and freddie to be just another bank. >> if they were not going to do more than another bank it would be because -- i'm 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. so therefore, i do not think and i do not want the same kind of safety and soundness 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, they specified affordable housing goals of of purchases by the gscs. that goal was continuously raised to 42% and 50% and finally 56%. more than 70% of subprime and 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, icba survey found 55% of bankers decreased their mortgage business or stopped providing higher priced mortgage loans and higher priced mortgages that took effect in 2010. i wondered if your bank still does offer an issue mortgages and if so, have you decreased the number of mortgages because of regulatory uncertainty? >> yes, sir. most all of our mortgages would have fallen into the higher priced mortgage and we do not have the staff capabilities to escrow insurance and taxes. >> again, the last few seconds, thank you so much, all of you for being here and we do 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 and with that i yield back, chairman. >> the chair recognizes the gentleman from colorado. >> thank you, mr. chair.

somebody mentioned the incredible cost of dodd frank to the system, but i just want to start that before dodd frank in the summer 2008 to january, february and 2009, the stock market lost 2,000 points and 7.8 trillion. home values dropped by 25% across the country, trillions and trillions of dollars. millions of jobs lost. since dodd frank, the 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. kubiak, i will mention a few things because i disagree with the 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 appraisers and leveraged across the system and disclosures, ponzi schemes made off in stanford, swaps, say on pay executives basing -- pumping up their stock prices when it wasn't deserved. credit cards, transparency, money markets, the security investor protection, whistle blowers, corporation, accounting standards and the cfpb, each of those was an important goal and found in dodd frank. you describe it as the primary goal. i disagree with you. that wasn't. we had had a whole range of things we had had to address. i want to enter into the record,

and the bank of america executive said dodd frank certainly catalyzed substantial amounts of simplification and we're moving well beyond that through our own initiatives. that was what we did. >> without objection. >> thank you, sir. >> so mr. frank, i'd like to i would like to see if any of these things triggered thoughts on your behalf. >> i am pleased that mr. diamond, mr. blankfein 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 they believe that we brought some stability and it was a piece of it and that we brought some stability and among other things it gave them some protection. we had a situation where it was articulated by chuck prince at

citi. i asked him once why they hadn't put structured investment vehicles on his balance sheet. he said because if i do it was vis-a-vis goldman and we had common rules and as 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 not having these irresponsible derivative practices that cost it. i'm sorry that the representative of pennsylvania had so little time to spend with us. because his distortions of the history with fannie and freddie were egregious. it was true in 2003 i did say that we should roll the dice with regard to subsidized housing by which i meant specifically, the phrase they use multi-family housing built with federal subsidy and in fact, that has done well with fannie and freddie and it was the case that it was 2003 and he referred to me as chairman frank and mr. cheney in his book said chairman frank stopped it. i wasn't chairman in 2003

because cheney had problems with things happening in 2003 like weapons of mass destruction, but the fact is that we were in the minority. the republican party controlled the house from 1995 to on 2006 and it was entirely their decision not to pass their decision regulating fannie and freddie. i was against it in 2003. by 2005, i switched my position. the gentleman in my position had an increase. when george bush pushed 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 verge of taking over that he talked to me and he got fannie and freddie legislation and the republican party has been very consistent. from 96 to 2006 they did nothing legislatively about fannie and freddie. >> i'd remind the chairman that mr. oxley, the chairman said that the white house gave him a

one-finger salute with fannie mae and freddie mac. >> in my four years we did put them into conservatorship and since then the republican party with control of the house done nothing with fannie and freddie. >> i yield back to the chair. >> it's not a one-finger salute, but the time of the gentleman has expired. the chair now recognize s the gentleman from kentucky, mr. barr. >> i reviewed the dodd frank law on its fourth anniversary. chairman frank i -- the 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 more risk retention on the part of mortgage lenders, small banks like mr. wilson's bank and not only was the bill marked up on his committee including mr. pearl letter voted in favor of

that, and my question to you is would you support such a proposal to give a harbor status to portfolio loans in which the mortgage originator retains the risk. >> i would have to look at the specifics and i'm in favor of that although you said you would encourage this. >> we ought to give into the senate and loosen the risk retention and i would like to have the portfolio allowed to be whatever and objectionable. and the risk retention. i appreciate the retention and the favorability toward that. i want to have your retention as the small community banker, and it alluded to the fact that you should have no problem originating mortgages now because you're $2 billion or below in assets. this is a slide from the consumer financial protection bureau. this slide shows what is 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, its loan features, and it's balloon payment features and underwriting and points and fees and 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 is so complex on its summary page here is part of the problem, but we did balloon mortgages and let me just cut to the chase. if we had had a bill like the one 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 re-enter the mortgage lending business? >> yes, sir. i would love to be able to serve that segment. >> can can i ask you one question about that bill? >> i have limited time. i would love to talk to you after. let's talk afterwards.

