even including inflation is up 14%. bank assets up 25%. the banks are getting bigger. eliminate bank bailouts. taxpayer bailouts is one of the objectives. i point to the balance sheet of the federal reserve bank which has grown from $1 trillion to $4.3 trillion since the enactment of dodd/frank. this is a huge concentration of risk which, by the way, is invested in longer term assets, unlike what led the rest of the advice of the bill includes. and is funded by overnight bank reserves. what we have here is the next taxpayer bailout in the making. finally, dodd/frank wants to eliminate a piece of practices. we're eliminating a lot of practices. in terms of mortgages. inconsistencies are causing banks to close accounts of diplomats because of anti-money

laundering concerns. they are no longer dealing -- big banks are no longer dealing with community banks because of know your customer concerns. we would recommend to remedy this situation, a, we eliminate fsoc, a regulator composed of regulators. it's a huge redundancy and double jeopardy in the system. eliminate ambiguities in the terminology and then finally to carve out some protections for the 99.999% of all american businesses and financial institutions that have nothing to do with this regulation. to wrap it up in just a second. two years ago i testified to this committee. i asked the question, when they business calls its bank for financial services, would anybody be there to answer the phone? we now know the answer to that. and the answer is yes. the compliance officer will be there, not the loan officer. ladies and gentlemen, that is no way to run the best economy in the world. >> again, chairman frank.

welcome back home. you are now recognized for your testimony. >> thank you, mr. chairman. i apologize that my written statement was not in the form it should have been. it was a last-minute thing. on the other hand, i think any problem with an element of surprise is probably not a problem here. i don't think any of the members of the committee will be surprised by what i say. i want to begin with the too big to fail question. and the issue, i think, is an interesting one because, first of all, as i said and what i did write, i thought -- i was surprised myself at how bipartisan the committee's report was. for instance, in saying that this whole problem started with ronald reagan in 1984 with continental illinois. the committee reports this began with ronald reagan in continental illinois and then was continued by bill clinton with alan greenspan taking the lead in long-term capital

management. it clearly puts most of the blame on george w. bush and his aides, mr. paulson and mr. bernanke because this really became a problem with bear stearns. that's a very bipartisan thing for them to do to put major blame on those two partisans, i think you've been a little unfair to them. and their need to respond there shows that that was a problem that had to be dealt with. on the other hand, i was struck by your bipartisan effort to agrace tim geithner but i think you got it wrong. you misunderstand geithner in that report. he says we still have a too big to fail problem but the problem is exact lie the opposite of what i think most republicans think. there is this argument that we're going to have bailouts. tim geithner's explicit point is that we did too good a job in preventing bailouts. i urge people to read his book when he has this conversation with larry summers. he objects we shut down too many thieves ways to do it. geithner believes -- look, everybody understands there will

be institutions that are too big to fail. everybody understands whoen i move my hands you hear the shutters. what geithner has said, is that given the size of banks and everybody understands that. the question is how do you deal with that as long as they are that size. what geithner says, he believes there's going to be the need at some point for federal taxpayer rnt vention and we did too good a job in shutting that down. so when you cite geithner, you'd understand that's what you are citing. the other argument that is more reasonably -- well, too big to fail. the one is that we may be designated a systemically important institution, very traeblth i attractive. that is interesting because every institution has reacted very violently and negatively. for people who tell me you are supposed to listen to the businesses, how come you haven't heard that the businesses hate the idea of being designated.

instead of it being an advantage they think it's a curse. when you talk about, oh, this is a great advantage and you ignore what the businesses themselves say, those who could be designated, that's a very marxist analysis. but the question is what he said in one of his movies, what are you going to believe? me or your own eyes? your own viewpoint or what the financial institutions tell you? the urth argument on too big to fail is even though the law says the fed should not give noun insolvent institutions and the treasury should not do what we've done in the past, give the money and keep them alive and pay their debts they'll violate the law. they have heard the most astonishing argument that political pressure in this country will force the secretary and treasury, the president, maybe the head of the fed to violate federal law by advancing money to keep these people in business. what the law says is you may have to pay some of their debts as ronald reagan recognized.

you put them in receivership and get the money back. finally, i was very struck by the, frankly schizophrenic approach the majority seems to be taking on subprime loans. loans to poor people. i was astonished again, i get astonished a lot these days, that there's a criticism that under the bill fewer loans are being made to low-income people. yeah. that was part of what i thought everybody wanted to do. i thought there was a consensus that too many loans were being made to those people. and then when you blame the community we invest in. i'd like to cite testimony of our banker from texas who says community banks didn't make bad loans. i agree. and guess what? they are all subject to the xhoonity reinvestment act. if it was so distort iing. i know that this committee

passed a bill on fannie and freddie but it hasn't passed the house even. so i think we are about to see the fourth anniversary of your party being in control of the house and not doing anything about this problem that you say is such a serious one. >> mr. deas, you are now recognized for your testimony. >> thank you, mr. chairman. and good morning to you, ranking member waters and the members of this committee. i am taum deas, vice president and treasurer of fmc corporation and immediate past chairman of the national association of corporate treasurers. fmc and nact are members of the coalition for derivative end users representing thousands of companies across the country that employ derivatives to manage day-to-day business risk. first, let me sincerely thank both the chairman and the ranking member, along with the distinguished members of this committee for doing so much to protect end users from the burdens of unnecessary

regulation. the press often portrays capitol hill as paralyzed by gridlock. when it comes to the needs of mainstreet businesses, the members of this committee have worked together to get things done. you've supported the end user margin bill, hr-634 championed by representatives grim and peters. and the centralized treasury unit bill hr-677 which representatives have done so much to move forward. we're hopeful that a version of that bill modified through discussions with the chairman and the ranking member staffs will soon come to the floor. as you over see the impleme implementation of the dodd/frank act i was to ensure that end users conprizing less than 10% of the derivatives market were not and are not engaging in the kind of risky speculative derivatives trading activity that became evident in 2008. we use derivatives to hedge risks in our day-to-day business activity. we're offsetting risks, not

creating new ones. we support the transparency that the dodd/frank act intends to achieve. we also believe it's sound policy and consistent with the law to exempt end users from provisions intended to reduce the inherent riskiness of swap dealers tftss. howev activities. however, after four years of passage of the act, there are several areas the regulatory uncertainty compels end users to continue to appeal for legislative relief. among areas of concern i'd like to invite your attention to two. first, margining of derivatives. fmc corporation was founded almost 130 years ago. this is our 83rd year of being listed an the new york stock exchange. when we went to that market in 1931 the nyse was the largest pool of capital to grow our business. today using derivatives we have

an additional and larger market that's cheapest and most flexible for us to hedge everyday business rinks of foreign exchange rate movements, changes in interest rates and global energy and commodity prices. our banks did not require fmc to post cash margin to secure mark to market fluctuations in the value of derivatives. to do so would divert cash from funds we'd otherwise invest in our business. the proposals by the banking regulators would mandate collection of margin from end users or not only out of sync with the cftc but also with the european regulators as well. further an imposition of margin requirements an end users would effectively negate the benefits of the end user clearing exception which congress included in the text of the t d dodd/frank act. we believe they should remain free to negotiate mutually acceptable margin arrangements instead of having regulators impose mandatory daily margining

with its uncertain liquidy margins. it also recognizes the efforts of the cftc. as a recent coalition survey shows, it doesn't work for most end users. end user treasurers have long used widely accepted risk reduction techniques that net exposures within their corporate groups so they can reduce derivatives outstanding with banks. however, the innerternal centralized treasury units they use are set to be designated as financial entities subject to mandatory clearing and margining, even though they are acting on behalf of nonfinancial end user companies otherwise eligible for relief from these burdens. although i focused here on two main issues, end users are concerned about the web of at times conflicting rules from u.s. as well as foreign regulators that will determine whether we can continue to manage business risks through derivatives. our fear is that cross-border

regulatory uncertainty and conflict could put fmc and other american companies at an economic disadvantage. the end user exemptions from margining and clearing are still uncertain. confronting us with the rusk of foreign regulatory arbitrage and potential competitive burdens that could limit growth and ultimately our ability to sustain and even grow jobs. thank you again for your attention to the needs of end user companies. >> you are now recognized for your testimony. >> chairman -- >> and i have to bring that microphone closer. >> thank you for convening today's hearing and for inviting me to testify. i'm a resident scholar at the american enterprise institute but this testimony represents my personal views. the primary goal was to end the perception that the largest financial firms are too big to fail and remove the risk that a large institutional failure could create financial instability unless the government protects investors from loss.

