lending or shut down. my constituents, the 14th district of illinois demand answers to this problem which is why i'm grateful for this panel today. with that in mind i'll address my first question to mr. wilson and ask how dodd frank is impacting your community bank's bottom line. heard from financial institutions how high costs imposed by growing mountain of additional rules, regulations and compliance burdens are being faced by the industry. are you concerned the regulations could force the bank to limit its you have offering of certain financial products to consumers? and low income consumers, specifically? and what about the impact that the regulations as well as their subsequent enforcement have on the available and affordability of credit for small businesses and consumers? >> congressman, our market is low to moderate income people. the community we serve is 65% hispanic. the withdrawal of us offering home mortgages is not good. there are products that we

looked at and chosen that not to offer at this time until we figure out the risk. we're a little behind the curve on some of the new technologies. that's the impact of the risks that we try to face each day. >> i want to get back to a few more questions with you. i want to just remind this committee where this all started from. i want to go back to september 25th, 2003. a hearing here at financial services committee hearing. chairman frank, you said on the record, i do not want fannie and freddie to be just another bank. if they do not more than just another bank -- sorry. if they were not going to do more than another bank would be because they have so many advantages then we do not need them. and so therefore, i do not think, i do not want the same kind of focus on safety that we have at occ and ots. i want to roll the dice a little

bit more on the situation toward subsidized housing. in the gsc act congress initially specified affordable housing goals of 30% of mortgage purposes. that goal is continually raised over the years to 42%, 50% and finally, 56%. more than 70% of subprime and all-day mortgages that led to the crisis were backed by freddie and fannie. fha and other taxpayer-backed programs. if you have to point to a root cause of the financial crisis, that is it absolutely that is it. mr. wilson, i want to get back to you. in september 2012, a survey found 55% of bankers decreased their business due to the expense of complying with the requirements for higher priced mortgages that took effect in 2010. i wonder if your bank still does offer and issue mortgages and if so, have you decreased the number of mortgages you issue because of regulatory

uncertainty? >> yes, sir. most all of our mortgages would have fallen into the higher price mortgage and we did not have the staff capabilities to escrow insurance and taxes. >> again, my last few seconds, thank you very much. all of you for being here. we want to figure this out. we need to clean this up and ultimately i want to see community banks that are vibrant in our communities again. with that i yield back, chairman. >> the time is expired. the chair recognizes the gentleman from colorado. >> thank you, mr. chair. somebody mentioned the incredible cost of dodd frank and i want to start with before dodd frank, summer of 2008 to january/february 2009, the stock market lost 6,000 points at $1.3 per point, february of 2009, the stock market lost 6,000 points and $7.8 trillion. home value dropped by 25% across the country. trillion and trillions of dollars and millions of jobs lost.

since dodd frank, stock market has increased 10,500 points. 10 million jobs have been gained. and housing prices have rebounded. now, whether there is a direct cause and effect, i don't know. but it certainly the economy has improved dramatically since before its passage. now, mr. kubiac, i'll mention a few things because i disagree with your basic premise that the primary goal of dodd frank was too big to fail. and having sat on the front lines of this thing, i know we were dealing with credit rating agencies, derivatives, mortgage lenders with their no-docs, no-down, mortgage servicing, appraisals, foreclosures, learninged generally across the system. disclosures, ponzi schemes. hedge funds, swaps, stay on pay,

exclusives basing, pumping up their stock prices when it wasn't deserved. credit cards, transparency, money markets, the security investor, protection corporation, whistle blower, securitization, accounting standards and the cfpb. each of those was an important goal and is found in dodd frank. you describe it as the primary goal. i disagree with you. that wasn't. we had a whole range of things we had to address. i want to enter into the record the article that mr. lynch was describing from the "wall street journal" dated july 21st and a bank of america executive said dodd frank certainly catalized substantial amount of simplification and we're moving well beyond that through our own initiatives. that was what we did. if i could enter it into the record. >> without objection.

>> so mr. frank, i'd like to now see if think of these things triggered thoughts on your behalf and -- >> let me say -- i am pleased that mr. dimeond and mr. blank fine recognize the value of the bank. it wasn't because they were glad to be designated. that was never in question with them. i recognize that they believe we brought stability. i don't think every piece but we brought some sta b9 and among other thing it gave them some protection. we had a situation where this was articulated. i asked him once why the hedge was structured investment on their balance sheet and he said if i do it i'll be at a disadvantage, vis-a-vis goldman. we had some common rules. no question. and to being the main purpose. the main purpose of the bill was to not get to the point where institutions failed by not having the bad loans and these irresponsible derivative practices that caused it but i'm sorry the representative of pennsylvania had so little time to spend with us because the

distortions of the history with fannie and freddie were egregious. it is true in 2003, i did say we should roll the dice with regard to subsidized housing, which i meant specifically phrase we use, multifamily housing built with federal subsidy. in fact, that has done well with fannie and freddie. it's also the case that was 2003. he referred to me chairman frank, mr. cheney said chairman frank stopped it. we were in the minority. the republican party told the house in 1995 through 2006, it was entirely their decision not to pass any legislation regulating fannie and freddie. i was against it in 2003. by 2005 i switched my position.

the gentleman of pennsylvania alluded to an increase in the affordable housing rules. when george bush puts it up over 50 in 2004, i objected. and, in fact, as you can read in hank paulson's book, it wasn't until 2006 when we were on the virge of taking over, that he talked to me and we got fannie and freddie legislation. the republican party had been consistent. from '95 to 2006, they did not negativively about fannie and freddie. >> i remind the chairman that mr. oxley said the white house gave him one-finger salute on dealing with fannie and freddie. >> and in our four years we dud put them into conservatorship and since then the republican party had once again, in control of the house, done nothing about fannie and freddie. >> i yield back. >> it's not a one-finger salute but the time of the gentleman has expired. the chair recognizes the gentleman from kentucky, mr. barr. >> thank you, chairman.

i appreciated your earlier testimony that your intention in crafting the mortgage reform provisions of the law were directed to encourage more risk retention. i have a bill, hr 2673 and that bill is a portfolio lending bill that would encourage for risk retention on the part of mortgage lenders, small banks like mr. wilson's bank. and, in fact, not only was that bill marked up out of this committee, several of my colleagues on the other side of the aisle voted in favor of that. and my question to you, would you support such a proposal to give a safe harbor status to portfolio loans which the originator maintains the risk? >> i'd have to look at the specifics. i'm generally in favor of that but you said you would encourage it. i think we had to get this in the senate and loosen the risk retention. i would like to have portfolio allowed to be whatever it is.

have stronger risk protections. >> i appreciate you're japan inclination toward risk retention and your general favorability towards that. mr. wilson, i want to direct your attention as a small community banker to this slide here. the ranking member earlier alluded to the fact that you should have no problem originating mortgages now your $2 billion or below in assets. this is a slide from the consumer financial protection bureau. this slide shows what it required, the chart, in order to qualify for the safe harbor protection. it's not just that you have to be $2 billion or below. it's loan features, balloon payment features and underwriting and points and fees. then there's the portfolio provision. does this slide explain why you and other community banks have exited the mortgage loan business? >> the fact that it's on the

-- is so complex on the summary page here is part of the problem. we did balloon mortgages, and so -- i'd have to go through this. >> let me just cut to the chase. if we had a bill like the one that i was referring to earlier where if you could portfolio your mortgage and hold it and retain the risk and hold it in portfolio, would you reen-enter the mortgage loan business? >> yes, sir. i would to be able to that segment. >> can i ask you one question? >> i have limited time and i'd love to talk to you after yards. real quick. let's talk afterwards. real quick, i want to go really quickly to another point and that is the dodd frank was sold under the premise that in community banks played ball and had a seat at the table they would be protected from its new regulatory regime in particular, jurisdiction under the cfpb. and thanks to reporting in "the washington post," we know chairman frank had a strategy of

selling dodd frank as a bill that protected community banks because they could be exempt from supervision by the cfpb. in fact, the report says that according to mr. frank in communicating with the community bankers said that there's going to be a bill, this is mr. frank talking to the community bankers according to "the washington post", there's going to be a bill and you have to get on the bus or be run over by it. i don't expect you to support the consumer agency. now the cfpb in public but what is it going to take to get you to be neutral? the community banker representative says, well, mr. chairman, that's going to take a lot. we don't want to have examination forces from the bureau coming into our banks given all the other regulators in our banks and we only have 20 or 30 employees in these banks and they're being eating alive. they jockeyed back and forth settling on a standard. this is chairman frank and the community bankers. the cfpa, what they called it

then, their supervision would extend to banks whose assets exceed $10 billion. according to the "washington post", chairman frank said i'm not asking you to come out and support this but will you stay silent? into the community banker lobbyist said, i can make it work. we have a deal and i reach add cross the desk and shook his hand and "the washington post" then reported that this deal was one of the most important made in the 3569 of what would become nine months later the law known as dodd frank. mr. wilson, given that recounting of a critical deal made to get dodd frank to the finish line, and given the regulatory maze that you have to go through in order to avoid these regulatory burdens, do you believe that chairman frank lived up to his end of the bargain in terms of exempting small community banks from the regulatory burdens? >> we're subject to those regulations. we're not subject to examination by another agency, but when they

make changes to the regulations, it changes my whole processes and changes my training of my staff. and so it is very complex. >> time of the gentleman has expired. chair now recognized the gentleman from minnesota, mr. ellison. >> thank you mr. chairman and ranking members. chairman frank, of all the things in the dodd frank bill, is there one piece of legislation that you are particularly pleased that we were able to get through? >> may i respond to the outrageous suggestion that i broke my word? i lived up to that deal as the gentleman on my right implicitly said. they would not be supervised. there was never any suggestion that they would be exempt from the rules and your question i would say to mr. barr, i did live up to my deal? yes, i did. and mr. fine with whom i made the deal will confirm that. we won't be talking about my bill.

