but if you want to love some children, go to college. at a minimum get a two year degree, or at a minimum get a certificate. so we've gone from 18 to 85% by presenting the facts. but many folks what i think it is is telling these kids that you can do it. you can do it. then we have added additional high school counselor in most of these high schools as well so they're getting that one to one support they need to navigate their way from a family that hasn't had a college graduate before, to them being the first college graduate. and painting the picture for them of the leader that they are and that they will become when they get a college degree, the influence they have on their little brothers and little sisters or nieces and nephews and neighbors, for them to show the way. so we've had great success, but more and more of these kids going to school would close to do. than last, just a track and more

college graduates to louisville. we are a great aunt were know to cities have a lot of activity in that area. and also we are rapidly growing our international population. 20 years ago they were probably 5000 internationals in legal. now is close to 70, 80,000. by international and if someone not born in legal. that could be a refugee, it could be a ph.d but we find our international population actually has more college degrees than people that were born and our country at this particular point in time. what are our challenges? one is this culture change that i talk about. this big number, we see all the time in government. ours is 55,000 how do we get 85,000 degrees? i say one at a time. this isn't a contact sport. this is not something we are listening to a nice talk, governments are not going to do anything. what are you going to do about it? and having a continued sense of

urgency about it go like this, in the end zone is 2020, supercritical for leadership in the communities to set that sense of urgency. so we are making good progress, but we're just in tier one. 's with a long way to go. two, we have to better prepare our students. i talk about low college readiness over high school seniors. national problem. high rates of students taking remedial courses are too high. so we're working on that and our public -- mainly public school issue, not a private school issue. then the support returning students. what i ask people in churches, and businesses, how they can help, this frequently is one area. it could be your kid that has got 90 hours in college, need somewhere. and you babysit for your grandchildren? might be a neighbor next door, but little things you may not think i big deal but are put in the kind of support system for this person is time to go back and get their degree. most everybody wants to get their degree.

but what happened? life got in the way. could be a kid, could be holding down two jobs, could be they don't have an extra hour or an automobile. something that might seem to be a little thing to some of us is a big thing for somebody trying to go back and get that degree. so everybody can help out in this. whenever you set a big goal like this we have to track as well, so we have a data dashboard we put together for the city. one is this college going culture, we measure that through high school graduation rates, transition to college, and what colleges they're going to. second is business leverage, participation and agrees that work. degrees that work is a program where we work with our businesses that say can you identify who in your company would like to go to college but currently is not in college. and do you have a tuition reimbursement plan and we develop a plan? what kind of support can you give your existing employees to go to college?

out of our 55,000 degrees we are hoping to get 15 of those from people that are in the workplace right now. so leveraging business. second is, arthur is preparing our college readiness. how do we improve our azt scores and our benchmark. how do we improve students that are college ready, what kind of remediation do we need to we're working on all of those. affordable and accessible. we attack that. what the net cost is a going to college and having college access or so people understand more what the college journey is all about. end of last is i mentioned before on persistence or graduation performance is the schools themselves working within their organizations to make sure that their kids are getting through. how are we going to get there? as i said, one degree at a time. people are tired of me saying that in legal but they will hear a lot more of it. because that's what it takes. at the end of all these goals is a deeply personal journey,

whether you are a degree or supporting that degree. so if we are trying to boil this down and we are from 55,000 to a smaller number, a manageable number at each institution can handle. so each of our major universities has pledged to increase the number of students that they graduate, and they come up with a number and they come up with a specific plant -- >> we will be this event at this point. you can see it in its entirety on our website, c-span.org. we are live from capitol hill without financial regulars are testifying before two house financial services subcommittees on implementing what's known as the volcker rule. you think after former federal reserve chair paul volcker and keeps federally insured institutions from investing in hedge funds private equity fun funds. this is live coverage on c-span2. we expect this to go for a couple of hours. >> the participation in this morning's hearing will help our members of the capital markets and the financial institutions of the subcommittees better understand the complexities and

the far-reaching nature of the proposed volcker rule. members and/or witnesses should note that the first panel will be excuse at noon and as we do expect floor votes around one, we will see what happens on their, giving the size of the second panel we will likely recess and then come back and call the chp at today's hearing will examine the implementation of section 619 of the dodd-frank wall street reform and consumer protection act, commonly referred to as the volcker rule. after former federal reserve chair paul volcker. this rule will prohibit u.s. banks, u.s. banks holding companies and their affiliates from engaging and proprietary trading. we are going to learn a lot about the definitional boundaries of proprietary trading today. proponents of section 619 have made assertions that proprietary trading the practice of banks buying and owning securities for

the own accounts was a key contributor to the financial crisis. on the contrary, chairman volcker himself has admitted that proprietary trading in commercial banks quote, was not central to the crisis. this raises i think significant questions about the size and the scope of the problem of section 619 is seeking to resolve. the federal financial regulators have been tasked with writing will take it out the objectives of section 619. the result of their efforts is the proposal that is new 300 pages long, and asks more than 1300 questions for comment from market participants. this has led to significant confusion. and i will put myself in that boat. and many unanswered questions of the consequences of implementing section 619. this morning's hearing will give numbers of the capital markets and financial institutions subcommittee's the opportunity to better understand the decision-making process of the federal agency but our second panel of witness will testify to the potential effects of the proposed rules, and will have

not only our financial institutions but also institutional investors, pension funds and shareholders, and the american public in general. i'd like to rethink our witnesses for joining us here today. this is a very serious issue and the participation of the principles from the financial regulators is greatly appreciated by this chairman and the entire committee. at this point i would like to yield to the ranking member, ms. maloney, from the year for the purpose of making an opening statement. >> i want to thank the chair ladies were calling this very important hearing, and welcome all of our distinguished guests, particularly two that were former residence of the great city of new york, mary schapiro and gary gensler. we look forward to your testimony. we are here today because of the financial crisis and recession, which costs american families over 17 trillion in household

wealth and business wealth. andover 5.5 million jobs. we are still recovering from this crisis, and a very important part of that recovery and the dodd-frank reform legislation was the volcker rule, which we are discussing today, which some believe is the most important part of dodd-frank in terms of preventing another crisis. and i might add that as recently as september, building on the crisis we already had, the swiss bank ubs lost 2.3 billion, thanks to a rogue unregulated trader, and mf global, although not a depository institution, still cannot find over 1.3 billion. so we clearly have a challenge. this crisis like most was caused

primarily by unregulated areas of the market through loan defaulted from conventional banking activities such as mortgages, loans, commercial real estate, which led to no market liquidity, no capital, and dried-up credit markets. the risky proprietary trading activities of some financial institutions, including some of the largest broker-dealers, bear stearns, merrill lynch and lehman brothers, contributed to these conditions. other losses and financial institutions would have brought them to bankruptcy had there not been extraordinary government intervention taken. chairman volker proposed a ban on proprietary trading because he believed a financial firms should be serving their clients, rather than taking risky bets for their own book of business. which in some cases would have put depositors at risk. notices were tied to excessive

risk-taking, unlike the volker will, now bonuses are rightly tied to ease and did-ask spread. the regulars have taken is simple clear goal and have made it overly complex in my opinion, with over 298 pages of rules that are accompanied by over 1000 questions. i agree with the testimony last month by sheila bair, the former head of the fdic before the senate banking committee, where she stressed that the rule is too complex, particularly in seeing the bright line between proprietary trading and market making. some financial institutions have already into proprietary trading and have taken, have literally set up separate financial institutions for this purpose. chairman volker has said that recognizing proprietary trading activity should be simple. you know it when you see it. but i do not see how you can see

it unless you have access to the data. i in hearing some concern from some of my constituents that the burden of providing this data is overwhelming. i would like to know from the panelists today to what extent the new requirements are different from what financial institutions have had to provide in the past and how are they different, or are they the same as what the new office of financial research would be collecting. while there were many causes that help create a financial crisis, an inability of regulators and interested parties to see financial transactions was certainly one of them. regulation did not cause the financial crisis, but we are discussing today ways to prevent another one in the future, and the volcker rule is an important part of that discussion, and an important part of that prevention. it's important that we get right. i look forward to your testimony today, and to seeing your final

rule. thank you. >> thank you but i like to recognize the chairman of the full committee, mr. backus, for three minutes. >> thank you, chairwoman capito, for holding this hearing, along with chairman garrett. to the regulars, i know that what you're doing is trying to carry out in section 619, that's what the congress asked you to do. and that was to prohibit proprietary trading. and i think that was a mistake but i think section 619 was a mistake. and i think that's where the problem lies. that our request to you was a mistake. none of us want to go through what we did in 2008-2009. and we want to avoid the mistakes of 2008-2009. but proprietary trading was not one of those mistakes.

secretary geithner has said that it did not cause the financial crisis. i'm not sure that it contributed to the financial crisis. they were companies engaged in proprietary trading that did other dangerous activities, undercapitalized, overleveraged, and we sort of want to avoid that. and with basel iii, i think entire global community is going towards greater capital standards, and we're addressing liquidity. i mean, you're addressing that. but what we are hearing from, not only companies, but consumers is that this rule will threaten the united states and its financial markets, its capital markets.

the deepest and most liquid in the world, and proprietary trading actually contributes to that liquidity. it contributes to the availability of capital, if we had not had liquid assets during the financial crisis many of the loans to companies that otherwise would have failed would not have been made. these rules which i will admit i think are responsive request from this congress from dodd-frank, section 619, in my opinion will be a self-inflicted wound on this country, its economy and its financial markets. because the country will not have a strong economy if it's financial markets are not stable. they have to be safe, but they also have to be liquid. there has to be capital for

investment. and i believe this will restrict capital. i believe it will drive up the cost of loans. and i believe it will make our financial markets and thus our economy and our country less safe. so thank you. and let me end by saying it would also cost jobs. i think that is coming evidence, it will cost hundreds of thousands of jobs. thank you, chairman. >> thank you but i like to recognize the member of the capital market subcommittee, ms. waters, from california for three minutes. >> thank you very much, chairwoman capito, for you and chairman garrett holding this joint hearing this morning on the volcker rule. three years ago this country express the worst financial crisis the great depression and families continue to struggle with the result in unemployment foreclosures and loss of equity in their homes. and while of service will disagree about the central cause of the crisis, i think there is

wide agreement that a number of factors played a role in what we experience in 2008. one of these factors certainly was proprietary trading. where banks makes the content investments and financial estimates. in their own account rather than on behalf of clients. this type of trading, while profitable, during good times, proved to be tremendous with harmful. but that's unrealistic and other assets start to soar. in the five corners during the financial crisis, the sixth largest u.s. holding companies lost a combined 50.80 billion from stand-alone proprietary trading debts. the dodd-frank act and the region, known as the volcker rule attempts to grapple with this particular cause of the financial crisis, not by prohibiting or prior to trading altogether, but by stating that banks have access to the federal safety net cannot use that advantage to make, to make

speculative bets in the market. the volcker rule likewise prohibits commercial banks from investing in hedge funds and private equity funds with certain small extensions. the rationale behind this provision is that while there is a justification for government support for commercial banks, whose presence ensures a stable and continued book of credit to small business and individual, there's no public policy rationale for taxpayer subsidies for banks traded however even with clear prohibitions under the volcker rule, congress recognized that commercial banks should still be able to serve clients for underwriting and market making are acting as intermediary between buyers and sellers in the securities market, and gave regulators significant flexibility to implement this provision. so i think what congress adopted other poker provisions were very measured and attempted to surgically excise only those