after four years of implementation, dodd/frank has imposed a host of new regulations depressing economic growth, but it has failed to meet its primary objectives. regulatory data on bank funding costs show in the years prior to the financial crisis, 2005, 2006 and 2007, the largest banks, banks with assets greater than $100 billion, did not enjoy a subsidy on their funding cost. their average cost of funding was higher than the cost incurred by smaller banks but the difference was not statistically significant in any year. in post crisis, post-dodd frank data 2012, 2013 and 2014, the largest banks have lower average funding costs compared to smaller banks. in each year after the passage of dodd/frank, large banks have enjoyed it of more than 22 basis points and it's highly statistically significant. the patches of dodd/frank is not

eliminate -- limited to too big to fail. it's not hard to understand why investors might still believe in too big to fail. in the financial crisis, the government demonstrated that it would not let the largest financial institutions fail and dodd frank has not defused these expectations. after dodd/frank, the large institutions are subject to enhanced credential supervision by the board of governors. they must meet risk-based capital and refer leverage requirements, file detailed orderly resolutions and pass the board of governors macroeconomic stress test examination. these new standards are so intrusive that it is not a stretch to say that the largest institutions are now being run, at least in part, by the federal reserve board. the federal reserve board closely monitors the largest institutions and after dodd franck it has the power to require a wide range of changes in these constitutional -- institution's operations if changes are needed to prevent failure or financial instability. when one of these institutions

experiences a serious hiccup, the fed will at least partially be responsible. given these changes why wouldn't a rational investor include these institutions are too big to fail? dodd/frank is supposed to eliminate the government's ability to use taxpayer guarantees to prevent financial instability when a large institution fails. designated institutions must file orderly resolution plans or blueprints for a speedy reorganization using chapter 11 bankruptcy and these plans must not cause financial instability. the board of governors and the fdic must approve these plans and they have the power to require operational changes or devestatures if in their judgment the plans do not fac facilitate an orderly bankruptcy. these plans are not -- nothing of the sort. the key to a prepackaged bankruptcy is creditor acceptance of the debt restructuring plan before entering bankruptcy. but creditors do not approve dodd/frank orderly resolution plans and firms are not obligated to follow these plans should they enter bankruptcy.

if title 1 doesn't do the job, dodd/frank has title two. a backup mechanism for resolving large failing financial institutions. it is supposed to remove the risk that the failure of a large institution will cause financial instability without using government guarantees or bailouts. only title 2 really doesn't do this. using the fdic single point of entry strategy, a title 2 resolution will maintain financial tranquillity by ensuring all of the liabilities of the failing institution's subsidiaries. in most cases, one of these subsidiaries will be a large failing bank. here title 2 extends a full government bailout to all of the banks uninsured liabilities. title 2 will fully protect investors who otherwise would have lost almost everything in the fdic bank resolution and a bank holding company bankruptcy. title 2 reduces bankruptcy systemic risk by extending a larger government guarantee and bailing out investors who have not -- would not have taken loss in bankruptcy. in the midst of a crisis, the

fdic will have to use unseasoned judgment to decide how large the government bailout must be to maintain financial stability. if receivership proceeds and a title 2 resolution do not fully cover the bailout cost, the largest financial institutions will be assessed to recover expenses. but the dodd/frank requirement to repay title 2 bailout costs is less binding than it seems. what if title 2 were used in the past criseis? in the last crisis, the federal reserve began paying banks interest on their excess reserves. and they earned quite a lot on that. these payments channel taxpayer funds directly into banks. there is nothing in dodd/frank that precludes the government from using this channel to provide the largest institutions with funds they need to reimburse the orderly liquidation fund. less than a transparent taxpayer bailout but a taxpayer bail out nonetheless. thank you and i look forward to your questions. >> i thank all of our panelists. the chair yields himself five minutes for questions. mr. wilson, i'm especially happy

that you are here because i care deeply about the future of community banking in my district in texas. half the district is rural. so your voice is an important one, but yours is not a solitary voice because rarely does a week go by that i don't hear about the plight of community banking from some banker. i heard from a banker in el paso, texas, who said with respect to the regulatory burden of dodd/frank, we will see community banks continue to declun. we simply cannot afford the high cost of federal regulation. and my major risk are not credit risk, risk of theft, risk of some robber coming in, my number one risk is federal regulatory risk. i heard from a banker in gothenberg, be in neb about the dodd/frank act. these pressures are slowly but

surely strangling the traditional community banks handicapping their ability to meet the credit needs of their community. another banker from lynn, missouri. the more expense for the bank, the less that is available to loan to our primary customer base which is small businesses, farmers and folks who are just trying to get by in these difficult times. i heard from a banker in temple, texas. reluctantly, we are working to downsize our consumer lending program, especially in the small loan area. over the years we've provided thousands of small loans to our customers in what was a simple straightforward process. certainly this is no longer the case. in many customers are now going to other sources with their credit needs where they can get a loan without the hassle that comes with bank compliance. there's no question these rules will reduce the availability of credit. to me, credit worthy borrowers

and markets of all size. i could go on and on and on. one banker used the word strangle. is dodd/frank, in your opinion, strangling community banks? >> yes, sir. there's lots of challenges to us. and we have 17 employees. and so the -- just when you have the changes to regulation, it's retraining staff, it is retraining systems. and so any time there's significant regulatory chaun y t is difficult on small organizations. >> i also understand the data that i have seen is that there are roughly 800 fewer community banks post-dodd/frank than pre-dodd/frank and now they have a smaller market share. have you seen this study or similar studies, mr. wilson? >> i've heard those numbers, yes, sir. >> well, again, it's a sad

situation as far as the plitght of community banking goes. although it wasn't advertised dodd franadvertised dodd/frank would live the plight, it has hurd low and moderate income people. what i have seen is that analysis of credit cost for those people pre and post-dodd/frank. credit cards are now on average 224 basis points. that's over 2 percentage points greater on residential mortgages, jumbo, 45 points -- basis points greater, conforming 14 points greater. small unrated corporate debt, 41 basis points. here's an interesting one. auto. auto financing. 17 basis points less.

well, isn't that interesting since auto dealers were exempt from dodd/frank's cfpb. we also know the fed has shown their study on qm once fully implemented without exempting the 95% of mortgages handled by the gses. one-third of blacks and hispanics will not be able to obtan a mortgage due to dti. i'm still waiting to see the outrage on the other side of the aisle. only half of today's mortgage originations will meet qm. before dodd franck, 76% of banks offered free checking. now only 39%. and it continues to drop. there's also been a 21% surge in checking fees post-dodd/frank. the list could go on. mr. wilson, i'm going to go back to you. you obviously bank a lot of low and moderate income people.

is dodd/frank hurting low and moderate income people? >> yes, sir, in our market, that's was probably the main niche we had in the housing side. our census tracks are low to moderate income for our community. and so those that do not have access to that credit from us, it's hurting them. >> thank you. i yield to the ranking member. >> thank you very much, mr. chairman. to barney frank, who works so very, very hard to bring about protection for consumers and who spent a considerable amount of time paying attention to community banks, i kind of resent mr. wilson's testimony here today that talks about qm

even. without him even understanding that his bank under qm, your bank under 2 billion, you can keep all of your loans in portfolio as long as they are not predatory loans. no documentation loans, those kinds of loans. and you have some protection under safe harbor. so i've got to go to barney frank. just talk about what we have done and what you have done to be of assistance to small banks and community banks. >> well, a couple of things. first, on the point you raise, i am again very surprised to hear my republican friends now say our problem isn't we have toughened up the standards for banks to low-income people. i thought that was pretty general agreement that was part of the problem. although there is this myth that somehow the democrats were pushing for these loans. in fact, during the period from really the mid'90s, it was people on our side who were trying to restrct these abusive subprime loans and were

restricted. we passed the homeowner equity protection act. mr. greenspan wouldn't use it. a number of states, including georgia, passed laws to restrict subprime lending abuses and the bush administration preempted it and said no such laws. and i was working with spencer bachus. sheila baird notes we were trying to put legislation through to regulate subprime loans. and the republican leadership said shut it down. on the day this committee wants the democrats were in control began to regulate subprime loans it was over the objection of several of the members here who said subprime loans were good. and "the wall street journal" objected and said, look. these are good loans. 80% of them are paying on time, which didn't seem to me to be a great statistic. and, in fact, what happened was this. people on the conservative side were generally pushing these loans until the crisis hit. then they needed an alternative victim, villain to blame for the

crisis. so they retroactively became opposed to these kinds of loans. now they've reverted. there was a period they were blaming us. i think this is great inconsistency between saying the community reinvestment act caused the problem by forcing people to make these loans through poor minority people and now complaining that we have regulated it somewhat restricted those loans. and to the xhocommunity banks. i would be in favor of saying those who kept the loan in portfolio should not have these problems. i on the other hand think, and this is the one criticism of the regulators, i believe risk retention is the best way to go about this. because risk retention leaves the decision in the hands of the market. you can't get away from the responsibility for -- you can't get away from it. you can shift it. this goes also, i would say, to the question about regulation. yeah, there was some regulation before the crisis started.

