. i look forward to that process being completed. >> on some levels were we have multibillion-dollar pension plans that have tried to benefit from a greater diversification of asset management by using more emerging and diverse asset management with generally smaller asset managers and minority and women who have selected investment strategies. i'm finding that these managers face barriers. the treasury or the treasury or fs oc looked in the diversification of managers. >> well, treasury secretary, i have looked at it. if you look at the performance there is not a huge difference. some are successful and some are not. some have good years. some have that hears.

one of the problems is a tendency to both things up. easier to deal with a few rather than a lot. we need to push back. the door has to be open to new participants command we have tried to have that be the approach. there is more progress and is to be made. >> as these asset managers get bigger and bigger they play more and more of an important role in their sourcing capitol. and so that is one of the reasons why banks had to go through the community reinvestment act. should we be ensuring we have more inclusion so that we can make sure they are investing or reinvesting in

our other communities? >> it is important for broad participation. i do not know that i think you should have mandatory targets but i'm happy to follow up with you. >> the time of the gentleman has expired. >> right over here. >> i've got five minutes not 15. i received the email at 1118 and the answer to my questions, a few things three months ago. wwor

>>

>> it makes sense to have us negotiate with our partners but again you exclude financial services and i am curious with the administration position to head the local storage requirements for everything except financial-services. >> no. i have been very firm to put non-tariff barriers in place with local storage requirement for electronic data. the distinction is easy to make and i have tried to be cleared before. leaves regulation not to be brought under trade in negotiation and that is the difference but to say. >> to have that services sector for the u.s. economy.

>> in general that trade agreement. >> the europeans like to do that so with the imf and priests would you agree or acknowledge the of a decision to bend the rules shall be shed if -- if not ignore them on the exceptional access remark was of mistake? >> those actions taken in 2010 or 2012 was the right saying for the united states >> but at the time but now looking back to you think it was a mistake? >> i will take no i will

take the measure answer because there is a discussion to put those rules back in place at the imf that is something the board is interested in and i am curious why the administration is opposed to that? why? >> there is occasions when it is important for the imf to have flexibility. >> so the rest of the board excluding us wants to put the role -- the rules back in place because they feel it is a mistake? >> that is exactly where the conversation in this. >> i had a number of conversations with folks from the imf i am not sure that is inaccurate portrayal >> it is important to distinguish with the question of how to proceed into profiling i know the

administration tries to use that as a reason to not necessarily go into the quota reform but it seems if we're not going to do address the framework. >> if i could take half a minute to respond. >> traveled to a private meeting later really get you appear twice a year. >> is in imports due to issue. reform is critical to get that quota reform the neck dead and exceptional access i have never pushed back on the questions you're asking and i am open to serious conversation i'm looking forward for the imf to avoid having to use tools like that is in all of our interest unhappy to have a conversation.

>> the time is expired the gentleman from massachusetts >> are you familiar with major league baseball? the boston red sox? you purport to be an expert in baseball what is wrong with the red sox by now? [laughter] you refuse to answer is it that pitching or field a or hitting? c'mon mr. secretary is a question space and answer that then why the republican baseball team cannot hit the mine mr. secretary answer the question you have plenty of time. the update you refuse we will have to move on to other areas because i want to show i guess badgering is not the exclusive realm of some of my colleagues. we can badger but it does not produce much.

>> as the mets fan i am showing great self control. [laughter] >> for every betty's sake with your next fsoc report you have a great story to tell put a chapter with ted -- with that in theory it could be a risk to a the economy of a good story to tell and would satisfy everyone including the. >> we could discuss it while we don't think it is a risk that we focus on what we think is a risk but that is the fare applies to read just what the next time you take one of the arguing points away. it is a fair thing to discuss. with that i will move on to what is not directly related to fsoc but is directly related. as fannie and freddie paid back every penny they have borrowed from the american

