center for community change will be working with the women's organizations on a grassroots campaign as well and you know and the labor movement, the alf cio passed a resolution that it's time to increase benefits in social security because of the nearly depression like recession. i heard paul krugman refer to the recovery period as a depression. so we had the recession and now we're in a repressed recovery period but we are recovering so i think we will look for good times ahead but i do think this severe economic downturn will have a lasting effect. that is one reason to increase benefits for everyone. that's the position that the afl-cio has taken. there are many activist groups that will be working on these kinds of proposals. >> the last few minutes of this hearing. you can see it at c-span.org. live now to capitol hill as the house financial services

subcommittee on financial institutions and consumer credit is holding a hearing today on what's too big to fail. members are considering how to define and designate what is a systemically significant financial institution. jpmorgan's bank recently lost $2 billion. that's expected to be a topic during this hearing. set to testify, government officials from the treasury department and the fempl reserve as well as members a number of banking experts. congresswoman shelley moore capital i toe is the chair of the subcommittee and carolyn maloney is the ranking member.

this hearing is called to order. i want to welcome everyone. this morning, the financial institutions and consumer credit subcommittee will examine the impact of being designated as systemically important financial institutions specifically for nonbank financial entities. but i couldn't begin the hearing without talking about the most topical subject of the day or of the week. there's no doubt that this week's news of jpmorgan's trading losses has raised significant questions about the supervision of risk within an institution. the story is still unfolding. and although it appears that the -- and seems to be that the

firm had sufficient capital to absorb the significant loss, one of the questions i would ask is would a less capitalized institution survive a similar loss. are other financial firms that are deemed systemically significant sufficiently capitalized? where did the lapses in the internal risk controls within the firm occur? were federal financial regulators aware of the positions that jpmorgan was taking, transparency is a question i think. did they do an adequate job of supervising the firm's risk? are they able to supervise the complexity of the firm's positions? the losses as the jpmorgan emanated from their london office which begs the question, how well are our federal financial regulators coordinating with our counterparts across the globe and how do the provisions in dodd-frank help or exacerbate the problem. there are plenty of questions we'll be answering certainly in the next several weeks. but this morning's hearing

focuses on the effect of designating nonbank financial firms as systemically important. the dodd-frank act grants the financial services -- or the financial stability oversight council better known as the fsoc the authority to designate firms as systemically important. while the statute is clear wilfinancial institutions will be designated, it is less clear about designating nonbank financial institutions. the financial -- the fsoc was tacked with promulgating rules to determine the criteria for nonbank financial institutions to be designated as systemically important, and the federal reserve is in the process of finalizing rules to supervise the entities that are des ig mated. there are many questions, again, about the effect the systemically significant designation will have on these nonbank firms. we have already seen with the largest banks systemic significance equates to market participants viewing these

institutions as being too big to fail and expect the government to intervene in times of severe distress. the implied government guarantee also results in lower borrowing costs. it is less clear what the effect of this designation will have on nonbank entities. i know many of our witnesses on the second panel have serious concerns about the standards used not only for designating the firm but also for the supervision of nonbank firms once it is designated. there are legitimate questions about how these standards will work with the various business models of nonbank firms. does the federal reserve have the expertise to supervise nonbank firms from different industries? how well will the fsoc and the federal reserve coordinate to ensure the standards for designation supervision are in harmony and are they working with their counterparts across the globe to harmonize the standards for systemic significance in the united states with global systems is significance? there are still questions that is deserve a robust discussion. i'm hoping we get to that in

this hearing. i'd like to thank our witnesses for appearing this morning and would like to recognize the ranking minority member, sms maloney for the purpose of making an opening statement. >> first of all, i want to thank you, madame chair, for calling this hearing and i welcome our witnesses. you have this hearing today is about a very important set of issues around designation of nonbank companies as systemically significant. and they are certainly a lot of perspectives and issues around it that have been raised already by the chair, but i think these are important issues and that we should stay focused on them. if there was one area that we learned from the financial crisis in 2008 was that the regulators did not have the tools to regulate complex interconnected nonbank companies like aig. and did not have the ability to you wind down these companies in

the event of a failure without disrupting the system and without taxpayer funding. as a result, these highly interconnected overleveraged firms nearly brought this entire country and its financial system to its knees, and it was quickly recognized that keel supervision for these nonbank areas was missing. we did two important things in dodd-frank to address this bill eliminating the hiding places from regulation and ending too big to fail. first we gave the fsoc, the financial stability oversight council the authority to require federal supervision of nonbank financial companies that pose a systemic risk sxwg required the fed to impose heightened regulatory requirements on these companies as well as nel bank holding company with at least $50 billion in assets.