but it wasn't regulating for two very important things. financial derivatives. i agree with much of what mr. deas says about the end user and appreciate his acknowledging -- noting that there was irresponsible speculative activity in derivatives which the cftc was legislatively prevented from dealing with. but the biggest problem, the model for a lot of loans in the mortgage area shifted from the kind that mr. wilson makes and keeps in portfolio to the kind that are made and securitized. securitization is a great example of what mr. carfang said. not getting rid of risk but passing the risk off. one thing i wanted to do in the bill is require if people are going to securitize a zone, the securitizer has to have a 5% risk retention. that was weakened somewhat in the senate and i would prefer a situation in which there was risk retention if securitization takes place and no -- and then

you can be much easier if people kept things in portfolio. but again, emphasize, mr. wilson's bank and community banks have always been covered by the community reinvestment act. and it is inconsist tonight talk about what a good job they did. as for small banks, yes, we did achieve -- reduce the premiums and we did exempt from them being examined by the cfbp. people raise the question of showing compliance with the volcker rule or forms of co compensati compensation. there was a suggestion they be specifically exempted from that. that would be a good way to not weaken the regulation and ease their compliance cost. some banks feel they have to show -- spend money to show they're not violating the volcker rule or having this kind of stock-based compensation. i think for banks below a certain level to simply be exempted from those rules since they never use them anyway would

ease the problem. and those need further correction. those are two small ones i'd be for. >> chair now recognizes the gentle lady from west virginia, the chair of the financial institution subcommittee. >> thank you, mr. chairman. i want to thank the witnesses for their testimony. i would like to ask mr. chairman for unanimous consent to enter into the record a very detailed description from a community banker in my district with ten very specific examples on how the new atr/qm rules have had a negative impact on west virginia consumers. >> without objection. >> i almost said yes. >> mr. wilson, we're kind of singing from the same handbook in the value of community bankers. i live in a rural state, west virginia. but i think it's also important to distinguish that by a

community bank which is similar to fdic's description, reports that community banks loaned 48% of small business loans are issued by u.s. banks. 15% of residential mortgage lending, 43.8% of farm land lending and 34% of commercial real estate. so that's very significant, particularly in the areas where you do your business and where i live. and so when you say that you've gotten out of the mortgage business, and is the reason for that -- even if you can hold them on portfolio, are the rules too constrictive. you are finding that the qm box is something you can't lend in. are you worried about examiner oversight in this area? specifically, why would you get out of that business? is it in terms of the dodd/frank regulations? >> thank you.

the mortgages we originate were all balloon type mortgages. and so that was really discouraged. we, in my 35 years of banking, i have never sold a mortgage. and so we originate those for our customers and we keep them in the bank. so the qualifying mortgage if you look at those like the debt to income, we use 50% debt to income. so the bulk of those people we served in our market would not have met the -- i believe it's 43% debt to income limitations in the qm rules. >> and i guess in your prior practice of issuing mortgages under those parameters, would you say that the customers you've been serving would be in low to moderate -- you said $50,000 was your average mortgage. obviously that's on the lower end of the scale.

how else would these folks ever be able to purchase a home that they could call their own? >> many of them, i would encourage to go try to get a permanent fixed rate mortgage for the life of their mortgage. no balloons. would be in their best interest. but those that because their credit scores weren't high enough, for some other reason, we were able to help them. and i'll just confess that we do not have any problems in our real estate mortgage. the ones that we underwrite and keep. but they just didn't fit for some reason. they may have been small business owners that had schedule c tax returns instead of a w-2. >> let me ask another question on another line that you -- when you talk about community banks and the constriction on the numbers and different mergers and acquisitions. what kind of effect do you think that will have in rural america?

obviously you are -- your business model's relationship banking and the bigger and larger institutions as they grow moves away from that model for obvious reasons. how would you express that concern? >> well, so in our particular instance, we have no branches. we are in san diego. we have a board of directors that lives in that area. we have a president of the bank. we have senior vice presidents. and the branching environment, if we were to sell to a mega bank, you would have tellers and maybe someone to open a new account. all of those positions would be eliminated. >> mr. kupiec, you didn't really address this in your statement, but something i mentioned in my opening statement that there's still many, many rules and regulations yet to be written concerning dodd/frank. what kind of impact does that have on moving forward? >> well, the regulatory burden

of dodd/frank has been significant. i think just a week or two ago it was reported that jpmorgan was laying off thousands of people but hiring thousands of compliance staff. so something like 7,000. so compliance staff, you know, that's to meet the regulatory burdens of dodd/frank. in terms of community banks there's a lot of evidence. there's a murcada study that came out that i cited in some testimony in march that showed that this study has -- >> i think i've run out of time. thank you. >> the chair now recognizes the gentle lady from new york, ms. maloney. >> chairman frank, we seem to hear a lot from the other side of the aisle an this committee about how dodd/frank's resolution authority for large financial institutions somehow

enshrines, quote, enshrines bailouts, end quote. because the fdic would use money borrowed from treasury to fac facilitate a wind down if you need it. when the reform bill was in this committee it was the democrats an the committee that wanted to avoid the need for the fdic to borrow from treasury by creating an up front resolution fund paid through assessments on financial institutions rather than taxpayers. but i also remember that it was the other side of the aisle who demanded that the up front resolution be removed because they claimed it was, you guessed it, a bailout fund. i would like you to go back to the financial bailouts of 2008 and 2009 and tell us if there was any such action that we did back then that we could do now under the new rules of dodd/frank? dodd frank actually said that

there's no legal authority to use public money to keep a failing entity in business. the law actually forbids it. and it repeels the power that the federal reserve had, as which happened with the bailouts with aig. so would you go back to this point because this is a point we hear over and over again how dodd/frank resolution authority protects taxpayers' dollars. >> thank you. i would like to say preliminary to respond to a comment on something mr. kupiec said. to the extent we were responsible for jpmorgan chase beefing up its compliance staff, i am not embarrassed. frankly, if they had done that earlier, they would have saved themselves, i don't know how many in the teens of billions of dollars for noncompliance. so -- and i admire jamie dimon, but they were not overcomplying by any means beforehand in a number of areas. the gentle woman from new york is absolutely right. we did have a fund.

there's been a fundamental difference between the two parties on whether or not we should assess large financial institutions, not community banks. $50 billion or more. in fact, when we were in conference on this bill in 2010, and our position was with the senate that when the cbo said it was going to cost $20 billion over a ten-year period that we should get that from the large financial institutions. those of $50 billion and over. and that would have included everybody, whether or not they were sifis, et cetera. the republicans objected in the senate. there weren't that many republicans voting for it. but the senate republicans who were going to vote for the bill objected. senators brown, snow and collins. and made us take that out because it wouldn't get the senate the 60 votes they need and instead put it on the taxpayers. we have this history where the republicans objected to an assessment an the large financial institutions and instead for the taxpayers. the federal reserve could not do

aig under this law. people say, well, they can set up a applicable facility but i think under this law and i think mr. sherman had a role in this. they have to guarantee it's a solvent institution with a very high percentage of probability. so we have specifically prevented the fed from doing what they did with aig. now the argument as i understand it is even though the law says, and the other difference is no money can -- we do all recognize it. i said going back to ronald reagan and continental illinois, some institutions are so large you can't let them pay their debts without having reverberations. so what do you do about it? under the law now in place, that effort to deal with their debts can't happen until they've been put in receivership. it's death panels for the large

institutions. and any money that is spent beyond what was available from the owners has to come back from an assessment. the secretary of the treasury is mandated, not authorized, mandated to recover it. so the argument is, and i've heard this from people. in a political crisis, a financial crisis like that, there would be overwhelming political departure to ignore federal law and use public money in indefinitely to keep an institution in business. i don't know in what universe people have been living. i think there would be enormous political pressure not to do anything at all. so, yeah, i cannot think of any of these past efforts that would now be legal under our bill. >> time of the gentle lady has expired. the chair recognizes the gentleman from new jersey, chairman of the capital markets subcommittee. >> i thank the chairman for a very timely hearing. i guess as can only be -- former

chairman frank who can put reference of secretary geithner's book and chico marx all in with one breath. you reminded me of groucho marx's statement, from the moment i picked up the book until i put it down, i was convulsed with laughter. some day i'm going to read the book. so let me go first to mr. kupiec. maybe i'll go first to congressman. was is your inteniop that fsoc be regulated as a nonbank sifi into perpetuity? >> no, i -- >> thanks. i didn't think it was. is there a problem with the way that the fed is handling that right now because i look and see in your testimony -- >> may i -- >> no, i -- thanks. i appreciate. >> there waspremacy to

your -- >> i am very skeptical of desinginating them as sifis. i've been skeptical of their doing that. >> oh, great. i appreciate that. so in light of that -- >> i sent a comment to the fsoc to that effect. >> then in your testimony you pointed out fsoc makes it nearly impossible for companies to know what steps they can take to avoid the designation as a sifi. that makes no sense. i mean, for them not to be able to mack that fact clear makes no sense so i agree. can you just jump off of what the congressman just stated and i guess you should agree they should not be making these designations and they'll not be into perpetuity? >> i completely agree. i thought there was some intention at the designation should be reviewed annually. since the designations themselves don't explain why the

institution, what the specific characters that make it a sifi are and what they'd have to do to become undesignated, the process is really broken. >> so i guess we have agreement on that point. i also did catch your one comment congressman earlier, you mentioned some areas that needed to be changed in dodd/frank. i think you said there are other areas that also need further correction. the senate recently unanimously passed one which is called the collins fix to eninsure the fed can appropriately regulate nonbank sifis. i assume that you agree with that unanimous change to -- >> i'm not familiar with the bill. i don't have to read them all these days. >> okay. >> can i say, if i might, this whole conversation, the three of us have had, starts from the standpoint that being designated a sifi is an unpleasant thing and that institutions should be

empoured to resist it. which i think undercuts the point that being named a sifi is such a great benefit and being in that category is something that helps you. if it did, they all fight it so hard. >> we only have limited time. mr. kupiec? >> the problem with that reasoning is if you truly are a systemically important firm and you'll get the bailout you have a very big benefit by not having any of the regulations because you'll be bailed out in the end anyway. so you'd fight. you would fight. even so -- if you are systemically important you are systemically important. the government has to bail you populate your best sbet to defuse any regulation anyway. so they'd fight like crazy even if there were -- even if the too big to fail is a benefit. >> so let's give a hypothetical. some day in the future when a mega bank, a sifi does go down and that will happen again, part of the cost of that whole process, the resolution process, will be borne by whom? by the rest of the sifis, right?

