>> this committee is called to order. before we begin, i'd like to extend a warm welcome to senator crepeo as ranking member and to senator manchant, senator warren, senator heitkemp, senator carlburn and senator heller who are joining this congress. i'd also like to welcome back my friend senator kirk. earlier this week i released my agenda for this congress and i

look forward to this committee's continued productivity. i'm optimistic that we can work together on a bipartisan basis. to that end, ranking member crepo and i sent an order yesterday to the banking regulators on the importance of implementing basal 3 and i look forward to hearing from each of you in working with the ranking member on this issue. today this committee continues a top priority, oversight of wall street perform implementation. wall street reform was effected to make the financial system more resilient, minimize risk of another financial crisis, protect consumers from harmful purchases and ensure american taxpayers will never again be

called upon to bail out a failing financial firm. this morning we'll hear from the regulators on how their agencies are carrying out these mandates of wall street reform. many of the laws are rule makers and require careful consideration of complex issues as well as inner agency and international coordination. i appreciate your efforts to finalize these rules. to date, the regulators have proposed or finalized over 3/4 of the rules required by wall street. these include rules that have recently gone wide in the market such as the data reporting rules

with new oversight of previously unregulated markets. but there is still more work to do. that is why i have asked each of our witnesses to provide a report to the committee both on rule makings your agency has completed and those you have yet to finalize. i ask that you craft these rules in a manner that is effective for smaller firms like community banks so they can continue to meet the needs of our customers and communities. the work does not end when the final rules go out the door. regulators must enforce the rules and ask that each agency inform us of how they intend to better supervise the financial system. while concerns have been raised

about whether a few firms remain too big to fail, wall street reform provides regulators with new tools to address the issue head on. this is one of the many reasons why fully implementing the law remains important not just for constituents but for future generations. as we approach the five-year anniversary of the failure of bear stearns we must not lose sight of why we pass wall street reform. congress enacted the law into the wake of the more severe financial crisis in the lifetime of most americans. i asked the gao to study the question of how costly it was to better understand the impact the crisis had on the nation.

in a roort releaeport released which i enter in the record the gao concluded while the precise cost of the crisis is difficult to calculate the total damage to the economy may be as high as $13 trillion. i say again $13 trillion. with a "t" dollars. as they urge you to consider the benefits of continuing to implement wall street reform. i would like to make one final comme comment. since he was appointed as head of the cfpb last year director cadre and the cfpb have worked tirelessly to finalize many rules and policies to protect consumers in areas such as

mortgages, student lending, service member rights, and credit cards. he has done good work and i urge my colleagues to confirm him to a full term without delay and allow the cfpb to continue its important work protecting consumers. i now turn to our ranking member. >> thank you very much, mr. chairman. you and i have a very good personal friendship and have had a good working relationship over the years and i look forward to building on that and working with you as the ranking member of the committee this year in this congress. one of my objectives and hopes would be to work together on the kind of common sense bipartisan solutions that we can achieve before this committee in a number of areas that i think various members of the committee have already identified and discussed among ourselves. we, you and i as you indicated,

have already sent a joint letter to inform the regulators of our concerns about the impact of the proposed basel three requirements on community banks, insurance companies, and the mortgage market. so we're off to a good start. i look forward to building on that. i also want to join with you in welcoming the new members of our committee, on our side senators coburn and heller and on your side also senators manchant, warren, and heitkamp. we welcome you to the committee. today we'll hear about the ongoing implementation of dodd frank. academic researchers estimate when dodd/frank is fully estimate there had will be more than 13,000 new regulatory restrictions in the code of federal regulations. over 10,000 pages have already been proposed, requiring as is estimated over 24 million compliance hours each year. that's just the tip of the iceberg. that's some 400 rules required by dodd/frank, roughly one-third of it finalized.

about one-third have been proposed but not finalized and roughly one-third have not even yet been proposed. together the hundreds of dodd/frank proposed rules are far too complex, offering confusing and often contradictory standards and regulatory requirements. i'm concerned that the regulators do not understand and are not focusing aggressively enough on the cumulative effect of the hundreds of proposed rules and that there as lack of coordination among the agencies, both domestically and internationally. that's why it's important for the regulators to perform meaningful cost benefit analysis so that we can understand how these rules will affect the economy as a whole, interact with one another, and impact our global competitiveness. an enormous number of new rules are slated to be finalized this year as a result of dodd/frank, basel 3 and other regulatory initiatives and at this important juncture we need answers to critical questions. first, what are the anticipated

