lawsuits and less effective operations, something i don't think congress did. in the end it will be consumers that will pay the price in the form of higher costs, less access to credit, fewer choices and more paperwork from less efficient banks. but this should come as no surprise to the regulators here. after all, it was not our regulators or the banks that paid for the poor regulation and practices that lead or led to the financial crisis. it was the taxpayers and the consumers. thank you, mr. chairman. >> thank you senator shelby. this morning opening statements will be limited to the chairman and ranking member to allow more time for questions from the committee members. i want to remind my colleagues that the record will be open for the next seven days for opening statements and any other materials you would like to submit.

now i will briefly introduce our witnesses. deputy secretary of the u.s. department of the treasury. he is currently serving as a member of the board of governors of the federal reserve system. thomas curry is comptroller of the currency. welcome, mr. curry, to your first hearing before the banking committee since your confirmation as comptroller. marty greenberg is the acting chair of the federal department insurance corporation. and richard is the director of the consumer financial protection bureau. i thank all of you again for being here today. i would like to ask the witnesses to please keep your remarks to five minutes. your full written statements will be included in the hearing record. secretary wallen, you may begin your testimony.

>> chairman johnson, members of the committee, thank you for the opportunity to appear today to discuss the implementation of the dodd-frank act. it will help protect americans from the excessive risk and poor consumer protections that played leading roles in bringing about the financial crisis. that crisis and the recession that accompanied it cost nearly 9 million jobs, erased a quarter of household growth and brought gdp growth to nearly negative 9%. today our economy has improved substantially. more than 4.3 million private sector jobs have been created over the past 27 months. and since mid-2009 our economy has grown at an annual rate of 2.9%. as part of our broader efforts to strength the economy, treasury is focused on implementing the dodd-frank act

to bring a more stable economy. core elements include tougher constraints on risk taking and leverage. a new liquidation authority to resolve large interconnected firms facing failure, comprehensive oversight of derivatives, stronger consumer protection, and new measures to promote transparent sane market integrity. substantial progress has been made since the dodd-frank act has been enacted. treasury's implementation responsibilities include the secretary's role as chair of the financial stability oversight council and standing up the office of financial research and federal insurance office. excellent progress has been made setting up each entity. treasury is also charged with coordinating the volcker rulemaking. we are working with the regulatory agencies towards a final rule that prohibits proprietary trading activities and limits hedge funds and private equity funds.

the lessons learned from the recent failures at jpmorgan chase will be an for input into efforts to design the dodd-frank act reforms including a strong volcker rule. the rule exempts the ability of firms to engaging risk mitigating hedging activities in connection with and related to individual or aggregated positions designed to reduce the specific risks to the banking entity. to that end the final rule should clearly prohibit activity that even if described as hedging does not reduce the risk related to specific individual or aggregate positions held by a firm. losses at jpmorgan raise questions that go beyond the volcker rule as well. regulators should require that banks senior management and directors put in place effective models. strengthen reporting structures to ensure risks are assessed

independently at appropriate senior levels. and establish clear accountability for failures and risk management. regulators should make sure they have a clear understanding of exposure and that banks and senior management are held accountable for their risk management systems. ultimately truck test of reform is not whether it prevents firms from taking risks or making mistakes. it is whether our financial regulatory system is tough enough to prevent those mistakes from harming the economy or costing taxpayers money. we all have an interest in that outcome. our ability to achieve it depends on the authority and resources to require requirements on banks and the largest most complex nonbank financial companies. it depends on implementing the full framework of derivatives for marginal requirements for standardized derivatives to greater transparency and risks to exposures. it depends on providing other

enforcement authorities with the resources to police manipulation, fraud and abuse. it depends our ability to safely unwind a broad firm without risk to the taxpayer that we experienced in 2008. it depends on making sure no exception built into the law is allowed to undermine the impact. the challenges our economy has continued to experience since the financial crisis in 2008 only increase our commitment to implementing lasting financial reform. recent failures and risk management provide an additional reminder that comprehensive reform must continue to move forward. the administration will continue to resist all efforts to roll back reforms already in place or block progress for those that remain to be implemented. the lessons of the financial