elements of trading that pose the greater risk as one of our witnesses will testify to today of course, the devil is in the details and entries here from the witnesses here today on how they think this will has been implemented by the interagency group of regulators on the first panel. in particular i want to make a market makers are not impede at the boat is not knocked out in complexity that will hinder compliance. so as i said, during previous hearings, i hope that the regulars are being responsive to legitimate industry concerns loud and also uphold the intent of the we did in dodd-frank. i look forward to do with this assessment today and i yield back the balance of my time. >> thank you to a like to recommend mr. royce for two minutes. >> thank you, madam chair. on the topic of international cooperation, two years ago we had the deputy treasury secretary say we are working closely with our g20 partners to make sure that we get a regime

that works worldwide so that we don't have new opportunities for arbitrage. that was if you think it and then about six month ago, michelle barney a, the european union's top financial regulator came back and he said, europeans regulators won't seek a measure similar to poker. we don't have the same approach, is what he said. so what's become clear in the months of passage is neither asia nor europe are on board. and we are nowhere near a regime that works worldwide. and instead we go it alone with the hope that this approach to protect our market share from a mother cries. unfortunately, better protecting our capital markets doesn't come from micromanaging financial institution. it comes from ensuring that no institution is too big to fail. and enforcing higher capper requirements and liquidity

standards. so if a vulgar is going to be a priority for the administration, it needs to be clear and concise, something that paul volcker has noted, and there needs to be international buy-in. and, thereforebuy-in. and a forcefully the proposal is anything but clear or concise. and ironically, we seem to get international coordination among the five regulators responsible for this. we can't seem to get them onboard, let alone implementation of the larger international cooperation we are seeking here. with a problem internally getting concurrent on this. so until our capital markets operate effectively, and allow for failure, the best policy response is to make the rules so simple that everyone can understand and enforce them, those preventing carveouts and special favors. poker texas in the opposite direction. thank you, madam chair. >> mr. scott for two minutes for an opening statement. >> thank you very much, chairwoman capito.

this is indeed an important hearing examining the impact of the volcker rule on markets, business, investors and job creation. in october our federal regulars issued a joint proposal on implementation of the rule and a total 300 pages of over 100, 1003 questions and 400 topics. originally the comment period established by federal regulars have been scheduled to end last friday, january 13. however, to me and to many of my house colleagues, this timeline seems much too brief. in order to effectively capture the impact of this expensive and lengthy proposal. therefore, i join with the 120 members of congress in to signing a letter to our regulators requesting that the comment period for the rule be extended. and i expressed in the letter that there remain several

unanswered questions about the volcker rule that must be carefully examined before its adoption. the rule will affect capital formation for united states businesses, and thus the national economy in general at a time when a recovery is needed more than ever. i was and i remain a very strong supporter of the dodd-frank financial legislation, for which the volcker rule's provisions originally originated. however, this is my concern. we must be sure that the implementation of such a far-reaching rule will not have negative effects on overall market liquidity, thereby limiting economic growth. our national economic health has an opportunity to improve, and it is improving greatly as we speak. and any action must be made

deliver tivoli to warrant a healthy and lasting economic recovery. that is paramount. i look forward to the questions. thank you very much. think you like to recognize mr. naga bar for a have an opening statement. >> thank the chairwoman come and thank mr. scott for being one of the 121 members that signed members that signed that letter. and i appreciate the regulators response to that. i would remind you that there were three parts of that letter. one was to extend the comment period. and the second part of that was to we propose a rule after you have all these comments. we have a piece of rule here that has over 300 pages. has 1300 questions, and so he have to believe that after hear back from all of those on the question that obviously repurposing the rule is the only right solution to come to to make sure it that add give her the answer to this question,

hopefully it makes the rule more effectively. and in the third part of that is because this process is to move the deadline for implementation of this, because the time period is, while you get the comment period open you did not extend the effective date. but i think interwoven in that, which is extra important, is to have a comprehensive cost-benefit analysis. because what we're hearing from both industries in from other countries, that this has far-reaching effects on the financial markets moving forward. studies out there saying this is going to cost investors billions of dollars, going to cost our worst billions of dollars. and really basically changed the landscape on transactions that we've been doing for a very long period of time. so i hope as we move forward today that we can have more discussion about what kind of cost-benefit analysis is actually going on and has been developed through this process, and i think the chairwoman.

>> thank you but i like to recognize the ranking member of the full committee, mr. frank, for three minutes? >> how much time? >> i was informed three minutes. >> thank you. thank you. i speak as one of the 315 members of the house who hasn't asked you to the latest. i must say that it does seem to me that delay here was a stalking horse for opposition in the case of most people. i'm particularly struck in general, people don't like regulation and to think things were actually running pretty well from the legal standpoint during the period of time when all the troubles were accumulating. they have said that they were really concerned about uncertainty and give them a lot on uncertainty. so what are they asking for now? more uncertainty. they are asking for delay in the rules but in the statute, it's coming. i do not understand how you reconcile the argument that uncertainty is our major problem with a plea for more uncertainty by delaying the rule. we are also told that this is

going to be putting us in international disadvantage, by some. my understanding, and i hope as we elaborate on in the testimony, is that in england our major competitor in the financial area, they have a proposal called ring fencing, i don't know what the hell that means in england, but whatever it is, it is, my expense, i read it more restrictive on the depository institutions that what we are proposing. and i think we do have sometimes -- the doctor international regulation, they follow the model of the teenage child of divorced parents, playing mommy off against daddy, claiming that he will let me go, she will let me do it. i think england has gone even further here. and we are told we should do anything about this because it wasn't the cost of the christ. well, i agree. this particular thing was not a cost of the crisis but the notion and docking regulation we should deal with only with things that have already proven

to be problematic and not try to participate and not try to make other improvements i think is a grave error. i do think that there is a reason to do this in a very confidential we could finally there is the complexity argument. as i understand the complexity argument you are guilty, you regulators are trying to accommodate some of the concerns the financial institutions had. there were people who had a class stake in the stylesheet if they talk about over six pages. well, a very simple rule can do been formally but it would have been the concerns are from the financial institution. so to some extent there can planning about having accommodate them. the final thing, one last point, -- >> if i could interrupt for just a moment. i was informed wrong. you are to have five minutes they don't have to talk either a, so fast we don't need to wrap up so quickly. additional two minutes. >> there is the operative for beating myself but i will take advantage of that plastic we all take advantage of that. it comes with the territory. but i will talk about, and i

appreciate that, madam chair. i was talking about complexity. one of the legitimate concerns we've heard is that market making is important because of liquidity. although i was impressed with a chat i just read in a compilation put out by the head of the financial service authority. in which he makes the argument i think persuasively to me that doing anything that increases liquidity, even by a very small amounts come regardless of what might it mean in terms of instability is not a good idea. there is a cost-benefit analysis that has to be applied to people who say anything that gets liquidity i have bonds, but i don't think i'd be sold in eight seconds for me to be satisfied. market making is, however, a legitimate concern here. and what i'm told by some is

well, yes, we understand that the regular say they're going to allow market making by institutions that the volcker rule will engage in market making that we are afraid they will overregulate, that they would be too tough and, therefore, institutions fearful of excessive rigidity and harshness, fearful of vindictive regulatory action if they come too close to the line will pull back too far here and my question there is, in what universe have people been living in which the problem has been that financial regulators have been too tough, too harsh, to vindictive, have extracted to create a penalty for errors of misunderstanding? in fact i think the regulatory is clear that our regulators over time, both parties, if anything with underrated and under applied the rules. but one of the things i will ask eyewitnesses is, and i think this is important, my

understanding is that the regulars to appreciate the importance of market making because of the legitimate contribution, and i would think a very good thing to do, not to uncertainty would be to get the rule put in place in a reasonable time to read, not for the delaying it, and having these regulators demonstrate in fact would hope they would demonstrate today, rhetorically that they appreciate the importance of market making and do not intend to enforce this issue in any way that will impinge on legitimate market making activities. thank you, madam chair,. >> thank you but i like to recognize mr. graham for a minute for an opening statement. >> thank you, madam chair. first, let me state that i disagree with my colleague on the other side of the aisle, the ranking member i think the volcker rule is a horrible idea. and i think it should be repealed. proprietary trading, you know, as we just heard was not a driving cause in the finance across but this will do little more than add needless cost and complexity to an untold number of financial transactions.

so with that being said it's my opinion that the regulators have also been a bit overzealous in proposing the rule, and some of underway, through creative ways to make a terrible rule even worse. you take the exemptions of municipal securities, for example. dodd-frank aside on distinct but in general obligation bonds and limited obligation bond. yet the regular saw fit to insert into the rulemaking i wish it is explicitly -- to the vocal. this decision will limit liquidity securities and raise borrowing costs and is about these for cities like new york city. and with that i will yield back. >> thank you. and, finally, i'd like to recognize mr. canseco for one minute for purposes of making an open statement. >> thank you, madam chair. thank you to you and mr. kerry for having this hearing. when dodd-frank was passed a year and a half ago we were promised that there would be international coordination to assure that the u.s. financial industry would not be left a

competitive disadvantage. yet in the case of volcker rule, the united states finds itself charging ahead while competing markets way to find out just how big of an advantage they may have. the international context, volcker was supposed to mean one of our field of dreams regulations if we build a. they will come. if no other country has adopted ending similar to the volcker rule and as we'll hear from our second panel today, the proposed rule would have a negative impact, not just on u.s. competitiveness, not on individual investors, pensioners, and small businesses that rely on our capital markets for economic security. ..

i think our goal certainly the federal reserve but of all of the regulators is to implement the volcker role in a manner that is faithful to the language of the statute but in a manner that maximizes financial stability and other benefits of the least cost to credit availability and economic growth. that is we begin with the statutory language and work from there. i found the biggest drafting challenge in implementing the volcker rule was to distinguish between prohibited proprietary trading on the one hand and underwriting market making and hedging on the other. in my prepared remarks i use

market-making to use this point and i will try to do so briefly in this oral presentation. while there are relatively obvious examples of pure proprietary trading and least textbook version of the pure market making in the broad middle between the two clear cases falls a good bit of what we actually see in the firms. the difficulty is that the proprietary trading and the triet pursuant to market-making can be indistinguishable based solely on the features of the trade itself. in both activities the banking entity is acting as principal hold the position for a relatively short time and gains a profit or suffers the loss based upon any price variation in the security during the time it is held. now the statute recognizes this the faculty and uses an intense test to distinguish between the two types of trade. thus the definition of trade refers to the purpose of near-term resale and the intent to profit from short-term price

movements. obviously it would be difficult for regulators to monitor, purpose and intention our leader ackley said the agency proposal sets forth a framework that includes the factors that the agency's see differentiating prohibited and permit it trades and includes a requirement that firms established the compliance program in accordance with those factors and includes data collection and reporting requirements to facilitate monitoring of the compliance and the potential development of more precise guidance over time. there is no question that this is not a simple test. staff and principal from the agencies consider various possible alternative approaches and while some alternatives may seem simple when described in the sentence, they prove to promise considerable complexity or deviation from the statutory standards in practice. that is as we thought through what they would mean and practice. so that's why the proposal takes the approach that it does.