cumulative effects of these new rules to credit, liquidity, borrowing costs, and the overall economy? ultimately we need rules that are strong enough to make our financial system safer and sounder but that can adapt to a changing market condition and promote credit availability and spur job growth for millions of americans. second, what have the agencies done to assess how the complicated rules will interact with each other and the existing regulatory framework? i'm hearing a lot of concern about how the interaction of some rules will reduce mortgage credit through the qualified mortgage rule, the proposed qualified residential mortgage rule, and the proposed international basel 3 risk weights for mortgages as an example. and third, what steps are being taken to fix the lack of coordination and harmonization of rules among the united states and international regulators on cross boarder issues? for example, the cftc has issued a number of so-called guidance letters and related orders on

cross border issues. the cftc's initial proposal received widespread criticism from foreign regulators that the guidance is confusing, expansive, and harmful. meanwhile, the s.e.c. has not yet issued its cross border proposal. there is bipartisan concern that some of the dodd/frank rules go too far and need to be fixed. a good starting point would be to fulfill congressional intent by providing an explicit exemption from the margin requirements from nonfinancial end users that qualify for the clearing exemption. similar language to this passed the house last year by a vote of 370-24. the federal reserve chairman bernanke has confirmed that regardless of congressional intent, the banking regulators view the plain language of the statute as requiring them to impose some kind of margin requirement on nonfinancial end users unless congress changes the statute. unless congress acts new regulations will make it more

expensive for farmers, manufacturers, energy producers, and many small business owners across the country to manage their unique business risks associated with their day-to-day operations. an end user fix is just one example of the kind of bipartisan actions that we can take to improve the safety and soundness of our financial system without unnecessarily inhibiting economic growth. it's my hope that today's hearing is going to provide us a starting point to address these critical issues and identify the needed reforms that we must undertake. thank you, mr. chairman, again, for holding this hearing. >> thank you. this morning opening statements will be limited to the chairman and ranking member to allow more time for questions from the committee members. i want to remind my colleagues that the record will be open for the next seven days for opening statements and any other materials you'd like to submit. now i would like to introduce

our witnesses. the undersecretary for domestic finance of the u.s. depth of the treasury is with us. we also have a member of the board of governors of the federal reserve system. we have the chairman of the federal deposit insurance corporation and tom curry the comptroller of the currency. richard cadre is the director of the consumer financial protection bureau. alyse walder is a chairman of the securities and exchange commission. gary kensler is a chairman of the commodity creating commission. i thank all of you again for being here today. i would like to ask the witnesses to please keep your remarks to five minutes. your full written statements will be included in the hearing record. under secretary miller, you may

begin your testimony. >> chairman johnson, ranking member crepo and members of the committee thank you so much for the opportunity to be here today. the dodd/frank wall street reform and consumer protection act represents the most comprehensive set of reforms to the financial system since the great depression. americans are already beginning to see benefits from these reforms reflected in a safer and stronger financial system. although the financial markets have recovered more vigorously than the overall economy, the economic recovery is also gaining traction. the financial regulators represented here today have been making significant progress implementing dodd/frank act reforms. treasury specific responsibilities under the dodd/frank act include standing up new organizations to strengthen coordination of financial regulation, both domestically and internationally. improve information sharing and

better address potential risks to the financial system. over the past 30 months, we have focused considerable effort on creating the financial stability oversight council, the office of financial research, and the federal insurance office. the financial stability oversight council known as fsoc has become a valuable forum for collaboration among financial regulators. through frank discussion and early identification of areas of common interest, the financial regulatory community is now better able to identify issues that would benefit from enhanced coordination. although fsoc members are required to meet only quarterly the fsoc met 12 times last year to conduct its regular business and respond to specific market developments. much additional work takes place at the staff level with regular and substantive engagement to inform fsoc leaders. while treasury is not a rule writing agency the treasury secretary has a statutory coordination rule for the

volcker rule and risk retention rule by virtue of his chairmanship of the fsoc. we take that role very seriously and will continue to work with the respective rule making agencies as they finalize these rules. in addition to the fsoc's coordination rule, it has certain authority to make recommendati recommendations to the responsible regulatory agencies where a financial stability concern calls for further action. an example along these lines is a concern about risks in the short-term funding markets. the fsoc's focus on this ultimately led the council to issue a proposed recommendations on money market fund reforms for public comment. the fsoc has also taken significant steps to designate and increase oversight of financial companies whose failure or distress could negatively impact financial markets or the financial stability of the united states. treasury has made significant progress in establishing the office of financial research and the federal insurance office. the ofr provides important data

