>> congressman, commissioner koskinen testified last week, if that happens to a taxpayer, the practice is for the irs to work with a taxpayer based on documents that are available. >> i'll take that -- so we'll be working with you and that's why i suggested that we issue subpoenas now because you have not supplied the information you have promised to this committee. mr. chairman, i don't have any confidence in this administration to conduct a fair and impartial investigation or to to supply the information this committee has requested for

repeatedly and i believe a special prosecutor should be appointed to find the truth as to what actually happened there and for us to go forward as quickly as possible with regard to subpoenas. now, to return to the matter at hand on fsoc and designations, the chairman asked you a very simple push with regard to consent. i think most people watching understand what consensus means that it means the people at the party -- fsb in the process said there was a consensus on the matter and his question was did you can set? you did not give an answer. and you say whether when they went around the table figuratively did you consent? did you say yes, no, or really don't know what the answer? >> i answered the question. i said the represented joined in the consensus. >> so you said yes? >> i answered the question. >> and so when you make a

determination that chairman also asked the question, is it possible for a company to be globally designated but not be designated by a sifi and answered that one is also yes? >> yesterday i said they are parallel processes and fsoc would make its own determination based on the process at fsoc. >> eight company could be globally important in the sifi but not here in the united states? how is that possible? >> the process of the fsb designation is one that is not binding on national authority. obviously, it is -- >> it's whether or not that company is actually systemically important. >> that's the reason that the fsoc goes through a very detailed analysis. >> does that mean the fsb process is not detailed? >> no. i'm not saying it's not detailed and i'm not saying the outcome would be different.

i'm just saying there is a terrible national process that takes place. >> in a legal matter what a court come with a judge has made a decision in one case it oftentimes has to be to itself when the same parties are involved with the same issues, lawyers have to do that. will you recuse yourself when these same companies come up for designation on a sifi bases even though they are in different processes? >> congressman, the responsibility with is to review all the information to make a decision based on the information presented in the fsoc process which is what i will do. >> so the adjective that is no? >> i will do my job redoing all the documents and all the analysis and will make a decision based on that. >> the gentleman's time has expired. the chair now recognizes the gentleman from massachusetts, mr. capuano. >> thank you, mr. chairman. mr. secretary, i'm attempted to talk about the batting averages of the red sox but i will wait for another day. that's my biggest concern right now to be honest with you. i do want to talk about a couple of concerns. first of all a want to thank you

i think you done a great job like everything else in our details that have to be worked out. i have a lot of constituents concerned about questions that have not happened yet. i am very happy with what fsoc has done. i want to document about the international association of insurance supervisors of which you are participating and i get a response to a letter we written and i want to read a section of it and put the letter on record. we're talking about the capital stands being developed by the iai and response to the capital will not have any legal effect in the united states unless they're inflicted by u.s. regulated in accordance with u.s. law which, of course, is the answer i wanted. i appreciate that it's a bunny to push it further i say that because i'm not opposed to internationalization but it's going to happen. i think we shouldn't put the cart before the horse. we haven't cleaned up our house

yet. i'm not reach a passive over to an international standard i want to make sure i understand this correctly the. by doing so i want to make sure i understand in accordance with u.s. law, make sure this is not some backdoor way to allow some section 4807 of some treaty with some country i've never heard of to overtake our capital standards in insurance and say we have a treaty we signed 400 years ago and we have to therefore give it a. i presume you're not looking for that? >> congressman, i think it's worth taking a step i can tell you how important are involved in these international bodies is. we could do an outstanding job in the united states putting a system in place that is safe and so for all of our financial institutions, and we're still exposed to vulnerabilities around the world if the standard is raised as well. we simultaneous participant in international discussions. in a case like this our interest experts are very much a part shaping the international

debate. >> as i think he should. i think he should be at the table and if you think you should participate and if you think you should have a strong voice. i just don't have faced up among her i'm in some future time that the national stands will be any better that we can do -- >> while our participation often leads to results that reflect our judgment of what the outcome is, we retained as do all national authorities the right -- >> fair enough. >> have a lot of authority. >> part of the question is i'm not looking, i want things straight for the applicant fsoc, i believe in what you're doing. i do believe in internationalization but i don't want to find out the day after that somehow through the back of we give up our entire system of insurance regulation without knowing about it. if we do it i think we need to do conscientiously other don't want to find some treaty did i don't want to find out some of because somebody from liechtenstein had a better idea that now they run out insurance industry. i don't expect that's going to

happen but -- >> that is not the way it works spent you talk about transparency, as far as i'm concerned, backup one second. i also want to go and find out -- don't want to find out under dodd-frank the fed and others have oversight on insurance companies that are sifis or have savings and loans holding companies. other insurance companies are not subject to federal regulation and i just want to make sure there's some backdoor way to expand your vote. i believe charter shall come some day. they are not here yet adages would make sure we are not trying to do that in a backed away spent its death but not any kind of backdoor into federal regulation of all insurance. there is the debates we had as you note as to what the right balance of state and federal is but that has to be done directly. >> i also want to talk about transparency. you agree transparency is important. there's been some give-and-take.