real quick, i want to just go really quickly to and that was sold under the premise that if community banks play ball they would be protected with the new regulatory regime and restrictions and thank to reporting in the washington post we know that chairman frank had a strategy of selling dodd frank as a bill that protected community banks because they would be exempt from supervision by the cfpb. in fact, the reporting of mr. frank with community bankers, this is mr. k talking to the community bankers according to the washington post, you will have to get on the bus or be run over by it. >> now the cfpb in public, but what is it going to take to get you to be neutral and the banke

representative said mr. chairman, that's33;tf'muk&xj=ga lot. we don't want to have examination forces from the bureau coming into the banks, given the other regulators that are in the banks and we only have 20 or 30 employees and they're being eaten alive by exams. this is chairman frank and the community bankers. the cfpa, is what they called it then, the supervision would extend only to banks whose assets would exceed 10 billion and according to the washington post, he said i'm not asking to come up and support this. i can make that work. we've got a deal. i reached across the desk and shook his hand and the washington post then reported that this deal was one of the most important, made in the path of what would become nine months later the law known as dodd frank. mr. wilson, given that recounting of a critical deal 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 in terms of burdens. >> we are subject to those regulations and we are not subject to examination by another agency, but when they make changes to the regulations it changes my whole processes, and it changes my training, of my staff and so it is very complex. >> time of the gentleman has expired and the chair now recognizes the gentleman from minnesota, mr. ellison? >> thank you, mr. chairman and ranking member. >> chairman frank, out of all of the things in the dodd frank bill is there one piece of legislation that you were pleased that we were able to get through? >> i'll begin by responding to that outrageous suggestion that

i broke my word. i lived up exactly to that deal as the gentleman on my right said. they would not be supervised and there was never any suggestion that they had the rules. did i live up to my deal and the answer is i did and mr. fooin who i made the deal with would agree. i won't be talking about your bill and i would not have motives inproperly impugned when there was absolute no basis for it. as far as the bill is concerned, to me the most piece is one of the things that i now worry about which is risk retention in mortgage lending. i believe that the single biggest call was it wasn't regulated because it was new. you had regulation pretty good up through the '80s because most mortgages were made by banks and banks are regulated and even if it we don't have qm, the fdic

and fcc would regulate the loans and i'm satisfied with that, there is a general need to be renable. but what happened was thanks to money coming from outside the banking system and the banks were unfairly maligned because t1(hm0ñ bad outside the the banks because all of a sudden money became available. not all of a sudden. there was liquidity available and you didn't have to go to depositors. when you went to depositors you got regulated and there were oil countries and large balancesq payment and a whole lot of lending shifted to outside of the banks and at the same time, thanks to intellectual property innovation and it was now possible to make thousands of loans bundle them into a security and sell them and so the ability to take the risk without having a responsibility for it proliferated and i believe that is the root of the problem and the ability to make those loans and i think the

federal government forced people to make them. the cia didn't force people to make loans then or now. it was the -- the sum of the -- and they could make money in a way and i think they thought as far as they were concerned, the risk disappeared. they didn't disa pare. they just went into other places and the people who bought the securities and the people who issued the credit default swaps like aig and that's why i am troubled by a suggestion that there won't be full risk retention, and i think they may get it backward. they're tough or loans that will be held in portfolio and softer on loans that will be securitized and that's why i see this as a flipside to the same coin. i would like them to be softer, easier, defer -- and in both cases as a common theme, you're deferring to the business judgment of the lender or securitizer. that is let mr. wilson make

loans and he's willing to stand by that, keep him in the portfolio, if i want to securitize loans, let me do that as long as i stand behind them with risk retention and that was the single biggest issue to me and i'm 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 4673 as to say you wouldn't support that as to what was said here and to support community banks in the exception from the mortgages we hold in our portfolio and from the escrow requirements to support that concept. >> it would certainly work for that and i can negotiate with someone. >> i do have one quick question i want to ask before i lieu my time. one of the things that happened here is not just the bills that erode dodd frank, but the lack

of funding for critical agencies that are supposed to carry it out like fcc and cftc. do you have anything to say about that? >> yes. i am proud of the fact that we insulated this consumer financial protection bureau from that strangulation by non-appropriation that's happened to the cftc. again, i think. >> i think the republican chairman's said it's as bad as the health care bill, but the reaction to the republican party to these two bills has been very different. there has no bill to my knowledge to repeal the whole of the reform bill or any substantial part of it. there have been some things at the margin and some of which i think are good and some of which aren't and there's been no attack on the thrust of it.