crisis should not be left unlearned or unforgotten nor should taxpayers be left unprotected from consequences of future financial instability. >> thank you. >> thank you, mr. chairman, senator shelby and members of the committee. you are all probably familiar with the concept of the law and the instrument although you may know it as the law of the hammer. if you are holding a hammer everything looks like a nail. that concept itself is supposed to be a warning not to use reflexively a familiar tool in response to every problem, but i must confess that the longer i taught and wrote in the area of financial regulation the more convinced i became in the centrality of strong standards. my time at the federal reserve has not changed my mind. on the contrary, a series of events, most recently the jpmorgan loss has only reinforced my conclusion. a bank with a strong capital position can absorb losses from

unexpected sources whether those be external shocks to the economy, the insolvency of important counter parties or failures of risk management within the firm. strong capital bufrs fers ensur that losses are borne by shareholders of the bank and not by taxpayers, either directly through a bailout or indirectly through a major effect on an economy. so i'm especially pleased that tomorrow afternoon the federal reserve board will be considering a final regulation implementing more rigorous capital requirements from market risk and banking organizations as well as proposed rules to increase the quantity and quality of capital held to satisfy regulatory requirements. these regulations are the product of cooperative efforts by the fed, the occ and fdic over the last few years to achieve strong international capital arrangements and over

the last several months to draft joint domestic regulations. along with our stress tests and annual capital reviews and anticipated systemic risk surcharges, these regulations will form a complimentary set of requirements for the country's largest institutions. while capital is central to good regulation it's not all there is. there is truly more than a hammer in the regulatory tool box which includes noncapital roles and supervisory oversight. we continue work on rules notably enhanced standards for larger institutions. the latter includes multiple agencies which have finished reviewing the 19,000 comment letters and are considering modifications of the proposed rule. the enhanced prudential

standards elicited fewer letters but present a number of important issues for consideration before final regulations can be implemented, including how to tailor the application of these standards to firms of different sizes and complexity. as to market discipline one development of note is that the federal reserve and fdic will in the coming months be reviewing the resolution plans to be submitted by large firms in accordance with the joint rule adopted by the two agencies last year. finally with respect to supervision the federal reserve continues to build a more centralized horizontal and data driven approach to supervision of our largest institutions. the process has run the stress test and other horizontal supervisory exercises since its establishment in 2010 and is extending activities to

coordinate other super vies processes more effectively. thank you for your attention and i will be pleased to answer any questions you might have. >> thank you. comptroller curry, please proceed. >> thank you, chairman johnson and ranking member shelby and committee members. thank you for the opportunity to update you on our implementation of the dodd-frank act, its impact of supervision and our response to jpmorgan chase's losses reported in may. among the many dodd-frank related rule makings underway our rules remove references to credit ratings from occ regulations and a final market risk rule. in addition, i will soon approve publication of a set of proposals to implement basil three. the occ is also reviewing comments received in response to proposals regarding the volcker rule and stress tests required by the dodd-frank act. these rules when final will make important contributions to the regulation of financial

institutions in this country. the dodd-frank act and other reforms have already done much to strengthen our financial regulatory framework, translating these reforms into improved soundness of our banking system and fair treatment of bank customers requires strong effective supervision which is a theme that flows throughout my testimony and will mark my tenure as comptroller. the occ has begun efforts to heighten expectations for the largest institutions we oversee. this process includes increasing our awareness of risks, facing banks and the banking system ensuring the risks are understood and well managed and raising our expectations for management, capital, reserves, liquidity, risk management and governance. it will take time to achieve these objectives and we must

remain vigilante in maintaining our course. my testimony provides considerable detail about these efforts. i want to use the remainder of my time to provide an overview of what the occ is doing in response to the jpmc losses reported in may. we are the primary regulator of jpmc national bank with the activity leading to its losses occurred. and we are responsible for the prudential supervision of the bank. since early april the occ has been meeting with bank management to discuss jpmc chief investment office positions, risk management and controls. as the positions deteriorated discussions turned to corrective actions and steps necessary to mitigate and reduce the risks of the banks' positions. we in the federal reserve are conducting reviews in the bank and are sharing information with the fdic and other regulators. we are also undertaking a two pronged review.