but we are clearly open to a better idea if there is one of their. i would only ask that anyone making such a proposal first remember that we have to follow the statute and second, to give enough detail so we can make a comparison of the relevant efficiency and efficacy of that idea relative to the proposed agency rule. thank you very much. >> thank you. next i would like to recognize the honorable mary schapiro german securities and exchange commission. welcome. >> chairman capito, maloney and members of the subcommittee, thank you for the opportunity to testify regarding the commission's proposal with the federal banking agency to implement section 619 of the dodd-frank act commonly referred to as the volcker rule. the proposal includes an extensive effort by the agency to design and reassemble a balance will implementing the required provisions and restrictions on proprietary trading and investing covered

funds in a way that is consistent with the language and purposes statute. as you know the statute to find a number of terms including banking entities subject to the rule proprietary trading and trading account. under the law in a position that is in the banking entities trade account is subject to the statutory provision. the proposed rule captures all entities registered dealers and security based swap dealers accounts as trading accounts. the proposal also recognizes the need for these entities to be able to provide critical liquidity to the markets, capital for the issuer's and intermediation services to customers therefore while the proposal consistent with the statute generally prohibits the proprietary trading it does allow market making underwriting and missed mitigated hedging. in drafting proposed rules of the commission and staff focus on these three activities because they are absolutely interpol to the effect of operations of the securities market. in particular, underwriting

activities important to the capitol formation and economic growth the proposal like the statute continues to permit trading activities that serve as important role in support of effective underwriting. much like underwriting the proposal recognizes the very important benefits of the market making including customer intermediation and market liquidity. permitting a legitimate market making in its different forms should facilitate market liquidity and efficiency by allowing covered banking entities to continue to provide customer mediation liquidity services in both liquid and illiquid. as acknowledged in the proposal effective market making also involves hedging of market making decisions and anticipatory market activity. the proposal also recognizes that an overly broad interpretation of underwriting market making or risk mitigated hedging could result in these exemptions being used for each phase of purposes. in addition where the exemptions are permitted an exemption is not available if the transaction

or the activity involves a material conflict of interest, high-risk assets were trading strategies or threat to a covered banking entity safety and soundness for the financial stability. further, the key component in the proposed rule was the requirement for the compliance program reasonably designed to monitor the banking entities permitted activities including again on the deriding market making and hedging and investing the coverage funds and ensure compliance and the specific requirement of the statute and the proposal. as an additional means of much of market-making activity and preventing evasion of the prohibition on proprietary trading, the proposal sets forth specific qualitative measurements that certain covered banking entities would be required to calculate, reported record for the trading units engaged in market making activities. the statute also specifies a banking entity may not invest in or sponsor hedge funds or private equity funds which are defined in the proposed rules as

covered funds. the commission recognizes that it is critical to defined to be to define them in a manner the bottom, the purpose of the statute and thus the proposal sees extensive comment on the proposed approach as well as alternative ideas. we expect a comment or input will help inform our understanding of the potential scope and impact of the proposed definition peripherally the proposal includes a joint request for comment on the potential impact of the proposed implementation of the statute including the potential compliance cost, competitive effect and impact on market liquidity and efficiency. in addition the proposal seeks the commager's views of the cost and benefit of all aspects of the proposal as well as comment on whether alternative approaches to implement the tarullo would provide greater costs. we encourage, interest to provide quantitative data to the extent possible in support of the comments regarding the potential economic impact in

this proposal in conclusion we are working closely with regulators to review the comments and to further redefine the role prior to adoption. i would be happy to answer your question. >> thank you. our next witness is the honorable gary genser, chairman community futures trading commission. >> good morning and thank you, chairman speed and ranking member maloney and waters. it's also good to see chairman bachus and ranking member frank in the full committee. thank you for inviting me to speak today on the volcker rule. i'm glad to join my fellow regulators in testifying today. following the congress mandate of last week the cftc proposed rules consistent with the joint rule proposed in october by fellow regulators. the commission's proposal also included additional questions. i know there were 1400 but we added a few additional comments on whether certain provisions of the common rule or even

applicable to the cftc restaurants which are part of the banking entity. the dodd-frank act as we've all been talking about amended the holding company act that prohibits banking entities from engaging in proprietary trading. yet also permitted certain activities, the one that has the most talk here is about market making and risk mitigated hedging. civil law requires the banking entities with significant trading activities to have policies and procedures in place to identify and prevent violations of this statutory provision on proprietary trading. the dodd-frank act directs the cftc for the rules implementing the volcker rule for just those parts of the banking entity for which the agency is a primary regulator. what does that mean in real terms? cftc's role with regard to the volcker rule is significant but it's a supporting member along with bank regulators who have the lead on the bank holding

companies. the dodd-frank act requires the various regulators consult and coordinate and that is what we've done though we were a bit later than others just sheer capacity at the cftc. but the proposed rule would apply to the activities that we register at the cftc. what is the future commissions merchants and swap dealers. for the swap dealer that's part of a larger bank, the cftc rule will apply just to the activities of the deal were not the broad activities of the lead bank or for the future commission merchant it's also registered as a broker-dealer to our role would be about their futures activities for the brokerage activity that would be over at chair shapira's commission. in adopting the volcker rule congress prohibited in titties from trading in the activities that may put taxpayers at risk. but at the same time congress permitted banking activities to engage in market making activities, something that is

vital to the liquidity host of the capitol markets. so, one of the challenges that we as regulators are all faced with is finalizing the ruler and achieving these twin goals that congress laid out for us. and i think will be critical to hear from the public on how best to achieve, chris's twin mandates as i would call them here. the public has been invited to comment on this for 60 days in our case which hopes totally bristling with other regulators and i think there will be substantial public input coming and we look forward to it. as with other rules, the cftc is working to implement this will in a thoughtful and balanced way not against the clock and the commission specifically requests comments from the public regarding the cost benefits and economics affect of the proposed rule. and chairman capito and garett's letter inviting us here today you solicit and asked us questions about the economic effect with what i believe are

included in the cftc's release. but further in conversations with german bachus and a number of other jurors of the subcommittee, stressed the importance as we move forward to finalize the rule in taking into consideration the economic effect of the rule. and i think consistent with these conversations we will do just that, carefully consider all of the incoming public comments including those on the economic effects. i think you and look forward to your questions. >> thank you. our next witness is the honorable gruenberg federal deposit insurance corporation. welcome. >> thank you very much, chairman capito come german bachus, ranking members frank, waters and maloney and members of the subcommittee. thank you for the opportunity to testify today on behalf of the fdic on the proposed regulations to implement the so-called volcker rule. section 619 of the dodd-frank act is intended to strengthen the financial system and

constrain the level of risk undertaken by the firms that benefit from the safety net provided by federal deposit insurance and access to the federal reserve's discount window. while section 619 broadly prohibits proprietary trading, it provides several permitted activities that allow banking entities to continue to offer important financial intermediation services and to ensure robust and liquid capital markets. most notably, section 619 allows the entities to take principal risk to the extent necessary to engage in the bonafide market-making underwriting activities risk mitigated hedging and trading activities on behalf of customers. the statute also prohibits a quality retaining ownership interest in or having certain relationships with the hedge fund or private equity fund such as the certain exemptions. the civil regulators, and i

think that this has been articulated by all of this this morning in implementing the volcker rule is to prohibit the types of proprietary trading and investment activity that the statute intended to limit. while allowing banking organizations to provide legitimate intermediation in the capitol markets. consistent with the requirements of section 619 of the dodd-frank act, the fdic participated in a coordinated interagency rulemaking effort with the federal research, the sec and cftc. drafting the proposed will the agency has also benefited from the required study on implementing the volcker rule and the many comments received from interested stakeholders. as drafted, the proposed rule is intended to carry all the statutory requirements to prohibit the proprietary trading and establish limitations on interest in the relationships of the hedge funds and private

equity funds consistent with section 619 is intended to allow banking entities to continue to engage in the permitted activities including the bonafide market-making underwriting activities to mitigate hedging, trading on behalf of customers and investments recovered funds consistent with the statutory mandates. and the goal was to allow banking organizations to continue to provide important financial intermediation services. while most proprietary trading has been conducted by the largest bank holding companies, the fdic and other agencies have carefully considered and limited the potential impact of the proposed rule on a small banking entities and banking entities that engage in little or no covered trading activities. accordingly, the agency has proposed to limit the application with certain requirements such as reporting and record-keeping requirements with compliance program requirements for those banking entities that in gauging less

than $1 billion of the covered trade activities or covered fund activities and investments. further, the fdic and its fellow agencies recognize that there are economic impact that may arise from the proposed rule and its implementation and that is what we specifically requested public comment and determination on this issue. as has been noted we extended the period for february 14th to allow interested persons more time to analyze the issues and prepare their comments. the agency's board analyze the potential impact of the will based on the comments received and worked to minimize the burden on the industry and the public while meeting the statutory requirements set by the law. thank you very much and i would be glad to respond to your questions. >> thank you. the final witness is john walsh acting comptroller of the agency, office of the comptroller of the agency. welcome. thank you. >> thank you, chairman garett,

capito, members waters, maloney, committee and chairman bachus and ranking member frank. i appreciate the opportunity to appear today to provide an update on the work of the office of the comptroller of the currency in connection with the volcker rule. as you heard, the occ, fdic implemented the regulation on november 7th, 2011. the legislation as office complex, and its impact and the impact of its implementing rules will have significant consequences for the operations of the nation's banking firms and the financial system as a whole. recognizing these considerations and to enable the common terse to react to the cftc subsequently proposed rules to implement section 619 the occ federal reserve, fdic and sec -- spc submitted deadlines for the proposal by one month, february 13th. we're hopeful that this extension will give the public more time to evaluate the proposal and provide robust

comments. as described in my written statement from the agency's proposal implements the provisions restrictions permitted activity exceptions, backstops and rules of construction to 619 this combination a statutory provisions alone is quite complex. the proposed rule also establishes requirements for this to charlie permitted activities and interprets many of the permissible activity conservatively including in particular the provisions for underwriting, market making related activities and risk mitigating hedging. devotee of the proposals approach for and implementing these activities introduces a number of operational complexities in an effort to be precise and drawing distinctions between permissible and prohibited activities. the proposed rule also requires banking entities engaged in any permitted activity to develop and implement a compliance program that addresses internal policies and procedures and

internal controls, a management framework independent testing, training and record keeping. the extent of the requirements escalates depending on the volume of activity. it's been noted by many that the proposal contains an unusually large number of questions. while the number of questions facing daunting, they were driven by a were desire to understand what may be quite complicated and significant consequences of elements of the proposal and to provide a sound legal basis for adjusting key areas of the rule where the agencies would team that necessary. as the regulator of many of the banks will be most affected by the volcker rule, the occ is particularly concerned how to strike the right balance in identifying and preventing in permissible activities without undermining activities that are safe, sound and profitable that help reduce the bank's overall risk profile and contribute to a healthy liquid markets. we also recognize the compliance burdens on the banking entities of all sizes are rising from the

proposal and therefore will be interested in whether comparably effective compliance results could be achieved through less burdensome approaches. we appreciate the concerns raised about the potential burden of the proposed regulation and in addition to the volcker rule statutory provisions. to date, the occ has completed an assessment of the impact of the proposal on occ regulated entities under the unfunded mandates reform act and the regulatory flexibility act. we are also soliciting extensive comments on the full economic impact of the proposal including its impact on the market making and liquidity cost of borrowing by businesses and consumers and the price of the financial assets. we have strongly encouraged comments on these issues and hope that the extended comment period will facilitate thoughtfully and robust responses. the letter of invitation also switches -- solicits views with the proposal places u.s. banking entities at a competitive disadvantage. competitive consequences here