i won't have my motives improperly impugned and suggest that i'm not good to my word when there's absolutely no basis for it. as far as the bill is concerned, to me, the most important piece is one of the things that i now worry about which is risk retention in mortgage lending. i believe that the single biggest cause was and it was an innovation and it wasn't regulated because it was new. you had regulation of mortgage lending pretty good up through the '80s because most mortgages were made by banks and banks are regulated and even if we don't have qm, the occ will still regulate the loans and i'm satisfied with that. if there's a general need to be reasonable. but what happened was thanks to money coming in from outside the banking system and the banks were unfairly maligned to the slower banks. most of the bad stuff happened outside the bank because all of a sudden money became available.

liquidity was available. when you went to depositors you were regulated. a whole lot of lending shifted to outside of the banks. at the same time, thanks to intellectual property innovation it was possible to make thousands of loans bundle them into a security and sell them. so the ability to risk without having the responsibility for it proliferated and i believe that was the root of the problem. the ability to make those loans and i think there's been an inaccurate argument in the federal government forced people to make them. they they didn't force him to make bad loans then or now. it was some of the agencies facilitated it but on a private people did it, too. people did it because they could make money and make money in a way, i think, they thought they could -- as far as they were concerned the risk disappeared. it didn't. it just went to other places. people bought securities. the people who issues the credit.

social security like aig. so that's why i am troubled by a suggestion that there won't be full risk retention. and i think some of the -- that tougher on loans that are going to be held in portfolio and softer on loans that are going to be securitized. and that's why i see these as flip side to the same coin. i would like them to be softer, easier, defer and in both cases there's a common theme. you're deferring to the business judgment of the lender or securitizer. let mr. wilson make loans if he's willing to stand by that in his portfolio. on the other hand, if i want to securitize those loans let me do that as long as i stand behind them with risk retention. that was the single-biggest issue it seemed to me and i'm a little nervous about what's happening to it. >> yeah. well mr. wilson, you want to respond to that? >> i just wanted to plead with former chairman frank to support

community banks as in house rule 2073 to say you won't support that because of something that was said here but to support community banks as in the exemption from those mortgages we hold in our portfolio and from the escrow requirements. to support that concept. >> i will certainly work for that. and i can't negotiate with someone who thinks i'm a lawyer. >> i do have one quick question i ask before i lose my time. one of the things that's happened here is not just the bills that sort of, i believe, erode dodd frank. but the lack of funding for critical agencies it's supposed to carry it out like the s.e.c. and cftc. you have anything to say about that? >> i am proud of the fact that we insulated the consumer financial protection bureau from that strangulation by nonappropriation that happened to the cftc. again, i think i started to answer but ms. moore ran out of time.

i think the republicans chairman said that it's as bad as the health care bill. but the reaction of the republic party to these bills has been very different. there's been no bill to my knowledge, to repeal the whole of the bill and or even any substantial part of it. there have been some things at the margin testimony some of which i think are good and some that aren't and there's been no attack on the thrust of it and they do it by funding. >> the time of the gentleman is expired and the chair recognizes the gentleman from north carolina. mr. pittenger. would you yield a brief moment. we're going to take time in this committee to get it right and we have already death with dodd frank's greatest sin of omission dealing with the gses and we

will soon deal with too wig to fail, and i look forward to having former chairman frank support a number of community bank regulatory relief provisions. i thank the gentleman for yielding. >> thank you, mr. chairman and i thank each of you for your testimony. mr. wilson, i would say to you that certainly, sympathize with a lot of what you said today and i served on a community bank board for a decade and in charlotte, where i live, we've had a number of consolidations. bank that just could not address the continued requirements and obligations, costs compliance issues, and it's been bad for consumers and bad for the banking system. mr. carfang i would like to get a little more insight to what your said. the banks are focusing on those outside of the regulatory cross hairs. can you elaborate on that some?

>> sure. banks are afraid of making mistakes in this environment and so they are looking for the customers that are the -- >> mr. carfang can you put the microphone closer? >> sorry. excuse me. banks are looking for customers to provide stable deposits. companies with seasonal activity are actually finding themselves at a disadvantage in actually funding a bank to take their deposits. banks are now responsible in addition to know your customer, they're now responsible to know your customer's customer. and that extension is getting a lot of banks out of the correspondent banking business so major banks are no longer banking banks like mr. wilson's bank and he, then, doesn't have access to upstream services to provide to his customers. banks, a simple electronic benefit card for welfare payments, are very efficient and effective and safe and secure way of providing benefits. yet, under the know your

customer rule as it's being interpreted, banks are responsible to do all of the due diligence on the molders of their card which is obviously an impossibility and banks are exiting that business. we have retailers exiting the courtesy check cash business because of big fears about anti-money laundering. check cashing in a grocery store or pharmacy. these are some consequences, not necessarily that they've been regulated and are illegal, but they are falling into a grey area because of some of the -- just the vocabulary in the rules that continue to be written. >> thank you. other outcomes that you've mentioned were that the deposits were being discouraged because of higher fees and lower interest and this was a restriction of credit to all but the most well-documented borrowers. give us more thought on that as well. >> sure.

because banks have to limit the size 06 their balance sheet, stay under the $50 billion limit and others regulatory reasons, credit and, in fact, has to be rationed. you know, and because banks are afraid of making a bad loan, you know, a lot of the judgment has come out of this so we're down to checklists. so do you have all your w-2's and are they lined up and can you show on your brokerage statement where your do we sit came for you mortgage and things like that? all of those at cause to the complexity and frankly cause banks much lajer than mr. wilson's bank, to simply scale back to simply the most credit worthy or the most well documented borrowers. >> thank you. another implication, you said that due to extended interpretations of the know your customer rule, to include your customer's customer, banks are exiting certain electronic benefit card segments and these concerns also resulting in

scaling back of the correspondent banks services with community banks. >> yes. and you know, i'd like to address the issue of the systemically designation and the lack of screening about that. and the fact that the benefit of being designated sifi is lower deposit costs. so banks would not be screaming bloody murder about sifi but the nonbanks, the insurance companies and the asset managers, who don't gather deposits are in fact, screaming bloody murder because the benefit is going not to them at all. >> thank you, i yield back. >> chair now recognizes the gentleman from connecticut, mr. heinz. >> thank you, mr. chairman. and i really do want to thank you for the focus on the question of too big to fail. i know we disagree over the relative merits of dodd frank. i am a real believer that the creation of the cfpb and the fact that american families will be protected from some of the

more predatory and toxic products that have beset them for a long time is a real step forward. i also think the regulation of the notion of the value of trillion dollar derivative market is a real victory. but none of us really know, mr. chairman, the answer to the question of whether we ended too big to fail. none of us really know if there is, in fact, a funding advantage for those large institutions. i've looked carefully at the statistical analysis offered by mr. kubiac. the statistical significance of his analysis is pretty small and it's also, he understands, of course, the difference between correlation and causality. there's a lot of things that impact the funding costs of banks including the fact that they're in international. diverse businesses. a large money center bank doesn't look anything like mr. wilson's bank but nonetheless,

nobody knows if we ended too big to fail. mr. frank made the point that simply reasserting this wouldn't do it. one thing that is for sure is that we took a whack as it in title 1 and title 2. the right question, i think, is not did we end too big to fail. we're not going to know that frankly until a systemically important institution is on the ropes and then we'll see. sheila bair, who i trust on these matters, says she thinks that sort of institution can be resolved. we're not going to know until we see one of these institutions hit the skids. so i guess what i really want to do is continue this line, because it's a useful line of analysis and ask mr. frank, if i have more time, i'll open it up. what i'm really interested in is we've established tools for regulators to both monitor, very aggressive tools, to change the nature of the businesses of systemically important institutions and a whole set of procedures to resolve those institutions in the case of them running into trouble. that may or may not be adequate. anyone who says they know the answer to that, of course, is not being honest.

so my question is, i'll start with chairman frank. what more could we and should we do to make sure that we never see a repeat -- >> a central question, one of the things we should do is this. you know, fed chairman said what he thinks will happen if we have another crisis, congress will vote to give them money. no congress can bind a future congress. if that's the theory, nobody can do anything in a bill that stops the future congress. my own view is nothing can be more unlikely given the current political movement. that's the point i would like to start with to mr. himes. people say, oh, it won't work, if we have a crisis, there will be a bailout. how? how do they think that is going to happen? will the federal reserve ignore the rule they can only lend money to an institution that solvent? will the secretary of the treasury violate federal law and give people money? i don't understand the scenario.

the political pressure would all be the other way. so my view is the best thing we can do, well, one thing is just there's a self-fulfilling prophecy. people say, oh, the big banks are too big to fail, then they're getting all these benefits because people believe they will be bailed out. well, they benefit from people saying that. people have a right to say what they want. that is an inaccurate self-fulfilling prophecy about what will happen. i do not foresee a situation where there would be pressure on the federal government to ignore the law that says you don't give them money and allow them to keep acting. the only other thing you do is -- we want to keep them from failing. but i -- we tried everything we could. i guess the other thing we'd do would be to mandate smaller banks, but, again, lehman brothers precipitated a crisis. i don't know what it would take to get everybody one dollar smaller than lehman.