>> not just sifis. any institution of $50 billion or more. >> so now we've designated these nonbank sifis including potentially for asset managers. so these asset managers will now be one that could be, or would be bearing some of the brunt of the bailout. now asset managers do not have a lot of capital. so where will the bailout actually be paid for? will it be paid for by the retired widow who has funds in the asset manager that the retired widow will be paying for the reckless conduct of these sifis? is that correct? >> yes, the asset management companies have to get the money from somewhere. the fees would have to go up and recoup it somewhere. >> was that your intention, congressman? is that your intention that retired widows and designated entities would be the ones who would bear the brunt if they were part of the -- >> if it was a serious question

you wouldn't ask me with no time left so i'll wait for somebody else to ask me that question so i can ask it in a reasonable amount of time. >> the time has expired. >> it's a very serious question and a very serious problem. >> the chair now recognizes the gentle lady from new york. >> thank you, mr. chairman. chairman frank, if you have seen here today, and you hear, we continue to hear that the dodd/frank act is having a negative impact on the economy. yet the stock market is reaching all-time highs, job creation is on the rebound, and access to capital for small businesses is the best it has been in four years. now that you are in the real world, out there, do you think that main street is buying this rhetoric that it's not in line with the reality? >> i think main street is not. as you know, as chair of the small business committee, while

we were writing the bill and a member of this committee, you had a very significant input and i think we tried very hard to deal with that. by the way, the argument the republicans gave at the time, there was a bill we worked on that treasury asked us to do to encourage lending to -- from community banks to small business. and the republicans opposed it. they said the problem is the banks won't lend. such small businesses don't want to borrow because the economy is so bad. they argued the problem was on the borrower, not the lender. if i could briefly just usie yor time to respond to the last second question that i got before, the fact is when we wrote the law talking about who would have to assess, we took into account the different levels of financial activity. in fact, asset managers are not exempt from contributing at all but by formula, they would contribute a much smaller share of what they have. and in fact, i don't think they

should be included in sifis. that doesn't determine they don't contribute. but there's a formula that would minimize their contribution. i would say, and i was proud to represent fidelity and putnam and other institutions. but if they had to make a contribution along with all the others, they would sflnot have go after old widows or young widows. they could do that out of the very considerable profits they made. even on community banks we also increased the deposit amendment to $250,000 which security banks wanted. and in our bill in the house, we indefinitely extended transaction account guarantees. so again, many small banks, we want to do business with small businesses but they need to keep more than 250 around for the transactions. we said yes to it. unfortunately it was -- they terminated it in the new congress. i do agree that -- and i think, frankly, sometimes it's the lawyers fault.

i've talked to some people. because i did not recall many provisions in the bill other than the mortgage one. and i understand that. that affected small banks. and one of the things i found was some lawyers were persuading community banks they had to go to great efforts to show they were compliance with the volcker rule or compensation pieces. that's why i agreed that we were just making clear that they're not -- if you don't do those things, you are xecexpect from them. some people have overlawyered to try to prove that. we tried very hard to be respectful of the community banks. and i was pleased when the independent community bankers said they thought the bill was okay. >> thank you. you mentioned uncertainty facing the financial sector due to delays in rule making. would you agree that the federal regulators should expedite dodd/frank implementation to bring certainty to the industry? >> ma'am, i am absolutely in favor of certainty.

and if there can be an expedited process to all of this or a date certain at which this ends and we have a period where we know what the rules are and can operate, that would be a very good thing, yes. >> thank you. thank you, mr. chairman. >> gentle lady yields back. chairman now recognized the gentleman from texas. >> thank you, mr. chairman. mr. kupiec in your testimony you said that four years after the passage of dodd/frank that there's no evidence that it's really ended too big to fail and, indeed, dodd/frank is probably reinforced expectations that the largest financial institutions actually benefit from government safety net protections that are not available to smaller institutions. can you kind of quickly tell me what advantages that you see that those institutions have over smaller institutions like mr. wilson? >> i think that the perception

that the government is so closely watching them and they are subject to much, much tighter regulation and supervision gives investors the umpression they will be protected by the government. that the federal reserve the federal government. the federal reserve who is intrusively involved, it replaces the banking institutions, so the large institutions now are much less than the cost of funding. it is more than 20 -- on average, about 25 basis points, 22 was the smaller year, 25 the biggest, there is a definite advantage to being a large bank. >> mr. frank mentioned several times that he felt like the larger financial institutions actually didn't benefit from dodd-frank, that was onerous on them. and i wanted to quote some

things that people that run some of these financial institutions, lloyd said that goldman sachs would be one of the biggest beneficiaries of this reform. jamie diamond even pointed out that while margins may come down the market share may increase due to a bigger moat. so several ceos here said that dodd-frank solved -- for example wells fargo said, i don't think that dodd-frank got it right or solved the issue. so the question is, we've gone through all the gymnastics of doing this, so -- >> well -- >> i didn't ask you a question, the bigger institutions have gotten larger and we've seen a lot of consolidation in the

smaller banks, we've seen a number of consolidations, if we continue without making changes to dodd-frank, do you think that is the direction we'll go, the larger institutions, in many case the smaller institutions? >> i think very definitely the changes in dodd-frank will increase the consolidation in the industry. and tend to make assets and deposits be concentrated in the largest institutions. there are a number of features and not just the regulations of the largest institutions, dodd-frank had an impact on the chapt chapter, it doesn't allow you to pay dividends if you get below a capital threshold. this is the means by which you get money out of the sub chapter s, so they can't pay dividends. it is -- the preferred, not preferred shares, it eliminated

trumps which was a major source of funding for the smallest banks. so i think it has shut down, and the large deposits, if you're a large corporation or municipal you're going to go to the largest banks where you think things will be protected in a title 2 resolution. so over the long run, there is larger protection with the banks. >> over the long run when you compete for deposits in your marketplace, particularly if it is a large deposit do you find it difficult to compete with some of the larger financial institutions, say your cds or your market money rates? >> we have challenges in that. but we're in a market that is pretty much a wash in deposits right now, part of the oil field activity in our area. >> but with your cost -- you said you had 17 employees. with your cost -- and you add

additional compliance costs, it is putting pressure on your margins in -- what you can pay on deposits, and what your loan rates are. >> yes, our margins have squeezed considerably over the last four years. >> with that, mr. chairman, i'll yield back. >> the gentleman yielded back the chair, we recognize the gentleman from california, mr. sherman. >> thank you, mr. chairman. to set the record straight, this $50 billion we're talking about, was originally $10 billion in the bill. and some of us had to fight very hard to raise that. they get the bailout and the medium sized institutions are among those paying for it, even though the medium sized institutions couldn't have gotten the bill out.

the problem we have is two-fold and these problems continue. first, the existence of these entities that are too big to fail, and second, the credit ratings. as for the existence of the entities that are too big to fail we're told the current law prohibits taxpayer money to bail them out. while i was here in 2008, the law prohibited using taxpayer money to bail them out, we passed a new law. and one would suspect, in fact the markets are convinced that that is exactly what will happen again. and that is why mr. kupek testified that these giant institutions enjoy 22 basis points benefit. i have submitted to the record of previous hearings, that it is closer to 80 basis points of benefit. and as mr. kupek points out, the

sweet spot is to be a siffy but not to be classified as a siffy. so if the markets believe you're so big you will take down the whole economy they will loan you money at a lower rate knowing that congress would act in 2008 and probably would act the same way again. the solution to too big to fail is not to have institutions that can take down the entire economy. and mr. chairman, and i mean the current chairman who has just left the room, the republican report that we're here having a hearing on identifies that there are only two legislative answers that have been put forward. to deal with this. one is mr. capuano's bill that would require additional capital to be held by those that are

enjoying this subsidy. and then there is my bill and bernie sander's bill that says too big to fail is too big to exist. since the purpose of this hearing is to focus on solving problems that have not been solved the biggest problem is we may be asked to bail out institutions again. and there are only two legislative proposals to deal with the problem identified in the republican report. i don't know if the current chairman can speak for the permanent chairman of the committee. but, i would look forward to asking him why we can't mark up the only two legislative proposals identified in the republican report to deal with the problem that we're talking about here. i have a question for mr. wilson, and that is -- as you already know the regulators are