and analytical support for the fsoc and is developing new financial stability metrics and indicators. it also plays a leadership role in the international initiative to establish a legal entity identifier. a code that uniquely identifies parties to financial transactions. the planned launch of the l.e.i. next month will provide financial companies and regulators worldwide a better view of companies' exposures and counterparty risks. with the establishment of the federal insurance office, the united states has gained a federal voice on insurance issues domestically and internationally. for example, in 2012, fio was elected to serve on the executive committee of the international association of insurance supervisors and is now providing important leadership in developing international insurance policy. we are also working

internationally to support efforts to make financial regulations more consistent worldwide. by moving early with the passage and implementation of the dodd/frank act we are leading from a position of strength in setting the international reform agenda. this comprehensive agenda spans global bank capital and liquidity requirements, resolution plans for large, multi national financial institutions, and derivatives markets. we will continue to work with our partners around the world to achieve global regulatory convergence. as we move forward it is critical to strike the appropriate balance of measures to protect the strength and stability of the u.s. financial system while preserving liquid and efficient markets that promote access to capital and economic growth. completion of these reforms provides the best path to continuing economic growth and prosperity grounded in financial stability. thank you for the opportunity to testify today. i welcome any questions the committee may have. >> thank you.

governor, please proceed. >> thank you, mr. chairman. it's a pleasure to be with all of you here on this valentine's day. i just want to make two points in these oral remarks. first, i hope 2013 will be the beginning of the end of the major rule makings implementing dodd/frank and strengthening capital rules. the rule making process has been very time consuming, in some cases running beyond the deadline set by congress though there have been some good reasons for that. joint rule making just takes a lot of time. and for many of the rules, that process involves three to five independent agencies representing between 12 and 22 individuals who have votes at those agencies. also, some of the rules involve subjects that are complicated, controversial, or both. i think there was wide agreement that it was incumbent on the regulators to take the time to understand the issues. and to give full consideration to the many thousands of

comments that were submitted on some of the proposals. but it's also important to get to the point where we can provide clarity to financial firms as to what regulatory environment they can expect in some of these important areas so that they can get on with planning their businesses accordingly. so it's my hope and my expectation that with respect to the volcker rule, the capital rule, section 716 and many of the special prudential requirements for systemically important firms we will publish final rules this year. on volcker and the standardized capital rules in particular i think the agencies have learned a good deal from the formal comments and public commentaries addressed to these proposals. both required a difficult balance between the aimed comprehensiveness on one hand and ability to strait at firms and regulators on the other. inc. it is clear that both proposals lean too far in the direction of complexity. i would expect a good bit of change in the final rule makings

on these subjects. indeed, these examples prove the wisdom of those who drafted the administrative procedure act many years ago whereby they set up a process that agencies issued proposals for notice and comment, received comments, considered the comments, modified the regulations, and then finally put those regulations into place. we should also get out proposals this year to implement two arrangements agreed internationally. the capital surcharge for systemically important banks and the liquidity coverage ratio. one exception where we will be slowing down a little and here we as the federal reserve not my fellow agencies is the section 165 requirement for counterparty credit risk limits. based on the comments received and ongoing internal staff analysis we concluded that a quantitative impact study was needed to help us assess better the optimal structure of a rule that is breaking new ground in an area for which there is a lot

of hard but previously uncollected data. we'll need more time on this one. the second point i want to make is that the feature of the financial system that is in most need of further attention and regulatory action is that of nondeposit short-term financing. my greatest concern is with those parts of the so-called shadow banking system that are susceptible to destabilizing funding runs, something that is more likely where the recipients of the short-term funding are highly leveraged, engaged in substantial maturity transformation, or both. it was just these kinds of runs that precipitated the most acute phase of the financial crisis that the chairman referred to a few moments ago. we need to continue to assess the vulnerabilities posed by this kind of funding while recognizing that many forms of short-term funding play important roles in credit intermediation and productive capital market activities. but we should not wait for the emergence of the consensus on

comprehensive measures to address these kinds of funding channels. that's why i suggest in my written testimony more immediate action in three areas, transparency of securities financing, money market mutual funds, and tri party repo markets. thank you for your attention. >> thank you. chairman, please proceed. >> thank you, mr. chairman. chairman johnson, ranking member crepo and members of the committee thank you for the opportunity to testify today on the fdic's efforts to implement the dodd/frank wall street reform and consumer protection act. while my prepared testimony addresses a range of issues, i will focus my oral remarks on three areas of responsibility, specific to the fdic. deposit insurance, systemic resolution, and community banks. with regard to the deposit insurance program, the dodd/frank act raised the minimum reserve ratio for the

deposit insurance fund to 1.35% and required that the reserve ratio reach this level by september 30th, 2020. the fdic is currently operating under a restoration plan that is designed to meet this deadline and the dif reserve ratio is recovering at a pace that remains ontrack to achieve the plan. as of september 30th, 2012, the reserve ratio stood at 0.35% of estimated insured deposits. that's up from 0.12% a year earlier. the fund balance has now grown for 11 consecutive quarters, increasing to 25.2 billion dollars at the end of the third quarter of 2012. the fdic has also made significant progress on the rule making and planning for the resolution of systemically important financial