>> there's no definition of systemically important. if we knew what we were trying to regulate in order to strengthen the economy, we'd be much better able to do that. you know, the u.s. is the largest economy in the world. no u.s. bank ranks in the top largest, top five largest banks in the world. only three in the top 20. systemically important is really a function of interconnectedness, complexity, and things of that nature. i agree with representative frank that some absolute size, you know, trillion dollars on your own balance sheet, yes. if you're an asset manager or insurance company where you're not even holding the cash, you're simply a custodian for people's cash, that is absolutely, not ludicrous, it's chilling because it tells everyone else, gee, you know, behave because you might be designated systemically important. and if you're not a deposit taker, take advantage of that deposit subsidy by being

designated systemically important, you know, you're at a serious competitive disadvantage. >> chair now recognizes the chairman from delaware, mr. carney. >> i want to thank the chairman and ranking member for holding the hearing today and all the panelists for coming, bringing your expertise and opinions, particularly form chairman frank for, notwithstanding, the fact that you don't miss us here, that you're coming back and we certainly miss you. you were very helpful to me as a junior member, freshman member in the last congress. now i feel like you're looking over my shoulder at every thing i say and ready to slap me on the side of the head with your hand extended. recently my father passed away, and recalling all the wonderful things that he did for me and my family, i recall that he, when i got my first home, signed the loan for mortgage for my brother and me.

it was a 30-year fixed mortgage because that was that's the only way we could afford the monthly payments. a lot of first-time home buyers and people with modest means use the 30 year fixed mortgage to get the first home and build equity up. you mentioned that your bank doesn't do many of those, but you're here on behalf of the texas bankers association. i read through your testimony a lot of concern in there about housing finance reform. former chairman frank, on a regular basis, in my first term would talk about the unfinished business of gse reform. i've been fortunate enough to work with mr. himes and mr. delaney on a bill we think addresses a lot of the concerns and would preserve the 30 year fixed mortgage. it's hr-5055. in the texas bankers -- on their website, they mentioned gse reform as a priority.

and one of the concerns they have is that the compensation pay to the gses previously now and for what amounts to a full government backing is simply not priced correctly and it becomes a barrier for entry for private capital. our bill would do that, we believe it would price that risk appropriately. it would give an explicit government guarantee, the same terms as the private capital. are the texas bankers concerned about the availability of the 30-year fixed and proposals to reform gses? >> 30-year fixed rate is a viable -- it's not a product i've ever offered, although i would offer a 20 year amortization with a five-year balloon. but, yes, the access to credit is important to texas bankers. >> so that's the primary goal of

our piece of legislation, to preserve that instrument of affordability, and we think that we do it -- chairman frank, you've said a number of times this morning, you're concerned about securitization and that being a significant problem. what are your concerns going forward as we look at reform and particularly reform -- >> i think it's time to get rid of fannie mae and freddie mac. we were the first ones in 2007 to put them into severe constraints and stop the bleeding and gab to make some money. i think there was this question. do we want to preserve the option of a 30-year fixed rate mortgage? and i am convinced by people i've talked to in the banking industry, real estate industry, the home building industry, that absent some government involvement, that's not sustainable because nobody is going to land -- very few people are going to make a 30-year fixed rate loan with no protection against interest rate. there needs to be protection not against credit risk, that should not be a public function, but interest rate risk.

>> by the way, that's been the testimony of all the people -- >> i think your approach, the approach in the senate, with senator crapo -- >> johnson. >> and johnson. and i think, frankly, that's why we are -- the chairman said, well, we're going to do fannie and freddie. the fact is that bill hasn't gone to the floor. i understand it's a real chairman's job to get it through. i know what those are like. you have about three or four weeks left in the total session of five weeks. i think it's pretty clear that bill couldn't pass the house because it represents a viewpoint that's a valid intellectual viewpoint but that's a minority, more people agree with you, mr. delaney, mr. carney, you need to have some involvement to protect people against the credit risk on the 30-year fixed-rate mortgage. my prediction is that the republicans are going to complete their fourth year in a row of controlling the house and

having passed no legislation in the house on gses. i wish that weren't the case. >> my time is running out, but i'd be interested on the panelists' view on the bills before the committee. we had a lot of discussion today about differentiating banks by regulations. chairman has come up with some thoughts and i'd like to explore that with several of you. thank you very much, mr. chairman. >> the chair wishes to make an announcement that it is the chair's intention to recognize the members that are currently in the room. those who may be monitoring this in their offices, tough luck. this has the blessing of the ranking member. >> and of the former chairman. >> well, always happy to have the gentleman's opinion. the chair now recognizes the gentleman from new mexico, mr. pierce. would you yield to the chair for just a brief moment? >> yes. >> i thank the gentleman for yielding. apparently the democratic-controlled senate may be having a little problem with their gse bill. i'd like to note that for the

record. and we have a disengaged president on the subject as well. i look forward to him changing his mind, perhaps, in the last two years of his administration. i thank the gentleman for yielding. >> thank you, mr. chairman. at this time i would appreciate it if we would post the chart that everyone has in front of them. mr. wilson, your testimony aligned most closely with the people if my district because we have a very rural district, a lot of small community banks and they're telling us similar stories. we were told dodd/frank was only for the big banks. in other words, there was this bifurcation that would cause small banks not to have to go through everything. now, it's my understanding that you would have to go through each step of this chart. first of all, the small creditor qualifications, then look at the loan features, then the balloon

payment features. the underwriting features, the points and fees, portfolio. and then the type of compliance presumption, the higher price -- on the higher priced loan. is that pretty well the regulatory process that you would have to go through to originate a loan? >> yes, sir. >> yeah, and so you've got 17 employees at the bank. how many employees would it take for you to accomplish all of this? i mean, don't go over 100 or -- i understand you would not be able to accomplish it with the number of people you have right now. >> yes, sir. >> yeah. and so we're led to believe that there is two different kinds of regulators that are going to come in, and if you're a big institution, they use one set of values. are you finding that, that day actually come in? or do they just enforce the same set of values all the way down to the small guys? >> the regulations apply to us,

and the -- we have always been regulated by the fdic, and they and our texas department of banking, they've done a really food job of regulating us. the problems that are being addressed in dodd/frank, a lot of those occurred by nonregulated people and the cfpb, i would argue, ought to be regulating those folks and leave us with the guys that have always regulated us. >> so the problems did not originate on main street, but we transferred the punishment down to main street and actually left out fannie and freddie to other bigger defenders, left completely out. and wall street, itself, has more capabilities than to perform the regulatory tasks than do the small banks. that's the reason you said you've lost 80 banks out of the state of texas? >> yes, sir. >> that's an amazing number. now, if you consider -- let's say that in your small town of

san diego, texas, that there are -- along the spectrum, there's people with better means and people with lesser means. which group is going to be most punished by shutting down local community banks? do the people on the low end of the income ladder in san diego understand where else they could go for a loan? do they have the capability, the wherewithal to go to dallas, houston, or mexico or somewhere like that? >> no, sir, but there are some payday lenders there in san diego, but for the smaller people -- >> yeah, so what we're going to do is leave a vacuum there and people who are not monitored, who are not regulated are going to show up and fill that vacuum. is that the way you would read it? >> unfortunately. >> and you said that you don't give mortgages -- loans anymore just because of the high risk. what risk do you find involved in giving mortgage loans? >> well, there's the compliance risk, and it's the -- being told what kind of mortgages i can make, and then going through and

trying to do the qualified mortgage. >> yeah, that whole list of things. the two sheets. >> having to escrow taxes and insurance. we're just not staffed or equipped for that type. never have in my 35 years. >> and so, again, we're going to make it harder for people in rural areas, especially on the lower income spectrum, to get loans for houses or trailer houses. do you ever find any competition coming in from lawsuit for loan money and houses in your district? >> no, sir. >> yeah, so basically what we're telling rural america with dodd/frank, if you live in the rural part of the country, you're going to be up the creek without the paddle, or there are other descriptions we can use, but we'll probably leave it to that one. mr. chairman, i would yield back the balance of my time. i appreciate you're providing a service that's desperately important for the low income part of this nation. thank you very much. >> gentleman yields back. chair recognizes gentle lady from alabama. >> thank you, mr. chairman. i want to thank you and ranking member waters for bringing this panel and all of our guests who

are here today. i wanted to continue the line of questioning that congressman carney started with respect to the designation for sipis and wanted to know, chairman frank, is there some magic to the 50 million, i mean, billion number, or would you -- there's lots of bills floating around, including one that i'm signed on to. and it -- it suggests maybe 100 million -- i'm sorry, 100 billion capitalization size-wise would be preferable. i wanted to know your thoughts on -- >> well, as i said before you were able to get here -- >> yeah. >> -- i do agree that there's room for that. i was at the meeting at the chicago federal reserve conference when the governor talked about doing that, talked about exempting the smaller banks -- >> sure did. >> -- from volcker and compensation explicitly. i think that's a very food set

of ideas. yes, i think that should be revisited. some -- i think you find some absolute number below what you can't go, then you look at some other factors. you don't want too much uncertainty. i think you run into the problem that was talked about. yeah, i think the -- you said, is it a magic number? no. but you always have to have a number. is 21 the magic number for vote? is 435 the number for house of representatives? you always have to pick a number and always be somewhat arbitrary. calling it a magic number denigrates the process that's inevitable. yeah, we should look at the $50 billion again. although, again, the problem was, lehman brothers started the last thing. so, we raised a good question about what is it when we say systemically important? it's a degree to which if you can't pay your debts, that's going to reverberate throughout the economy and that's the focus, i think, of the analysis. >> can you elaborate a little

bit? i was here when you were talking about nonbanks being caught in that definition of sifis. your thoughts about asset management, companies -- >> well, i will, again, repeat what i said. i sent a comment saying as a general principle, i don't think asset managers or insurance companies that just sell insurance, as it's traditionally defined, are systemically important. they don't have this -- they don't have the leverage. their failure isn't going to have that systemic reverberatory effect. on the other hand, you had aig, insurance company in the insurance business was so good, they made more money literally than they knew what to do with. aig, you go about the causes, the federal reserve, mr. bernanke came to us in 2008 and said, i gave $85 billion to aig. he couldn't do that again because they were not solvent. therefore, he couldn't do that under our current bill.