crafting -- regulators are currently crafting the qrm rule. do you agree that this rule needs to be issued promptly and closely track the language of the qm rule to ensure a transparent secondary mortgage market? >> i'm an advocate for if the bank keeps the mortgage in its portfolio those rules should not apply to the bank. that is 100% risk retention. that is i think a different issue. >> well, the risk retention is very important. that is how capital gets allocated appropriately. >> got you. mr. chairman, while i was addressing you while you were not here -- >> and i didn't hear you? >> what? >> and i didn't hear you. >> and that is why i will use my last half a minute to ask you a

question. and that is since the republican report says we have a huge problem, that too big to fail institutions might be bailed out, since your report indicates there are only two legislative proposals to deal with that problem, mr. capuano's bill in mind, is there any chance that instead of just talking about how bad some prior bill is that we would actually consider the only two legislative proposals identified in your report and mark them up? >> perhaps the gentleman missed the chair's opening comment when is he said we will markup the too big to fail. the chair now recognizes the gentleman from oklahoma, mr. lucas, the chairman of the agriculture committee. >> thank you, mr. chairman, and i would like to move over to the subject of title 7. your testimony is more than a little familiar to me. as chairman of the ag committee, my committee and i have held 17

oversight committees, the derivatives market and the implementation of the dodd-frank in the last few years, your testimony asking for the oversight process and the concern they're being treated like wall street businesses is something that this ag committee has heard from dozens of witnesses. that is why each and every point you raise in your testimony we address, hr 3414, the consumer protection and relief act which passed the house last month with a large bipartisan majority. and you are correct in users did not create the financial crisis of 2008 and should not be regulated like they did. they should be putting resources in the development and projects to grow their businesses. they should not be required to park valuable resources in

margin account accounts. as you mentioned the house has twice passed the act with large bipartisan majorities, 141 votes last year. unfortunately, the other body, the senate, has not acted on this bill so i included the provision in the cftc authorization act. tell me, can you quantify the job losses if this protection is not enacted into law and ftc has to pass derivative actions? can you expand on this? >> well, thank you for that question, fm c is also a member of the business round table, which along with the coalition for derivative and users, and we surveyed the other non-business -- non-financial business members of the round table and found on average for the f mc

and other nonbusiness users, it would be $200 million that would need to be set aside for meeting these margin accounts. and that was only assuming a 3% initial margin without allowing for any variation margin. and sir, that would be a direct subtraction of funds that we would otherwise use to invest in capital equipment to expand our business. and inventory to support higher sales in research and development, to innovate new products and ultimately we hope to grow our employment. >> seems that the senate action hr 3414 would be a helpful thing to help the economy. if i could just note on this anniversary of dodd-frank, like a number of the members in this room, having been a part of the legislative action in the committee and across the floor and the conference committee, you know, time tends to modify our memories about how things

are done. but as i remember it, the derivative section of what would ultimately be the dodd-frank started as a piece of legislation in the committee. as i remember when we got to this committee there was input from the minority, this side of the aisle presently, but at that time the political minority. as i remember the bill went across the floor with a number of supportive votes across the floor. when we got to the conference the decision was made by the conference committee chairman to set that aside and take up senator dodd's project. from that point on, as my memory goes it was not too much of a bipartisan process. i just note to my colleagues serving on several committees, some with a very strong tradition of bipartisanship that we began dodd-frank, whatever the result was in a fashion that was appropriate for whatever we were trying to accomplish.

but by the end i don't remember the minority having that much input, mr. chairman. maybe you remember things differently. with that, i yield to the chairman and yield back to his conclusion. >> i think the gentleman's memory is quite vivid, not withstanding the fact i recall being there for about 24 hours. but yes, the gentleman's memory is correct. gentleman yield back? >> a bill only reflects how it is put together. >> gentleman yields back the balance of the time, the chairman recognizes the gentleman from new york, mr. meeks, the financial subcommittee. >> thank you, gentlemen, listening to the testimony of the witnesses thus far i do want to see whether or not there is anything that we can agree upon. so i'll ask, i guess, mr. wilson first, do you agree that it was some bad behavior by some

financial institutions that created the problem that we had with reference to -- with reference to the financial crises? >> there was no bad behavior on my part. >> no, not your bank. i said some financial institutions. >> those guys did something, financial institutions and non-financial institutions that got us in the mess. >> well, somebody did something, and things went bad, is that correct? >> yes, sir. >> and i'll ask the same question -- somebody did something wrong -- >> i -- >> we didn't have anything covering it but somebody did something wrong. a lot of people did something wrong to cause the crash, is that correct? >> absolutely. >> okay, mr. d -- >> yes, there were financial institutions who engaged in risky activities and those risks blew up in 2008. >> and mr. kupek? >> yes, there were a lot of

guilty parties, regulation was very sub-par, the regulators missed all sorts of warning signs. there are consumers all over the country that took out loans trying to profit by low rate always took profits, they were facilitated by the financial institutions. but it was not just financial institutions that caused the problem. the blame is widespread. >> so let me go back, what i hear and hear from my colleagues on the other side of the aisle is basically what they want to dies g do is get rid of dodd-frank. basically what they're saying is the cause of the problems we're having now is dodd-frank. dodd-frank didn't exist when the problems were caused. dodd-frank is a result of the problems. so now, i don't know whether individuals are trying to get rid of dodd-frank, but the next question is is there anything in

dodd-frank that you agree with, mr. wilson? >> yes, sir. >> mr. carfe? >> sure. >> mr. dees? >> yes, sir. >> mr. kupiec? >> i think the goals of dodd-frank eliminate the too big to fail and the process that arrives from that is admirable goals, i just don't think it does it. >> so now it goes to dodd-frank, would you tell us the problems that arise, how dodd-frank came into existence and what it did to help save the economy and put us where we are today? >> there were two areas, the chairman mentioned there were increased regulations, there were other things. but there were two innovations, and i don't think the problem

was so much that we deregulated as a so it, but we didn't have enough to keep up with the new activity. one was the financial derivatives. and i noted what mr. d said. there was risky speculative activity that became evident in 2008. basically people using it as an end to themselves, it was not productive to the economy. seconda secondly, most troubling, the financing of loans, he said you don't get rid of risks, you shuffle it off. in these two areas, the new financial derivatives, remember congress in 2000 enacted legislation that said stay away from derivatives. and we did have, we thought in the homeowner's protection act, to regulate. they said they wouldn't do it. many of my conservative

colleagues said we should stay away from regulating sub prime, that that was a good thing. the problem is, with securitization, people were making loans and essentially the incentive became to make a quantity of loans and not quality. if we get to too big to fail then things have failed. we don't want the institutions to fail. by stopping these irresponsible loans and making people stand behind the financial derivatives you hope very much to make it unlikely that people will fail. if there were not bad loans and aig had not sold credit to people who had bought securities from these bad loans with no idea how much they owed we wouldn't have that kind of problem. >> time of the gentleman is expired. chairman recognizes the gentleman from missouri, chairman of house subcommittee. >> thank you, mr. chairman. appreciate the opportunity for all of the good folks to be here today. and listen to their concerns and you know, it is interesting you

know, as somebody who is involved in the community banking industry. and you know, been on both sides of the table as an examiner, as a banker before, and then see the regulatory on slaught that came as a result of the bill. it is mind boggling to see what happened. when i talk to regulators they talk about the amount of regulation coming out of washington. and mr. carfan, you talked about the fear and uncertainty and ambiguity. it is the uncertainty that causes them to not be wanting to go out and invest. the local community, the business people have this same fear of uncertainty from the standpoint of not being able to or not wanting to risk their hard-earned blood, sweat and tears business by expanding.

and i've had a banker tell me before that you know, i asked him, i said well, how are things going? he said well, last week i had three people come in who i had approved the loans over the business in the past two weeks. and all three came in and said no, we're going to wait. we're concerned about the economy. we're concerned about this regulatory environment coming out here. and obviously, the president's health care law is a big problem. but also it comes down to dodd-frank and the accessibility of funds, the costs of the funds and the uncertainty that it causes within our economy. so mr. wilson, you talked about you know, basically i think in my view the community banks were not the problem yet they have been roped in as part of the solution. as a result, you talked a while ago about less flexibility. and less ability to serve the unique needs of the communities that you set in. i would like for you to expound

on that a little bit. and how you feel it meets the needs. >> we're in a community that is mainly hispanic and the needs that we originate were somewhat creative. they were five-year balloons, not high-risk mortgages. we had very little losses in the portfolios but we were able to uniquely tailor that loan to meet the customer's needs. and i might say during the lifetime of that loan we were very flexible if crises happened within the families of working with the customers. >> one of the things that i think happened in -- as somebody who comes from a rural part of the country i go back home every weekend. and you see that there is another bank that is sold out for a competitor, a neighbor or larger institution. and you guys have alluded to it this morning about the cost of compliance. and it is not that it is a bad