institutions, so-called sifis. the fdic and federal reserve board have jointly issued the basic rule making regarding resolution plans that sifis are required to prepare. these are the so-called living wills. the rule requires bank holding companies with total consolidated assets of $50 billion or more to develop, maintain, and periodically submit resolution plans that are credible and would enable these entities to be resolved under the bankruptcy code. beginning on july 1st of 2012, the first group of living will filings by the nine largest institutions with nonbank assets over $250 billion was received. the second group will follow on july 1st of this year and the rest by december 31st. the federal reserve and fdic are currently in the process of reviewing the first group of planned submissions. the fdic has also largely completed rule making necessary to carry out its system ik

resolution responsibilities under title 2 of the dodd/frank act. the final rule approved by the fdic board addressed among other things the priority of claims and the treatment of similarly situated creditors. section 210 of the dodd/frank act expressly requires the fdic to coordinate to the maximum extent possible with appropriate foreign regulatory authorities in the event of the resolution of a systemic financial company with cross bored oder operation. in this regard the fdic and bank of england in conjunction with prudential regulators in our jurisdictions have been working to develop contingency plans for the failure of sifis at operations in both the u.s. and uk. in december the fdic and the bank of england released a joint paper providing an overview of the work we have been doing together. in addition the fdic and the

european commission have agreed to establish a joint working group to discuss resolution and deposit insurance issues common to our respective jurisdictions. the first meeting of the working group will take place here in washington next week. finally, in light of concerns raised about the future of community banking and the aftermath of the financial crisis, as well as the financial impact of the various rule makings under the dodd/frank act, the fdic engaged in a series of initiatives during 2012 focusing on the challenges and opportunities facing community banks in the united states. in december of last year the fdic released the fdic community banking study, a comprehensive review of the u.s. community banking sector covering the past 27 years of data. our research confirms the important role the community banks play in the u.s. financial

system. although these institutions account for just 14% of the banking assets in the united states, they hold 46% of all the small loans to businesses and farms made by fdic insured institutions. the study found that for over 20% of the counties in the united states community banks are the only fdic insured institutions with an actual physical presence. importantly, the study also finds that the community banks have stayed with their basic business model of careful relationship lending, funded by stable core deposits, exhibited relatively strong and stable performance over this period and during the recent financial crisis and should remain an important part of the u.s. financial system going forward. mr. chairman, that concludes my remarks. i'd be glad to respond to your questions. >> thank you.

comptroller curry, please proceed. >> chairman johnson, ranking member, and members of the committee, it is a pleasure to appear before you today for this panel's first hearing of the new congress. i want to thank chairman johnson for his leadership in holding this hearing and i'd also like to congratulate senator crepo on his new role as ranking member of this committee. i look forward to working with both of you on many issues facing the banking system. there are also a number of new members on the committee and i look forward to getting to know each of you better this session. it has been nearly three years since the dodd/frank act was enacted and both the financial condition of the banking industry and the federal regulatory framework have changed significantly. the occ supervises more than 1800 national banks and federal savings associations, which together hold more than 69% of all commercial bank and thrift assets. they range in size from very small community banks with less

than $100 million in assets to the nation's largest financial institutions with assets exceeding $1 trillion. more than 1600 of the banks and tlifts thrifts we supervise are small institutions with less than $1 billion in assets and they play a vital role in meeting the financial needs of communities across the nation. i am pleased to report the federal banks and thrifts have made significant strides since the financial crisis in repairing their balance sheets through stronger capital, improved liquidity, and timely recognition and resolution of problem loans. while these are encouraging developments, banks and thrifts continue to face significant challenges. our examiners continue to stress the need for these institutions to remain vigilant in monitoring the risks they take on in this environment. we are also mindful that we

cannot let the progress that has been made in repairing the economy and strengthening the banking system lessen our sense of urgency in addressing the weaknesses and flaws that were revealed by the financial crisis. the dodd/frank act addresses major gaps in the regulatory landscape, tackles systemic issues that contributed to and amplified the effects of the financial crisis, and lays the groundwork for a stronger financial system. like my colleagues at the table, we at the occ are currently engaged in numerous rule makings from appraisals to volcker and from risk retention to swats. my written statement provides details on each of these efforts and provides a flavor of some of the public comments that have been submitted. the occ is committed to implementing fully those provisions where we have sole rule writing authority as quickly as possible. we are equally committed to working cooperatively with our