a week later, they were tolling us they needed so much for the t.a.r.p. and they included $85 billion for aig. they said, no, that's an additional $85 billion for aig. they not only didn't have the money to pay off, they had no idea how much they owed. that's my view on asset managers insurance as a general rule, no, but there might be activities they engage in that say yes. >> what would you say to the line of conversation that mr. wilson just had with my colleague about rural america not being able to benefit from dodd/frank? >> it's not what i would say, it's what i have said, again. i do think -- i would like to see a very sharp distinct in loans. i'd like the main safeguard against bad loans to be risk retention, because that leaves the decision in the hands of whoever is making the loan or securitizing it. and i would give much more leeway for portfolio loans. again, if you say that portfolio loans aren't subject to some of these rules, you're not saying they're unregulated.

banks still got to go to their primary regulator. but i think if people would hold loans in portfolio, that would be fine. when we had the fannie/freddie fight, i was one who said make them keep the loans in the portfolio, don't have them securitized as much. by 2005 i was convinced we had to pass legislation to change it. >> yeah, the reason i ask is i represent a large swath of rural alabama, and wanted to thank you for your leadership when you were chairman on manufactured housing as an option for maintaining affordable housing. and i yield back the rest of my time. >> gentle lady yields back. and the chair would recognize gentleman from georgia. mr. westmoreland. >> thank you, mr. chairman. dr. kupiec, we've heard from financial regulatory agencies that they conduct thorough cost/benefit analysis as they implement dodd/frank.

you've been on the front lines of this effort because you led the fdic's office of financial research under chairperson bair. do you feel the fdic and other domestic and global regulators have objectively measured the cost and benefits of the dodd/frank reforms they implement? >> absolutely -- absolutely not. the fdic, to the best of my knowledge, and i was the line officer for all the economists, never did any cost/benefit analysis for any rule internally. and they were scared to death that it would become a requirement. the federal reserve, i never saw any cost/benefit analysis that came out of the federal reserve, nor did i see any that came out of the occ. i was the chairman of the basal resource task force for the last three years.

when the basal committee put out its cost/benefit analysis on the effects of adopting basel-3. i was on the group that was going to write the paper. it came before the committee before the icelandic volcano erupted in march of that year and the meeting was canceled. there was no meeting of the group ever held. a draft paper arrived in my e-mail box in june. i was not involved in any of the analysis. i don't know where the analysis came from. and knowing very many holes in the analysis. i provided comments which were very critical of the analysis, not knowing where it came from and knowing very many holes in the analysis. comments were ignored, and a final draft in my e-mail box in august for me to sign off on because they wanted my name on the paper because i have some academic standing as a banking economist. as a well-known banking economist. i was chairman of the basel

research task force. i refused to put my name on the paper because i did not know where the analysis came from. it was not supported. it was built off six, seven digit modeling approaches cobbled together all over the world with no data analysis provided to anybody on the group. and, in fact, and i declined to put my name on the paper. and this subsequently caused me significant difficulties in the fdic. >> dr. kupiec, let me ask you, who stopped you from doing this analysis? >> there was never -- there was never a meeting to plan how there would even be an analysis of how the implementation of basel-3 should even be measured, how it should even be measured. a paper fully drafted appeared in my mailbox in june for me essentially to agree to. i don't work like that. >> so would you say that they were trying to inflate the benefits and underestimate --

>> oh, absolutely, and i could give you many specific examples of that if you wanted to go into details. and my comments were exactly to that effect. and it's interesting that subsequently in the fall, when there was a negotiation among the basel committee membership to try to get the cap -- to figure out what the capital ratio should be in the final rule, that chairman bair was trying to get the fed to get the ratio higher than they wanted. the fed wanted a lower, more lenient ratio. and chairman bair referred to this basel study as evidence that it didn't hurt things to raise the ratio. and governor and pat parkinson actually called chairman bair and presented my critique of the paper asking her how she could use that discussion to strong arm for higher capital when her own banking economist who's on the economy wouldn't sign on to

the result. so i do not think this is done. >> well, thank you very much. i want to read something into the record. the american action forum places the price tag for annual compliance of the dodd/frank act compliance of the dodd/frank act at $21.8 billion and 60.7 million paperwork burden hours. equivalent of 30,370 employees working full time to complete annual paperwork. these burdens are up from 15.4 billion and 58.3 million hours last year. that was an increase of 41% for the cost, and 4% increase for the paperwork hours. the federal -- the bureau of labor statistics and occupational outlook handbook said employment of financial examiners is projected to grow 27% from 2010 to 2020. faster than the average for all occupations. and we can't -- it's hard to say

that this does not create any burden on our financial institutions. >> time of the gentleman has expired. chair now recognizes the gentleman from indiana, mr. stutsman. >> thank you, mr. chairman, and to the witnesses for being here today and for sharing with this committee. i'd like to first of all say, mr. chairman, i know for hoosiers back home who are having to deal with the rules from dodd/frank and the new standards they have to be held to is definitely a burden to them in ways they've never seen before. mr. chairman, i'm sure you remember the young man who was here a couple of months ago that the gentleman from kentucky, mr. barr, had invited who was a fifth-generation banker. shared with this committee how

that a small bank in central kentucky, fifth generation, he was the fifth generation, had survived the civil war, had survived world war i and ii, survived depression, wars in between, recession, but didn't know that this bank would survive dodd/frank. i think that sums it up in a lot of ways in what small banks, community banks, mid-sized banks are dealing with today and that we're seeing a consolidation in a way that i don't believe should have ever been the intention of any policy passed here in washington. and i know that as we look, you know, i heard from others on the other side of the aisle about how, you know, washington saved our economy from going over the brink. i tell you, there are a lot of

folks in northeastern indiana who felt like they did go over the brink, that they never were able to recover. they still haven't recovered. and the fact that food stamps are at an all-time high today should reflect on the policies that this administration, that congress in 2009, 2010, passed. part-time labor is at an all-time high. what dodd/frank has done to rural america, urban america, has tied the hands remarkably in ways that many people don't even understand. they just know that things are not getting better. and when they go to their bank in lagrange, indiana, and all of a sudden they can't get a loan when before they were able to, paid their bills, you know, always made sure that their credit was solid.

they're trying to figure out what has happened. and i'd like to touch a little bit on the volcker rule and what does that do? how do i explain to people back home the effects of the volcker rule? and there was a study done by oliver wyman that states the impact of the volcker rule will be similar to the financial crisis which disrupted liquidity and credit availability. could you describe how the volcker rule will have -- what impact it will have on liquidity and credit availability? will it be a positive or a negative impact? >> well, the volcker rule will reduce the amount of proprietary trading done by a bank or actually eliminate proprietary trading or ring fence that so that the depositors are

protected. what you have, then, there is less liquid markets so there's less trading in the securities. there will be a wider bid and ask spread, so when you go to sell, there are fewer buyers and, therefore, you'll sell at a lower price. when you go to buy, there are fewer sellers and you buy at a higher price. this would be in indiana, you know, the same is true in farming. if there's not a big market in the product, the spreads are wider when you buy and sell. >> follow it up on that. the volcker rule will take effect act the same time that basel-3 takes place. what will be the combined impact? can you talk about that a little bit on interest rates? what other effects could we see? >> i've actually testified to this committee on that topic and likened it to an experiment, a chemical experiment, putting in basel-3, putting in bank requirements, putting in the

volcker rule, and, you know, a number of other things and, frankly, we don't know what the outcome will be. except that it's, you know, deer in the headlights on the part of corporate treasurers and medium size and small bankers. >> the time of the gentleman has expired. the last member to be recognized is the gentleman from ohio, mr. stivers, and he's recognized now. >> thank you, mr. chairman. i want to thank the chairman for holding this hearing. i want to thank the witness for bearing with us through what is a long hearing. the first question i have is, so, before i give you a question, i want to thank gwen moore for her leadership on the centralized treasury unit. she and i have worked together to try to get that issue fixed. can you tell me what will happen if we don't actually get that bill fixed today? i know there's no action letters. there's been some regulatory relief, but what happened if we actually don't get that passed? for end users like you? >> well, it will increase the -- so it just increases the

uncertainty of the end user margin exemption to the extent that then those transactions would be ineligible for the exemption. then companies like my own would have to post cash margin which would subtract from money we'd otherwise invest in our business. >> if you had to do that, would you continue to manage risk in a centralized way that's smarter, or would you probably move to less active form of risk management? >> we would either have to do that in a completely different way, with uncertainty costs, or we would have to retain the risk, ourselves. either way would likely cause an increase in cost. >> and risk for your business. >> and risk. >> thank you. the next question i've got for mr. kupiec, this issue has been beat several times, but i think it's really important to hit it again.