various sources. there are competitive consequences that follow from the provisions of the statute that reflect legislative shlaes is made by congress that may differ from the approach is adopted in other jurisdictions. these differences are based on policy as well as risk management crounse, and it's not unique for the u.s. and other jurisdictions to have differences on such issues. second, the manner in which the provisions of the statute are implemented by regulation can affect its competitive impact. this is why we welcome comments of the impact of the proposed rulemaking on the competitive of u.s. banking entities as well as comments on the flexibility that may exist in the statutory requirements. i appreciate the opportunity to update the committee on the work. this is very much a work in process. we appreciate your concerns and we will keep the committee advised of the status of the rulemaking effort, and i am happy to answer your questions. stat thank you. i want to thank all the witnesses and i would like to begin the question. governor tarullo, you mentioned in think one of the most telling

parts of your statement was when you said you were clearly open to new ideas and i think all of you have expressed a eagerness to see the comments and the comment period that you asked for, you know, the back of data and details to legitimize that. i am concerned and i think many of us have expressed this in this time of economic slowdown what kind of affect this would have on the man on the street here in west virginia or other various states in terms of obtaining credit, in terms of our community banks being able to, you know, supply funds for small businesses, home mortgages, etc.. is this one of the effects that you're going to be looking at in more detail as you move through this comment period? >> well, certainly as i said, madam chair, the task for us is to to give up the most effective and efficient way to implement the statutory language, and to

my mind, that includes considering the effects of the various alternatives that are available. the impact on credit availability, which would presumably come through the liquid in the channel that several of your colleagues have mentioned would be one of those. >> thank you. ms. schapiro, chairman schapiro, excuse me, we were talking back in the backroom and talking about somebody mentioned that mr. volcker said proprietary trading, you'll know it when you see it. and you and i discussed whether proprietary trading is still going forward and you mentioned some of them have already closed their proprietary trading, but some proprietary trading would be embedded in other areas of investment banks. how are the differentiation that

seem so complicated i have a flow chart here that certainly put me to sleep last night when i got to about page three to slow through the flow chart. how are you going to make these distinctions when you get into the guts or how were they i guess it is great to be incumbent upon them to be distinguishing, you know, people sitting side by side basically on appearance moving in the same direction but by definition may be engaging in the market or proprietary trading. speed that is a good question, madam share. i think the easy part that has to be answered is the bright line proprietary trading are easy to identify and many firms have an effect as we talked about moved ahead and stand to those. the proposal tries to help regulate entities think about how to distinguish proprietary trading from the market making in the leaves out the series of principles around

risk-management source of revenues will live to risk, plus we are facing activities, payment fees, commissions and spread, and in thinking through each of those areas helping to determine what might be market making and what might be proprietary trading is for example market makers generally earn fees commissions and spreads proprietary traders which we would pay. fees, commissions and spreads. a source of revenues are different. not entirely, not perfectly, not with a broad line between them but they tend to be different for market makers versus proprietary traders. customer debate complicity sing activities different from the market makers and the proprietary traders. so the rule trust to give guidance and have us think about distinguishing market-making for the proprietary trading. i want to say so in addition that we recognize as a capital market regulator in particular the criticality of market making

to successful capital markets for issuers, investors, traders, market making is a critical function. so we have asked a lot of questions about whether we've got in this exemption for the market making light and the proposal and how might we change it that was what is necessary to ensure that critical function can continue for trading purposes and in support of the underwriting and hedging. 64. i would like to ask you mentioned this in your statement but i think that this is a source of concern and it's been voiced by some of our u.s. allies, japan, united kingdom, that the volcker rule could cause some operational and transaction will costs of treating their bonds and they are concerned about that. do you have a comment to make about that? >> well i didn't speak darkly to that of the is -- >> you talk about competitive of vintages around the world. >> it's certainly something that

we will want to pay careful attention to the canadians, the japanese, the u.k. have expressed some concerns about trading in their sovereign bonds and so we want to certainly take a look at that as we consider. >> is that contained in the rules right now? >> i think the concern is that there is preferential treatment of u.s. treasurys while other instruments are caught by the rule and that will create a distinction that may affect them adversely so we will want to take a look at that. >> thank you. mr. frank for questions for five minutes. >> thank you. let me begin market-making issue and again i want to stress one of the things i think we should be looking at is the extent to which liquidity is a goal and as i believe the only a solution to the koza season liquidity is the magic word if it increases liquidity at trump's other

considerations. but market making is a very important legitimate liquidity function and the concern is that i have heard of waste even though you say you respect market making and that it's going to be important because of the in the judy, because it depends on matt people will stop short of what you might allow because of fewer of excessive regulations let me ask do you believe it's the rule would be adopted substantially as proposed you could administer it in a way that would allow market making legitimate market-making activity to go forward, and as that happens to the institutions the confidence they can continue >> i believe we can. >> some of the members are having trouble so if you can pull the microphone close to

speak up. >> is that better? >> that is better. >> why the weekend to read the proposed rule as you can tell is informed by an expectation that there's going to be an injured of quality to its implementation that's why we are asking each of the firms to develop a compliance plan with the principles and factors that we will not in the proposed rule. it's also why we are going to be requiring reporting so that we can monitor how different kinds of market making are in fact proceeding and gives us the opportunity to monitor whether this is or is not market making. the combination of the conference period to the specific complaints will allow us to over time develop the application of the rule in such a way that legitimate market making -- >> is your intention to protect

legitimate market making? >> chairman shapiro? >> don't believe over, pull the microphone. >> sorry. i agree with the governor tarullo i think we can administer it in a very rational way but we are not intending in any sense to be dillinger by trade analyst to look at every transaction to see if it's proprietary trading our market-making with rather to collect data that will allow us to see over time. estimate let me ask the enforcement to say you've got to be tougher. if some bank in the process engages in activities which it turns out or not market-making what are you going to do to them? >> i think it would depend a lot on with their intent was. was their intent to violate the rule or -- market meeting and just get it wrong sometimes and we have no interest in pursuing activities where people are intending to provide market

making services to get it wrong. >> chairman dinsmoor? because we've done another rules we hope when we finalize this it will be a policy and procedure approach that these banking entities have to have policies and procedures to ensure something that they actually are the ones ensuring that the to do market making. i believe that is a critical but they aren't doing proprietary trading. i would say we are going to be informed by the comments as well. this is really important as we say to get a balanced and get right. so as people point out the we don't have it right we would make the judgment. >> in practice i guess part of it is what is the mindset that you approached. it's important to affirm market-making is legitimate and you understand the ambiguity so people should not worry about getting too close to the line because the inadvertent crossing of the line especially in the early phases isn't going to bring forward some terrible

punishment the estimate that that's correct even converse address that because there is a conformance period that the federal reserve will foresee that that conference period is not one with a lot of teeth. 64. i'm not sure but the implications of even congress but that's okay. mr. gruenberg. >> congressman frank, i think it's important to underline that there is a compliance program for these companies to implement. there's a to your compliance period provided by the statute for these companies to implement the rules so in some sense an extent period of engagement between the regulators and the company's and then another point to make we have standards of 5 billion, 1 billion to $5 billion of trading activity. at the end of the day it is meant to be relatively small number of companies they're going to be infected by this so we are going to have an opportunity to work through this process at the extreme that's clear when it gets closer. >> let me see if i could for a

few seconds i don't want to exclude mr. dugan. excuse me we did. mr. walsh to get to think for massachusetts i could get the same street. >> in any case i agree with all that was said and we appreciate the distinction. >> let me summarize, we've ten seconds. i think it's very clear of people don't like the rules don't like the rules but if you look at the implantation and the way the regulators work, the notion people are going to be scared away from doing market-making because of excessive rigidity i think has no real foundation and i am encouraged to know that these five regulators all are committed to making sure the process goes forward and understand the importance of the regulatory framework in which people are encouraged to do that. thank you. >> i would like to recognize the chairman of the full committee for questions for five minutes. >> thank you. i would cite the ranking member's famous last words.

if you don't seem to be cutting some individual regulator or examiner will not misinterpret it you are asking and i think every witness has said you are asking regulators to determine a motive and intent and that is a tremendously difficult problem at -- let me say this. i will live i have additional time. now, ranking member frank, you will recall that we looked at this in the house and decided against volcker rule that was in the sort of the last hour senator levin and shelley berkley and some others urged us

to go forward with the rule. that was my understanding. it certainly didn't pass out of the house. >> the gentleman is right it wasn't in the house that there was a press conference in the house that i intended long before it got to the end. wasn't in the house bill i agree. >> you recall around that same time paul volcker let me tell you we have tremendous respect for him and i think that's how we got here is we all respected him and when he said this is something you need to do, no one wanted to cross him at least some people didn't. but he said you can't draw a bright line between these activities, yet we have asked these agencies to do just that. now, chairman shapiro, you said you are not going to look at individual trades. i don't know how you don't end

up on some occasion in the future looking at individual trade. put me say this, and i know you probably will assure me that he won't, but i can't imagine how you enforce a rule of you don't look at trade. >> if i could respond to that, the statute, the rule is done largely on to the bank holding company act pitted six of the bank holding companies are prohibited. >> with our narrow part of it which is the broker-dealers and securities based dealers and for those provisions that are done and to the banking company at all there are several that are done jointly under the exchange act but for those of the bank holding company act hour only mechanism is after the opportunity to direct a company to terminate inactivity or digest and investments. it's only with respect to the compliance program and the

reporting and record-keeping requirements that the enforcement division would have its full panoply of enforcement powers. >> of course, but let's say that it almost impossible to distinguish. i mean, paul volcker said its plan to be impossible for to draw a bright line to reeves, companies are going to have legitimate hedging, underwriting, market-making, which can be beneficial which will create jobs in the united states and which did not contribute to the last financial crisis, those jobs will go someplace else. we talked about our relationship with canada, with england, japan. we were assured mr. kanjorski that we had in the conference a discussion where mr. kanjorski assured us that most of the nation's would go along with

this and i offered an amendment of the she 20 and it is projected but we were told that they would. they would all go along with this. none of them have. and these jobs are going to go overseas. plus i have relatives in canada that come to arizona for the winter. well they have snowbirds and they all come down to florida. the trading floor of a dependable canadians. i'm told under this that or b.c. or other companies that testify in fact i wasn't told averitt his testimony and he says in his testimony that they will move those jobs to canada that are presently in the united states because their ability to meet their customers' orders or investments they are not going to be able to do. i'm not listening to the

regulators let me start. they said to us we are following your orders to all five of them said br -- given an impossible order. i'm going to just close with what jaime dimond said and i think that governor tarullo you referred to this in a different manner. this is psychology. he talked about -- and i don't think it is an exaggeration to read every trader is going to need a psychiatrist and lawyer sitting next to him. we have all done things that later on we were accused of doing something terrible when it was legitimately hedging. but we have all been there. when we have to interpret people's motives we are on thin

ice. see for peter >> thank you putative like to recognize the member of the committee ms. waters for five minutes to get i'm going to stick to five minutes now. i gave them both an extra minute there. >> i would yield to the ranking member of the full committee ten seconds. >> i will be sensitive about this but i disagree with the chairman's summation of history. it is true that the volcker rule was not in the house bill. there were things in the house bill in colorado, mr. kanjorski himself all have versions of things that approach and in fact there was a press conference earlier in 2010 before the senate began to take up the bill and several others so it wasn't in the house bill but it wasn't a last minute. >> would the gentleman yield. >> it's not my time. can we give another ten seconds and i would put the gentleman's time. >> a woman will yield another ten seconds curious and i'm just saying that in the senate and in the conference it grew into something else.