colleagues on those rules that require coordinated or joint action. i remain very hopeful we'll soon have in place several regulations to provide clarity in industry needs. throughout this process i have been keenly aware of the critical role community banks play in providing communities across the nation with essential financial services and access to credit. as the occ undertakes every one of these critical rule makings we are very focused on ensuring we put standards in place that promote safety and soundness without adding unnecessary burden to community banks. i'd like to highlight one of the most significant milestones of the dodd/frank act for the occ, which is the successful integration of the mission and most of the employees from the office of thrift supervision into the occ. the integration was accomplished smoothly and professionally,

reflecting the merger of experience with a strong vision for the future. the final stage of this process is under way with the integration of rules applicable to federal thrifts with those that apply to national banks, consistent with the statutory differences between the two charter types. an integrated set of rules will benefit both banks and thrifts. in the vast majority of the rule making activities, the occ is one of several participants. the success of those rule makings depend on interagency cooperation and i want to acknowledge the work of my colleagues at this table and their staff for approaching these efforts thoughtfully and productively, giving careful consideration to all issues. working together i believe we will be able to develop rules that will be good for the financial system, the entities we regulate, and the communities they serve going forward. thank you for your attention and i look forward to answering any questions you may have. >> thank you.

director cadre, please proceed. >> thank you, chairman johnson. ranking member crepo and members of the committee for inviting me back today. my colleagues and i at the consumer financial protection bureau are always happy to testify before the congress, something we've done now 30 times. today we're here to talk about the implementation of the dodd/frank, wall street reform and consumer protection act. the signature legislation that created this new consumer agency. since the bureau opened for business in 2011 our team has been hard at work. we're examining both banks and nonbank financial institutions for compliance with the law and we've addressed and resolved many issues through these efforts today. in addition, for consumers who have been mistreated by credit card companies, we are in coordinated enforcement actions with our fellow regulators returning roughly $425 million to their pockets. for those consumers who need information or want help in understanding financial products and services we've developed ask

cfpb a data base of hundreds of answers to questions frequently asked of us by consumers. and our consumer response center has helped more than 100,000 consumers with individual problems related to their credit cards, mortgages, student loans, and bank accounts. in addition we've been working hard to understand, address, and resolve some of the special consumer financial issues affecting specific populations -- students, service members, older americans, and those who are unbanked or under banked. we're planning a strong push in the future for broader and more effective financial literacy in this country. we need to change the fact that we send many thousands of our young people out into the world every year to manage their own affairs with little or no grounding in personal finance education. we want to work with each of you on these issues on behalf of your constituents. we've also faithfully carried out the law that congress enacted by writing rules designed to help consumers throughout their mortgage experience from signing up for a

loan to paying it back. we've written rules dealing with loan originator compensation, giving consumers better access to their appraisal reports and addressing escrow and appraisal requirements for higher priced mortgage loans. just last month we released our ability to repay rule which protects consumers shopping for a loan by requiring lenders to make a good faith, reasonable determination that consumers can actually afford to pay back their mortgages. the rule outlaws so-called and very irresponsible ninja loans even with no income, no job, no assets you could still get a loan. they were all too common in the lead up to the financial crisis. our rule also strikes a careful balance on access to credit issues that are so prevalent in the market today by enabling safer lending and providing greater certainty to the mortgage market. finally, the bureau also recently adopted mortgage servicing rules to protect borrowers from practices that plagued the industry like failing to answer phone calls, routinely losing paperwork, and

mishandling accounts. i'm sure that each of you has heard from constituents in your states who have these kinds of stories to tell. we know the new protections afforded by the dodd/frank act and our rules will no doubt bring great changes to the mortgage market. we're committed to doing what we can to achieve effective, efficient, complete implementation by engaging with all stakeholders especially inland in the coming year. we know that it is in the best interests of the consumer for the industry to understand these rules because if they cannot understand they cannot properly implement. to this end we've announced an implementation plan. we will publish plain english summaries, readiness guides to give industry a broad checklist of things to do to prepare for the rules taking effect next january like updating the policies and procedures and providing training for staff. we're working with our fellow regulators to ensure consistency and examinations of mortgage lenders under the new rules and to clarify issues as needed. we also are working to finalize

further proposals in these rules to recognize that as my colleagues have said the traditional lending practice of smaller community banks and credit unions are worthy of respect and protection. so thank you again for the opportunity to appear before you today and speak about the progress we're making at the consumer protection bureau. we always welcome your thoughts about our work and i look forward to your questions. thank you. >> thank you. chairman walder, please proceed. >> chairman johnson, ranking member crepo, and members of the committee. thank you for inviting me to testify on behalf of the securities and exchange commission regarding our ongoing implementation of the dodd/frank act. as you know, the act required the s.e.c. to undertake the largest and most complex rule making agenda in the history of the agency. we have made substantial progress writing a huge volume of new rules mandated by the act. we have proposed or adopted over 80% of the more than 90 required rules and we have finalized almost all of the studies and