economy. the economy has stagnated. but at some point there is not a particular law or a particular rule that caused it to happen. but it is a accumulation effect, that at some point it is the straw that broke the camel's back. the consolidation, you see these issues going on, i know that yesterday in "the wall street journal" saying some banks are getting close to the billion dollar mark with regard to being declared a siffy. i have a bill that says it is not the size, it is the size complexity and the risk that the bank is taking, that should be what determines the siffy, not just the size wherein all the rules and regulations kick in. mr. carfan, you have a lot of ideas in this, what do you think

we should do to protect the mid-size banks -- >> one of the things of the siffy is it brings you under the jurisdiction of f-sock that essentially created double jeopardy in the sense it steps in when they believe that other regulators have failed. it creates uncertainty, another bite of the apple, if you will. that creates concerns on the part of the financial institution. the customers, the business borer bore er -- borrowers worry that they will assist when they need them. >> one of the ones that hit the $50 billion mark, the stock went down 50%. there is another bank approaching the 50% mark, not because of anything they have done. it is because of their size. that is an unintended consequence of this situation

that can't be allowed to continue. mr. chairman, i yield back. >> the time of the gentleman has expired, the chair recognizes the gentleman from massachusetts, mr. capuano. >> thank you, mr. chairman. bonnie, do you miss us? >> no. >> i don't blame you -- >> i am not under oath. >> i think -- the gentleman of the panel, and barney, you're seeing this again, a show with no purpose to it. for me, i love you all, i would have left. because this seems to be going nowhere. it is going nowhere, mr. wilson, you already made a proposal, i would sign on this tomorrow for a small community bank holding their own mortgages at 100%. you should not be subject to qm. sign me up, that is easy. but we don't want to talk about that. we want to talk about how bad

dodd-frank is. we don't want to talk about some of the things we come to an agreement on that fix some of the things we need to fix. instead, we light the chambers of the outside ideologue think tanks. we can't talk about too big to fail. many of us think we did a pretty good job with too big to fail. but i for one think fine if we can do more let's do it. what is the problem? so i put a bill in, others have a bill in, 2266. i can't get the ideologues to support it unless we repeal dodd-frank. how are we going to get to the specifics if we simply say we love this, we hate that, here are my speaking points for my campaign. fanny and freddie mac, does

everybody believe that the government has made money from fanny and freddie mac? do you know that? >> no, sir, it is all i can do to keep up with derivatives. >> fair answer, but a lot of the derivatives are tied to fanny and freddie mac, you should know who you're paying because they're actually costing you money. mr. kupiec, did you know we're making money on fanny and freddie mac? here we are, making money, costing homeowners more money than they should be charged so they can use it as a piggy bank, yet we can't have an honest discussion on how to fix it. the bill that sits on the floor, never seen a major bill sit on the floor for as long as that proposal has because we can't get it passed. and that is just one of them. were having troubling, we can't do it with the highway trust fund, we can't do it with the immigration. we're lighting candles at the ideologue altar.

help me find a way to get to these points. mr. wilson, can you talk to some of the friends over there to let us do what we can do. i love them all, they won't listen to me because i'm from massachusetts, i guess, we're too liberal. could you get them to listen to some of these things? >> i'm excited we have consensus on addressing the needs of community bankers. >> well, the independent community bank has actually supported 2266. the american banker wrote that it was a brilliant idea. by the way it was not my idea, it was a professor's idea that i simply put into legislation. i guess -- i don't really have any questions because the truth is, i already know some of the things that need to be done and i'm happy to work with you and any of you or anybody else who actually wants to address some of the problems in a bipartisan way. but i got to be honest, i'm getting tired of the regular hearings that we have, simply stating political points over and over and over.

dodd-frank has done a very good job of containing the crisis that we had. putting us back in the footing. can it be improved? of course it can. barney will be the first one to tell you he didn't get everything he wanted. a 5% retention? i think it should be higher. there were other whose would like to change some of the things. those are changes to a bill that works. it is not just throwing it out, pretending we did something terrible. gentlemen, i am sorry i don't have questions for you but i can only suffer this so much. >> the chairman recognizes the chairman from south carolina, mr. mulvaney. >> i guess in response to part of the questions by mr. capuano, let's see if we can agree on something. i was struck about the story that mr. wilson told about his compliance costs going up as a result of dodd-frank.

and i'm reminded of a story about south carolina, the examiner, they told the story, the examiner asked them at the end, how are you finding the new regulations, the new environment? and the bankers of the small community bank said it is killing us. we have 18 employees and had to hire three people last year just to fill out paperwork. and it is just killing us. and he said the response with the examiner was outrageous, the response from the examiner was this blank look of non-recognition. where the examiner said i don't understand. and it is working because you have created three jobs. and if you have a complete misunderstanding of how you create wealth and how you create jobs, then maybe that part of dodd-frank is a success for you. and i think mr. kupiec mentioned the stories coming out that j.p. morgan said earlier this year they're going to hire 3,000 more compliance officers this year,

on top of 7,000 compliance officers last year, yet total employment at j.p. morgan will go down by 5,000 people. so we're moving away from this concept of a productive financial sector into a compliant financial sector. and my fear is that that may be part of the long-term legacy of this legislation. but if we go to the point on focusing things that maybe we can agree on. i'm encouraged by his comments, by mr. frank's comments that perhaps banks holding loans should be keexempt. let's see if we can agree on maybe the arbitration bill is a bad idea. and that picking a number, i'm surprised to hear mr. sherman say, i was not here earlier, that that number is actually 10 billi

billion, that the bank would be treated the same way as one with one trillion, which is absurd. >> could i just add one point? >> i will give you a chance, mr. frank, i want to ask mr. kupiec if he thinks it is better to replace the $50 billion threshold that looks at the actual business model and what the financial institutions are engaging in? mr. frank, i'll ask you the question afterwards. >> it is an excellent question, two aspects to it. on a positive note on what you can do to fix too big to fail in dodd-frank, title 1 should have been used to direct the fdic in their resolution bank process, to set up banks, in a whole bank resolution. that is how we got to too big to fail banks and dodd-frank didn't do that it would have to modify the fdic act so they didn't have

to do the lease cost resolution. so the whole notion that dodd-frank handles the too big to fail notion is nonsense. if you fix the banks, the ones between 50 billion, they don't pose a risk, the risk they fail is if they have go to a resolution, the fdic will just sell them whole. the resolution process built up a too big to fail industry structure. that is what dodd-frank should have fixed. it should have addressed that flaw and didn't even touch it. the resolution plans, it doesn't speak to that at all. it is about a bankruptcy proceeding. it never recognized the resolution process that was in place, the regular fdic resolution process is broken when it comes to a large bank and doesn't have to be. >> we'll come back to mr. point which is this $50 billion arbitrary number, it doesn't come from anywhere, there is no

science that came up with $50 billion. the problem with having this potpourri of things and turning it over to the f-sock, if you turned it over and said 50 is out but the f-sock has to figure the complexity size, whatever else you want to care about. the f-sock could fill it out, it is full of regulators, they look at the $50 billion, there is nothing that fixes the problem if you kick it to the f-sock. >> i did intend to ask you the question -- >> i think you may have misunderstood the chairman. the notion that it was once $10 billion, nobody ever thought about 10 billion as made into a siffy. that was the number you would have to contribute if it was a bailout. >> it was just the high level scrutiny. >> that was not about regulation. >> time of the gentleman has

expired. chairman now recognizes mr. clay, the monetary policy and subcommittee. >> welcome back, just going lansi along with that line of questioning, senator warren of massachusetts has advocated reinstating glass-steagall, in order to address the issue of too big to fail. what are your thoughts on that, mr. frank? should we go back and address? >> no, i voted against the repeal at the time because i thought it did not have enough of the new regulation. but glass-steagall is a 70-year-old bill. i think the problems i talked about, the financial derivatives without backing, credit to false swaps, insurance not regulated in the way insurance should be regulated. securitization of mortgages.

glass siegal wouldn't have stopped any of that. then the question is well, do you break up the banks? and i did agree, the complexity is part of the issue. i agree with that. that is one of the things we asked them to look at with regard to those where there is a discretion about being a -- siffy. that by the way is where i think the volcker rule is very important and why i changed my opinion on the question of the pushouts. i originally didn't agree about pushing out the derivatives but there are ways of reducing the complexity. and i think it is not just besides its collectionty and having them do less of the derivative area is a very good way to diminish the complexity. the other department, people say well, the banks are too big. my question is what is the left which you got to get them down.