the first component focuses on value waiting of the adequacy of current risk controls at the bank. the second component evaluates the lessons learned from this episode that could enhance the risk management processes at this and other banks. consistent with our supervisory policy of heightened expectations for large banks we are demanding that the bank adhere to the highest risk management standards. we are not limiting our inquiry to the particular transactions at issue. we are assessing throughout the bank. we are using these events to broadly evaluate the effectiveness of the bank's risk management of its cio function and identify ways to improve our supervision. if corrective action is warranted we will pursue appropriate informal or formal remedial measures. jpmc's national bank has

approximately $1.8 trillion in assets and $101 billion in tier one common capital. given that scale the loss by jpmc affects its earnings but does not present a solvency issue. jpmc has improved its capital reserves and liquidity levels since the financial crisis. those levels are sufficient to absorb this loss. it is also worth noting that the events at jpmc do not threaten the broader financial system and the banks' efforts to manage its position is not at risk of creating a contagion. there has been much discussion about whether these activities would be permissible under the proposed volcker rule. while it is premature to reach any conclusion before review is complete this episode will help our thinking on the issues. i appreciate the opportunity to appear before the committee. before closing i want to stress

my commitment to ensuring that the occ continues to enhance supervision. i look forward to updating you throughout my tenure on how we are achieving strong, effective, fair and balanced supervision of national banks and federal thrifts. thank you. thank you. >> thank you. chairman johnson, ranking member shelby and members of the committee for the opportunity to testify today on the fdic's efforts to enhance bank supervision and reduce systemic risk. the most important new fdic authorities under the dodd-frank act are those that provide for the orderly resolution of systemically important financial institutions. since passage of the dodd-frank act the fdic has taken a number of steps to carry out its new responsibilities. first the fdic established a new office of complexed financial institutions to carry out three

core functions; to monitor risk within and across these large complex firms from the standpoint of resolutions and risk to the deposit insurance fund, to conduct resolution planning and develop strategies to respond to potential crises, and to coordinate with regulators overseas regarding with challenges regarding cross border resolution. for the past year and a half this office has been developing internal resolution plans in order to be ready to resolve a failing financial company. the fdic has also completed the basic rule making necessary to carry out its systemic resolution responsibilities. in july of last year the fdic board approved a final rule implementing the orderly liquidation authority. last september the fdic authority adopted a rule requiring bank companies with

total consolidated assets of $50 billion or more as well as certain nonbank financial companies that the financial oversight council may designate as systemic to submit resolution plans to regulators. these are the so-called living wills. with the joint rule final the fdic and federal reserve has started the process of engaging with individual companies on the preparation of their resolution plans. the first plans for companies with nonbank assets over $250 billion are due in july. section 210 of the dodd-frank act also requires the fdic to coordinate to the maximum extent possible with appropriate foreign regulatory authorities in the event of a resolution of a covered financial company with cross border operations. although u.s. has foreign

operations in dozens of countries around the world, those operations are consent trapted in a relatively small number of key foreign jurisdictions, particularly the united kingdom. our initial work with foreign authorities has been encouraging. in particular the u.s. financial regulatory agencies that made substantial progress with authorities in the u.k. in addition to provisions relevant to systemic risk the dodd-frank act has other provisions with direct effect on community banks. the dodd-frank act made changes to the fdic's deposit insurance program which was implemented soon after the enactment. the first of these was the rule to implement the provision to increase the insurance coverage limit to $250,000. the fdic also implemented the dodd-frank act requirement to redefine the base use for assessments from deposits to assets.

when this was implemented in the second quarter of last year, aggregate premiums paid by institutions paid by institutions with less than $10 billion in assets declined by approximately 33%. many community bankers have expressed concern about the dodd-frank act rules and other regulatory actions that would impact their ability to compete in financial markets. in response, the fdic's undertaking a series of initiatives related to the future of community banks. we are holding a series of round tables with groups of community bankers in each of the fdic's six regions around the country. the fdic's division of research is undertaking a comprehensive review of community banking in the united states over the past 25 years. additionally, i have asked the fdic's division of risk

management supervision and the division to review the process for both risk management and compliance supervision as well as to review how to promulgate and release rule makings and guidance to see if we can improve our processes in communications in ways that benefit community banks. mr. chairman, that concludes my oral statement, glad to respond to statements. >> thank you. director cordray, please, proceed. >> chairman johnson, ranking member shelby, members of the committee, thank you for the opportunity to testify today as part of this panel of my colleagues. as director of the consumer financial protection bureau, i'm committed to being accountable to you and we're always happy to have the chance to discuss our work with you. this is the 18th time that the new bureau's testified before either the house or the senate, and i'm pleased to be here again today. my testimony will focus on the areas you specified in the