you get transparent and then you don't get transparent. one of the things when it comes to sifis is the sifis know what the measurement are or the potential sifis know what the measurements are. my argument, it's like a traffic a. if a traffic cop the city on highway, most of the time i want the blue lights to be fleshing because i'm not interested in someone going three miles an hour over the speed limit. i'm interested in letting them know there's a cop on highway. i'm not interested in catching someone in a sifi. if they can avoid it annually with the connected is if fsoc and others tell them here's the measurements were going to have. if you choose not to participate between now and six once from that you can take action to avoid it. why is that not possible? >> brief answer. >> i think the standards that are used in fsoc actually are understood i industry that put a

details, rules early on in the process. when it gets to the point of actually engaging with the company, there's an enormous amount of give and take back and forth which gives them the ability to make a judgment as to how they want to organize. >> i think we'll have to follow up with that later. >> the gentleman's time has expired. the gentlelady from west virginia, ms. capito. >> thank you, mrms. capito. >> thank you, mr. chairman. as i mentioned in my opening statement i believe that the process for designating financial institutions, that process should be based on activities of the institution as opposed to just arbitrary cutoff point. for instance, the $50 billion level and do we have another level, $10 million for the consumer supervision. and what we are finding i think is, an and this sort of tidbitsf of the previous questioner, if you have these arbitrary deadlines of 50 billion, you could have a financial

institution that is maybe at 35 billion that is much riskier than somebody who is at 100 billion because of their business platforms, their business, and the way they've structured their business with less and fewer risks -- yes, hello again. so i guess what i would ask is, and governor cirillo talked about this a couple, about a month ago, mentioned come through at $100 billion to raise it up because folks were falling in those thresholds are having difficulty. how do you feel about that rather than having arbitrary assets limitation to me look at what the risk profile is based resignation on that? >> the threshold does not lead to a designation automatically. there's only a designation if the analysis is done suggests that there is a risk that determines that it systemically significant. and i think that the number

designation reflect the fact, we've seen non-bank utilities designated. we seem to insurance companies designated. it's not been -- >> i think in the case of the banks if they reached $50 billion threshold it is -- >> i thought you talk about the fsoc designation, the threshold. >> i'm talking about that in conjunction with other designations of significantly important -- >> as far as the banks, you know, i think after the financial crisis, the burden certainly was on us to take a closer look at the systemic risk and large institutions, and as we go through that process, as the regulators go through their more details review of both the financial conditions of those banks and their systemic risk, i think it's a discussion we can continue to have but i think for the time being we have to look

back and forward. we weren't where we needed to be in '05, '06, '07 and only. we need to have stability. as far as the designation by fsoc, the same standard i think applause. we are not looking to designate for the sake of designating. we are looking to identify what are the areas of systemic risk that if we look back at the next financial crisis we would say why didn't you catch a? >> indicates a credential they would argue it's a slightly different question, they would argue if they were to fail their business model would not drag down the entire financial system. what kind of metrics were used for that, and how does that, what kind of metrics do you all use to make those determinations when the expert, insurance expert on the fsoc had a question about that? >> there were details analysis done and it was a hearing where

prudential came and exercise its right to ask for a hearing. i think the kinds of questions that you ask we're looking to make a determination like this don't have to do with what happens if a company fails in good times. it has to do, what happens if there is a financial crisis and the company fails? what happens if the situation of great stress in the system? that's not necessarily what regulators previously did but when we saw what happened in 2007-2008, things do happen to don't happen in other times. that's the kind of inquiry that we went through. >> on a regulatory, i asked this the other times you can be force, mr. meeks and i have a bill that would modernize and streamline, the financial regulatory framework. we are hearing consistently particularly from our committee banks but others at the piling on of the regular burden is

becoming a killer in terms of being able to move forward with business. you mentioned that once every 10 years there is an analysis of this. i think 10 years is too long a period especially since we going to, a lot of these have gone into effect in the last four years. so what efforts are you making? >> i have a certain amount of background when i was omb director i conducted a review of all the executive branch agencies to do a look back and we asked the independent regulators to do a similar look back. we didn't have the authority to direct them to do that look back. i think it's a moment with the ten-year review coming up the regulars have indicated it is their intention to do that. i think that's a very important thing. >> thank you. >> chair now recognizes the gentleman from texas for five minutes. >> thank you, mr. chairman. and thank you, secretary lew, for your testimony today. before the financial crisis that