taxpayer? >> they have i believe. >> the answer is yes. >> i believe the answer is yes. >> i know the answer. have a they also paid back billions upon billions above what they borrowed? >> i think they understand prairie were going congressman and and what they have not done is removed the risk that goes with those institutions having the backing of the federal backstops. >> said the money that they paid now where does that go? america goes to the general treasury so homeowners. >> so does the risk. >> i totally agree until they take back the loans but they are stable and headed in the right direction and

it is time to get back to more business as usual because i want to keep homeowners' to the best of our ability. dollar for dollar we're contributing to the federal general treasury account and that does not seem fair part of we have a general account we should increase taxes but it is necessary. >> but the federal taxpayer stands behind them if they fail in the future. >> but from day number one. >> i respectfully am strongly disagree as we have

seen the estimates of the potential risk is quite large. >> if that money goes to a separate account id is of liability. >> now that they are stable with the interest rates and right now it is used to support something other than fannie and freddie and to follow something to do a great job it strikes me that fsoc is pursuing a back door to take the regulation of insurance companies with the international agreement. that may be overstated by a

not the black helicopter type but it strikes me that the international friends could push a little too far. >> your time is expired. >> the gentleman from wisconsin. >> welcome. obviously your the treasury secretary not the coach of the red sox to not ask you questions we wouldn't know if they're doing better than of the brewers but if you were the total crude ask you to renew a answer those questions and we would hope you would not give us answers of how it cave in to be to heirs of the questions of what is wrong with the red sox? you had a lot of questions about dave liquidity and i think the chairman and is

that related to the volcker role that has caused a set of traditional market makers? i want to give you a chance to answer that question to you think the rules and regulation is that liquidity ? >> but it is a complicated issue i had tried to indicate. >> the talk about cyberthat is very complicated the cannot wrap our heads around what you tell us where we see those risks?

it is a symbol of question and there is a lot of reasons and the commentators can talk about this be you're not willing to answer that question today? >> in fairness i am offering a much more detailed answer most commentators with some self-interest jump to one explanation. >> and then to talk up the commentators but those do-gooder's are those that are creating a risk in the market.

it could be a cause of the lack of liquidity in the bond market. and you don't want to end to say it is too complicated an answer i don't understand. >> yes or no? to look at the manufacturer's there at work right now to have an impact on liquidity it isn't my view that it is the principal thing that requires attention and. but it is very clear i didn't ask if that was the principal. you play with proverbs or cahan haikou's at back to the point and if you think

rules and regulations will, the commentators are wrong. they have left the space that has no direct correlation so tell us that. the financial reforms was

safer than it was. and when they looked at the issues related to liquidity identified. >> to support tpa? >> i do very strongly. >> do we not -- to be noted. >> the chair recognizes the all share from new york. >> i am pleased to wellcome one of the favorite sons of the city of new york. i regret i had to share another meeting and i just got here by one to follow up with the ranking member waters earlier and well my friends on the other side of the aisle have criticized fsoc to not be a response and to their document request, fsoc did make 1,400

pages of confidential documents available to this committee. and our staff on this side of the aisle review these documents. these are confidential to leonel the reasoning to designate companies and exactly what the majority asked for. some 1,400 documents open for review is responsive and i want to make that clear. i was by to ask the treasury the issue of bond market liquidity isn't legitimate -- is legitimate to we should be careful to address those causes and to i don't think we have any definitive the answers but it is an important issue but also to

focus on the treasury market rather than on other markets because it is a $12 trillion market that determines the borrowing cost of other key markets as well. he mentioned this week on october 59 of last year that there was no evidence of a breakdown in the market that day and i degree. october 15 trading was continuous and volume was heavy. was there really a lack of liquidity? or something else? give us more context to look into this issue. >> we have worked with other agencies to look at the market carefully to follow those transactions to understand what happens

there was a 50 minute period with a price hike but there was gotta break down in the market but what do we learn going for word. there were is a huge amount of electronic trading going on. the market's structure has evolved with technology we've never go back so to deal with that reality. i don't say that critical of the development but that changes the structure of a market. i cannot sit here today to say i have a clear a bouncer over the next few weeks to complete the analysis to offer a more definitive view. what i tried to say before is there is the desire to jump to a conclusion that we