the gentleman from colorado will tell you this. >> this is what we said in a press conference early in the year. wasn't something that -- >> i would ask the gentleman to seize and continued questions. >> i would ask that we have an additional 30 seconds. >> without objection. >> thank you very much. i would like to continue on the discussion about the market making that was initiated by. one of the concerns that unexposed but financial institutions is the requirement that the regulators distinguish between the market making activities and proprietary trading activities. members of congress who supported the rule to adopt the considerations if done properly market making is not speculative and could be compensated rather than from the changes in the price. when you first gave your testimony, mr. tarullo, you indicated that you believe you could distinguish between

proprietary trading and market-making, and you also offered that if anybody has a better mousetrap you would like to hear that we have this extended period of time where you would be entertaining some ideas. as i understand it all of this coordination has been going on between all of the agency's, and i guess mr. eve gensler you have some significance with the coordinations role. what everybody agree that given paul dodd-frank as it is that you have to move forward in describing how you can distinguish between the market making and proprietary trading and then you are all committed to doing that? i will start with you. what is your role? >> the cftc has a significant role -- the cftc has a significant role with regard to

the swap dealers started part of the entities and yes to your question i think that we are to move forward to achieve these goals prohibiting proprietary trading, providing the market making and making sure that this can be fostered and comments are going to help tremendously. >> is everyone on board for moving forward in the way that mr. tarullo explained at this time? each person, yes or no. >> yes. >> we are very open to additional -- we are very open to additional ideas and approaches, yes. >> yes? >> yes. >> so no one at the table this morning is here to talk about repeal of the volcker rule but rather how you are working to try to be consistent with law as

it is described in dodd-frank; is that correct? now, does anyone at this point in time have new ideas or better ideas of more information about market making that would make it easier to distinguish between market making and proprietary trading activities at this point? any more information we should know about. estimate there is a long history of the fcc of regulating market making and the equity fixed-income markets and much of that thinking has been incorporated into the proposal that the agencies have generated together and a lot of it hinges on the ability and the willingness to hold yourself out as being willing to make markets and provide the quote on the continuous basis and to be the buyers to sellers. yet we recognize that that's not perfect. that's historical basis upon which market-making exceptions have been based but in the loss

of questions to give better information are different ideas about how to make the market making exemption effective going forward. astana we have a few more seconds. would anyone like to add anything to that? >> mr. gruenberg? >> just to say that i think it is important to acknowledge that we are still in the midst of the comment period in the extended comment period and i think the proposed rule went to great effort to solicit a broad public comment on the range of issues and in particular the ones that you raise. i think that chairman shapiro i want to thank the feedback we get would be very important in terms of formulating the final rule. >> think that this is extremely important and one of the most important things to ever come out of the presence here this morning is that you are all

working together. the coordination is taking place. you are committed to making the rules work. you want to make sure that you get additional input and that period has been extended. the regulatory period has been extended to do that, and so i think that clears up in my mind that you are not working to advise us that the rule should be repealed at all but whether it can be worked with. i yield back the balance of my time. >> the gentlelady yields back the balance of her time and just coming into the committee i appreciate the opportunity to see the panel today and for questions now as follows. i will recognize myself now for five minutes and begin without objection i will put my opening statement which i did not put into the record so ordered. despite what the ranking member just said, we are obviously dealing with an extremely complicated issue here with over

14 individual questions and obviously there are a number of issues the first allowed their. i would like to just run down the panel real quickly. do you believe individually as your agency that you have the authority to waive the implementation date for the rule? >> the federal reserve has authority under dodd-frank to extend the conference for period. >> under the bank holding company act it's the federal reserve. >> so then the next question is would you agree in light of the questions that have already come up and in light of the questions i presume are going to come afterwards that it is necessary to do so and to not put a burden on the businesses because we have heard that the extraordinary astronomical billions of dollars the would cost to comply with us in following this hearing to put a within 30 days to waive the statutory deadlines we can have a long for period of time.

>> we may be completing two things here. one is the final date for the final rule and then the other is the period within which the rule has to be implemented. the latter is committed by dodd-frank to the fed alone and the former would be the joint decision of the agencies. >> would we agree here today that we should extend that period of time? >> i think it depends on if you are talking about the first point which is when there should be a final rule in place. i think it depends on the kind of comment that we are getting into the extent of the changes that we think need to make. we've extended for a 30 days what normally happens in the rule making is you look at all of the comments that you get in and then you make an assessment on how much you have to modify your proposal. >> i guess i to get the answer is no. the point here is at this point

in time as you know the industry is all, stakeholders are already trying to answer the questions that are out there and also already trying to change their businesses in light for the proposed rules are taking. so it would help if we actually have that extension now so that they actually know that in light of all of the complexity of this because it is unlike almost any other issue but i understand the question. commissioner gensler, many people say you move too quickly on your proposed rules regulations. on this one myself included on some of the son of course you cannot a little bit after the fact. commissioner, raising questions of the last hearing of me ask this question to you now. assuming for the sake of argument that each of the regulators sitting next to you on the panel decided to propose the rules in light of information that comes out what would be your intention at that point to issue a decree proposal will not also that there is one

final joint rule coming out at some time. >> at the cftc we are committed to getting the rules right and balanced and not against the clock and we have proposed other rules we are actually looking forward to read proposing a very important role for the markets for swaps as well it will be the third or fourth time, so the other regulators can to that conclusion i assume that we would come to that conclusion jointly into the same with them. >> the language says this nothing in this section shall be construed to limit or restrict the ability of the banking entity or nonbanking financial supervised by the board to sell or securitized loans in a matter permitted by law. so given this language, can you clarify how the risk retention section of 941 and the restrictions on the bank funds in the proposed rules would impact the issuers of asset backed securities.

space obviously the risk retention rules i think that -- are you asking about how to -- >> i think that our presumption would be cut the volcker rule enforcement would take as given but a further requirements of the final rules on the risk retention would be and would try to ensure that there wouldn't be any further constraint on the securitization beyond what those rules are other exogenous rules would require the risk you see to it that your goal would be that there isn't an accumulative effect i guess is a plain -- >> the aim is to make sure that you don't have some incremental inefficient upon securitization beyond what what rules are by with their own nature intended to respect to regulating. >> along that line do you believe in general vote that the proposed rules as many people suggested would negatively impact upon the liquidity of the

market such as a specially for the mid cap companies and such? >> will there be some incremental effect on the liquidity of the margin? the answer is yes. would there be. beyond that i think the question depends upon two things. one, how well we do get employment in the intention of river here stated which is to try to make sure that the market making is preserved. spirited if you don't do well you'll pass the margin? >> it could commissure, and a pickup particularly proprietary trading and i think at least one firm already stated publicly they see enormous opportunities here. >> i appreciate that. my time is expired and i would yield to the gentlelady of new york for five minutes.

>> thank the gentleman for yielding and all of the panelists, one of our colleagues on the other side of the aisle or several have said if we enact the rule the banks would move overseas. i would venture the the model overseas is very different from the efficient model we have in america that is made of the strongest capital markets in the world in europe the banks can invest in the industrial companies. if you bailout the bank you get to bail out the bank and the company's they've invested in so that the model is very different in america and it's one that is traditionally been stronger and more efficient. my colleague mr. bachus expressed some concern that the regulators are going to have difficulty determining the motive and intent and the difference between proprietary trading and market-making and i would venture to say that the

ceo and executives in the american financial systems have the same concern. they want to make sure that their organization is market-making and not doing the legal proprietary trading so they will be partners in helping to place a window on what is happening in these areas. the author of the amendment says proprietary trading is so easy you know it when you see. i would venture to say that it's difficult to see if you don't have the data to analyze it and understand what is taking place. so, i therefore would like to ask, and i'm going to ask tarullo to comment on it but also to get in writing back from the panelists because i think this is an important point to what extent would the new compliance requirement involved the collection reporting of data that the banking entities have not been required to report in the past. i would venture a lot of the reporting is with a tattoo in the past and how do the metrics

that you've created in the proposed rule ensure that you will be able to know it when you see it and what metrics would be different really between the market making and proprietary trading. we are also moving as you know from the research center that would have information on the content and how important do you think is disinformation and preventing the crisis and governor turtle tarullo? >> lynndie member maloney, the first point is some firms which currently collect information in a way that would allow the stanchions to be drawn or at least give insight into the market making or hedging verses proprietary trading and others do not so the interagency proposal move to some standardization both the

management information systems by the firm and then consequently they are reporting to us. second when we start getting that information we would be substantially better positioned to draw the kind of distinction is that you all are asking about because i think it's important to note that with the market making consists of in one kind of market say corporate bonds or fortune 500 companies is different from what market-making may be in the case of a west traded instrument and we are going to need data that distinguishes among the different markets in order to oversee this rule effectively. >> thank you. the volcker rule is basically five words, market-making, underwriting, risk litigation. that when you look at this rule it is roughly 300 words, 25 pages of not more, and i would like to ask the panelist what is

in this 295 pages, how much of it is exception and how much of it is truly defining the real volcker rule? i will start with mr. gensler. >> and what does questions. 1300 us people have noted. i don't know how many page count that takes, but they could be half of the document. a lot of it is really trying to get at achieving the goals market meat nor of course underwriting and hedging which are critical of the cattle market. >> how much of the exceptions? >> i think congress actually lead out seven key permitted activities or acceptance in underwriting market making, hedging are three critical ones but there are others as well and we want to fully comply with the intent of congress. >> mary? >> it is largely a lot of it is the exceptions permitted activities, the criteria for determining the current

activities and then the discussion about the compliance program and the kind of metrics and record reporting that need to be done so that financial institutions and regulators are in the position to understand of those exemptions are being appropriately applied to the estimate we notice that there is no enforcement in these 200 some almost 300 pages. the enforcement of there is a violation. would anyone like to comment on that? >> there is towards the end of the regulation a subsection on what can be done in but even the of the noncomplying and activities. but because it is a part of the bank holding company act, our full panoply of supervisory regulatory and divorcement -- and force the tolls would be available in certain circumstances. >> my time is expired. thank you picks too thank you, ms. maloney. i would now yield myself five minutes. great timing.

and this is for anyone on the panel but we will start with -- i always mispronounced your name is tarullo? in an environment where we are stepping into basl ii and tier one and tier two and what can be held to their what how does that nationale when we move into this proprietary trading rules in volcker and what can be moved and what can't? am i causing damage -- or the rules come by and in this new regulatory scheme how much damage are we going to be to liquidity, to where the capitol is, are we going to have a certain amount of the vital capital? explain to me how they meshed together and how they don't. ..

>> there is an intention to take another look at the trading both more generally because those were some quick changes that were related to the sources of the price. and in taking out loud, i think when one looks at the amount of risk associated with a particular pattern of trading, you are going to want to hire capital associated with high-risk which is -- so in that since the to do merge. >> does anyone else want to touch to that point?