reports congress directed us to write. since the law's enactment our staff has worked closely with other regulatory agencies and has carefully reviewed the thousands of comments we received to ensure that we not only get the rules done but that we get them done right. and i am committed to doing both. indeed, as long as i serve as chairman i will continue to push the agency forward to implement dodd/frank. while my written testimony describes in greater detail what we have achieved i wanted to touch briefly on just a few of the items. today as a result of new rules jointly adopted with the cftc, systemic risk information is now being periodically reported by registered investment advisers who manage at least $150 million in private fund assets. this information is providing fsoc and the commission with a broader view of the industry than we had in the past. additionally, because of our

registration rules, we now have a much more comprehensive view of the hedge fund and private fund industry. we also adopted rules creating a new whistle blower program and last year our program produced its first reward. we expect future payments to further increase the visibility of the program and lead to even more valuable tips. the program is pulling in the type of high quality information that reduces the length of investigations and saves resources. with respect to the new oversight regime, dodd/frank mandated for over-the-counter derivatives we have proposed substantially all of the core rules to regulate securities based. last year in particular we finalized rules regarding product and party definitions, adopted rules regarding clearing and reporting and issued a road map outlining how we plan to implement the new regime. soon, we plan to propose how this regime will be applied in the cross border context.

the commission has chosen to address cross border issues in a single proposing release rather than through individual rule makings. we believe this approach will provide all interested parties with the opportunity to consider as an integrated whole the commission's proposed approach to cross border security based swap oversight. last year the commission working with the cftc and the fed adopted rules requiring registered clearing agencies to maintain certain risk management standards and also establish record keeping and financial disclosure requirements. these rules will strengthen oversight of securities clearing agencies and help to ensure that clearing agency regulation reduces systemic risk in the financial markets. although tremendous progress has been made, work remains in areas such as credit rating agencies, asset backed securities, executive compensation, and the volcker rule. with respect to the volcker rule

the issues raised are complex and the nearly 19,000 comment letters received in response to the proposal speak to the mult tud of view points that exist. we are actively working with the federal banking agencies, cftc, and treasury in an effort to quickly finalize this important rule. with respect to all of our rules economic analysis is critical. while certain costs or benefits may be difficult to quantify or value with precision, we continue to be committed to meeting these challenges and to ensuring that the commission engages in sound, robust economic analysis in its rule making. it also has been clear to me from the outset that the act's significant expansion of the s.e.c.'s responsibilities cannot be handled appropriately with the agency's current resource levels. with congress's support, the fec's fy-2012 appropriation permitted us to begin hiring some of the new positions needed to fulfill these

responsibilities. despite this, the s.e.c. does not yet have all the resources necessary to fully implement the law. enactment of the president's fy-2013 budget would help us to fill the remaining gaps by hiring needed employees for front line positions and also would permit us importantly to continue investing in technology initiatives that substantially and cost effectively allow us to improve our ability to police the markets. as you know, regardless of the amount appropriated our budget will be fully offset by fees we collect and will not impact the nation's budget deficit. as the commission strives to complete our remaining tasks, we look forward to working with this committee and others to adopt rules that will fill our mission of protecting investors, maintaining fair, orderly, and efficient markets, and facilitating capital formation. thank you again for inviting me to share with you our progress to date and our plans going forward. i look forward to answering your

questions. >> thank you. >> thank you, chairman johnson and members of the committee. i want to first just associate myself with governor turillo's comments about wishing you well on this valentine's day but also his comments about the administrative procedures act. i think we've all benefited at the cftc by the 39,000 comments that we've gotten on our various rules. this hearing is occurring at a very historic time in the markets because with your direction, the cftc now oversees the derivatives market place not only the futures market place that we had overseen for decades but also this thing called the swaps market place. our agency has actually completed 80% not just proposed but completed 80% of the rules you've asked us to do. the market place is increasingly shifting to implementation of these comments and refusal the

road. what do what does it mean? three key things. for the first time the public is benefiting from seeing the price and volume of each swap transaction. this is free on a website like a modern day ticker tape. secondly for the first time the public will benefit from greater access to the market that comes from centralized clearing and the risk reduction that comes from that centralized clearing. this will be phased throughout 2013 but we're not needed to do any new rules. it's all in place. thirdly for the third time the public is benefiting from the oversight of swap dealers. we have 71 that registered. for sales practice and business conduct to help lower risks to the overall economy. now, these swaps market reforms ultimately benefit end users. the end users in our economy, nonfinancial side, employs 94% of private sector jobs. and these benefit those end users through greater transparency, greater