see no link between financial reforms and would happen on october 15. maybe others will find it but that is why every half to be so careful asking questions about liquidity to treat the issue a way it should be treated if. have not ruled out into the story possibilities from policy or market conditions but we jump to a conclusion which many did quickly in a way that i can understand that does not mean it is right. the treasury market remains the deepest in the world there are other areas that are quite legitimate that raises questions if there

were a stress day but one of the things to separate the different kinds of liquidity with the proprietary investments on their balance sheets that is not something we should go back to. >> it is critically eight expires. >> we now recognize the gentleman from pennsylvania. >> and to make part of the of record if you give us

some time i will submit that to the chair i want to follow-up with your quick response and that the fsoc report that is a good story to tell and that number to it is not a threat to the economy. day you agree? >> it did say complicated question. i have only been director three years as a surplus. to look at what we inherited >> but the debt itself with president obama referring to it is unpatriotic and immoral with 11 billion is

it a good story? >> but there is a new administration and speakers took office january 2011 because of fiscal restraint with the annual operating deficit. >> i don't think it is good for our economy. wilson and not growing fast enough we have to keep the economy growing. is a huge progress. >> the a greatest threat to our national security.

>> at that time it is double digits but looking at gdp. >> i am not asking that but national debt. >> as a percentage of gdp has stabilized we have made enormous progress. >> you refer to a proposed amendment with currency manipulation as the poison pill. the president said he had is new efforts to come back can you describe the role of treasury and will they be effective? >> to use the tools that we have to help push china into a different policy and japan into a different policy. with that trade legislation

there are additional tools we are working with our negotiating partners to give us more visibility to use the process with disclosure. >> also the idea of the administration was referring to last month? >> we support that you put in the senate as to whether or not countries are violating with fair currency practices. so if there is several new tools with countries that are violating.

>> want to give it to a question on the budget as a compilation of the nation's priorities to be relatively flat funded maybe has even exceeded the president's request but the organizations do an outstanding job with the resources they have but the challenge is globally every single day what cayenne you tell us? >> i could not be prouder of the officers. >> they do have sufficient resources if we thought we needed more to do the job. >> your time is expired we now recognize the gentleman from massachusetts.

>> i know we had ted disagreement last week on tpa but i have never heard you address the american people with disdain. that is not in your make up for character. reference would be more like it with the desire to serve you are a good man we don't always but i believe you have the best interest of the american people at heart. the administration is lucky to have you but when a bank is convicted of a felony or pleads guilty we have laws in place that says when they're guilty of these crimes they will remove privileges of the of

well-known issuer. or the well-known seasoned issues were. we had a recent bout of a guilty pleas from the big banks and the manipulation with the exchange rates. normally those should be penalized with the designation that allows the off-the-shelf registration and other privileges. but what has happened for instance the latest round barclay's just received there third waivers as 2007

and citigroup has triggered a disqualification five times in the last nine years and every single five we give them a waiver after they pleaded guilty. ups has received the seventh of waivers since 2008 daybreaks the law, jpmorgan chase with the royal bank of scotland receives since 2013 and going back to ubs fell last waiver of occurred while they were still under the non prosecution agreement from libor but the easily fail. so those penalties don't

happen because they get waivers. so given these waivers continually to not punish the banks is a moral hazard just as they always have been. >> we have made clear that no individual is above the lobby will prosecute the second but there are very serious but things like tax ride so let's get the prosecution does have been very large for those that are here 2.5 billion dollars

in fines but doing what they can be doing and i have people in my district that are convicted of far smaller crimes. but is there another set of penalties? >> love dad the approach the prosecutors have taken their land to make sure to hold accountable to not have the unintended consequences. >> but these are intended consequences. that is my point. we intended them to be penalized if they are not. that that they would not create that unintended consequence. >> with your last question a lot of things we could look

at in terms of practices of the industry. >> your time has expired. . . >> perhaps they reached a point where the nation has systemic

risk. and you know is this in conflict with dodd-frank? >> you know, the question is do the banks of all sizes pose the same risk and require the treatment. the answer is no. we have been careful in designing the rules to try to distinguish different levels of treatment for different firms of different size. there is certainly an openness to looking at issues there. and i have to say that the debate recently has taken on a kind of odd type of character. exempting banks of $500 billion or less. you know, do you know how many banks there are.

