of, and i'll be interested to answer, of the sec and the cftc's coordination of the regulation. so sec did something that they should have, upheld the fnra determination, and if cftc didn't know that, then there's a problem. but if you did know it and didn't do anything about it, that's a problem. >> my memory is that there was coordination, but as to the specific dates and times, that i don't recall. >> thank you, mr. chairman. >> senator warner. >> thank you, mr. chairman. i apologize for being out for so long. and maybe i'll -- i don't have a specific question on this. but there are two quick questions i would like to ask and get on the record. one is some of the items that senator shelby was mentioning is this issue of coordination between your two agencies on

approach to role and limb nation. one of the things that i've been concerned for some time is that in dodd-frank, very active in title one and title two. and we created the financial stability oversight council to try to have this form forum, i thought at least, or hoped would be resolution of areas where there might be this rubbing. i was particularly interested in one area. i think senator shelby didn't agree with me on this one. but the independent repository of data and information so they could have the ability to adjudicate if need be between different interpretations or conflicts on agency or rule

promulgation. we're very concerned that the administration is a little bit slow on getting the ofr. they now have one together to get past. but i would like you to weigh in and be the adjudicating body where issues rise up and has it been effective or not? >> i'm happy to start it. i actually think it's turned out to be a good forum for the agencies to share concerns and differences as they arise and have a discussion and hear the views of other people from their unique perspectives. we're working on the next annual report that we'll try to lay out the systemic risk issues that we see facing the economy. every agency contributes to

that. and those particular issues become, you know, very lively discussions for how to approach particular problems. i think ofr is hopefully starting to get going in a more meaningful way. i think it can be important to the work of the individual agencies with respect tod data collection and analysis. one of the side benefits has been this enabled us to develop much stronger bilateral relationships as well, and dodd-frank has done that because of the necessity joint rules. >> i would say having witnessed the predecessor, both in the '90s, being able to serve then, and in this administration it's a real enhancement. it's more formal. with the formality sometimes there's not as much flexible. it's a big enhancement. it hasn't been tested in two ways yet.

it really hasn't been tested in a real crisis again. so that's yet to happen. but it will serve better. and it hasn't truly been tested when they have a knock down, drag out disagreement. it's been helpful to smooth through smaller differences, and i think it's been positive in that way. >> my hope would be that the ofr would be that kind of, at least the data analysis, my concern is is you'll get data from different agency coming in that may be completely counter to each other. and you have to have a trusted inindependent agency in there. let me ask one last question. not directly related to the jp morgan issue. but one of the challenges we got on the international implementation is when we have a large american entity and you have a foreign counter party to

that american foreign based subsidiary and how we deal with the extraterritorial application of u.s. laws, how do we do that vis-a-vis foreign laws. what is your sense on the question, particularly in terms of foreign counter parties? >> i think we've made real progress. there will be differences between the u.s., canada and japan and other jurisdictions. we're a believe in substituting compliance where we rely on compliance regimes. we're also a believer in learning from experience. in 2008, in the three or four biggest circumstances, citigroup, bear stearns, they were all in the branches of

london. we have to learn not to be new york eve. that wall street will structure around these things. we don't just leave it to say, well my guaranteed affiliate will meet your guaranteed affiliate in london. that's the worst outcome. the risk will flow back here, but the job will move overseas. >> i would just add that rather than deal with these issues rule by rule, we're going to lay out a comp rehence i have approach to cross border application, and we'll propose that before we start to adopt final rules so it

can inform the reach of each and every rule as we go ahead and adopt them. and i think ha will give everybody an opportunity to see the entire picture of proposed rules and how we expect them to apply extra territorily and comment to us on that. we know foreign regulators have a deep interest in this. it's a very intense part of the discussion that we have with the foreign counter parts. >> eni would add if the overseas afill yafiliat affiliate, not a branch, but if they're dealing with an insurance company in germany, we want to make sure they have a competitive field. that they can compete just like a bank might do as well. so it's trying to get that balance as well. >> thank you, senator. chairman, schapiro, you mentioned twice the list of factors that were essentially the ways to define risk

mitigation that were in the vocal rule statute, and related issues in there were that you're addressing a specific risk. it's correlated and doesn't give rise to significant exposure that you have to begin with. and if you think about, for example, a company that has funds in twhebetween making loan the liquidity rule and chooses to do corporate bonds, assuming those will be allowed, then the first, easiest thing if you get worried about the quality of the bonds, which have been described as high quality bonds. but you get worried is you can reduce your exposure by selling the bonds. so that's strategy one. strategy two is to take insurance directly against the bonds. that's insurance on a specific position you have. and then you start getting further afield. you can kind of imagine the

spectrum of positions further afield, where then you choose to do an index rather than the specific bonds that you have. and then you decide you need to raise income to pay for your insurance. then you sell insurance with something else. at that point it seems you have clearly crossed the line. you're in a whole different world of risk deduction. so you have two components being correlated to begin with. part of the challenge of the regulators is to define this role. when have you crossed the line from risk mitigation to having an excuse to do hedge fund style trading. where do you see the line being drawn in the progression of tightly correlated direct insurance to remotely