transparency starts to shift some information advantage from wall street to main street but also lowering risk. and we've completed our rules ensuring as congress directed that the nonfinancial end users aren't required to participate in central clearing. at the cftc we've proposed margin rules that provide end users will not have to post margin for those uncleared swaps. to smooth the market's transition to the reform the commission's consistently been committed to phasing in compliance based upon the input from the market participants. i'd like to highlight two areas in 2013 that we still need to finish up the rules. one is completing the pretrade transparency reforms. this is so buyers and sellers meet, compete in the market place, just as in the securities and futures market place. we've yet to complete those rules on the swap execution facilities and block rules. secondly, ensuring that cross border application of swap market reform appropriately covers the risk of u.s.

affiliates operating offshore. we've been coordinating greatly with our international colleagues and the s.e.c. and the regulators at this table but i think in enacting finance reform congress recognized a basic lesson of modern finance and the crisis. that basic lesson is during a crisis risk knows no border. if a run starts at one financial institution whether here or offshore it comes back to hurt us. that was true in aig which ran most of its swaps business out of mayfair, a part of london, but it was also true at lehman brothers, citigroup, bear stearns, long-term capital management. i think failing to incorporate this basic lesson of modern finance into our oversight of swaps market would not only fall short of your direction to the cftc and dodd/frank but i also think it would leave the public at risk. i believe dodd/frank reform does apply and we have to complete the rules to apply to

transactions entered into branches of u.s. institutions offshore off if they're guaranteed affiliates offshore transacting with each other or even if it is a hedge fund that happens to be incorporated hedg incorporated in an island ar off shore but really operated here. i'd like just to turn with the remaining minute to these cases the cftc brought on live war because it's so much of our 2013 agenda. the u.s. treasury collected $2 billion from the justice department in cftc fines. but that's not the key part of this. what's really important is ensuring financial market integrity. when a reference rate such as libor central to borrowing, lending, hedging in our economy has so pervasively been rigged, i think the public is just shortchanged. i don't know any way to put it. we must ensure that reference rates are honest reflections of

observable transactions in real markets and they can't be so vulnerable to misconduct. i'll close by mentioning as the same way chairman walter did the need for resources, i would say the cftc has been asked to take on a market that's vast in size and much larger than the futures market we once oversaw. and without sufficient funding i think the nation cannot be assured that we can effectively oversee these markets. i thank you and look forward to your questions. >> thank you. and thank you all for your testimony. as we begin questions, i will ask the clerk to put five minutes on the clock for each member. mr. miller, what steps has the u.s. taken both at home and abroad to complete reforms in a way that makes the financial system safer, banks too big to fail, bailouts, and for most stable economic growth. and what are the challenges to accomplish this?

>> i think the most important thing that we can do is to restore confidence in our financial markets and our financial system. and i think the work that has gone on post-the dodd-frank reforms has been incredibly important making sure they are better capitalized, that they are more likd, and that they have a good plan for failure should they not succeed. i don't think our reforms are intended to prevent failure but they are making us much better prepared and to make sure our financial institutions and the activities they engage in are much safer and sounder. so we have been working very hard, i think, in the u.s. and abroad with our international counterparts to make sure that we put in place the necessary rules of the road to make sure these things can happen. so it's happening at many levels in the u.s. you heard all the activities

these regulators are engaged in. but it's also happening in international forums. we're working with counterparts to make sure we have a level playing field. as far as the challenges, this is a very comprehensive law. it is one that addresses many parts of our financial system. i think the number of rule-making activities, definitions, studies, and work that were laid out by dodd-frank is quite a big workload. when i work with these regulators here i see the same people working on a wide range of roles. they're working hard but they have a pretty big agenda to accomplish. but i think that the spirit of cooperation is good. i think entities like the financial stability oversight council provide a good forum for working on these things. >> mr. cordray, congratulations on issuing a final rule that was well received by both consumer advocates and the industry.