and we have to be careful not to ask questions. and we have open ideas of how to work this out. >> one of the things is that when this was past it was passed and agreed manner. and this gives you latitude to establish this end you know if i go back and look you say that you have all not formally looked into it. he reasoned that there are processes where there can be a

formal process where this could go through that process and recommend this to change that. i'm a little confused. >> i think that if you look at regulators taking a look at this issue to see what they can do with regulatory flexibility, the question is when you raise it to the level of a formal review. giving you the kind of ideas and the frequency of this cycle. there is a reasonable case that the frequency should be different for a small institution and a large institution. so there are ideas that could be pursued. it's it doesn't mean that people aren't asking these questions they are looking at them and honestly we are looking across the landscape as well. >> i think that it is important that they get their input. but the truth of the matter is

that those others do not have that authority. this resides in the secretary of the treasury and the last time that i checked that it's you. so i believe that it's kind of a little bit confusing. in which we have one instance using this saying that this is what the world looks like. and it's confusing as to what standards should be in place. >> you know, to be clear and

you wouldn't want them to be identical to be an independent institution, expressing these analytic views. >> my time has expired mr. chairman. >> the chair recognizes the gentleman from georgia mr. scott. >> thank you, mr. chairman sir, it's good to have you and your doing a great job. keeping this conversation on liquidity. it's a serious issue. i am very concerned about it. there's a number of experts that register warnings about it. liquidity is the key to protecting the financial systems and also the key to being able to ascertain potential risks to the system. so that provides us with a way and not just look down the road for problems.

and the issue becomes with this liquidity worsened as the economy worsens? and we don't want another crisis after they finish the depression. it is surely as we have a free enterprise system that is free to go up sideways and down whatever. so if we had another crisis with the financial system in your opinion have the liquidity to be able to come to the assistance of other financial systems in the way that it did in 2000 and eight when healthier institutions had helped us a

lot. and they were able to buy of institutions like this and mergers are not buying this or not. this includes using this in a quick way with stable prices. and so obviously the capital and the balance sheet of institutions will effect to both questions. >> it's undoubtably going to be more volatility. i started testifying and we were concerned that there was no

volatility in the market. but now there's a concern that there is volatility in the market. as we see this return, there is more volatility. i think that the institutions are stronger than they were going into this crisis. having more of a capacity to come on through in a healthy way. that is a good thing. in this report we look at the risks that we see to the broad financial system and we like to include the liquidity on the list, but it's not the single factor that we are looking at and i think that it is also important to separate the different parts of the market because the treasuries are different from high-risk funds. >> do you believe that there's any link between the united states growth and the fact that the financial institution has to hold so much capital and

reserves rather than putting that capital back into the economics system to good use. >> you know congressman, i think that there's a lot of money that is on the balance sheet of businesses and they don't even need to borrow to get access to this. and so why are they not investing more? well, i think has to do with a sense of confidence that they are looking for, but they continued economic growth. >> do you see a link? is there a cause? >> i don't think that there's a lack of access to capital that is the problem. i have focus earlier on things like housing and small business because that's how this is where small businesses are.