caused the great recession you said many financial regulators. yet none took a comprehensive look at the economy as a whole. we were caught offguard because no one was tasked with looking at the big picture. congress created the financial stability oversight council as a cornerstone of the dodd-frank act. it serves a critical function to keep threats away. so secretary lew, prior to the passage what government agency come if any, was responsible for looking at the systemic risk and the u.s. financial system? >> congressman, i think one of the things we learned was there was no single agency that had responsibility for looking across the system and identifying issues of systemic risk. one of the reasons fsoc was created was to make sure that in the future agencies collectively and a body chaired by the secretary would be charged with

that responsibly. i think it's critically important i believe it would be responsible for us to go back to a world where you don't have that kind of ability to look across the different silos. that's not to say the regulators were not regulating the industry that responsibility for. they weren't necessarily looking at the interconnections and with it the entire systemic risk profile developed. that's exactly what fsoc does. is why it was created, why we need to be able to ask a question. it's also why we need to be able to ask questions when we don't know what the answer is. it ought not be we have to have near certainty that there's a problem in order to ask a question request to be able to turn over a lot of stones and had the good judgment to only designate, if the analysis, the facts weren't it. >> secretary lew, last week the committee passed h.r. 4387, the fsoc transparency and accountability act. this bill would subject the fsoc to the sunshine act, expand its

membership and change voting protocols for commission and board members, and it would allow members of congress to attend and participate in fsoc closed-door meetings. in addition of this bill h.r. 4881 would prevent the fsoc from any further actions related to the designation of a non-bank sifi including even talk about the possibility of the designation for one year. but undermining fsoc we undermine our ability to avoid a future crisis like we just experienced. secretary, how do you view the bills passed last out of this committee and what is your primary concern? >> l., congressman, i think that transparency is important and we're trying to develop policies that make it very clear. i also think there needs to be a space where financial regulators

can have a conversation about confidential information that is a protected space. the balance is an important one to strike. i think the notion of complying with as much of the sunshine act as possible is something which reflected in much of the sunshine act is reflected in the fsoc procedures because of the balance it's not 100% and i think it's the right balance for now and we need to continue to work to strive for striking the proper balance. >> i agree with you. >> the participation of members of congress, i would just one of the executive branch meetings have been every day all day long and it's not considered the norm or appropriate for there to be congressional participation in executive branch meetings. i don't think it would be appropriate here either. >> in looking after annual report, the fsoc delineates recommendations to improve the health of our financial markets, interest rates have been kept to

a historic low in order to encourage lending and spur economic growth. to offset the effect of low interest rates but the banks and credit unions have increased risk seeking beers such as extending the duration of assets and easing lending standards -- risk seeking behaviors spent how much does the rate volatility concerning? >> i look at all the different moving pieces in our financial system to keep track of them. obviously, low interest rates do produce a certain tendency for there to be a kind of rush to yield. we've seen a narrowing of yield curves that suggests that. i don't think, if you balance the kind of where we've come in our economic recovery and the policies that have led there, i think we are in a place where

the question that fed and others have to look at but i'm not going to comment on monetary policy. >> i yield back. >> the chair recognizes the gentleman from texas, mr. neugebauer. >> thank you, mr. chairman. in his defense, the fsoc's designated insurance expert state the underlying analysis for the prudential designation you scenarios and i quote a typical to the fundamental and seasoned understanding of the business of insurance insurance regulatory environment and the state insurance company resolution and guarantee fund systems. do you agree with mr. woodall's state of? >> congressman, obviously the fsoc decision was one that i participated in. i thought the designation was appropriate and the risk analysis wanted it. >> so you disagree with the state of? >> obvious going to comment on what has informed by judgment

and terms of the decision we made. >> so just for the record, mr. secretary, what is your background as far as experience in regulating insurance companies? >> i don't pretend to have been an insurance regulator i've worked on insurance policy as a policymaker from time to time but i think the responsibility each of us has as fsoc members is to look at a very detailed analysis as repair but all of the staff of the fsoc. it is quite voluminous and detailed it in the case of the prudential designation, i participated in a hearing and to make a judgment based on the record. >> so when you don't have a background in the industry yourself, i guess one of the reasons that congress decided to put these insurance people on the fsoc process was obviously a lot of the regulators, for example, the fed and the treasury and others don't really