>> i would just know, i've not had a chance to read this carefully yet but a study was released earlier this week from stanford university that suggests in the of trying to find market making and limitations on market making, that much more rigorous capital and liquidity requirements might be another way to approach the kinds of issues we are seeking to address through poker. but i haven't read it carefully so i can tell you whether i agree with it or not. >> but in some ways that's ultimately a what the basel iii is heading towards, am i correct? >> it may in the next generation the trading book review, although again, congressman, to the decree that an activity is not being pursued with any firm, then the higher capital requirements that would otherwise be associate with it would not be applicable to that firm. >> i made a mistake of leaving some of my nose over there but i will try to do part of this off the top of my head. i know you're working through

thousands of comments out there, try to build velocity model, a model that basically says if we did a far-reaching version of poker rules through definitions, what happens to the banking system? particularly the large banks, how much less velocity, how much is now sitting in reserves compelled to idle capital? is anyone out there building an economic model for the regulation to do the test? >> i think it would be premature to try to work through that kind of analysis, since as several of my colleagues have noted, we are in the process now of gathering comments and eventually refining the rule. and i think as we keep saying in response to many of your questions and comments, we want to ensure that to the degree possible, the kinds of market making operations that are going

on now that are entirely legitimate continue as such. the other issue of course is going to be something i mentioned before, which is the degree to which stray proprietary trading is going to be picked up by other firms, hedge funds or other to see new market opportunities. >> mr. gruenberg, and i don't have it in front of me, but the letter that came out from the canadian banking regulator can't explain to me their concerns and why, well, first explained their concerns and we will go onto the second part of that. >> well, i think under the volcker rule, under the volcker rule there's an exception for companies to trade in u.s. security, u.s. government securities. but that benefit is not extended to the government securities of other countries. and i think the focus of the letter from the canadians was on

that issue, that they would want the ability, at a minimum, to have the exception for trading in their own government securities that u.s. firms have in regard to u.s. government securities. i would note that in the preamble to the rule, we raised the question specifically on this issue, whether we should consider some flexibility in that area. and i think we will be getting comments. this is one of the issues will be looking up. >> i am at a time. i believe now it's five minutes. mr. greer? >> thank you very much. it seems like we are discussing sometimes we just forget how we all got here, why we are here. i kind of remember back in 2008, cardiac arrest star economy went into, and i were discussing whether that we should lower our fat intake or exercise or maybe

stop smoking, maybe it's okay. let us light up once again. that's what it seems like to make him instead of taking this into consideration how it is, we don't need to go to the doctor again. so i'm going to ask chairman schapiro, there's been a lot of, and maybe you don't have this, someone else might have this information, or an idea, there is this continuing questioning on the basis of, of the cost, of the implementation, not of frank-dodd but today of the volcker rule. and on more than one occasion i've heard this one is going to cost the industry billions of dollars in order to implement the volcker rule. what's your assessment, chairman? >> we have asked for comment in the joint release about the costs of implementation, as well as the costs on competitiveness of the volcker rule. separately on the second of the sec promulgated under our

statutory authority, we've asked for specific comment on the cost of the compliance program and the reporting metrics. but we've also asked about the effect on competition, of broker-dealers, for example, that have to comply with the reporting requirements in the compliance program and those that don't. the disincentives to engage in market making or underwriting, so there's a very, very broad request for comment on costs and a request for data from industry which is where the data would reside. to help us be more important about the cost over all. benefits as you know are much harder to quantify. every rule has that challenge for us. the benefits to the general, to the public tend to be general and costs are much more easy to identify at least if not necessarily to quantify. so as we go for refuge trying to balance exactly those things. >> do you feel is it the billions?

how does someone arriving billions of dollars to? >> there are a number of studies that have been done recently to see to quantify the costs. i believe sifma considered a study to look at the market liquidity impact of the volcker rule. and suggested that the range could be from $90 billion to $315 billion. in lhasa via, for investors as a result of higher interest rates to compensate for liquidity risk, higher transaction costs and mark-to-market loss of value. so that's pretty wide range. it's not clear to me how well grounded that study is. i just don't know, but it's clearly information that we will be looking at. i think, again, and if it's always hard to quantify costs can be easy to identify but then hard to quantify. >> mr. tarullo, you have any ideas or would care to share

with us your thoughts on costs? >> so, as i said earlier, confident, i think it depends on two things. it's going to depend on how effective we are in this process of ensuring that market making and underwriting and hedging can be done. and secondly, the degree to which stray proprietary trading is picked up by other firms. one comment though on, this is on the oliver wyman study but it's actually more general comment. i think what i'll need to be a little bit weary of the false precision that sometimes his associate with analytical advocacy -- advocacy. so you're asked to do something apart uses a number, got to start making assumptions. so they made a bunch of assumptions about how liquidity would be affected. a set of assumptions that really were not grounded in any particular explanation. they didn't include the possibility that other firms would pick up such, and they used as their base period the height of the crisis as opposed

to a more normal period. so if you relax those assumption or use other assumptions i think you'd probably get very different numbers. that's going to be true for many prospective. whenever anybody does speak wendy think one will know? one year into it? two years? >> i think when we are a year into the conformance period, i think will have a much better sense of how this process -- and we will be able to -- happy to talk to you. >> let me ask you, and the chairman, so the rulemaking process that we are in, will it be completed and the rule in place by january of 2012? i'm sorry, 2013. >> it depends very much on the process going forward. we extend the commentary to the middle of february. cftc, treated to some of the on the. depending upon what the comments suggest, the extent to which we might modify the rule --

>> let me ask one last question he does i enjoyed listening to your answers. so i just want asked the last question. and that is that mr. greenber mr. greenbergdutchman mr. gruenberg, the last two years, what's been the cost to the federal deposit insurance? how much you paid out? >> we have had over the past two years, 2010, we had 157 institutions fail. this past year in 2011 we had 92 institutions. i would have to go back and check the exact dollar loss. >> at hundreds failed in 2009? >> no, 2009 was 25. so the big failures really occurred in -- >> and what was the cost of the federal deposit insurance? >> a proximate $30 billion cost over the past two years. >> thank you.

>> thank the gentleman. mr. rooney see recognized for five minutes in it thank you, chairman. i thank all the witnesses for being here today. chairman gensler, you stated early come want to make sure you stated early in your verbal testimony that the volcker rule did you come you have a twin mandating, and risks medication, but ushering that there is to market making and availability. and then later on you talked about a twin goal of making sure that there is to market making and availability but prohibiting proprietary trading. isn't there a conflict in that as to how you can make sure that there is to market making availability without, with mitigating risk, and isn't it at some point i'm yet to determine how much taller and you can take? >> i think that is correct.

i think congress said let's prohibit proprietary trading and banking entities. banking into the mud of availability the discount window or other backing of the taxpayers, to lower risk to the taxpayers might bail out these banking entities. and once again, and at the same time importantly keep the vital function of market making. and that's the challenge that we are all addressing in this rulemaking pics i agree it is a challenge but i think with the help of the public comment period we will get it balanced and get it finalized. >> okay. when ranking member frank asked all of you, do you believe we can still get market making, can still occur, governor tarullo, you said i think we can, based on firm specific employers. chairman schapiro, you said i think we can. chairman gensler, you said we hope. and the other two of you didn't get to finish your answers, but

i assume you're on the same track. it leads me to believe that today, based on everything we know today, we are not really sure if we can. is that correct? i would ask you just a yes or no from each one of you. they so much of today, and i know you're bring in all these, the information you're requesting information, but today as we stand you would not be able to implement that in the affirmative that we can make this happen, is that a crack state of? >> without, if it were in fact today without the kind of information that ranking member maloney was talking about earlier, know we couldn't do it. but that's exactly why we are asking for this kind of information so that we are able to draw appropriate distinctions. >> i would agree with that. we can do it. we just have to be able to draw the contours correctly and that's what the comment process is so important. >> i would say that it's just a proposal. we've been generous, maybe overly generous with 1300 questions, but i think we will

greatly benefit from input from participants and the market. >> i agree with the points that have been made. >> and similarly, of course i think market making will continue. the question is will you restrict legitimate activity if you draw the rule too tightly, and that so we've asked the questions to try to get that right. so that's what we are. >> again, i appreciate what you're doing, and i think that's why rushing into something where having all the information could be a worse situation than making sure that we evaluate this before we do it. chairman garrett asked a question come on just going to try to get some more specifics but in regards to join examinations, you know, how are you going to develop a single coordinated view of the firm's activities if you join examinations? but what in advance are you planning to do with regards to join examinations?

>> i can start, but others can chime in. i don't think, i don't think, congress become visibly fundamentally different from a other important regulatory issues when we do join examinations, either the banking agencies among themselves or with our colleagues in the market regulars for broker dealers and commodities dealers, which is to say you do begin from the base, the same regulations and justin who has primary responsibility, plus backup authority. i think more important you try to keep a common understanding of the expectations you have for the firms in question. as i said, i think that's something the agencies all learned a lot about during the run up to and after, during the crisis, and i would say i think across the board a kind of coordination, particularly of the largest institutions, is i think substantially better than it was a few years ago be back but you would all agree that,

you know come from the standpoint of the individual entity, it's going to be almost impossible to try to determine which with all of you are going come in advance come up with similar -- >> absolutely. i think that's why we have the contemplation of a compliance plan on a firm specific basis that any of the, any regulators who have relevant jurisdiction can take a look at. just one of the things i would add. on this issue as on some others, because it really disproportionately affects the very largest firms, i think we at the fed are going to make sure that we have a pretty centralized way of looking at what's going on at all of the major firms. so this won't be something that can just go off the rails at individual firms around the country. we are going to make sure that our risk people here are seeing all the plans and are being able to evaluate how it's being

implemented everywhere. >> thank you. i yield back. >> the gentleman is recognized for five minutes. >> thank you, mr. chairman. i actually have several questions, get to as many of them as i can. ms. schapiro, you referred to a paper that had been written by stanford university professor, in which he suggested that i account the requirements would be a better way, or a way of dealing with this. if you concluded that were the case, would you have the authority the current legislation to accommodate that approach as opposed to dealing with this in the way that, under the proposal that has been proposed, that -- let me just get all of the questions out and

then maybe i will get the answers in my order that i ask them. second, a number of my insurance company constituents have raised questions about whether you intentionally exempted, or whether you intended for an ownership interest in a covered fund to be exempted under the exemption for general accounts. and to the extent that you can ask for that, would appreciate it. mr. carrillo. a number of people of raised questions to the extent which business or jobs are going,

would be driven offshore by this set of proposals, and perhaps mr. walsh, since he hasn't had much to say, could address that issue if we have time. so in that order though, i would like to hear the responses to i'm happy to. personal our to make it clear that i don't agree with him necessary but now she's trying to respond that there was this alternative proposal. but i don't think that we could go that route under the statute but i think we are on a path -- >> so that would require us doing something legislatively? >> i believe so. and maybe governo governor to rh you about that as well. insurance covers, the statute does extent from proprietary trading then trading fight insurance companies for general accounts, but it does not do

that for insurance company investments in covered fund. in order for us to create that exemption we would have to meet a very high threshold to show that it would promote the safety and soundness of the banking institution, or the financial stability of the that states. that said, we've asked questions about it in the release, and we have met with a number of insurance companies, i believe come and we would welcome the comments and suggestions on that. but speedy and you would clarify that? >> we will but we hope to get comment, quite clear on proprietary trading the insurance companies can engage in trading, but not invest in covered accounts. covert funds to do you agree with that, mr. tarullo? >> yeah. >> mr. walsh, on the driving of business and jobs offshore, give me your general assessment of the arguments that are being made. >> well, as governor tarullo