>> are banks now have the ability to see themselves through a difficult time, it makes us safer and founder. we saw what this was going to be and we can go back there. >> the time of the gentleman has expired. we now recognize the gentle lady from missouri. >> thank you, mr. chairman. there seems to be so much interest in this issue of liquidity and i cannot just help myself about this. perhaps i will ask the question that can put this to rest for all of us. i am going back to your march of 2015 testimony on the issue of liquidity. so i think that this is something that fires a lot of

analysis and we are dealing with it and i would be happy to share with you a more complete analysis when we complete it and i didn't get anything last night but what is the plan? >> as i have indicated earlier the hope is in the next few weeks that the analysis of october 15 will be completed and we look forward to sharing it with the committee. it has been a complicated analysis that has required a number of agencies working with different bodies of data. >> within the next three weeks. >> i cannot say three weeks but over the summer. and as soon as this is finished we will share it. >> that is the schedule that we are working on. >> that should answer all of our things about the importance of liquidity.

>> i wouldn't say that any single analysis would go through all of the questions you know in this report we noted that there is a broad range of factors when it comes down to this. i have to say that i've taken on a lot of questions today commenting on regulation. we added regulations to a list of things that we need to look out and we are open to looking at all of the causes and i identify the things that i am confident, things that we need to be dealing with. >> we look forward to your report this summer. today, this has designated financial companies and financial institutions as well. essentially signaling that the government considers them too big to fail. as a result the richmond said that shareholders and creditors of those firms cannot expect the government to shield them from losses during times of distress.

and so for that reason, i am interested in i think others have also mentioned this today how these companies can ultimately the risk and shed this and remove the implicit government support that is a designation carries with it. knowing that the primary goal is to reduce the risk in the financial system, i think that he would also share that sentiment with me. i know that the senator has told you before that there was never any intention of creating a hotel california with a designation process where you are able to check in anytime but never leave. the secretary, in the absence of any practical guidance on how to exit this designation, is it

really possible for them to know what they are supposed to do to reduce the systemic risks? >> yes i think that the process is greater that we reviewed the designation and if the business of this designated company has changed in a no longer presents the risks, they know what this is and we identified it clearly. you know right now it has been in the news that the capital that has changed business plans for reasons that have nothing to do with this designation but that is going to cause there to be a review and we will have this you whether that changes the character or not. we are open if the firms change the structure. >> basically they don't know how they can reduce it. >> they know what it is about their business that criticism

the first place. >> do they know for me specifically? >> there is a long analysis that goes to the company when they are designated that identifies for them the basis of determining risk. >> you have a list? >> stack it is a risk of what are the risk factors. >> the risk factors are quite clear. >> to whom? >> to those that are designating. >> who provided those with that max. >> it's in the analysis available to the public. >> the chair now recognizes the gentleman from california. >> thank you for holding these hearings, i hope that we can testify this. if you would interview, i'm not

sure that you would get views that would be requested by every member and i'm glad that the secretary is here, but i will board to hearing from the others as well. we have litigation on whether it is part of this, if you have filed a reasons to dismiss the lawsuit. you're you are the client, this is a document filed on your behalf. if you just put it on your website, it's a public policy interest and of course redacting any proprietary information about the individual companies part of this. why would the reasons for arguing this be under sealed? >> armies am not going to comment on the process that is pending litigation, we have tried many of the designations to be as transparent as we can be while protecting commercial

information that we need to protect. >> i would hope he would make the document available for members of this committee since it is a public policy document as much as anything else. lehman brothers had too many assets too many liabilities and contingent liabilities. and i'm confused as to how there is discussion of the mutual funds being listed in this way. obviously if the markets are up that is terrible for the economy and terrible for me because i got my individual account. it would be just as terrible if that was in a mutual fund. why would that be classified knowing that it has no

liabilities? >> you know, in the review as managers, we have made the judgment that we need to spend considerable time on looking on activities that asset managers engage in, whether or not there is risk associated i'm not in a position. >> are you looking at whether the asset management company would go and grab for the mutual fund would go bankrupt or whether the economy would suffer not because it wasn't able to pay liabilities but rather because a big company was doing this or that in the stock market? >> ultimately it's part of the questions of looking at financial stability involved, looking at what the losses would be due to creditors and the associated businesses are not so much of an issue here, what the risk would mean in terms of the potential is to spread to the