so the dodd/frank act set the asset level of systemically important institutions at $50 billion. do you know if there's any relevance to the selection of this arbitrary number? cross referenced anywhere else? >> no, it's an arbitrary number. there's no scientific basis for $50 billion. >> so, and i think congressman luke myer did a great job of talking about the american banker article yesterday that talked about two banks that are now approaching $50 billion. so, and what's happened to their stock price, what's happened to them just as a result of potentially moving closer to that number. and even governor turillo, i know miss sewell referenced this, said the 100 billion number would be acceptable to him. but isn't there now an acceptance that $50 billion is absolutely too low among almost everybody that's out there? >> $50 billion i think is too

low for all the interest and regulations that only along with it. my recollection, and it could be a bit fuzzy, was $50 billion came out because at the time, cit, which was a nonbank financial institution, they decided not to bail out. and it was slightly below $50 billion. and i think, my recollection is that tied people's hands at the time. they can't go. i think it's reasonable to think that regional banks, if you fixed the mechanism so it -- you could exclude regional banks. regional banks that do primarily commercial banking or as big as $200 billion right now, you'd need to leave some growth room. i personally, knowing a fair bit about banks, wouldn't be shy at all and would shoot for some number like that. if it was a regional regular run of the mill commercial bank with not a lot of capital markets, not a lot of risky operations, i don't think that would be unusual at all. i think we need to fix the resolution process so if they do get in trouble, they fail and

they're broken apart and has to be fixed in the fdic act. >> that was clear in your comments earlier and your original testimony. i appreciate that testimony. so essentially every witness here today, even chairman frank, has agreed that $50 billion is too low a number, and by the way, congratulations on the beard, mr. chairman. it's coming along fine. five or ten more years. >> it's grown more than i hoped it would. i know that -- my other question to all of you is, i think chairman frank acknowledged it earlier, while we have to pick some number, that is absolutely true, but it is the risk that these -- the activities that these institutions engage in that create risk, not necessarily the asset size that makes that happen. but i understand there has to be some number. does everybody agree that it's really activity that generates risk? >> not just that, well, activity generates risk, but impact is generated by interconnectedness. >> absolutely.

that's why in the -- >> the five standards created for nonbank financial institutions really focuses on interconnectedness. that's what the luke myer bill really focuses on. you're absolutely right. but, you know, my point in the last eight seconds is the regional banks pulled into this are a lot like mr. wilson's bank. they got a little bigger and do exactly what mr. wilson's bank does. they serve main street. i yield back my nonexistent time. >> time of the gentleman has expired. i'd like to thank the witnesses for their testimony today. all members will have five legislative days to submit additional written questions for the witnesses to the chair which will be forwarded to the witnesses to their response. without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. the hearing stands adjourned.

this afternoon here on c-span3, secretary of state john kerry giving an address on u.s./india relations. he'll be speaking at the center for american progress, which is launching an initiative focused on foreign policy issues in south asia. our live coverage begins here on c-span3 at 1:30 p.m. eastern. then watch live as leaders of the nation's largest jewish organizations gather for a show of support and solidarity with the people of israel. joining them are members of congress, the obama administration, and other dignitaries at what's being called the national leadership assembly for israel. we'll hear from national security adviser susan rice,

house speaker john boehner, house majority leader elect kevin mccarthy, and israeli ambassador to the u.s. live here on c-span3 at 2:30 p.m. eastern. on the communicators tonight, two members of congress talk about their technology legislation. >> we crafted an amendment that said really this, under 702 of the act, you can collect data and we now know from the snowden disclosures that it's a lot of data, that may also include the information of americans, even though that can't be the purpose of the collection of the data. what the amendment simply said was that if you want to search that lawfully acquired database for americans, you should get a warrant. not that you can't get the information. get a warrant. >> the basic premise of the

dot-com act is to make sure when the nation relinquishes its last control oversight over the domain name system that we know what we're getting ourselves into. >> democratic representative from california zoe loftgren tonight at 8:00 eastern on the communicators on c-span2. sunday on book tv's in-depth, former republican congressman from texas and presidential candidate ron paul. he's written more than a dozen books on politics and history with his latest "the school revolution" on american's education system. join the conversation as he takes your calls, e-mail, and tweets live for three hours sunday, august 3rd, at noon eastern. and tune in next month for author, historian, and activist mary francis berry. in october, supreme court expert discusses court sessions past and present. michael corda is our guest in november. in december, american enterprise

institute president and noted musician arthur brooks, in depth on c-span2's book tv, television for serious readers. cruise passengers who were the victims of sexual assault recently testified at a senate committee hearing examining safety and security regulations for the cruise ship industry. john rockefeller said the cruise passenger protection act is in place so passengers will be protected from crime and can get proper medical care while traveling on the high seas. this is an hour and a half. >> now, for those who came here for different purpose, again, i want to apologize. this was a chance to get out five bills, and if you've been watching the united states senate or congress for that matter, getting the bill out of committee is a triumphant moment. we had to take advantage to get five out. but the point of this hearing is

all of you. so i'm going to make, again, make my opening statement -- >> mr. chairman, may i be recorded in favor of these five measures? >> of course. as so ordered. all right. i'd like to begin this hearing in the same way i started the hearing i held on the cruise industry last year. by saying that most people who take cruise ship vacations have a good experience. millions of americans -- i'd like to have silence, please -- millions of americans go on cruises every year. most of the time they have a nice trip and return home safely just like the cruise companies promised in their advertisements. but once in a while, things can go terribly wrong. ships catch fire. passengers fall overboard, or get sick. crew members sexually assault passengers. instances like these are unfortunately also a part of the cruise experience. i'm very honored today to welcome four witnesses who will help us understand firsthand the consequences of these instances.

we've talked about them in sort of a larger way, but we have not had the direct testimony of those affected by it and those who represent some who are affected by it. and so that's what this hearing was before, the fact that some senators have left, don't let that bother you. markups are unusual. and that's why they had to come because they're all 13 and then they had to go do something else. you're the point of all of this. i want that to be very, very clear to you. so as i said, i'm very glad to welcome four witnesses who will help us understand firsthand the consequences of these instances, what they had to go through, and i recognize that this is not an easy subject to talk about. let that be said, okay? so that -- it's painful, and however you reflect that pain, the committee understands it, welcomes it, joins you in, you

know, the difficulty of coming up here and testifying before a senate committee. although it's really not that difficult, after all. the cruise industry, i'm happy to say, is not happy that i'm holding this hearing. they're very unhappy. those companies don't like it when congress or the media talk about the risk of taking a cruise vacation. they have repeatedly told this committee in both public hearings and private meetings that cruise ships and trips are safe. that's it, no need to do anything. but the facts tell a different story. it doesn't mean that they're -- as i said, the average person will have a good experience, but you don't judge a steel plant by, you know, 500 workers not being hurt, but 30 workers being very badly hurt. i mean, it's the problems that you have to address. so the facts tell a different story.

last year, our committee released a report that found hundreds of cruise crimes were not being publicly reported. very basic negligence. we've had several hearings where expert witnesses testified about ongoing safety and security problems like wrecks, fires, crimes, onboard these vessels. we continue to see the same issues continuing to continue. and i'm fed up with it. i'm fed up with them trying to stone wall us. yes, they have lots of money. they have lots of lobbyists. and that's -- we're going to win this one. almost exactly one year ago, carnival's president told this committee that his company's number one priority is, quote, the safety and security of our guests. he explained to us how the cruise lines have every incentive to make sure their customers have a good experience. that sounds nice in a

congressional hearing, but it's little comfort to the many people whose vacations or in a number of cases, lives, have been ruined by the cruise line's failure to deliver on their promises. that is if they got a chance to see what the promises were. which is a problem if and of itself. we'll talk about that. in spite of the evidence that crimes, fires, mechanical failures, drownings, and mishandled medical emergencies occur with disturbing regularity on cruise ships, the industry continues to deny that it has a problem. any problem. just denies it has any problems. it has circled the wagons and reflexively fought all efforts to provide consumers more information about the risks of cruise ship vacations. i don't mind if they talk about the joys and the pleasures, but people have to talk about the

risks, too. it's not fair if they don't. they often refer to, you know, new york city does it. they have all kinds of problems. but they don't advertise their problems. yeah, but when you're on a cruise ship, you know, out in the ocean somewhere, there isn't a hospital next door. there isn't a police station to two to. i mean, you're just on an island all by yourself, and it's a very different feeling than being part of a community which can come to help. so that's where my legislation comes in. last year after witnessing the costa concordia tragedy, the triumph debacle, and learning about the underreported number of crimes on cruise ships, i introduced something called the cruise passenger protection act of 2013. in this bill, i proposed making it easier for consumers to report crimes and make complaints about problems on cruise ships. everything is about making it easier. if you make it hard, a lot of people just won't do it. and unfortunately, when you have an encapsulated environment like