alluded to, i mean, there's a question if certain activities are prohibited in banks, the question is where will that activity to? some of it may go to unrated entities in the united states hedge funds and others may take up that business. some of it may go to foreign firms, in the case of activities that are limited. it's not unusual to have prohibitions, limitations, capital charges and other features of the regulatory framework. so we are creating some such limitations and that business will presumably migrate elsewhere. >> but i assume the extent to which the migration will take place will depend on the extent to which you all get this rule right or adjusted, or will it? >> well, it will to the extent that there are certain things that are clearly prohibited. that activity will no longer be at banks. it will move elsewhere. >> all right, i think i got all three of my questions answered

and asked. asked and answered. in my five minutes so i will yield back. that's always a good record. very good. the gentleman from new york is recognized for five minutes. >> thank you, mr. chairman. i will ask chairman schapiro first, if the rule as proposed does not limit to look we become does not increase the spreads, increase the cost of doing business, why would we need an exemption for treasuries and municipalities for their municipal securities? >> i believe the exemption is premised on the idea on the municipal side that it doesn't raise the same kinds of concerns about short-term trading, that other proprietary trading does. so the statute exempted government obligations,

generally come from the proprietary trading down. but i missed it in your opening comment a concern to be that we construe that to narrowly to only include the obligations directly of the state or state agency, and not example the turnpike authority or other political subdivisions. and we have flagged that in the proposal and sought comment directly on whether we should use a broader definition of government obligations like the definition of municipal securities under the 34 act, to provide a broader exemption. >> okay, thank you. if we have a small or midsized company that needs access to liquidity, short-term cash flow, and they want to float $25 million of commercial paper, and they go to a brokerage firm to do this and the firm says well, we can place $20 million right away, we have that, but the other 5 million, we are

going to have to hold it and work it over the next week or so, is that proprietary trade -- with that transaction because of the proprietary trade for that broker-dealer? mr. tarullo. >> so, i think you are touching here on the underwriting exception, and the specifics would depend on the kind of practices that are necessary to underwrite, as you know, when an investment bank underwrites an issue, it does often take some risk. it pulls into its own inventory the uncommitted -- >> and that's the scenario i'm giving you. they place 20, they can't place the other five, they're going to work you. this is every day it happens. so it's not -- >> so i don't want, what is always hesitant to address any type of specific, but i will say

the whole point here is to look at the kind of practices in underwriting that are conventional so that conventional underwriting can continue to be performed. and that again will be part of the process of the firm based in compliance and the kind of metrics that we get there and if you're talking about a situation that is similar to what we see everyday, presumably presumably that would fall within the exception and will give that clarity to the firms going forward. >> my understanding that is where leaning towards looking at, to try to decide whether something is proprietary or not, it's my understanding, and i could be dead wrong, please correct me, that if the firm is making most of their money on fees, on spreads, but not on the value increasing over time, then it's not proprietary trading. but in this case scenario, if they are working a position, they very well may make more money because the value could go up in that week.

>> if i could just elaborate. i think when they broker-dealer, bank purchases securities with the purpose of reselling them, it's not immediately, you know, a reasonable period of time to the public, that's clearly a furtherance of underwriting, and would be permissible under the rule. it is important make a point here, with respect to underwriting or market making, the fact that a firm will in some instances make money because of the short-term pricing, does not in and of itself make it a prohibitive trade event that's what i want to make sure of. >> right. the point is is a market making, is a underwrite a? and, of course, the underwriter takes a risk that the market likes the issue less two weeks after than before and. >> very good. if a non-us firm ultimately sells a security to a u.s.

institution, a proprietary, non-us entity did a proprietary trade, and ultimately sells about security to a u.s. institution, is that, does that fall in the purview of his regulators? is that subject to the volcker rule? >> will make this the final question. >> chairwoman schapiro? >> i -- i'm not -- >> can you give us the facts in? >> okay, sure. with a non-us entity with non-us of city aries doing proprietary trades, let's say they bought whatever security. they held a. but it appreciate it and now sell that appreciate security of their proprietary profit on to a u.s. entity. does not fall under the volcker rule? are going to try to enforce --

>> they have been doing that overseas, congress in? >> right. >> i believe, and i'd like to confirm for you if the foreign banking entity sales to u.s. customer, they lose their exemption from the volcker rule. >> right, so then that begs the question how do you plan on enforcing vulgar on non-us entities, and would that not drive business to non-us entities if they are not, you are saying they are not the exemption. i'm at a time to that was a great question. a good point but i understand now that the panel is leaving at noon so we'll try to get as me people inches will try to hear. the taliban for texas for five minutes of. >> pajama from texas is recognized. >> thank you, mr. chairman. i ask unanimous consent that my opening statement be included into today's hearing. >> so ordered. >> i want to make reference to

an article that appeared in today's january 18 bloomberg news saying that the attack by lobbyists by u.s. banks is he exaggerating the cost of disruption to the bond market. what we been discussing this more, the proposal championed by former federal reserve chairman paul volcker, according to the article says that the lobbyists are saying that they constrained the largest banks from betting on -- sorry. oh, gosh. sorry. anyway, this article says that

their fears are greatly exaggerated. the industry's claim ignores the fact that when the largest banks stop doing this kind of trading, and i'm reading from that article, that somebody else will step in to do it, and we have to wait those costs against the risks of banks blowing up. the discussion has been very interesting, and i want to ask a question as it refers to the smaller institutions, community banks and credit unions in particular, because they didn't cause the recent economic decline. some fear that additional regulation will harm the smaller financial institutions that arguably serve currently as the foundation of our nation's economy. it's my understanding that transfix prohibitions on proprietary trading do not apply to small business investment,

companies allowing for banks to invest in them. so i ask my first question, which is due the dodd-frank act under proposed rulemaking provide other exemptions that benefits small business, resulting in job growth? that first question would then go to i believe, hold on one second, to governor tarullo of the federal reserve system. >> thank you, congressman. i think probably from the standpoint of small business, or medium-size business, someone has access, not have access to public capital markets. about the most important thing is the line of questioning that we are engaged in a few minutes ago which is to say to make sure that the underlying exception is interpreted and applied in such

a fashion that they are able to get underwriting services because sometimes the issue of a smaller firm would be less liquid than that of a larger firm and they will want to know that the underwriter can, in fact, hold inventory as appropriate and then sell it later picks i think that's probably the most important thing in addition to the exception you refer to him on the go. >> i would ask the same question that of the chairman of the fdic. >> i agree with the point governor tarullo me but i also think it's worth noting in terms of small banks, community banks, they by and large we don't engage in this activity and should not be impacted directly by the volcker rule, the activities really principally by and large financial companies. >> thank you. .com to of the currency, john walsh, what is your answer? >> i agree with what's been

said. it's also the case that public welfare investments, that banks make in community projects are also exempted. >> very good. second question is the united states chamber of commerce will testify on the second panel, and they contend that the volcker rule as currently constructed will not reduce systemic risk, nor will it improve economic well being, but will, in fact, increase systemic risk. with the chairman -- would the chairman of the board tell us, what concerns addressed the possibility that if the volcker rule were implemented, banks would be unable or unwilling to

underwrite public and private bonds for corporations, municipalities, health care providers, and our universities? >> we will have that be the last question. the gentleman can answer. >> i think i'm back to what i said a moment ago, congressman, that the intentions with respect to the underlying exception are quite clear, to make sure that underwriting can continue to be pursued as appropriate in i thank the gentleman. the gentleman yields back. mr. luetkemeyer is not recognized for five minutes. >> thank you, mr. chairman. mr. gruenberg, in our work papers here, reading papers, there's a statement that says chairman volcker has argued that activities such as trading in sponsoring hedge funds and private funds should not be conducted by firms that benefit from a federal safety net such as deposit insurance or access to the federal reserve system discount window. proponents of the rule argue

that moving them out is a benefit from deposit insurance and access to the window, would better protect taxpayers and help create a more resilient u.s. banking system. what's your response to that, reaction to that statement? >> i think the underlying premise of the proponents is that the activity here is speculative short-term trading. >> right. >> relying on funds that are generated as result of the public safety net of deposit insurance and access to the discount window. i think that's, for the proponent, that's the key issue. and that's why they want to constrain the activity that is inappropriate to affect engage in speculative trading activity utilizing funds derived on the public safety net. >> okay, and a while ago i think mr. gutierrez asked you a question about the cost of the

fdic entrance fund over the last soviet. you get a $30 billion cost investors. what proportion of that what you say would be as a result of the kind of activity that we're talking about this morning as the volcker rule would affect? >> i don't know that you can discern from the failed institutions that we have had the relationship to proprietary trading activity. >> well, can you, i mean, out of the banks to 200 banks until the last couple of years but i'm sure a lot of those are community banks but you just testified were not part of the problem. of the bigger folks that have cost some difficulties for other things, the big banks were consolidated and a lot didn't go, a result of the too big to fail doctrine. no figures on that? >> in terms of tying into the proprietary trading activity, i think speed i think our hedge funds and private equity funds

because of what the volcker rule that was addressing a. >> at me, i think the proponents, and that includes mr. volcker, have indicated they do the proprietary trading restriction essentially as a forward-looking speech how much risk do you think is appropriate for the banks to take on utilizing these instruments? do you think they should be a different weighting of this when you start looking at adequate capital with regards to the size of the institution, the amount of activity that they have? are there certain creatures you think would be necessary their? >> the volcker rule is focused on, goes to the question of what mechanism you want to use to try to address the risk, identify it here. one approach would be capital requirements relating to these activities. another which is really a statutory provision in section 619 ghost of constraints on the activity it's a. there are two alternative

approaches. i think the statute chose the latter. >> i'm running out of time here. i have to work why should i want to get too. ms. schapiro, you and i have discussed this before, and sell that off the topic but it is with regard to activities that do with regulatory stuff coming from different departments. department of labor issued propose willing on the definition of fiduciary, and you've been working with the department at all on this issue and gives a quick update in about 15 seconds because without a number of conversations with them and discussions action of their interpreting their rules under erisa and speak to are you working with them and making sure that your point of view and are oversight over this is not -- >> yes. we've had conversations. >> very good. mr. tarullo, questions on enforcement of these four entities you were dealing with proprietary trading activities. i thought that was a great question and we didn't get to answer it but in your view, mr.

tarullo or whoever else would like to jump into how is force mechanism going to work in folks who are offshore, or doing business here. can you explain the oversight over that? >> if they have, a subsidiary our branch or an agency here in the united states -- >> in order to study the have had a branch or sensitive? >> no, that would not message would be the case. it could be that if they had a branch which was unrelated to red clay to the proprietary trading, but that's still an avenue for enforcement because your jurisdiction over -- >> okay, if -- >> if it's purely an entity overseas there could be jurisdictional question and what kind of -- >> in other words, if an entity overseas is doing business with an individual or company here, and selling these types, doing these activities back and forth, there's a question of jurisdiction, who would be able to enforce -- >> that will be the last question. >> remember, the firm is we will

be concerned with are those that are operating in the united states. and they would have one of the subs were agencies or branches that i refer to a moment ago. >> and you mr. chairman. >> we will have some other questions that we will probably want to submit to the panel and right. the gentleman the, ms. mccarthy, is not recognized for five minutes. >> thank you, mr. chairman. i thank the witnesses for their patients. as far as can you, when you start thinking about these committee hearings have you think about what questions you want to ask adequately gets down to most of the questions that you wanted were already asked. but one of the things that i did think about, especially since you have all been working together on this, each one of you can answer that, but i would like to talk about the aspect is equally important, part of the whole process that we're on right now.