economy and in whether or not it locks up access to essential services. >> so if this could be designated not because of their inability to pay liabilities but because of activities causing a problem? >> the question is are there activities where is their war you know a stressful situation, a series of bad events, things don't always happen in these kind of ends. and we have to understand that there are activities that present these kind of risks that we need to be concerned about. i don't know the answer. >> let's move onto another issue. >> we have asked this question knowing that this can be yes or no, i don't figure this with a

firm view. >> we are faced with this trade bill. we are told that they are enforceable standards and you know with regard to china encouraged the manipulation, we are passing a law hiring the executive branch to do things and you have explained this committee that the laws have a really bad policy and will not be hollowed in this way. if they won't enforce the u.s. laws because our trading partners are going to find that incident it's difficult to see how any provision of any trade agreement is going to be enforceable if that required it.

>> the time of the gentleman has expired, we recognize the gentleman from oklahoma. >> thank you mr. chairman. good to see you again, we have worked with the subcommittee chairman and the underclassmen that didn't have a chance to ask questions last time. but i share some of the concerns with my colleagues on both sides of the aisle, that there is a problem with this financial services committee and i find it, it's hard to argue that this has nothing to do with the cumulative impact of rules and regulations and capital requirements. while we continue to work and improve the safety in the system important that we don't lose sight of the big picture and the aggregate impact and to be ever mindful of unintended risks in harming the users to drive this economy and create

growth. i would like to focus on this particular issue on the leverage ratio on the treatment of segregated situations. it impacts the ability to hedge some risks and congress requires that the margin received from customers have clear derivatives and should remain segregated from the banks affiliated. however, under the leverage ratio rule it is treated as something that the tank can leverage by requiring higher capital requirements. if they don't have the ability to hedge the risk more risk continues and i think that this is an example of the leverage ratio and higher capital when applied inappropriately in my opinion. what harms it and increases

risk, as a prudential regulator, you can you tell me why the rule treats them as something that the bank can hedge. >> the leverage applies to all assets and even to the treasuries and cash. it's a very inclusive type of rule. and i think that it's reasonable to ask questions you know, as to whether or not there are unintended consequences and certainly the volcker rule exempted as treasury and a lot of these questions were trying to tie it to it. obviously that doesn't affect it. but i would have to look at the specific issues related to this. >> i hope you agree that it would seem to have the effect by requiring extra capital to talk about these margin accounts and are segregated that would have been that affect of increasing

mess and i hope you see where i'm coming from on that. >> as i say i have not focused on the margin issue, you know, and i think that if you go back to this it's a solid objective which is to make sure that the institutions do not get overextended and i think that what the percentage is is going to make a huge difference in terms of whether or not it is a constraint or not. >> i think we did the right thing there. but a matter of fact, let me ask you about this. if the regulators have been focused on moving risks through the capital requirements the risk is going to exist somewhere in the system and if we remove it from the banking system the secretary is up next. if they can't play this role somebody is going to will somebody who plays that will it

be more of a danger to the overall economy than the banks? >> you know, it's an overstatement. the banks are still doing core business. even under that, they are not prohibited from holding inventory in that way. i think they you are asking questions as well with the evolution of the market and are there questions of financial stability that we need to ask that are different. so you look at some of the new players are where the volume of trading is and i definitely think it raises questions about the system and all though about implications of a poet untrammeled quiddity. >> historically it seems like there's a perspective of evening things out with stability and the entity is are warming up and have also made this volatile if

we take it away from the people, you know giving it to people that make more and are more intense. >> i think that one can overstate the tradition doing things in their economic interest and clearly having inventory has been real. and i also want to say that i think that if you look at what the definition of liquidity is it may not be reasonable that there should be no price fluctuation. >> the time of the gentleman has expired. we recognize the gentleman from missouri. >> thank you, mr. chairman. thank you we are moving towards the fifth anniversary of the passage of the dodd-frank bill and many of us are here during