have much background or expense in regular the insurance companies, to the? >> look, congressman i would say speech to the have background and experience in doing that? >> for the most part they have background in the field they're in, with a banking or security. i think if you look back at the financial crisis, the insurance industry was very integrated into the financial system and was a much part of the cause of a systemic collapse. so i think the question specie insurance company speech parts of it. >> what part? >> aig spent but that wasn't the insurance aspect of the business though, wasn't? >> the inquiry of a systemic risk is one where you look at all of the activities of a firm and to look at whether or not it has transmission channels, if there's a problem in that into other parts of the financial system. and i thought, and i continue to believe the analysis done was very high quality and awarded determination. and i'll just point out that there was not an appeal of the

judgment either. >> one of the reasons for designating prudential as a sifi relates to fsoc's asset liquidation analysis. are you familiar -- >> yes. >> which it is in simultaneous runs against this journal and separate accounts by millions of life insurance policyholders and a significant number of annuity under the contract holders for products with cash surrender value, this assumes a scale for which there is no precedent. in other words, was very anything bad in prudential that would indicate that they ever experienced a catastrophic liquidation of policies or surrender of policies? >> the question is not whether something has happened but whether there is a systemic risk in the future, and i think the scenarios you look at 10 to be scenarios have not been experienced because your goal is to avoid having a financial crisis you could avoid. >> the only problem with that, mr. secretary, is trying to forecast cataclysmic events,

really i don't know that anybody has any expertise in doing that. but try to come up with, i could come up with a lot of what if scenarios were you would want to put your money in any financial institution. but the problem is when you start down this road is that you impact the business model and the customers that rely on these financial products for something you are not sure it's going to happen in the future, has not happened in the past. and so and then when you ignore the expertise of people have been put on fsoc to give some guidance in that area, i think it's one of the reasons you hear so many of us question the mythology that is being used in this process. >> congressman, you know, i don't disagree that the scenarios that you look at are not the likely scenarios but that's not our task. our task is to look at in a crisis situation, is there a risk of financial stability

being undermined. we know what the recession of '08-'09 look like. we know what the great depression look like an arsonist with gone through in our history and it's not just pulling scenarios out of the air. the question is in a time of great stress, is the risk? if there is risk it doesn't mean that you are changing the business model all that dramatically but it's a question of is it greater oversight and greater scrutiny. >> the gentleman's time has expired. the chair now recognizes the gentleman from georgia, mr. scott. >> thank you. over here, mr. lee. thank you and welcome. i think you are doing a fantastic job but i want to first of all ask for a little help that you could give for me and my constituents in georgia. you are from a with the hardest hit program, your program, thanks to the hard work of this committee. and i would deeply appreciate if you could assist us. we've got an issue in which my

state was about a year late in getting this money out to help the hardest hit. subsequent to that we have unleashed or unloaded a number of veterans who happens to be one of the fastest-growing groups of the homeless. and that's because they are coming home and the houses are being foreclosed on and mortgaged. so within the next couple of months, in august they're putting a big event together down in atlanta. in order to get moving on this, your predecessor, mr. tim geithner, and the assistant treasury secretary under whose started this was was -- who did excellent work. but, unfortunately, both of them have gone. so what we need is just a nice

call down to the georgia department of community affairs first, thanking them for moving but reminding them because of that one year delay, we only have two, three years left by 2017 as you know. if we don't get rid of that money is gone but it would be a shame that we have veterans coming am seeking employment. this is targeted just for them. so just a call that would be very helpful to the department of community affairs asking if there's any assistance that treasury can give them. because if it weren't for tim geithner, tim assad, coming out of that event to light a fire down in georgia, we would not be moving as we are. i don't want a dime of that money coming back when we have soldiers come home who are living under by docs because they can't get that -- viaducts because they can't get the kind of the. i appreciate what you're doing

and will get the information to your office for whom to call. i have another point. i want to get to the emerging threats to our financial stability on the international stage. you've just returned from an international visit and working on this issue with some of our other counterparts. also treasury is the enforcement arm for the iran sanctions. six months is coming up. can you give us in a nutshell where we stand relative to the impact of those sanctions and what are the emerging threats international? >> first on the hardest hit fund i would welcome the information, and tim bowler is running that office and i will have him follow up as appropriate. >> thank you. my staff will get you that spent as far as the iran sanctions go

and the negotiations that are taking place, i think, three points. first, the sanctions have been extremely effective. they have had a dramatic effect on iran's economy. they've actually crushed iran's economy and brought iran to the negotiating table. the joint plan of action was very limited release. it was, several billion dollars of relief, not enough to reverse the harm that the sanctions does to iran's economy. and, in fact, the ongoing impact of the oil restriction in the sanctions does more damage than the relief granted. so the impact is building up, not reducing. third, we have made it clear that we are committed to these negotiations is not committed to a deal unless it's a good deal. no deal is better than a bad deal. we hope there's a good deal. we are in the final months, i think that it would be an important month to determine whether or not there's a