correlated. >> they may be more or less perfect hedges. then there's a long continuum to something like portfolio hedging or maybe perhaps stepping off the bandwagon entirely and being in the world of prop training. we recognize this is a continuum. and finding the point will be difficult. that's what the metrics are dwe signed to help us do. i don't think there's an expectation that all of those will make it to the final rule. but the goal is to see how behavior changes over time within a firm. how transactions change over time, as a way to see whether things hedging are moving into a different realm. but that is clearly the difficult piece of this is, is to find where something is no longer a hedge, and how we can

define that. and not in a specific way to open the door to other conduct. >> would you say it would be a red flag if the hedge is only loosely correlated. would it be a red flag if you're buying insurance to ensure a larger quantity than you are actually holding? and would it be a red flag if you're suddenly in the business of selling insurance? >> it might well be. then you have a hedge transaction giving rise potentially to significant exposures that weren't there at inception. you overhedged the position. you have to be able to identify the positions being hedged and demonstrate that the hedge is risk reducing. i keep going back to risk mitigation. an important piece of how we're describing the hedging here.

you can build a strong wall around the conduct. >> one of the things that the senator and i had said on the floor in our colloquy was you really need to -- and he just said it. you need to identify the specific assets and you need to identify specific risks that you're hedging so that gives regulators a sense of, what was the trade all about? it's very hard to get your hands around whether it was appropriate or not. there is something between position by position and complete speculation. >> chairman gensler? zbr i said earlier i think this is one of the more challenging tasks the regulators have been

given to ban, prohibit proprietor parading, permit market making, permit hedging. to your question about hedging. i think hedging really does have to lower risk. that's what congress wanted, i think in this provision. and they come and they do overlap. it's not a perfect circumstance. so it's our challenge among the regulators to do as congress said. to say if it's hedging a specific risk, individual or aggregate positions, okay. but we put in the rule proposal reasonably correlated. maybe that word needs more definition. i think it can start to morph and mutate when you have a separate desk and they have a separate profit loss, and they're motivated to at times take on positions or swing for the fences.

for late bit of extra potential to have profits. my own experience on wall street is long ago. they sometimes worked for 18, 24, 36 months and then took a big loss, and they would be shut down and several years later they would sort of come up again, and i might be old fashioned. i liked it when you could tie the hedge somewhere reasonably to the positions. >> that word is in the statute. and the reason it was put there is because would suggest that something could be barely coordinated, or correlated and meet the test. so it was defined reasonably.

but it certainly was in all of the conversation meant to identify the specific risk, and have something as directly related to ensuring against that risk or hedging that risk as possible. senator warner, did you want to take an additional time period? >> we've each had our second period. >> one question. >> go ahead. >> you sure? i was interested in the line pefs pursuing because i do think it's where the rubber hits the road. in a certain sense, we were going to have an incident like this -- it could be a blesing that it was happening with the strong financial institution we have in the country. so there's not a systemic risk

or a risk to the institution. at least at this point. but i do want to get to the point of liquidation. and how it relates to derivatives. one of the things, thank goodness, didn't result in an institution going down. but we all worked very hard ing to together. we got 85 votes on that. it was to make sure that any institution that goes into liquidation, while we maintained the systemic parts of the institution is lick we didded. and while neither one of your

agencies will be directly involved in that liquidation process, cloerly the question of how you clear and handle the derivatives that might be involved in that institution, the sbaps, is important. i would be curious how you're doing on thinking through that portion of liquidation process. >> i think central clearing does happen that. there is central clearing currently dealer to dealer. so the dealer is facing a hedge fund or not yet in. that will help a lot. we spent a lot of time with the fdic on title two, just to give them advice and thoughts on it. i think the most challenging piece is on the swaps not clear ch they still leave a tangled web of interconnectiveness.

that's why it's clear to get the margin rules right. between the financial institutions and particularly between the dealers. >> both fdic and the fed on this? >> yes. and we've had the table tops where we take hypothetical, not a real company, but sort of think it through. there is a challenge in one provision with the unclear swaps. we worked on that. >> very much. >> what uncertainty would be in the market. it seems everything is challenging to get it done before japan or australia opens,

which is sunday around 5:00. but thn there might be a 24-hour stay in the uncleared swaps. >> i really agree with what chairman gensler said. >> chairman. i have a few observations. did both of you agree that you can't take risk out of a marketplace? >> absolutely. risk is part of a marketplace. these large financial institutions help our society manage that. >> right. right. >> you can't take it out, and we shouldn't try. if you micro manage what it's going. jpmorgan is a huge bank, obviously it will be hard to micro manage to begin with.