a cruise ship trip, you have to be able to report. you just have to be able to do that and do it fairly easily. so, we make it easier to report. i've also proposed simplifying ticket contracts and publishing more information about crimes and other problems on cruise ships. you know what i'm talking about when i talk about the ticket problem. you have to peel, you know, layers of paper away, you know, you're just signing a ticket. but it's underneath that somewhere that says, oh, by the way, you give up your liability. that is not nice. it's a terrible thing to do to passengers. these aren't crazy ideas that i'm suggesting. they're common sense protections the consumers already have if they travel, for example, or if they travel by rail. but the cruise industry vehemently opposes my bill, even the bill's simplest provisions like reporting crimes against minors. or putting up a website at the

department of transportation that consumers can consult while they're making their vacation plans. so they can see what the problems might be and what the advantages might be so they're making an informed decision. when an industry opposes even the most basic public disclosure about its conduct, it suggests to me, frankly, that it has something to hide. our witnesses today are going to help us understand why it is so important for consumers to have this information. unlike people vacationing on land, cruise ship passengers who are victims of crimes do not have immediate access to law enforcement. well, you say, well, sure, they're out at sea. yeah, but they're out at sea and don't have access to law enforcement. that's pretty basic. and if they suffer a health emergency on a cruise, they could be hundreds of miles away from a health facility that operates at u.s. standards or even below u.s. standards.

just something called a hospital. our witnesses are also going to tell us that in spite of the cruise industry's talk about talking about taking responsibility for cruise passengers, cruise lines sometimes treat their passengers with shocking callousness and disregard. my words are harsh because i'm angry about this. four witnesses are appearing before this committee today, and i thank them. but there are many, many more people, as you all know, who could have shared their experiences. and have with my staff. kent carver, jamie barnett, and countless others have fought for years to help protect others from needless tragedy. i would like to thank everybody who's been willing to step forward and tell us their stories despite, as i indicated, the painful and sometimes tragic circumstances, not just that they happened, but having to recall them verbally and publicly. having accurate statistics about crimes and other instances is important and it's even more important to understand the human cost of the safety and security problems that this industry is not fully

acknowledging. this hearing along with other hearings into the cruise industry since i've been chairman are about one thing and it's called accountability. being honest with people. i know the cruise companies think that i am singling them out, as they say, for special scrutiny, but i assure them it is not the case. i have never hesitated to ask companies tough questions when i think their business practices are hurting consumers. that's my job. all of our jobs. we have oversight. that's the main reason we exist as a committee is to have oversight and to try to make things better. this process of asking tough questions is called, in fact, oversight. it's one of the most important jobs the congressional committees have, maybe the most important. when it comes to the cruise industry, we've been doing our job. we have held hearings, we have analyzed the data and we have talked to many different people with experiences in this industry. this oversight has led us to

very, clearly, to the conclusion that we have to act. we need legislation to protect consumers. for anyone in this committee who still hasn't gotten the message, i urge you to listen closely today as these witnesses bravely share their experiences. i thank everybody. one closing statement. to the cruise industry, instead of fighting this process, i encourage you to listen carefully to the testimony today. i ask you to honestly consider whether there are steps that you can take to better protect the health and safety of your passengers. look, this is -- the cruise industry is booming. people love to travel. people love to go on those ships. i don't begrudge that. my own son has done that. i don't begrudge people that. they have the right to do that, but they also have responsibility since they're under our jurisdiction to do it safely and properly.

for everyone. i believe there are steps that they can take and i will continue pushing to make those things happen. i now call upon the distinguished senator from mississippi, roger wicker. >> thank you, mr. chairman. i think you've made a number of very important and valid points. i also want to thank the witnesses for being here. as you said, mr. chairman, it may be difficult for them to share their experiences, but it's important that they do so. and i appreciate their courage in coming forward and being able to share with us today on some information we need. the chair has built this hearing as a forum to discuss his bill, cruise ship passenger protection act, s-1340. we need to protect passengers from crime. we need to ensure access to medical care while on the high

seas. these are important and worthy issues. i would say, i think that it would be best if we consider this legislation as a standalone bill and not in connection with the coast guard authorization act. i don't know what the chair's approach to this is going to be, but i do not believe the reauthorization act is the appropriate vehicle for a cruise passenger protection bill. and my judgment, we ought to consider cruise ship passenger protection legislation separately from the coast guard authorization act. congress deserves the opportunity to examine how we can strengthen the transparency of crimes on the high seas, and the public deserves a discussion with full congressional attention to making cruising safer for americans and foreign tourists while visiting u.s. ports.

there are many areas in which the cruise ship industry is receiving criticism. including the effectiveness of crime prevention. their response to crime. sexual assault. the report of incidents and tax concerns. i hope that safety standards like those that could have been beneficial in the treatment of violet butler are a priority in this discussion. there are crews with maximum capacities larger than many of our small towns and cities in america. some cruise ships have more than 6,000 passengers. and some 2,000 staff along with them. and yet they only require two medical professionals on board. imagine a small town of that size, for example, in rural mississippi. imagine my native home of pontotoc, mississippi, where there's some 6700 people living and what if we only had two medical professionals in the whole town? and as a matter of fact, in my

native city, we have 29 health care professionals, 21 members of the police force as well as 24-hour physician care in the emergency room. so that gives me great pause to think that a cruise ship of only -- containing 8,000 souls would have only two medical professionals aboard. so any transparency, we need to promote self-correcting behavior and we all have a right to hear the stories of the victims. we do not need to paint the entire industry with a broad brush because of a few bad actors. i think the chair acknowledges that. but we should look for ways to partner with the industry to make passenger cruises a safe

environment for our american passengers and tourists and i encourage the cruise line industry and association to find a market-driven solution. thank you, mr. chairman. and i look forward now to getting to the testimony of our witnesses. >> thank you, senator wicker, very much. the senator and i come from states with lots of rural places. my sort of hometown has about 270 people. so you're urban compared to us. okay. let me just go right to the witnesses. laurie dishman had a very, very bad experience on a royal caribbean cruise in 2006. she's also an international

cruise victims association board member, which means she wants to follow through on that. i'll read each of the four and then call on one by one. phil gerson, a lawyer who represented a 15-year-old minor, 15-year-old minor who was raped on a cruise ship is also on that same board and chairman -- also chairman of the national center for the victims of crime. i'm grateful that he's here. amanda butter letter who i just met outside whose mother suffered a medical emergency on a carnival cruise in 2013 and likely passed away likely as a result of a lack of medical care and kim ware who was a passenger on the "triumph" which caught fire and was stranded for four days. now, those are easy things for me to say but they are very hard to have gone through and even

talk about it. let's get at it. i'm going to call on laurie dishman. and thank you so much for being here. >> hello. my name is laurie dishman. i would like to thank the chairman and the committee for convening this hearing and inviting me to washington. it is quite an honor and privilege to be here today. senator rockefeller, i am a cruise ship rape victim. i have an experience to tell you about. a cruise line employee raped me during a vacation on a royal caribbean cruise to mexico. the crew member was working as a security guard and disco on the ship. he approached me and asked me my name a cabin number. he later snuck down to my cabin and forced his way in. i resisted and struggled. he strangled me and brutally raped me. i awoke with ligature marks

around my neck and my tampon was impacted during the brutal rape. i did not know what to do. i did not know who to turn to. there were no police on the ship. i learned. i was hesitant to report the crime because he wore a security badge. just three days earlier i was looking forward to this cruise, the glossy brochures advertise an adventure every day and an experience to remember. i was celebrating my birthday and 30 years of friendship with my best friend michelle. we have known each other since i was 5 years old. in the evening i would find myself in the middle of a nightmare. michelle called the desk to report the crime. a security officer in the head purser, came to the cabin and sat on the bed where the rape occurred. i tried to tell them what happened but they insisted that i prepare a written statement and sign it.

they left without securing the cabin or taking me to the ship infirmary. after i finished my statement, the security officer took me and michelle to the infirmary. the doctor handed us two black garbage bags and asked us to go back to the room and collect the evidence. we tried to preserve hair and other items folding the pillow cases and sheets not really knowing what we were supposed to be doing. we returned to the infirmary with still all men surrounding us. it was a painful and humiliating ordeal. the ship doctor performed the rape kit and examined my neck but failed to administer anti-viral medications. i was returned to my cabin after the ship ordeal and the ship infirmary. i was traumatized to be back at the scene of the crime. i could not take my eyes off the mattress, stripped of the pillow and sheets and it seemed dirty to me, it looked like i felt. i could not stop thinking about

what had just happened to me over and over again. i did not know what would happen next. i just wanted to close my eyes and go home. i was eventually given three options. to get off the ship in mexico and report it to the local port authorities, to stay off the cruise ship -- stay on the cruise ship and report it to the fbi when we return, or fly back to l.a. and report the rape to the fbi. i opted to fly back to los angeles as soon as i could get off the ship. once in l.a., i was questioned extensively by the fbi and they photographed the bruisings around my neck. a few days later, the fbi boarded the ship together with the cruise line defense attorneys. the crew member denied even going into my cabin. he did not pass the polygraph but the fbi said it was just a she said/he said case and declined to arrest him. the department of justice

declined to prosecute on that same day. the cruise ship then set sail again full of passengers with a rapist on board. the crew member two days later changed his story and admitted going to my cabin. it was only then that the cruise line confined him to his cabin and then put a security guard outside his door. and then terminated his employment and flew him home to trinidad. with nowhere to turn, i hired a maritime lawyer in miami. why miami? because even though i lived in sacramento, the cruise left from l.a., the crime occurred in international waters and in the ticket it says that you need to find an attorney in miami. my attorney found out many things that surprised and angered me. the security guard was actually a janitor who the cruise line called a cleaning specialist who is paid $550 a month.