seriousness on iran's part to set aside its nuclear weapons program. program. >> so we are at that final month which is the apex of my question. where do we go from there? do we go back to square one, or will there be an extension asked for? >> i'm not going to prejudge what the end of the month is. there have been no discussions to date of an extension. there's also not going to be pressured to take a batch of because we are hitting a deadline. i think we'll have to see where we are at the end of the month. what we have said is that if the talks break down, if iran is not willing to make concessions, we will look for tougher sanctions and we have taken no option off the table to make sure iran does not get nuclear weapons. >> the gentleman's time has expired. the chair recognizes the gentleman from north carolina, mr. mchenry. >> secretary lew, thank you for we appearing. we had a hearing of our asset

manager report and former assistant secretary michael barr testified that the goal of our report was quote not something i would hang my hat on, end quote. would you hang your hat on the asset manager report? >> i don't hang my hat on reports, congressman. >> i just stated the report was one step of the process but it is not a decision by fsoc but it was something that fsoc asked for as one of the things to consider. we've done a lot of other work as will an analysis within fsoc and made a public session i believe the day before your hearing where we had broad participation by industry and by experts from academia including michael who testified. i think that one of the important thing to remember is, fsoc has made the decision to designate asset manager to all fsoc is done is ask the question. i think it's important to ask the question and answer could be

is that there's no need to designate to the answer could be that there's some other course of action. we will continue -- >> and to that end, chairman testified a few weeks ago before this committee that the sec has all the authority necessary, no new authority would be needed for the sec to regulate the asset management industry. do you concur with that assessment speak was i think depends on what the answer is in terms of what the appropriate step to take. and i'm not going to prejudge the outcome of an inquiry that's not completed. >> okay. let me try that again. do you believe the sec has the authority necessary to ray kelly asset management industry? >> i believe the sec does have authority to record the asset management industry, whether it's the precise authority depends on what a load of regulatory response is. >> and thank you for our fine. that is helpful and very

forthcoming. and so with a number of other questions but with the fsb, a number of us have questions about the process. you've and to do this to some degree but we have, many of us have complaints about how nontransparent fsoc is but fsb is even less so. and so when the fsb designates g-sifis and the investment companies are only u.s. registered investment companies, it becomes problematic for us to see, to judge whether not the fsoc will take that same task from fsb. so from that in or to help us understand the policymaking process would you help us with better disclosure of what those discussions are like and what

discussions are at the fsb just going forward? i think that would be helpful in terms of transparency and in terms of making sure that we are asking appropriate questions. you don't have to answer the same questions over and over again. >> our staff has tried to keep congressional parties in form. we will continue -- >> currently i would say that's not sufficient. and so will you try harder to do better when it comes to transparency with fsb? >> i tried harder to do better with everything i do the same day. >> no hats and try harder. to that and let me ask you another question, if we can get to this. we passed a couple of major pieces of legislation through this committee and off the house floor that are bipartisan in nature, right? some help credit unions, others help community banks. a bit of the overreach large

bipartisan vote is shown. one is the swaps push out bill that passed 292-122 on the house floor. and the end-user margin to which passed 411-12. so there's a way for us to pass bipartisan legislation to give us your view. what is your encouragement for congress to uncheck bipartisan regulatory changes? >> look, in principle i endorse bipartisan legislation as a general matter. and -- >> but in a specific matter, could you help us with this process depends on the question of dodd-frank, frankly there's been an issue for the last four years where the question is do you just make technical fixes or do you go back and make broader changes? that's an important question but we don't think there should be a broad review of dodd-frank. there's also question as to whether not you get agencies a

chance to government things before you legislate against putting an overlay on top of a. i'm happy to continue the conversation with you. >> the gentleman's time has expired. to the chair wishes to announce to all members that at approximately 1130 time in the chair intends to call if i've been recess. the chair recognizes the gentleman from missouri, mr. cleaver. >> thank you, mr. chairman. thank you, mr. secretary for being here and we will also receive your thanks for sending mel watt from this committee to the oversight council. we are please -- >> we appreciate you sharing. >> mr. secretary, i've got two questions, and do you believe that as a result of fsoc that we do have and authority that is accountable and responsible for monitoring the financial

stability of the u.s. economy, essentially? do you believe that without fsoc, the dangers would be increasingly more ominous? >> look, i believe we have a much higher level of visibility into the financial stability risks. we have relationships between regulators that are stronger and deeper than they ever were before. and we have the capacity if we need to for people to collaborate together in a much more effective way. i think all of that leads us much stronger than before and to give that up would put us back where we were in '07, '08 window regulators worked in their silos and it was very hard to break through to look at the broader financial stability. >> well, that's interesting as i'm wondering how comfortable

the members of this committee should be that the expectations that an american financial institution is due to big to fail. i may, these huge interconnected bank holding companies or the non-bank financial giants i mean, how comfortable should we feel that they too big to fail has been dramatically reduced or eliminated? >> congressman, i think we've made enormous progress. we have much more capital in our bank if we have resolution authorities that are now in place and being exercised so that institutions, if they get a failure, they have way to unwind without necessarily causing the kind of systemic risks that we saw in '07, '08.