letter inviting me to testify at this hearing. you asked about our bank supervision program. we've been focussed on recruiting and hiring the best team we could find to supervise financial institutions with our focus on consumer protection. we're blessed with great talent. the former commissioner of banks in massachusetts leads our bank supervision team. the former associate director at the ftc leads our non-bank supervision team. our examiners are working to ensure compliance with federal consumer financial law and may seek corrective actions to address violations and remediate harm to consumers. we have met with many supervised institutions to see how they operate and how they approach compliance. we're engaged with state banking regulators to establish communication and share information to reduce compliance burden. we published our examination manual, along with other examination procedures covering particular products and services. on monday, the cfpd released a

memorandum of understanding that clarifies how we'll coordinate our activities to avoid unnecessary duplication of effort and decrease the risk of conflicting supervisory directives. our responsibility under the law, unique among the federal regulators, is achieve even-handed and reasonable oversight of both banks and non-bank firms that compete in the same consumer finance markets. we take a consistent approach to examining both using the same procedures for the same products and services. in addition to mortgage lenders, mortgage servicers, payday lenders and private student lenders, we'll soon finalize a rule to allow us to manage the larger credit reporting industries as we develop our non-bank division further. the second topic is my sta-- se

as one of ten voting members of the fsoc. they represent over $20 trillion in loans and deposits and hence it is central to the stability of domestic and global capital markets. because we share the responsibility of regulating financial institutions with some of our fsoc colleagues, our mutual participation furthers our efforts to maintain a collaborative approach. participation also provides a broader vantage point on the kinds of triggers and vulnerableties that pose a risk. this has been valuable as we work towards a sound financial system that protects consumers, supports responsible providers, and helps safeguard the broader economy against systemic risk. third, you asked how our statutory obligations. as you know, less than $10 billion in assets and does not enforce the law against any such

banks. we do have the authority that can affect community banks, as well as larger banks. we will help community banks around the country by our new oversight of non-bank firms. i have heard from community bankers that refuse to make a loan only to see customers go down the street and get a loan from someone else that did not uphold the same standards. no documentation of income and no form of underwriting but still managed to sell bad loans into the secondary market. those loans crashed both the financial system and the economy. consistent application of consumer financial laws will promote safety and soundness of the financial system. over the next year, new mortgage rules that protect consumers, many are sound underwriting standards and sound customer services, practices that are traditional. we know that one size does not fit all.

when it makes sense to treat smaller institutions different will from larger institutions, we are ledged to doing so. we are implementing small business review panels and find the input from small providers to be helpful in calibrating our proposals. when i became director at the beginning of the year, i barely knew my colleagues on this panel. now, five months later from our work together on various roles, i've come to know and respect them all. our team is glad to be working with their teams and with the members of this committee to strengthen and support a sound and vibrant financial system. i'm happy to answer any questions you may have. thank you. >> thank you. i would like to thank all of our witnesses for their testimony as we begin questions, i will ask the clerk to put five minutes on the clock for each member. mr. curry, it is clear from your testimony that jpmorgan lacked the proper controls to mitigate

such a large loss. was this a failure in risk management? if so, what should the bank have done differently? >> thank you, mr. chairman. the -- in essence, we believe the issue at jpmorgan chase is one of inadequate risk management within the office of the chief investment office. we have been focusing on potential gaps or deviations from accepted standards of risk management within that particular office and looking to see whether similar gaps exist in any other area of jpmorgan's risk management architecture. >> mr. curry, also dozens and dozens of examiners at jpmorgan.

first, did your agency check the risk management and internal controls of all aspects of the bank, including the chief investment office, before this event or did you miss this? and second, while regulatories are not in the position to view every single trade, what assurances can you give us that the bank regulators will be able to monitor situations where large trades, whether done for hedging or other purposes, could bring down a firm or have a systemic impact on the broader economy? >> one of the major focuses of our examination and supervision activities is risk management. we look at risk management in the entire organization and within key areas where there's substantial risk facing the institution. that process is intended to go

across the entire organization in those key areas. in this particular case, we are looking at whether there are gaps within our assessment of the risks and the risk controls in place in the cio office. we are in the process of evaluating that in our ongoing examination. the point i would make in terms of our focus on risk management is that it is one part of the overall approach to identifying risks within the organization. as governor tarullo mentioned, the institutions' capital levels, their level of reserves, and their liquidity. in the case of jpmorgan chase, both their capital levels and liquidity are substantially higher than they were at the