if it's no risk to the task payer, i was thinking of what senator toomey was talking about, i don't know of any -- and i've said it for years. any bank or financial institution that has been capitalized first, secondly, well managed, and well regulated that has gotten in trouble. i don't know of any. if you've got one, tell us about it. so capital, i believe, is number one. to make sure that the banks are adequately capitalized. and i guess it's up to you to determine the difference between speculation and investment. it might be hard at times. i probably col recognize it if i saw it, but maybe not. because somebody might be speculating and calling it an investment. i don't know you get around that. but i do believe that you can't take risk out of the marketplace

and i hope you as regulators will not try do that. >> i agree with that, but i would hope one more time if i can say, i think the transparency, the more transparent markets are that it's harder to misunderstand the risks that you have, the risk gets priced in a marketplace and it might not be pleasant. it might be actually quite painful at times but if you're well managed and you say look, that risk is being priced differently than i thought. i'm going to have to you know, eat my beans here and you know mark the position differently. without that transparency, a lot of times things then start to get poorly understood, poorly managed and so for the. >> i agree, you should not let institutions that you regulate operate in the dark hole somewhere. can't do it. thank you, mr. chair. >> thank you. i think we're on the point of wrapping up. >> mr. chairman, could i just

add. >> senator warner. >> i love my friend mr. shelby. i agree you can't take risk out and i agree capital -- but there's some points we can have such high capital beat make them noncompetitive, too. i do think the lever and ratios having this view that looks beyond the single institution. many of these institutions have literally thousands of subs. that's why the fsoc, having that ability to raise these issues to some higher level above the silos is important but i couldn't agree with you more, you can't take risk out of the marketplace. >> i would add if you think about hence fund style investing, the aggregation of capital, the question isn't whether it's risky. of course, it's risky. the question is, is it going to be subsidized by taxpayer insured deposits and the second question is, when those risks occasionally those investments or those bets go bad, whether it's simply going to, if you

will, blow up or melt down the investments of the investors or whether it's going to reverb participate in a way that affects a broader access to capital by business and families. that's back to the whole theory of the fire wall between traditional deposit taking loan making, banking and hedge funds. i think it's compatible with that notion that you can't take out the risk. i thank you all very much for your testimony and for the dialogue and for the members oversight of the derivative marks remains an important issue for this committee. and the committee members look forward to working with both of you and your agencies to ensure that the implementation of derivatives reform improves protections for the american people and our financial system. thank you. >> you have to say hearing is adjourned. >> the committee is adjourned.

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justices and the nation's governors. pick up a copy for $12.95 plus shipping and handling. order at c-span.org/shop. the senate homeland security committee met today hearing testimony about the investigation into the secret service incident involving prostitutes in columbia. the director of the secret service was among those testifying. watch it tonight at 8:00 p.m. eastern on c-span. come up friday night, a debate between the candidates running in wisconsin's recall election. republican incumbent governor scott walker is being challenged by democrat tom barrett, the former mayor of milwaukee. watch it live friday at 9:00 p.m. eastern on c-span. >> and congressman, there are people who look at what happened with jpmorgan and say here's a company paid a stupid decision, did something dumb, lost money, didn't collapse, fired the people who were responsible. this is the market at work. this is how it's supposed to happen. why do the government need to

play a role? >> to some extent that's true but i take some credit for it. if this had happened five years ago and jpmorgan lost more than $2 billion, you would have seen much more panic in the economy. i think you would have seen much more concern. what we did in the legislation we passed and through other things was to require the financial institutions to be much better capitalized. so one of the things that's a result of the government telling them you'd better have mohr capital, you have to have more capital than you would have had otherwise helped give people reassurance. >> this past weekend on newsmakers congressman barney frank spoke about the over $2 billion loss by jn morgan as well as the state of the u.s. and world economies, the dodd-frank law and gay marriage. watch his comments online at the c-span v library. >> the annenberg public policy center held a discussion tuesday on fact checking in the 2012 presidential election.

journalists and political add fact cherks examine claims made by and before presidential candidate mitt romney and president barack obama. the impact of third political ads and broadcast stations challenges. from the national press club in washington, this portion is about an hour. >> thank you, kathleen. thanks to all of you for sticking around for the final panel today. these are the guys who on the news side take these commercials and truth test them. and i think that's an important part of the process so that's what we're going to get into for the next hour. we were talking in the last panel about how the money is flowing this year and you may or

may not know that across the country, it's now estimated that close to $10 billion will be spent in this political season both by the candidates themselves and by the super pacs. and you know, as was mentioned, a lot of that is going to go to key battleground states. there was an article in the "usa today" a couple of weeks ago that quoted a general manager of a station in columbus, ohio, a good media market in a very important battleground state. and he said, you know what? we're running around with a bushel basket just trying to catch all the money that's falling out of the sky. and that's got to be an interesting and for his owners i'm sure, a good position to be in. but that's the kind of thing that we're looking at this year. and these gentlemen are among those who on the newsside take

these ads and put them to the test. so let me introduce the panel and what we'll do is each one of these folks brought examples of their work. you'll see those. they'll talk about them a little bit and then we'll have time for -- i have some general questions and i hope you do, too. so let's get started. greg fox right here. to my immediate left has been covering politics for washtv in orlando. that's the hearst owned station, 25 years? >> this month. >> okay. he's younger than i am. he's a two-time winner of the walter krong o cronkite award of excellences in journalism from the annenberg school of communication. he's especially recognized for his series of truth tests some of which you'll see today that cover inaccuracies and distortions in political campaigns. next t