>> the gentleman from north carolina, would you shield to the chairman, police? >> i think it was leah who said you have charlotte where i lived we've had a number of consolidations and banks that could not address the continued requirements and obligations cost compliance issues and it's been bad for

consumers and bad for the banking system. >> i would like to take a look at some of your remarks and just get a little bit more insight into what you provide today. you mentioned that banks are focusing on the safe segments and those outside the regulatory on crosshairs. could you elaborate on that some? >> banks are afraid of making mistakes in this environment. so they are looking for the customers that are the -- can you get the microphone closer to you? >> customers are looking for stable deposits. companies are actually finding themselves at a disadvantage in actually finding 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

corresponding banking business. so major banks are no longer banking banks like mr. wilson's bank and he has upstream services to provide to his customers. banks, a simple example, electronic benefit cards for welfare payments are very efficient and effective and safe and secure way of providing benefits, yet under the know your customer rule as is being interpreted, banks are responsible for doing the due diligence on the holders of their card which is also an impossibility and banks are exiting that business. we have retailers exiting the courtesy check cashing business because of big fierce about anti-money laundering. check cashing in the grocery store or pharmacy. these are consequences and not necessarily that they've been regulated and they've been legal and they're falling into a gray area because of the vocabulary

and the rules that continue to be written. >> thank you. otheriot comes that you mentioned is that deposits were being discouraged because of higher tees and lower interest and there was a restriction of credit, all, but the most well-documented borrowers and give us more thought on that, as well. >> sure. because banks now have to limit the size of their balance sheet, some to stay under the $50 billion limit and others for regulatory reasons, credit, in effe effect, has to be rationed and because banks are afraid of making a bad loan, a lot of the judgment has come out of this so we're down to checklists and do you have all of your w-2s and all of that lined up and can you show your brokerage statement where the deposit came from the mortgage and things like that.

all of that cause banks to scale bank to the most credit worthy and most well-do you meaned borrowers. >> thank you very much. due to the interpret eggs of the know your customer rule to include your customer's customer, banks are exiting certain electronic been fit card segments. and they result in scaling back within community banks. >> yes. >> and i would like to address the lack of screening about that. the benefit of being designated is lower deposit cost. so banks would not be screaming bloody murder, but the non-banks and 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, sir. i yield back. >> the gentleman yields back. the chair now recognizes the gentleman from connecticut, mr. hines. >> thank you, mr. chairman, and i really do want to thank you for the focus on too big to fail. i know we disagree over the relative merits of dodd frank. i'm 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, and i think the will have you and the trillions of dollars and derivative market is a real victory, but none of us know the answer, and he ended too big to fail and there is a funding advantage for those large institutions. i looked carefully at the statistical analysis offered by mr. kubiak. the statistical analysis is very

small and he understands the difference between correlation and causality. there are a lot of things that impact the funding cost of banks including the fact that they're international anda i large money center bank looks almost nothing like mr. wilson's bank. nonetheless, nobody really knows whether we've ended too big to fail. mr. frank made the point that simply re-asserting glass steagall probably wouldn't do it. one thing that is for sure is that we took a whack at it in title one and title two. the question is did we end too big to fail until an incredible institution is in the ropes and sheila baird thinks that that sort of institution can be resolved, but we're not going to be until we hit the institutions hit the skids. i guess what i really want to do is continue this line because it's a useful line for analysis

and i would like to ask mr. frank and if i have team i'll open it up. we've established tools for regulators to both monitor very aggressive tools and 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 and i'll start with chairman frank and then go to mr. carfan. what more could we and should we do to make sure that we never see a repeat. >> the central question, and one of the things we should do is this and, you know, what he thinks will happen is if we have another creighsis, 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 that nothing

could be more unlikely given the current political move and that's a point i would like to start with to mr. hines. people say, oh, it won't work. if we have a crisis there will be a bailout. how? i want to know how that will happen? they can only lend money to an institution that's solvent. would they violate federal law and give people money. >> my view is the best thing we can do. one thing is it's a self-fulfilling prophecy and they're getting all these benefits because people believe they'll be bailed out. well, they benefit from people saying that. people have a rate to say what they want and that is an inaccurate self-fulfilling prophecy and i do not foresee a situation in which there would be political 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 pp, but we tried everything we could. i guess the other thing we do would be to mandate smaller banks and lehman brothers precipitated a crisis and i don't know what it would take to spend one dollar more than lehman. >> there's no clear definition of systemically important and if we knew what we were trying to regulate and in order to strengthen the economy we'd be much better able to do that. the u.s. is the largest economy in the world and no bank is in the top five largest in the world and only three in the top 20 and systemically important is a function of interconnectededly, complexity and things of that nature. i agree with representative