we have living wills for the largest institutions that have very detailed plans of what they would do if they got into distress. and i think if you look at the question that is often asked about the implicit subsidy for large banks that is a reflection of the markets belief that there is a willingness to step in. we are seeing that way lower, if not eliminated. it has been reduced by academics who study it but it's been reduced when the imf look at it it's been reduced when rating agencies looked at it. so i wish i could tell you with absolute certainty that too big to fail was a thing of the past, but what i can say is what made enormous progress. we will continue to work at the kinds of sensible ongoing policies that will make our system even stronger. and the test, unfortunately, only comes when you have a financial crisis, which i hope we don't experience.

>> i was going there. we won't know for sure as we didn't, i mean, i was on this committee when secretary paulson and others came in and told us essentially that if we didn't do something before the asian markets opened the following monday that the world could fall into a depression. i'm assuming you're saying we could have a degree of greater comfort, but that comfort should be measured because we don't really know and won't know unless we hit another -- >> i would add, congressman, that many of the authorities that existed at the time have been changed in dodd-frank and we don't have the tools that secretary paulson had at that time spent of course he didn't have the tools. he made the tools up. by his own admission. >> but they were changes made in dodd-frank, you know, that limit what treasury can do. so we have less ability to step

in and would require -- dodd-frank as a matter of law in did too big to fail. so if there is an obstacle, that would be a change in law to step in to exercise some of those authorities. >> thank you. i yield back the balance of my time. >> the gentleman yiel yield bace balance of is that the pitcher not recognize the gentleman from missouri, mr. luetkemeyer. >> thank you, mr. chairman. mr. liu, welcome. quick question for you with regards to mortgage servicing assets. you know, fsoc seems to be intent on trying to implement new capital standards on these folks. and i guess my first question is, where's the problem? and what problem are we trying to solve? where's the risk of? >> congressman, could i just asked for clarification?

what capital are you referring to? >> fsoc capital for mortgage servicing assets and what we are seeing is that the small banks, even large banks, are selling all their mortgaging servicing assets to non-banks as a result of the capital rules that are being implement it. >> we are definitely seeing that there are higher capital standards for banks, you know, in general for banks. you know, and to the extent that banks choose to change their business plan and get out of one line of business or into another, that's obviously something that we need to keep an eye on. >> basically i just let me back a. also three was the one that is impacting this and -- basel iii. from the standpoint we are allowing the forum rules and regulations which to my knowledge they don't have

mortgage servicing assets activity in foreign country. so we are the only one that does this sort of activity. and yet we are allowing the basel iii rules which are basically foreign rules to impact our way of doing business here in this country. number one, where's the risk? what's the problem? why are we allowing entities from of the countries to regulate a business that is basically american in nature of? >> well, you know, the capital standards that our regulars have put into place are actually in some ways tougher than basel iii. so it's not that basel iii put the capital requirements in place. our national authorities have put our capital requirements in place. we have driven basel through to a higher standard because one of the things we worry about is a risk that we face is that other countries don't have the capital requirements that we have and their banks are not going to be as sound as they need to be.

>> this is about mortgage servicing assets. where is the risk to someone who services loans of? >> i think the question actually is a broader one in terms of -- >> no. it's very specific to where is the problem that entities that service loans need to have more capital? where's the connectivity to our financial system that causes greater risk that have done more capital requirements requirements are on all bank assets. so that i think is really the issue but i'm happy to follow up with you on the specific question of mortgage servicers. >> it's interesting because as we go through this process i think the previous question, one of the folks i think was talking, maybe mr. mchenry, you know, we are talking about some of the stress test that banks are doing it and the big banks modeling is allowed to be different than it is from smaller banks. and yet when you allow them to

design their own modeling they come up with a completely different capital ratio as if you would do the same modeling for smaller banks. so i think again you're using two sizes, two different sets of rules with regards to the big guys versus little guys. i have a real problem with it. they continue to be rampant through, all of these things that treasury does. two sets of rules. >> the regulators have gone to great lengths to try to reflect the special circumstances around small banks and community banks. and it's not the banks that the standards for stress test it is the regulators who conduct the stress test. >> yet, but mr. secretary, your own on the banks to also determine their own models on how they determine the capital and that's not right. because you have to have same set of standards for everybody. you can have two sets of standards. it goes back, well, i discover real problem with that