what approach to take to define a rule to strike the right balance? [ inaudible ] >> and i appreciate those observations. i think we tried to do three things. the first is we were very accessible to all parties with all range of viewpoints on the issues. the issues were difficult. it's not easy to write rules for the mortgage market right now because we're in a tight period. and the data a few years before that was in a loose period. we had some significant issues unresolved in terms of public policy. but i think that we listened very carefully and attentively to what people had to say to us. and a great deal of comments that we received. i think secondly we did go back and try to develop additional data so that we could work through the numbers on our own

and understand what different approaches would have. and i think third and this was quite meaningful is we consulted with fellow agencies. they have a lot of expertise and a lot of insight on the problems we were addressing. and we will ultimately be examining these institutions in parallel to one another. and the rules need to work for everyone. we'll continue to work with the other agencies on implementation. and i do think that helped us tremendously. i can point to any number of the provisions in the rules that were made better by that process. >> this question is for mr. cordray and mr. tur ru low. i want to thank for all the hard work on qrm. is there anything in the law that would prohibit qrm from being the same as qm? and -- now that the qm rule is

finalized as mr. cordray just described? let's berg, let's begin with you. >> thank you, mr. chairman. i don't believe there's anything regarding qrm with qm. we actually delayed consideration of the rule making on qrm pending the completion of the qm rule. and i think we'll now have the ability to consider the final rule making on qrm in light of the qm rule making. >> mr. tarullo and mr. cordray, do you agree? >> certainly, mr. chairman. i agree with mr. gruenberg. i'd just say further that as you know, two provisions had somewhat different motivations. the qm rule motivated towards protecting the individual who buys the house. and the qrm rule motivated

towards the risk retention associated with that mortgage and thus presumably trying to protect the investment for the intermediary. having said that, i think given the state of the mortgage market right now, both you and senator crapo has eluded to it. i think we want to be careful here about the incremental rule making that we're doing not beginning to constrict credit to middle and lower middle class people who might be priced out of the housing market. if there's too much in the way of duplicate or multiple kinds of requirements at the less than highly credit worthy end. so i think it's definitely the case that on the table should be consideration of making qrm more or less congruent with qm.

>> mr. cordray? >> i share the views of both governor tarullo and chairman gruenberg with respect to the definition. i also would concur with governor tarullo it's important to look at the cumulative effect of the issue that senator crapo mentioned. when we're talking about the mortgage market on issues of competition and the ability to have the widest number of financial institutions regardless of size participating in it is something that we're very concerned about and paying close attention to. >> senator crapo? >> thank you. senator corker has a need to get to another meeting and i'm going to yield to him. >> thank you very much. i won't -- i'll do this rarely and i'll be very brief. just three questions. mr. gruenberg, we talked extensively about orderly liquidation. i'm sure many thought that meant these institutions would be out of business and gone.

i think as you've gotten into it you decided you're only going to eliminate the holding company level. and what that means is that creditors candidly could issue debt to all the subsidiaries and know they'll never be at a los. have you figured out a way to solve that? because obviously that was not what was intended. >> i agree with you, senator. and as you know, the approach we've been looking at would impose losses actually wiping out shareholders imposing losses on creditors and replacing culpable management in regard to creditors it would be important to have a sufficient amount of unsecure debt at the holding company level. in order to make this approach work, we have been working closely with the federal reserve on this issue. actually governor tarullo and his testimony makes reference to it. and i'm hopeful we can achieve an outcome that will allow us to impose that kind of

accountability on creditors. >> it seems like you'd want all of your long-term debt at the holding company level. so i just hope that y'all will work something out that's different than the way it is right now. because creditors could easily be held harmless at the sub level. and that's not what anybody intended. secondly mr. tarullo, i know you're to identify and respond to threats in the financial system any systemic threat. is there any institution in america today that if it failed would pose a systemic risk? any institution? >> i think we learned from the financial crisis that the failure of a large institution can create some systemic risk. >> but y'all are to eliminate that. so i'm just wondering if any institution in america failed,

would that create systemic risk because your job is to ensure that's not the case. >> i believe that all the work we've done and continue to do is designed to prevent that effect. and to make sure that we have in place rules and regulations that keep firms from engaging in activities or building their business models in ways that are going to transmit that type of financial distress. >> mr. tarullo? >> i think, senator, that it's a journey and not a single point where you can say we've addressed the too big to fail sho issue. i think a lot of progress has been made but resolvability without a disorderly major disruption to the financial system on the one hand. and on the other the failure of a firm that entails substantial negative externalitieexternalit. it's about bringing the whole system to crisis on the one hand, not doing so on the other but still imposing lots of

costs. and i do think that there's complimentarity between the rules, the fdic resolution process, and the other rules in trying to make sure we're dealing both with resolvability and negative externality. >> i hear what you're both saying. i would assume, though, that a big part of your role is to ensure that there's no institution. i know that you guys have regulatory regimes that try to keep them healthy. and i assume -- and if i'm wrong -- that you want to ensure that there's no institution in america that's operating that is part of your role and if not i would like to follow-up after the meeting and maybe we will ask that again in written testimony. my time is short. let me close with this. the basil 3 rules are complicated as relates to capital and some people come out and say we would be better off with a much stronger capal