remember, precipitating the events in 2008, was the failure of lehman brothers. so specifically, if you think the answer no bank should be too big so that the disappearance causes a tremor, the question is how do you get there? how does the federal government order the dismantlement. i do think the complexity of the issue of the volcker rule and the pushout's help, there was also an amendment to the bill that was adopted by paul canjorski when he was here that does give the feds the power to order the divesture of ordering any segment of any particular institution, if it has gotten out of hand and doesn't have appropriate control. so i do think there is room for subtlety in there. but i don't think glass siegal does it. if glass siegal had been in effect it wouldn't have affected

aig. nothing in glass siegal would have kept them from saying we owe $100 billion, we don't know how much we owe and how to pay it off. we couldn't have stopped people from 100% securitization and making bad mortgages. these were new things that needed to be regulated in a new way. >> thank you for that response. you know, the housing market has seen some signs of recovery with foreclosure rates declining. home sales rising, and equity creeping upward. do you think that dodd-frank had an effect over the housing market or just over time the housing market has corrected itself? >> well, we have had an effect. and i am surprised some people mentioned it, there are few loans available for very poor people. and i wish there were not poor

people. but lending them money when they cannot afford to pay it back is not doing anybody any good on a lending institution, unless they securititize it and pass it on to some other entity. i think we're seeing stabilization in general, in the housing market. the combination of things have helped to turn around this very serious recession have been helpful. let me just comment on one thing. i appreciate it. people talk about the uncertainty. et cetera, some of that is inevitable, taking longer than it should have, partly because we have had funding. the transitions are painful. we were in a situation until 2009 where a lack of regulation of some things, a whole set of practices that had grown up that out-stripped regulation were causing problems. and i think it is necessary to go to a new set of rules and it

was painful to go through the transition. i accept there is uncertainty now. i do believe to three or four years from now that part of the problem will be over. >> the chair now recognizes the gentleman from wisconsin, mr. duffy, vice president of financial institution subcommittee. >> thank you, mr. chairman. to mr. frank's recent comment, i agree that if -- if you make loans to borrowers who can't pay them back, that is a good thing. but the pendulum has swung far over, traditionally there are people that could get loans and pay them back that now can't get loans because of dodd-frank. it is where the pendulum has swung that concerns me, where people who are not of the highest income but now can't get loans because of dodd-frank. i know when the bill passed i was not in congress. i had the privilege of viewing this from my home couch in wisconsin. but the claim was made about the

too big to fail. dodd-frank has not ended too big to fail. we had larger institutions who partook in the crisis. the rules and regulations have now come out. and the rules and regulations, that the intent was to stay with the larger banks, have now come down to our community banks and credit unions, making it more difficult for community banks and credit unions to make loans across main street america. and if you're a large institution and you look at the new regulator regime, you would applaud it. you would say this is fantastic. because i have got economy to scale, i can deal with the rules and regulations far better than my smaller competitors. these rules, i might say they are bad but really they benefit me because now i have a competitive advantage. it helps the large institutions and crushes the small institutions. and this is what i hear from my smaller banks, my community banks all across wisconsin. it is making it harder for them

to compete. harder for them to do their job which means it is harder for families to access capital. it is harder for businesses to expand or that young entrepreneur who has an idea to access a loan and get a bank to take a risk on him in rural america. but i want to pivot to the consumer financial protection bureau. we have a very powerful agency that i would argue and i think many would agree is inaccou unaccountable. and to mr. frank, i don't know if that was the intent under dodd, but i think it is the reality under the regulator. but with regard to the consumer protection under the financial bureau you now have an agency that is collecting anywhere from 600 million to $850 million in the credit cards and data off the credit cards. they're partnering with the fha on the mortgage on the data base, collecting information on race, religion, gps to the home,

credit scores. the number of children you have and the age of children. an agency that is out of control. you have an agency that has been involved in racism. and sexism. spending $250 million on a renovation -- i know mr. chairman has asked this question. it is not a taxpayer money, but it is not taxpayer money, i don't know where they get it. i haven't figured that one out yet but it is an agency out of control. i know that some of my friends across the aisle believe that is a good thing, that only an agency that doesn't have any input and insight from congress can protect consumers. but listen, all -- whether they're individuals or organizations, through the history of humanity, they claim to do really good things for people. and for society. but it is under the auspices of the claims sometimes they have

nefarious purposes. it is grave concern for us, i know there is even a debate that goes on right now with regard to what happens with the president who now believes he has the authority to wave and suspend laws that were originally passed by the congress. it is concerning. i think maybe there is a push on the other side of the aisle that says there is no need for congress. we just have to have an all-power executive and all-powerful agencies. but i will get to a question here. mr. wilson, do you believe that the rules, although they were intended for larger institutions have had an impact on community banks? >> absolutely. i am appreciative that we're not examined by them, but we're not exempt from their regulatory reach. >> and how is that? >> well, when they pass regulations we have to comply with those, the fdic will continue to examine us.

>> so they don't examine you but you still have to put up with the rules from the cipb. >> that is right. >> my time is expired. >> gentlemen now recognize the lady from new york, ms. mccarthy. >> thank you, and i would like to remind my colleagues with the poll numbers that are out there, we're not liked by anybody, so maybe we should all retire. barney, welcome back. it is good to see you. you know, i think a lot of people here, especially some of the new members don't remember that we were having meetings almost every day. it took us over a year to come up with the -- i call it the frank bill. i still don't like putting dodd on there mainly because of all the headaches. and an awful lot of the headaches that we have had have

come because of the dodd part of it. with that being said, there are many things in the dodd-frank that we had wanted. we couldn't get it in. then things had changed. certainly, you know, i'm one that was fighting for the community bankers. barney knows that, many of us here were trying to do that. we also felt with the business model of the insurance companies that really had nothing to assert the logic of the collapse. but i think that one of the things we have to keep reminding people, not only was the financial industry -- had nothing absolutely to do with the collapse. you know, small businesses in town all collapsed. a lot of people are still hurting even from that. unemployment. and yes, it was the fault of an awful lot of corporations. now, someone has to start to

take responsibility for that. because here we are, things are coming back but it took a long time and a lot of people did lose their homes. and i believe with barney, you know, when i first got my first mortgage, i mean, you had to go through some kind of background check and had to make sure how much you had. remember gentlemen, when i went for a mortgage they were not giving them out to women. it just was the case. but with that, barney, i'm giving you the time because i keep seeing you writing down things. and you know, i've been blessed to have you as my chairman for when i first got onto the committee. you taught me a lot. but i also know when you're writing things down you got a lot of answers you want to give. and to me, you know, you have been a wonderful teacher to all of us. so if you have something that you wanted to answer back onto the questions please take that time. >> thank you, very much. there were things that i don't like that he didn't like,

somebody mentioned the trucks, that was senator collins from maine, i did want to get back to this question of whether or not it is some boon, i think mr. kupiec has been a little inconsistent on this. i cite the fact that any institution over which there is discretion has vigorously resisted being named a siffy is a sign that it is more negative than positive by far. i accept their judgment. his response was well, they don't want to be designated but they get the benefit of being a siffy without the designation. he said at one point the fact they are closely supervised by the fed, the fact they don't want to be closely supervised by the fed, if it is simply the size alone that does it, and there is nothing you can do

about it unless you want to break up iffidelity -- >> thank you for asking, but banks bigger than 50 billion -- >> i'm sorry -- >> i didn't ask you about banks over 50, we know that. why is it -- >> believe it or not, the time belongs to the gentle lady from new york, and she can allocate it. >> the question i ought to ask is this, why do they not want to be designated. you said the fact of designation and close supervision is what leads people to think that they wouldn't be allowed to fail. >> i would rather hear the discussion between the two of them than the majority of people here on both sides. they're all taking too long.

>> you have aig, which is a ward of the government. the other insurance companies are going to be subject to height and designation that is not mentioned anywhere. they're going to be treated like a bank. they're going to be treated, they have to do stress tests just like they're a bank, have capital like they're a bank, they have not -- >> we agree. it should not be designated. >> they have no clue what will happen to them. they have no clue. so they wouldn't want to be designated. >> time of the gentle lady has expired. chair now recognizes the gentleman from california, mr. royce, chairman of the foreign affairs committee. >> thank you, mr. chairman, the derivatives market are global. and the -- global derivatives market should be a priority.

they have to understand how europe and asia are going to implement the reform and sort of do things in concert here and not end up with incompatible guidance and rules that could harm our competitive position of our companies and the liquidity of our markets. while the sec adopted a formal rule, the cftc adopted guidance that has been subject to changes of interpretation and the resulting lawsuit also. which should be reinstated, i don't think it was the right decision, he said, to change the guidance and that equal governments in europe should be allowed. my question is to mr. dees and carfan, they need the liquidity

and need the willing counter-parties with which to trade, whether they're located here or in europe or asia, do you believe the failure to have one point rule to govern how title 7 of dodd frank will handle the ability of users to manage their risk. >> sure, the jurisdictional issues, the conflict and the inconsistencies among the various derivative regulations around the world is harming the ability of the u.s. companies to basically get a handle and appropriately hedge their risks, time their risks and -- frankly get visibility -- corporate cfos rely on the market to give the economic signals. and to the extent the signals are muted or included the corporate treasurers are more

reluctant to make investments simply because they -- they don't have the economic clarity that they need to move forward. >> mr. dees? >> yes, thank you. there is uncertainty in several areas or potential bad outcomes from the lack of harmonization. that lack has created this uncertainty that we thought was clear in the bills that the users should be exempted from having to post margins. and i indicated earlier, the margin for the financial business round table and a coalition study we did, that was 269 million that represents a diversion of funds that otherwise would be used to business investment. the other element -- and the european regulators have been much more clear that they view the derivatives activity by n user companies that is actually risk reducing. and so they appear not only to