particular -- let me just go, i have 24 seconds left. your comment a while ago that insurance companies, it's sunny, absolute stunning. i decided to give me an example of one insurance company that truly the interest part of the business was a cause of the collapse. tell me, was at an entrance polls, insurance rate, insurance lack of claim processing? was that because of 2008? >> i use aig as an example. >> mr. secretary, you know as well as i do it was the financial portion of that company was the problem. the connectivity of that. yield back. >> the gentleman's time has expired. the chair recognizes the gentlelady from wisconsin, ms. moore, for five minutes. >> thank you so much, mr. chairman. mr. secretary, it's nice to see. thank you for coming to speak with us today.

i guess i was looking for your testimony, and i couldn't agree more with the formation of fsoc was an important strategy towards having all of these senior regulators and principles look at the system across the spectrum, because i was here, again, when mr. paulson came with his four-page bill saying give us $700 billion. don't want to go to that anymore. but my question is, in what -- i think a good process leads to good policy. so i guess i saw mr. roy what all, the fsoc insurance expert, dissent from the decision to designate prudential. and they were designated as a sifi. and we saw the sec push back and

give -- reform. and, of course, the sec is the expert on these industries. so i guess i would like, keeping will be helpful for us to have a sense of how do you see the role of the primary regulators in these discussions? is there any deference to them? you know, if they just dissent from the decision so that they could, so that they wouldn't be on record as being against the industry? what are we to learn from the experts of the fsoc, assuming that having less voice? >> i actually think all members of fsoc have a voice. they are listened to but ultimately not everyone will agree on every issue.

i think if you look at those issues, you know, separately, i've spoken at some length on the review of the insurance companies before the designations were made. i believe the record was a robust one and awarded the decision. not every member of council agreed, but the decision stands and the company has not appealed it through the courts as it could have. and i think the process was one that reflected radar and -- rigor and analytic quality, and i'm both comfortable and concur with the judgment that was made. as far as the issues you raise with regard to the sec, i think fsoc spoke to the money market fund issue before i was chair of fsoc. it is an issue that was again at the heart of a financial crisis in '08, and there was i think an urgency that was felled by fsoc

to underscore that more action on that and on other issues that relate to the air and shadow banking was important. the sec has a direct regulatory authority. they are working on our will and i'm hopeful they will complete the rule this summer. >> mr. lew, thank you so much. i don't have much time but i do think the sec did push back on aspects of money markets. finally i guess you've heard the complaint that prior to designation, which is a big deal if you'r your designated a sifis is not an opportune at all to present their case to the full board of principles of the fsoc. or even to directly address the file information charges that are being presented to justify the decision. this seems to be just a little

bit contrary to what we know as of due process. i just want to know what your response to that is. >> that's not correct. the nickel back to the money market fund the sugar i want to much everyone on this committee there was a real problem in money market funds in the financial crisis, and the challenge to solve that crisis fell not on the sec but it fell to the fed. so it was quite appropriate for fsoc to take of you and, frankly, it is very appropriate for us to continue to take a few to make sure that action is taken. >> i do want you to answer the other question, mr. lew. >> remind me of the second question. >> okay. the people don't get a chance to present -- >> that's not correct. there is extensive back and forth between a company and the fsoc during the stage three process. >> stage three? >> yes, extensive. there's no designation to the end of that. at the end they have a right to hearing and only one company has sought it and we had him.

in their judicial rights of appeal after that. it's a robust process. >> okay. thank you so much, mr. secretary. >> the committee will no -- will now stand in recess for five minutes. [inaudible conversations] gnow more with treasury secretay jackal on the financial security oversight council. this is 90 minutes. >> this hole the dog ate my homework defense that the irs and lois lerner using, the american people are not buying it. but more important i think it calls into question the integrity of the process and i think it's very disturbing to all of us. we have computer crashes in our office from time to time.

i think every member has had them. and you immediately call in the technology people. you make sure that the hard drive is preserved and you don't lose e-mails. so i hope you will investigate this as secretary of the agency, and find out what happened. >> congressman, i think we all know that hard drives do crash, and that's what happened here. in 2011 when the hard drive crashed efforts were made to recover what could be recovered. and subsequent to that after he became a matter of interest, extensive efforts were made to put back together what could be put back together. i believe communism commissioner koskinen has testified to this that report has been sent to congress -- >> i'm just saying i think the american people are still