these changes also level the playing field between nonbanks and banks. secondly, if a company does fail in spite of the heightened requirements and supervision, we also provided an orderly liquidation authority in title 2 of dodd-frank so that regulators would not be faced with the horrible choice between either bailing a company out at taxpayers' expense which we did with aig or letting it fail to the great detriment of the broader financial system. designation of nonbank companies is a two-step process. the entities must first be identified as nonbank sif if is and then must be subjected to heightened supervision. fsoc rule was not required by dodd-frank and really was done to provide clarity to the public sxwg companies about how fsocs

will designate nonbanks as sifys. i understand that it has been estimated that about 50 entities will be considered for heightened regulation based on the size and scope of their financial activities. once designated, these companies will be subject to stricter standards under rules that the fed is currently developing and which it has asked for detailed input. so i look forward to hearing from the panels and i also look forward to hearing from the firms. i welcome our panelists today and yield back, and i also would like to ask unanimous consent for mr. green to have privileges as a subcommittee member today so he may question also. >> without objection. >> thank you. >> so ordered. >> i'd like to recognize chairman of the full committee mr. bacchus for three minutes for an opening statement. >> i thank the chairman. at today's hearing we'll have an opportunity to examine one of

dodd-frank's most vague and potentially problematic mandates. we are here to better understand what it means to be systemically important a you've fa mix for too big to fail. which institutions will be categorized as significantly important? what are the consequences of being deemed systemically important? what are the advantages and what are the disadvantages? how will these institutions be regulated? and how will counter parties and other market participants interact with them? we have been told by the fdic that part of this interaction will be to indemny file certain creditors and counter parties, and that seems very similar to aig, which dodd-frank and members on both sides pledged that we would not get into another bailout situation. many companies are asking themselves the same questions and whether the regulators think

they're systematically important. the financial stability oversight council's final rule is not at all clear. it is therefore my hope that the regulators testifying here today can help provide the committee and all affected parties with some much needed clarity on these important issues. i look forward to this discussion sxws thank the witnesses for being here. and i do want to say in conclusion, that because of the jpmorgan chase situation, we are again hearing from some of our colleagues that we need a law which will essentially prevent a business from losing money or taking risk. and no law can do that. nor should a law attempt to prohibit a company from taking risk. in fact, that's just an impossibili

impossibility. now, when taxpayer funds are at risk and a bailout situation wos certainly be one of those or deposits, then that's another question. just to put in perspective, jpmorgan chase and if you're concerned about deposits in that institution, let me put that trading loss in perspective. their pretax profit last year was $25 billion. so, a $2 billion loss would represent one month of earnings. it would reduce if it had been last year, it would reduce their earnings to $23 billion. the loss is about:01 of the firm's $180 billion net worth and roughly .0001 of the firm's 2.3 trillions in assets. even with this loss, i believe

they're one of the most profitable financial institutions in the country. and unless the facts are diametric little different from what we've heard, there is no risk from this loss to depositors or to taxpayers. they remain a very profitable, viable institution. thank you, madame chairman. >> thank you, mr. back ca for two minutes. >> thank you, madame chair. i want to thank you for hosting this hearing along with the ranking member. i also want to thank both of the panelists for being here with us today to offer their insight on this important topic. as we know in the financial service committee, greenspan came to us many times and said trust them, they noam what they're doing. i guess we're still trying to figure out if we should trust them and apparently we shouldn't

have have not have trusted them but we did. one of the biggest development during the crisis in 2008 was the realization how much of the impact could be felt from the collapse of the firms. until the problem arose, it seemed no one quite understood the level of interconnectedness that some of these firms had and everyone knows that our government took drastic action to limit the collapse of these institutions caused. obviously, no one wants to see the events of 2008 repeated in itself. in writing and passing the dodd-frank two years ago, i believe we created a sound framework. i state i believe we created a sound framework that would allow us to stay ahead of the curve with the systemic important institutions basically to make sure that we regulate them and also that we do a lot of the enforcement that needs to be done. it's not just regulating them, but how are we going to enforce them and what action will actually be taken to make sure we don't develop additional

crisis and that we solve the problems. this framework will allow the regulators to work with the market to participate in creating efficient and secure regulatory structures. at the same time it will allow the market to continue to operate in a free manner that will not be dictated by the needs and deems of the regulators. finally a firm does not run into trouble. the market has the confidence that the mistakes of a few will not impact it the actions of many others. and that's only if the action is taken and it's brought before us to make sure that it doesn't affect a lot of the consumers or individuals involved. at the end of the day, what everyone is looking for is certainty. industries want to be certain that they can run their business in a manner where they don't fear becoming too unsuccessful but at the same time, doing what is right. regulators want to be certain that they can step in and act in a timely mandatory correct the bad behaviors and that is going to be the key right there.

and the american public wants to know that all parties involved are doing their best to ensure that the abusive behavior is not something that will be allowed to be repeated in itself again. i want to thank the ranking member and the chair for having this hearing. >> thank you, mr. garrett for one minute for opening statement excuse me, minute and a half, mr. garrett. >> thank the chair also for this important hearing with regard to the designation of firms that are systematically important financial institutions. or sifis. instead of calling them systematically important financial institutions i think what we should call them is what the market calls them and that's too big to fail institutions. if you're honest about it, dodd-frank basically codified too big to fail in the law and simply changed the name over to sifis. and when you change the name, you really haven't changed anything about the characterization of them or you changed the substance of them. you haven't solved the