and that is making sure that the agencies have the staff, but also who have the knowledge. we have a hearing going back several years ago, and one of the things that we found out was a lot of your agencies didn't actually have the expertise of having someone that works in compliance on wall street and new what to look for, things like that and i'm wondering if that is changed. and what additional resources do you might see in the future for staff and do you anticipate that you're going to need, to perform the duties? are you going to build have the staff that you need to perform the duties that you're talking about? because with all of you sitting here, we know it's going to be a heck of a lot of staff behind you, also in the network. and as far as the money, the market making, when you conduct your warrants and exams, what happens when each and every one

of you come together, how are you going, how are you going to analyze the data if you have different opinions? who takes the lead on coming down with the final decisions? >> i'm going to take the opportunity to say that the ctc, no, we do not have enough staff. we been asked to take on the market sometimes the size of the futures market, $300 trillion swaps market on hopeful as relates to the volcker rule that we can leverage off of the some of the agencies at this table who are frankly self-funded. i think that's why i am being, you know, pragmatic about this. if it's a swap dealers or merchant as part of a broader banking entity, at the ctc we will look to be efficient by leveraging off of some of the examination authority at the banking authorities. >> so, i would say we may be

self-funded but don't regard itself as having a blank check. i think the entire government is aware of the need to husband resources. what the needs will be over time i think we've got to wait and see over time. one thing i will say though is that right now there is an awful lot obvious he of staff time being devoted to drafting a lot of regulation. dodd-frank regulations, basel committee regulations and the like. and i would anticipate that once that process comes to an end to come but once slows down in the peak levels of activity have diminished, that we will be able to redeploy people. but you made a critical point i think in the premise of your question, which is having the right kind of people to implement and administer not just the volcker rule, but a lot of the kind of supervision we do know. this is not just an advanced

form of making sure that loans are underwritten properly. it requires a set of skills and expertise that are different. oh, and on coordination, point on coordination. as i said earlier i think we are coordinating in general quite well both with respect to real writing and with respect to individual supervision. every agency does have to fulfill its statutory mandate. we have primary responsibility for the institutions that are assigned as by the congress, but for example, if we're doing a holding company with a big national bank, the supervisors from the fed and the occ routinely, and i mean by routinely, daily, consult with one another. and if there are differences of views on policy matters, they both are expected to push those up the line where, if necessary, eventually jon and i will discuss them. >> for the ftc we will be responsible for broker dealers

and security based swap dealers that are affiliated with depository institutions. and so i would imagine that we will rely heavily at the ctc will on the fed and the bank regulators to take the lead. but we have a key role to play with respect to the broker-dealer. i do think the standardization of the metrics and the data will enable all of us to see the same information and work together very closely on our different components of the banking entity in the jungle is time has expired. the gentleman from texas has a letter from the small business investors alliance which is entered into the record. >> yes, i ask unanimous consent that this letter -- >> without objection, so ordered. other gentleman from texas is now recognized for five minutes. >> thank you, mr. chairman. as i said in my opening statement, we sent you a letter from 121 and of congress and that was a bipartisan letter, and when you look at, i pulled

up a copy of dodd-frank a while ago and he was 11 pages for this section in dodd-frank. and it has turned into 300 pages of regulation. and 1300 questions that you put out for part of your rule. so when somebody starts asking a lot of questions, elites me deeply that there some conclusions that were not drawn prior to the fact that the rule was put out. and when you look at current estimate is 6.2 million man-hours to comply with his piece of legislation. we have other countries and we're not going, you know, go the same direction as dodd-frank, which so creates some bifurcation in the marketplace. so back to the letter that we sent you, as i mentioned, i mentioned gen three things. one, to extend the comment period. but more importantly after asking all those questions and

receiving answers to serve -- 1300 questions and 400 issues, it appears to me that at least one conclusion, and that is that you're going to have to go back and rethink and reload of those different issue after you've that those questions answered. and then send a proposal backed out and see if everyone then is on the same page. is there disagreement that that's not a good strategy, mr. tarullo? >> i take it depends on the answers that we get to the questions that have been asked and as i said earlier, as is the case i think in all administrative rulemaking the pattern is you look at responses that have come in as you make an assessment as to whether you need to adjust your proposed rule at the margin, whether you need to make some significant changes but those that don't fundamentally affect the structure of a, or whether you need to change the structure of the. i think that what will happen is once the comment period is in become we're all looking at the

comments, we will need to make an assessment as to which of those three categories we are in it and i would say if we're in a category in which we thought we had to change the basic approach, then one would expect that a real proposal would probably be what you would do. but if on the adventure making adjustments to the basic approaches you made, you may well not feel, we may not feel to read proposed a regulation as opposed to making changes that and go final. and then as i said earlier, to have the opportunity to further refinement during the performance make have you ever seen a rule that at 1300 questions in it? >> i can tell you i have. i have seen rules, and we've done rules at the sec where we have asked hundreds of questions. to inform our process. the goal of the questions is not to give everybody lots of work to do but to really help inform us about how to draw this rule, these exemptions and in

particular currently. so it was our effort to make sure we covered all bases in the mr. kessler, have you ever seen a row with 1300 questions because i don't know that i have a. as i said, while we may been overly generous it is to solicit public input on a challenger of how to achieve these twin goals of prohibiting one thing, permitting another thing, but to overlap and how to do with that, that overlapping to lower risk to taxpayers. but to the chairman of the subcommittee's questions earlier, and to the two chairmen come we been willing at the ctc to we propose on a number of occasions when it's in not logic, if that's a collective year at some point, this spring or summer when we're getting to that point, you know, we would speak isn't the goal here to do this right? >> absolutely. to do it right in a balanced way. >> and so something is as

important of this looks like to me to make sure we get this right they're coming, i think the question that a lot of people are asking is what in, this new rulemaking process, 300 page rule, would prevented a financial crisis from transpiring? mr. tarullo, can you point to a section of -- >> there are a couple of things that people allude to this earlier. i mean, first yes, there was proprietary trading. what i identify it as at the core of what led to this financial crisis? know, but one is always enjoy not to fight the last war as one goes forward. and so i assume that the motivation was to address other issues. and if you don't have a balanced will come you have more risk in one area than you otherwise wouldn't i just want to see one more thing on the questions. the questions are in the 300

page. they had a lot of questions are no question, there's a lot of questions. but part of what the questions do actually is to review to the public how we been thinking about the rulemaking. they don't have to answer. you can send in a one page. you can send and a hundred page, but it's not like one of my old laws were kids had and everything what they want to or not. you pick the questions went and picked i do think they actually serve the transparency function as well like giving an insight into the way in which we are debating trick that will be the last question that this gentleman asks. recognize for five minutes. >> thank you, mr. chairman. there's been some question on this committee about whether proprietary trading played a role in the financial crisis, but one thing that did was the repo market, the repurchase market. repurchase market is largely still unregulated. it is opaque, dimly understood,

sorted by congress and by the public. and huge. at the time of the crisis or just before it was the equal of all deposits. and lent itself to great instability by matching up short-term borrowing with longer-term lending. before the crisis bear stearns was borrowing $40 billion a night, overnight in the repo market, and using those funds to purchase mortgages so that creates a great deal of instability. yes, it creates liquidity but also creates a great deal of instability. i understand that there is an exception in the proprietary trading rule decide to get at repo been a. the repurchase. that if you take a security as collateral, even though it is characterized as a purchase, if it is, in fact, a loan with collateral, that is not treated as proprietary trading.

and i want to find some ways to get at the repo market and the instability it creates, but i think that will probably make sense. sheila bair and others have suggested that the way the rule as written, it also would exempt purchase of assets financed to the repo market. mf global, as you're shaking your head, i'm glad to see that, that mf global was using financing technique called repo to maturity. they were buying european sovereign debt with the european sovereign debt as the security, as the collateral for that for the purchase. it was basically 100% financing. sheila bair and others have suggested that the rule would, in fact, allow that and not treat that, if done by an institution subject to the proprietary trading rule. it would have exempted that. mr. tarullo come you've already

shaking your head no. do you not read the role that way? and i would like to than others as well spent i think you the exact right on all three counts. one, the repo exception is meant to recognize the fact that it's essentially a borrowing relationship it is not a trading relationship, even if title passes back and forth. number two, repo is the financing. what you do with the financing, where the get the financing from deposits or from long-term bond issue or from repo, what you do with it is what the poker book addresses. so short-term trading for proprietary purposes, whether you finance it through deposits or the repo or through a long-term bond, it's still going to be prohibited. and a third thing you got right is in the global would have been subject to this because they don't have a depository institution. >> right. >> i was just going to add, i agree with all that completely, that had they been a sissy with

a depository institution, the fact that they're engaged in repo would not change the character of the underlying purchases of the sovereign bond, and assumed those were not done pursuant to market making or underwriting, they would likely have been proprietary trading and prohibited. denecochea. does anyone disagree? duke any of you think it should be some limitation on the repo market. we had a hearing on the oversight subcommittee of this committee on mf global, of course i bet a lot of hearings in congress and certainly one of the lessons that i took from that hearing was that the repo market, although we've heard testimony in this committee that is now vastly changed what it was before the crisis, it is still a remarkable source for instability. i think the assumption that europe is things will get really chancy for the financial system when there's a default. i suspect things will get really chancy when the repo markets start requiring a lot more

collateral or sovereign debt when sovereign debt issues as collateral. mr. tarullo come is there any regulation in the works? >> well, we certainly have been looking at the repo market, in the context of wholesale funding and which sometimes been referred to as the shadow banking system more generally. if you think about it, there are really two big goals that are think regulatory reform post prices needed to have. one was the too big to fail issue, where we have made some progress, we're not there yet but i think we have the tools in place to do it. the second is, in wholesale funding more generally with, in the areas in which there's a potential for runs under circumstances in which the value of collateral all of a sudden becomes a question to those who have been, who have been taking it -- >> the gentleman's time has expired. >> with respect to all of these you will need attention. >> the gentlelady from new york

is recognized. >> thank you, mr. chairman, and thank all the panelists and with great respect for the very limited time remaining, during this hearing it's been most impressive that all of you take a very thoughtful, thorough approach to this, almost seemingly impossible task. and they give you great credit for that. but clearly as chairman neugebauer has indicated, it seems as though it would be very reasonable to consider this rule, this proposal is not what exercises, being a physician, it's not the most elegant solution to the problem that we face, which is that we have certainly put taxpayer dollars at great risk. and we have extended an enormous amount of taxpayer money to

rescue financial institutions that have acted unwisely. the causes for that, or the conditions that have been conducive to that kind of action, of course are at the crux of this problem. those of us who feel that federal intervention in the markets has augmented the moral hazard would automatically i think take a different approach. would any of you be willing to say that statutorily it would be appropriate for us to give very serious consideration to legislation that removes this particular burden, and perhaps we should direct our legislative efforts toward, again, and more of a get solution such as really strictly limiting the circumstances under which we will indemnify institutions for, for losses.