waiting on a good explanation. let me ask you this. i've always been struck that orderly liquidation has struck me as a convoluted and kind of a highly subjective process that does little to end too big to fail. and it gives an enormous amount of discretionary power to regulate. and fsoc makes resolution advice or gives recommendations the fdic. the judiciary committee in connection with the financial services committee is looking at possible changes, several possible changes in the bankruptcy code. that we believe is properly constructed, bankruptcy would be a better way to do with resolution of failing institutions. you've got established precedents. you believe it's a worthwhile

process for congress to consider this approach? >> congressman, i think that orderly liquidation authority actually is an effective implementation of the law and dodd-frank to obviously it's not the same as bankruptcy, but it is a process that is actually become one that the world is now looking at to see if a single point of interest system -- >> so you don't think the bankruptcy process -- >> i would be interested in following up with you in what the changes of the bankruptcy code would be. i don't think all wisdom was contained in the actions taken in the wake of the crisis. >> we would like to work as partners with this as we go forward. >> it's instead of orderly liquidation authority. i would not take the orderly liquidation of 40 away. and i don't know what the proposal are but i would be happy to look at them. >> and i'm not sure we do yet either.

congress six months ago was told that there would be more coordination and guidance on the implementation of the volcker rule. unfortunately, i have not heard of a lot of follow through on his pledge. would you review with those what is being done to provide financial services providers with the guidance they need to comply with the many complexities of the volcker rule and give us some assurance that implementation questions that were posed to the working group will be answered? i know six months later only six of those 80 questions have been answered. >> congressman, i think the fact that an identical role was issued on the same that but all the agencies action was an important step of giving guidance. my fear was there would be differences that caused confusion and i think it's important that there is one rule. so i think that is the foundation but it hasn't actually gone into effect in terms of compliance yet, and the

regulators are working amongst themselves as they go into the implementation stage to stay in close contact. because there is obviously the risk that you end up with common law in each of the agencies going in different directions. that's not in a we have direct responsibility over at treasure or for fsoc but i think it's an important question and one i ask the regulars as well. >> they still need more guidance in complying with boulder and i appreciate your willingness to give that. thank you spent the gentleman's time has expired. the chair now recognizes the gentleman from delaware, mr. carney. >> thank you, mr. chairman. thank you, mr. secretary, for coming in today. thank you for all your good work. i've been reading through the fsoc annual report, lots of good information and data in there. one of the things that's discussed in the annual report is the repo market as an area of vulnerability for our financial system. in fact, in hearing back from

february before this committee governor tarullo started the repo market as the second greatest threat to the stability of our financial system after adequate capital requirement. do you share governor tarullo's concern, and what steps can be taken to prevent adverse consequences in the repo market during stress markets? >> i think that the short-term funding issues are quite significant. that's why when you call them short-term funding or shadow banking, you're putting so much attention and get them. the risk that one day, you are open for business and you don't even have the rebound of the money markets funding that you expected, we sign the financial crisis cause an immediate collapse, a collapse with an exiled or on a. i think if you look at the amount of funding that in the repo market and the money market

funds, it's considerably down from where it was at the time -- >> less of a risk. what can be done to prevent some of the adverse affects? >> so i think on both of those issues, o on the triparty report and a money market fund, it's important regulars continued to look at the issue and take action. so the fed has responsibility in the area of we bow, as easy as responsibility in the area of money market funds. i know both are working on additional steps that could be taken to further reduce the exposure. there is an efficient market of their until there is not. >> right. >> and the question is what happens when it's working well. the question is what safeguards do you have that you won't see the moment it collapses. that's what i think the fed is looking at what actions it can take and what its unborn the sec finalizes money markets rule. because i think they are really

parallel spent some moving onto gsp reform there's been discussion about unfortunately my colleague mr. perlmutter from colorado is not here. he and i have a different perspective on it. your report identified it as an important issue but it doesn't say too much about what the negative consequences of not doing reform. i've been working with congressman delaney and others on a piece of legislation that would provide a government backstop with more explicit guarantee. what's your view on the risks of not doing reform in the short-term? >> look, i believe housing finance reform is really the unfinished business that didn't get addressed in the immediate wake of the financial crisis, and we've seen only recently with the estimates of the exposure that taxpayers ultimately have to the gse, that

were there to be another crisis we still have the system that we had before, which wasn't -- >> with greater exposure. >> with greater exposure. so i believe reform is very important. i think there's a lot of progress that's been made in the senate working towards a bipartisan approach. i think there has to be a bipartisan solution. the key to a solution is making sure that there is access to finance, making sure that there is a clearly delineated responsibility that's not a government responsibility in terms of losses, particularly first losses. and to the extent there is any remaining government backstop, that if the extraordinary circumstances are well defined. i think a process in the senate didn't make great progress. it's not finished and manitoba that he built can't get to conference so it's a scenario that we can seek bipartisan legislation on. ..