he was assigned to act as a security department because the cruise ship's limited number of legitimate guards on its staff. he had no training or experience at all as a security guard. royal caribbean records my attorney uncovered revealed an employee history which included lying, falsification of records, insubordination and anger management and he had also sexually harassed two girls six weeks before he raped me and they put him in this security guard uniform. we also learned that on the night in question, a witness observed him drinking beers given to him by the cruise line bartenders. royal caribbean, pursue want to court orders that my attorney received, they studied sexual assaults on their ships back as far as 1999 and the experts concluded that sexual misconduct occurred frequently. the head security guard who approached me in the cabin said this never happens. but the cruise line ignored what they were told and said that

crimes are very rare. in 2007 i became a member of the icv board. i have testified in the past before the house of representatives in support of the cruise vessel's security and safety act. today i'm joined with the chairman of icv, board member and friends of icv. in closing, cruise consumers have virtually no rights or protections. i know this firsthand. i know exactly how it feels to have no rights and to be victimized by the cruise line a second time after their employee assaulted me certainly or congress can require a clear and accurate statement of our rights embodied in a ticket without incomprehensible legal mumbo jumbo, hire protection under a consumer agency which will help us in our time of need. thank you. >> thank you very much, miss

dishman. and you did that well and i know it was hard. we will have questions. but first we want to hear from phil gerson who is a lawyer who represented a 15-year-old minor who was raped on a cruise ship. >> thank you, members of the committee. i'm a lawyer in miami, florida, with more than 40 years experience focused -- for more

than 40 years my law practice has focused on representing crime victims, both at sea and on land. i appreciate your participation and your willingness to listen. i will be brief and will not read from my written testimony, which states the case facts about the incident the chairman just referred to in more detail than i will mention now. and i welcome any questions the senators may ask. the cruise passenger protection act should be passed. it is far short of the needed solutions but it is the next step on the path to greater passenger safety. if you think that young women are safe on cruise ships, think again. they are not. my 15-year-old autistic teenage client was not supervised like she was on land because her family thought that she was safe. they were vigilant in managing all of her activities,

scrupulously and on the ship she was supervised in teen activities. on the last night of the cruise, the teen activities added early but no one told her parents. and she was gullibly led away by a predator to a stateroom where she was brutally raped and attacked by a juvenile and an adult male. this occurred two years after the cruise vessel safety and security act of 2010 was signed into law. but despite that fact, her stateroom was lysoled and cleaned before law enforcement could gain access to it. security said, well, there was a mistake. we locked it out but the

housekeepers somehow overrode the lockout not knowing that a crime had been committed and the evidence on the bed, clothes, and other evidence in the room was lost. fortunately, our state legislature has had the wisdom to enact and extend jurisdiction to crimes on cruise ships when the ships leave and return from florida ports. so there were ft. lauderdale/ broward-based deputies standing on the pier when the ship returned to port who took custody of these two offenders and were punished under state law. but had this occurred anywhere else besides florida, they likely would have gone unapprehended and unpunished. now, what is worse about what happened, the cruise lines not only suppress the facts but they foster a misleading

disinformation campaign boasting that vacationers are safer at sea than they are on land. now, in some ways, you are safer at sea. you're not going to get hit by a car or a truck, walking in public places, nor is it likely that you're going to be shot by an armed robber because there are no vehicles or guns allowed on the ship. but sexual crimes, like the one that my innocent teenage client was the victim of, are far too common. and the risks of them are high. there are thousands of people onboard and there are no police to deter crime or to stop a crime before it harms somebody. ship security officers are trained to protect ship owners,

not passengers. and that's exactly what they do. the real answer, in my view, based on my lifetime of experience in this work, is that independent sea marshals should be placed on cruise ships, a trivial cost in view of the large number of people here who are assembled on these floating city vacations. if we can't get that today, we can start now with d.o.t. empowerment to make the risks known. truthful disclosure of risks has been required by government for decades and it is a part of the fundamental fairness, which is the fabric of the american -- the american society. full disclosures of risks is a first step toward improving safety. very few travelers understand the legal relationship which

exists in the cruise contract. as passengers cross the gangway, they surrender all legal rights to protect their own welfare, except as the cruise ticket allows them to. this is not an informed consent. the ticket doesn't explain how the legal relationship is different at sea from what we know it to be on land. and it is not semantics when we refer to the ship's captain as the master. the master is just that. and the passengers have virtually no individual rights. the cruise line industry association bill of rights is illusory, empty, and meaningless. a close reading of the cruise line tickets reveal a frightening list of contractual and statutory disclaimers of any legal responsibility for harms

to passengers. the tickets say the cruise line has no legal liability in port for any excursion which they arrange, which they sell to the passengers, and which they share fees with the tour operators with but they disclaim any responsibility. they say the same thing about the physician services that they sell in ship board medical clinics on board. but if there's medical negligence, they have no legal responsibility. there are also arcane statutory and international maritime treaties which limit passenger rights and passenger remedies when something goes wrong on board and neither the cruise ticket nor the cruise line adequately informed the passengers of the nature or extent of what they have given

up by crossing that gangway. the bill should be passed so that the outdated buyer beware business relationships at sea are replaced with truth in advertising, full disclosure, and informed consent which are the hallmarks of american life required by government for business and industry. until congress gives passengers more protections, american nationals on cruise ships are just on their own. i invite you to read my brief written statement which provides more details so i take no more time that is necessary now and i volunteer to assist in this process in any way that i can in the future. >> thank you, sir, very much. amanda butler, your mother suffered a medical emergency in 2013 on a carnival cruise. and as i indicated, probably

passed away from a lack of adequate medical care. >> senator rockefeller, members of the committee, i appreciate the opportunity to tell my mother's story, to share what we have learned and to offer recommendations, from our perspective, in an effort to ensure that no other family will go through what we had to experience. my mother experienced a catastrophic health event on a family cruise april 18th, 2013. she subsequently passed away on may 4th with the cause of death listed as a brain injury. she was a woman who loved life, loved her family. she had a general -- generous heart. she was a faithful and devoted wife and mother who was there to nurture her children, support her husband, and provide care and kindness to many individuals in our community of columbus, mississippi.

in fact, more than 800 people came from the community to her visitation. we had just returned from a short excursion on april 18th, passed through security and were planning events for the evening when she collapsed in mid-sentence. she had no pulse. she was not breathing. i ran to plea with the security personnel in the area but all they did was seal off the entrance and exit of the boat so nobody could see that there was a problem and an event had happened. they did not step forward, period, to help my mother and no one indicated that they were calling for help. so i ran down the corridors in an attempt to find a defibrillator or someone that could explain that we have a medical emergency. a nurse arrived after my mother had been on the ship floor for what american physicians are

estimating to be 15 minutes. the nurse had a radio but no defibrillator and no medical equipment when she arrived. she examined my mother and then she waited for a gurney to arrive. she did not initiate cpr. my mother was taken into the medical facility, located within a distance that my father and myself could have carried her, had we been told. they had to unlock the doors, turn on the lights and the computers and prepare the tiny examination room for the resuscitation process. they set up a portable defibrillator. after four cycles, her pulse did return. nevertheless, the duration of time that she went without oxygen approached 32 minutes. once resuscitated, we were instructed to leave the ship. we did not have the option to stay. my father went to his room with personnel to pack his bags and carnival sent their personnel into my room to gather my

belongings. they made us stay on the gangway and after we got off of the water taxi, we had to wait on an ambulance to come and get her. one carnival employee accompanied us but no arrangements were made with customs to expedite us as a medical emergency. we were all processed as tourists, including my comatose mother. the carnival employee gave my father the telephone number for the port authority and left us completely alone in a foreign country to find our own way to transport my mother back to the united states for additional medical treatment. carnival's current contract states that they are not responsible or liable for anything involving the welfare or safety of its passengers. the company makes no assurances that a physician will be

available on a cruise. and it states that medical care, in fact, may not be available at all or will be delayed. the contract also states that carnival is not responsible for the actions of physicians and nurses whom it considers independent contractors. as it turned out, my mother's cardiac event was the type that had she received cpr in a timely manner, she would be here today. my mother died needlessly because humane emergency protocol was not followed or enforced. the contract was too small to read. the general public does not understand all u.s. rights are surrendered to carnival upon entering that vessel. had we known, our family would have never boarded that ship. we offer the following recommendations to improve health care. we know that some of these items

are included in the cruise safety act of 2010 but we have been informed, also, that the medical requirements of that act have been very narrowly interpreted. our recommendations would be to modify the 2010 act to add a section on general medical care with the following requirements. aed machines, defibrillators should be placed throughout each ship with locations clearly designated and discussed during the initial safety meeting. cpr training and security should be required for all personnel on the ships. personnel must be trained on how to respond to medical or emergent situations including summoning medical assistance to