be exempting n users from having to post margins but from exempting the bank counter-parties to a derivative n user from having to retain a higher capital level against that derivative exposure because of the risk-reducing nature. >> if i could -- this aspect could put american companies at a disadvantage. >> if i could quote -- i understand your point. if i could quote, he said if the cftc also gives equity to third clearing houses deferring to strong and rigorous rules such as the eu, we will be able to adopt equivalenc decisions, in other words, we'll treat you as you treat us. good to see you, mr. chairman, it was mentioned to me that you had suggested exempting smaller

banks from volcker. and as memory serves, you are not of the opinion that asset managers should be designated as siffys. i was going to ask you, give you the floor here on other issues that regulators are pursuing. do you find some there that were not intended in your view by dodd-frank? >> with regard to asset managers, i don't think as a general rule they should be -- aig clearly should have been. i don't think insurance companies should have been. but aig has no right to complain. so it is not 100%. but the assumption would be no, my biggest problem with the regulators, frank, is that they're equating two kinds of mortgages, i think there should be risk retention. i agree with mr. wilson, to keep 90 the portfolio, fine. but the flip side of that has to be strong risk retention. and am not happy with what the

regulators are doing there. >> thank you, mr. chairman, and thank the members of the package, especially. mr. frank, good to see you, welcome back. i did see a good article yesterday in "the wall street journal." a few of the takeaways from the article, the address is really how wall street is adapting to the new regulatory measure with dodd-frank, they talked about how profits are up. banks are cutting ties with subsidies that are more risky. and storing up, shoring up their capital reserves in the case of an upset in the economy. and they're de-leveraging and becoming less complex institutions. they go on to say that goldman sachs last week announced its trim, $56 billion, the sharpest

reduction in a very long time. they're trying to comply with dodd-frank. they talked about morgan stanley. and they down sized their fixed income trading operation and they're focusing on less risky operations. citigroup has shed nearly 100 billi billion, with the non-core assets, including the sale that they viewed as risky. the bank of america corporation has shed more than 70 billion worth of assets since 2010, including those that are more risky and allow the bank to hold capital against them. it also eliminated 746 legal entities, a 30% reduction. so dodd-frank, in part, they're doing their job. they're working to reduce the risk and also the likelihood that these banks will fail in the first place. mr. frank, i want to ask you about -- you talked a little bit

about this earlier with mr. garrett. i want to go to the issue of asset managers. now, they have, as you know, the dodd-frank act recognizes each financial institution and company. and differently. and it should be reviewed in its unique characteristics in mind. the fact is outlined as we know in dodd-frank includes the amount of leverage that the institution has. the off-sheet balance sheet exposure of the company and the degree to which the company is already regulated by the primary regulator. now, that seems to suggest that these asset managers are not folks that we intended to go after on the risk side. and i'm just wondering, do you believe that designation as a siffy is an appropriate way to

address that industry? >> no, i agree with that, specifically, if there has been an argument on the republican side that being designated as siffy gives you the advantage, yet every institution over which there is discretion has vigorously resisted. and the fact that being a siffy clearly means more regulation and the notion it is a benefit is belied by their response. there is another factor in there, i don't know if you read it, about the breadth of ownership. the more likely -- >> that was a good example of that. >> and i don't think that -- if that is your major -- if that is all you do is asset management or sell life insurance i don't think you should be a siffy, for one thing i think they have enough other things to do. and there is no sign of their causing problems. now, you did have an issue with

money market funds, they have shown their value, we'll get some regulations of money market funds, of the f-sock, which intervened. i think it the specifics but i think. thank you very much. and i yield back. >> gentleman yields back and the chair now yields to the gentleman from pennsylvania. mr. rothis. >> i just want to point it out because i heard chairman frank make the point a couple of different times. i don't frankly know if the specific designation is a net ben put the or a net cost while

margins may come down, aig called the designation, quote, a good house keying seal of approval. so, i think that some of the biggest banks and i respectfully disagree with our former chairman. and i yield back to the gentleman from pennsylvania. >> thank you, mr. chairman. western pennsylvanians are frustrated by the one-size-fits-all decisions coming from this town. these rules and regulations are not helping the communities growing and creating jobs. not helping an out of work person get a job. banks in western pennsylvania are telling me the same thing and telling me that the regulations coming out of the town are stifling their ability to left-hand and offer products to businesses and families in our communities. mr. wilson, has your institution or other institutions you know of have stopped offering a product because of the regulatory cost associated with it? if so, what does this mean for customers? >> as i mentioned, i'm very sad that we no longer serve that

segment of our community. did not have access to credit because of the requirements of dodd frank. >> that's with mortgages. are there other areas, also? >> no, sir. >> a recent study from the center found that small banks are spending more in compliance in the wake of dodd frank and that more than 80% of respondents found a compliance cost rise by mr. than 5% since 2010. statistics like this are why i believe that any regulation should have should undergo a rigorous cost-benefit analysis including a review of whether it would cost jobs and wages. mr. wilson, can you quantify for us the cost that you are institution has incurred to comply with dodd frank in terms of dollars? >> my estimation is we spendbility three fulltime equivalents dealing with regulatory requirements. >> that's on an annual basis? >> yes, sir. >> and how much would that be?

>> well, the bulge of that is a big piece of that is my time trying to read the regulations. trying to interpret them. getting training on what they are. some of those are not clear. they conflict be other regulations. >> this is not -- this is not time that you'd be spending with a customer trying to help that customer access a credit product that could help him or her grow a business or get into a mortgage? >> i would much prefer to be calling on customers and offering them credit solutions. >> i've also been concerned about the consolidation that we're seeing in dodd frank's consolidation of the banking industry. a spoke to a group of bankers in pennsylvania, small community banks, about 20 of them, and i asked a question of whether or not in ten years they thought they would be independent and whether they would have to merge and every hand went up. there's a lot of concern and we're seeing that with the numbers. and in the four years prior to

dodd frank, 510 new bank charters were granted and after dodd frank only 15 new charters have been granted. mr. wilson, what does this suggest to you? are you concerned that we'll see further consolidation of the banking industry once regulators get around to implementing the rest of dodd frank? >> i think it would be a tragedy. however, i see that happening. and i feel that pressure myself, trying to keep up with the pace of change and the complexity of these changes and if they're not issues that we have caused or been a part of, i hope that the congress will exempt us from those sorts of regulations. >> thank you. chairman frank, on december 11th, 2009, your bill, the wall street consumer protection act of 2009 was brought to the floor. that bill provided to the creation of a consumer finance protection agency. it also provided the converging

of that agency to a commission. section 4103 subsection a said on the agency conversion date there shall be established a commission that shall by the operation of law the direct of the of the agency and further, it said the commission shall be composed of five members who shall be appointed by the president, with the advice of the senate. you sponsored that legislation and then you voted for that, correct? >> yes, i voted for that bill? >> thank you. >> gentleman yields back. the chair recognizing the gentleman from georgia. >> thank you, mr. chairman. first, let we say, chairman frank, we really mess your as well electricity intellect.

in a moment of crisis. and throughout history, moments of greatness shine at their most brilliant. at moments of crisis. this nation was on the brink of a depression, unemployment was a are kwhrach itting ratcheting ut 12 and 13%. the worse economic conditions since the depression. and you were the right person at the right time doing the right job and we're grateful for that and america is grateful for that. and i want to say the folks in atlanta, georgia, are still talking about that wonderful time we had when you came down at the ritz carlton. i think you remember that. hopefully that's one of the highlights of your career. it certainly was of mine. let me ask you.

i want to go back to a couple of things. i think the genesis of the dodd frank bill is the essence of the too big to fail. the threshold of $50 billion being that point and awhere we designate the systemic important financial institutions. brings upon additional federal regulations. let me ask you, should a bank systemic importance be based strictly and solely on their asset size? >> well, at some point, yes. we get do you know, i have a trillion dollars, i suppose but i think that $50 billion -- look, any number is arbitrary in the nature of the case. the governor talked about moving that.

and i think that's a reasonable thing to do and basically i think what you ought to do is a fairly high number as the automatic cutoff and then allow for inclusion if there are further complications. on that question and i was frankly pleased that the chairman felt sufficiently stung by the notion that nobody wants to be read those other comments but they're really not relevant. of jamie diamond never had the option. it was obvious that goldman sachs and jp morgan and aig as the poster child, the fact remains, it's not controversial, every single entity over which there would be discretion, if not jp morgan, chase or goldman sachs, has vigorously resisted being included. they hire a lobby to fight it. they appeal the decision. we had a panel of regulators on

the subject and we asked them, has any institution told you they'd like to be or has any institution failed to object if there was discretion? and every single one of them said, the institutions fight it. because it is much more of a burden than not but i think that it's reasonable. i also believe on the point that complexity is obviously could be an additional risk factor and i would reiterate, both the rule and the pushout, and accomplish that. if i could comment on the question from the gentleman from pennsylvania. he came

taxpayer money be used for a bailout. it was you that provided. that's important. and i want to go back, mr. garret raised this point. i want to make it clear. then who, who has it under your bill in your estimation, pace for the bailout. >> there's a formula so that asset management will pay much less. than a goldman sachs or jp morgan chase. >> time for the gentleman expires. chair recognizes the gentleman from virginia.