aid the passenger family. the english language should be a requirement for personnel in these vessels that have united states ports of call. at a minimum, all persons should be able to understand key words, such as emergency, help, doctor. 24-hour health care is necessary, given that the ships carry several thousands people per cruise. the ship's physician must be present and available to treat passengers or must be on call for immediate response to the event of the emergency situation. doctors must have united states medical credentials and emergency medicine, internal medicine, or family medicine and have at least served a practicum. there have been standards to adopt these standards and more, however, carnival has nor virtually all of the standards that they agreed to to implement

their ships as a member of clia. this must change for the welfare of passengers. my father and i greatly appreciate the opportunity to tell my mother's story, our experiences, and our recommendations before this committee. thank you. >> no, thank you very much, miss butler. just for the benefit of the members of the committee, what amanda butler has been talking about, in part, is i would have to lose 60 years off my present life length and have triple strong glasses and probably a magnified glass to be able to read what you're talking about. >> yes. >> i mean, i gave it to bill

nelson and -- well, he's getting older, too. i mean, you give up your liability. you have no idea that you're doing that, one, because you can't read this thing. i'm breaking protocol and i apologize. you give up things, you can't possibly read this. when you're buying a ticket, you're in a hurry. and in this is your whole trip. >> right. >> so to speak. and it's just, to me, deceitful, easy to correct and unnecessary. >> if you don't mind, could i make one more statement, senator? >> yes. >> carnival is suing my father and myself over $1200. literally. for the lack of medical care that we received after they dumped us off on an island completely alone.

you do give up all of your rights. my mother was loved and the hot tropical sun and she did not have a chance because of the way that they treated her medically. >> i thank you. and i apologize to my colleagues for interrupting the protocol. kim ware was a passenger on the carnival triumph that caught fire and was stranded for four days. which i really want to hear about. i don't know how one gets stranded for four days on a cruise ship. >> chairman rockefeller, committee members, my name is kim ware. i am from houston, texas. i am the mother of five children and three grandchildren. my family and i have cruised many times. we love cruising and i naively had never given a thought to the possible dangers onboard a

cruise ship. being weary of the cold in february 2013, my boyfriend ed and i booked a last-minute cruise on the carnival "triumph" to enjoy some sun in mexico. for the first two days of the trip, everything went as planned. as we went to bed on the second day, we had no idea what was to come. the passengers of the carnival "triumph" would be adrift at sea for four days living in horrendous conditions. in the early morning hours of our third day at sea, we were awakened by an emergency announcement that sounded ominous. ed quickly jumped up and went on to our balcony where he saw a great amount of smoke coming from the back of the ship. we immediately knew it was a fire. fear overcame me immediately, as during our muster drill, the crew had repeated over and over that fire was our greatest danger when at sea.

shortly thereafter, the cruise director informed us that there was a situation in the engine room. there was confusion among the passengers as to whether to go passengers as to whether to go to the muster stations or not. several hours later our worst fears were confirmed. there had been a fire. it was out but we were dead in the water, no power. eventually the giant ship began to list and, as you can imagine, this caused a great deal of fear among the passengers that the ship was going to capsize. it was soon very clear that carnival cruise lines had no plan in place for such a disaster. they were essentially winging it. conditions aboard the ship began to decay quickly. there was no electricity, we had water intermittently, we were informed that the sewage system no longer operated. all passengers were given red

bio bags to use instead of the toilets. as passengers, understandably, did not want to use the bags, all public toilets onboard the ship were quickly filled to the top with human waste. the sewer system quickly backed up and came out of the shower drains and, later, red bio bags lined the halls filled with feces. the stench was terrible and sanitation onboard the ship was nonexistent. i was one of the fortunate passengers who had a balcony cabin. the unluckily passengers who had booked inside cabins had no access to fresh air or sunlight. these passengers were forced to move their families to mattresses in the hallways on upper decks or on to the lounge chairs on the pool deck where sheets were quickly raised as protection from the sun. a tent city was born. these passengers suffered the worst hardships. it was very disconcerting to see

the elderly and young children in these circumstances. i couldn't help but wonder if the elderly had enough medicine with them, had the parents of the babies packed enough diapers? the crew was doing its best to provide us with meals. however, passengers waited hours in line for food. hoarding food became a problem as people were concerned that food would run out. i witnessed many heated arguments among passengers over food hoarding. the buffet no longer looked clean. people who had not bathed in days were handling serving utensils and food. with the unsanitary condition of the food service and the sewage problem, it is a miracle that a massive viral outbreak didn't occur. i was constantly in fear of becoming sick in these conditions. we tried to stay out of the public areas as much as possible. in truth, the entire ship had quickly become a refugee camp. i was very concerned that violence was going to erupt as

passengers struggled with these living conditions. there seemed to be no security at all. at night, the ship became very dark, and i never saw any type of security patrolling the ship. as time slowly dragged on, the plans to get us back to shore kept changing. first we would go to progresso and then be flown out and then the plan was for tugs to take us back to houston, and the final decision was tugs would pull us into mobile, alabama. this decision was made with no thought of the passengers on board. going to mobile caused the passengers to endure the miserable conditions aboard the triumph for an extra 24 hours. with no way to communicate with my family and days adrift at sea, i felt as though the cruise would never end. i finally broke down and cried. upon return home, the only communication i received from carnival was a letter with a $500 check and a refund voucher towards a future cruise.

this seemed to me inadequate for the danger that i was put in on the "triumph." after being home a while, i realized i had put my trust in the cruise industry with no knowledge of what would happen in the event of a real emergency situation. i now know that carnival sent the "triumph" out with only four of the six generators working and with knowledge of a potential fire hazard in the fuel lines. i wish i had known these things prior to setting sail. i feel that the cruise ship industry has a duty to provide not only a great vacation for passengers but to ensure their safety at all costs and to impart the upmost care when an emergency arises. information should be made public of problems occurring on cruise ships so future passengers can make educated decisions on which lines to travel. further, passengers should have the right to pursue compensation for any wrongdoing on the cruise industry's part. cruising is a wonderful way for

families to vacation together. however, cruising needs to be made safer for all u.s. citizens. my hope is that congress will pass legislation to insure the cruise industry abides by stric cruise industry abides by strict standards for passenger safety so that a future disaster of even greater magnitude aboard a cruise ship can be avoided. thank you for your time. >> thank you very much, ms. ware. i'm going to start questioning to be followed by senator wicker, senator nelson if he comes back and senator begich and senator blumenthal, who's a 29-year attorney general in the state of connecticut, and one of the most astute questioners i've ever listened to. but you're last. so be patient and stick around.

last year i -- i have a question for you, miss butler. last year, the major cruise lines adopted what they call a passenger bill of rights. now, we've done that in the airline industry and we pretty much enforce it. one of the so-called rights is that passengers have the right to, quote, full-time professional emergency medical attention as needed until shore-side medical care becomes available. that's their language, not mine. and a few weeks ago, senior representatives from the cruise line international association, which i refer to as clia, told my staff that cruise lines have the duty to provide passengers competent medical care. my question to you would be, would you say that the care

provided to your mother -- in the first iteration it was full-time emergency medical attention is needed until assure that full-time medical care is available and all of a sudden it became competent medical care. so my question to you is, was the medical care provided to your mother competent? >> no. they did everything wrong. we were expecting that one of the security guards would step forward to initiate cpr. instead, they waited at least ten minutes to even call for someone to come down and look at my mother's body to see if she was breathing or not, and in that case she was not breathing. she did not have a pulse. and to top it off, the infirmary was closed so we had to wait, literally, for them to turn everything on. they had to unlock the defibrillator, the aed, out of a closet and then plug it into the

wall. they had to set up their own hospital while we're standing there waiting and my mom's not breathing. it was horrific. and completely unacceptable for american citizens. >> now, in your mother's case, carnival claims that it has and had no duty to provide medical care. no duty to train or supervise medical staff and no duty to make the sick bay available. further, they claim no duty to provide medical equipment like a basic automatic external defibrillator machines. so, miss butler, when you bought your ticket for the cruise, did you understand that if you accepted medical care provided by the cruise line, you would be doing so at your own risk, at your own cost and that the cruise line would deny liability for the quality of the care?

>> we had no idea. we couldn't read the font it was tiny. you had to click the link and check yes, i agree, to even print the ticket, but you couldn't see what they were trying to hide. and the average layperson, we're a humble family from mississippi. we didn't own -- we don't own a magnified glass and we weren't going to print it off and try to figure out what their legal jargon, or lack thereof, was hidden in the contract. >> plus, you assume a certain level of responsibility, right? >> yes. yes. >> you all have -- senator begich and senator blumenthal, do you have this in your folders? i'd just like to have it passed

to each of you. i've circled the word liability and it's unbelievable. i can't read any of it. >> neither could we. >> at the beginning of the voyage the cruise lines provide safety -- and this is to anybody -- provide safety information at a, quote, muster drill to help passengers prepare for an emergency like a fire or a wreck. this information helps passengers prepare and no what to do in the event of an emergency. my question for the panel, many of you experienced emergency situations that you were unprepared for. did the cruise lines discuss any information about what to do in a medical emergency? i'm asking any of you. >> senator, no. in my situation, no. the cruise line did not. a