frank and they're on your own will bahhance sheet, yes and if you're an asset manager or insurance company where you're not holding the cash, you're simply a custodian for other people's cash, and that is absolutely, not only is it ludicrous. it's chilling because it tells everyone else, gee, you behave because you might be designated specifically important and if you're not taking advantage of the deposit subsidy, by being designated systemically important and you're in a serious competitive disadvantage. the chairman recognizes the gentleman. >> i want to thank the ranking member for holding the hearing today and the panelists for bringing your expertise and your opinions and chairman frank for not withstanding the fact that you don't miss us here and you're coming back and we certainly miss you. you were helpful to me and now i

feel you're looking over my shoulder at everything i say and ready to slap me on the head with your hand extended. recently my father passed away and in recalling all of the wonderful things he did for me and my family i recall that he, when i got my first home, signed the loan for my mortgage for my brother and me, and it was a 30-year fixed mortgage because that was the only way that he and i could afford the monthly payments, and i know mr. wilson that a lot of first-time homebuyers and people with modest means use the 30-year fixed mortgage to get that first home and to be able to build equity. you mentioned that your bank doesn't do many of those, but you are 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 businesses with gsc reform and i've been fortunate enough to work with mr. hines and mr. delaney on a bill that addresses a lot of the concerns and would preserve the 30-year fixed mortgage and it's hr-5055, and in the texas bankers on the website they mentioned the the reform as a priority and one of the concernsis that have is that the compensation pay to the gse's previously and now amounts to a full government banking is simply not priced correctly and that it becomes a barrier for entry for private capital. our bill would do that and we believe it would price that risk appropriately. it would give an explicit government guarantee the same terms as the the private capital. are the texas bankers concerned about the availability of the 30-year fixed and proposals to

reform gses? the 30-year fixed rate is 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 for fannie mae and freddie mac and we were the first to put them in severe constraints and stop the pleading and begin 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, the real estate industry and the home building industry that after some government involvement that's not sustainable because nobody will lend or very few people will make a 30-year fixed rate loan with no protection against interest rate that there needs to be some protection, not against credit risk and that should not be a public function, but against interest rate risk. >> that's been the testimony of all of the people -- >> yeah, your approach and your approach with the senate with senator crepo -- warner, crepo and johnson, and i think frankly that's why we are. the chairman said, what we'll do fannie and freddie and the fact is that bill hasn't gone to the fore. i understand it was a real chairman's job to get it lieu and i know what those are like and we have, what? you have three or four weeks left in the five weekis and think it's pretty clear that

bill couldn't pass the house because it it represents a viewpoint that's a valid, intellectual viewpoint and that's the minority and more people agree with you, mr. delany and mr. carney that 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 will complete their fourth year in a row of controlling the house and havin] pass no passed no legislation in the house. >> i would be interested in the panelists' view on the various bills before the the committee. we've had a lot of discussion about differentiating banks by regulations and the chairman has come up with some thoughts and i would like to explore that with several of you. thank you very much, mr. chairman. at. >> 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 on 50 always happy to have the gentleman's opinion. >> the chair recognizes the gentleman from new mexico. would you yield to the chair for just a brief moment? >> yes. >> i thank the gentleman for yielding, apparently the democrat-controlled chairman has been having a problem with the gse bill and we have a disengaged president on the subject, as well. i look forward to him changing his mind in the last two years of his administration, and i thank the gentleman for yielding. >> thank you, mr. chairman. at this time i would appreciate if we would post on the chart that everyone has in front @/ them. mr. wilson, your testimony aligned most closely with the people in my district because we have a very real district and a lot of the small community banks and they're telling us similar

stories and we were told that dodd frank was only for the big banks. in other words, and there was the bifurcation that would cause small banks not to have to go through everything. and it's my understanding that you would have to go through it each step of this chart, and you have the loan features and the balloon payment features and the underwriting features, the fees, portfolio and then the type of compliance presumption and 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. >> so you've got 17 employees at the bank. how many employees would it it take for you to accomplish all of this? >>b+u don't go over a hundred - understand you would not be able to accomplish it it with the number of people that you have

right now. >> yes, sir. >> yeah.ç and so we are led to believe that there are two different kinds of regulators that are going come in and if they're a big institution and they used one set of values. are you finding that they actually come in or do they enforce the same set of values down to the small guys? >> the regulations apply to us and we have always been regulated by the fdic and they and our texas department are banking and they've done a good job of regulating us. the problems that are being addressed in dodd frank, a lot of those occurred by non-regulated 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, two of the bigger offenders left

completely out and wall street itself has more capabilities than to perform the regulatory tasks than do the tasks and you said you've lost 80 banks out of the state of texas? >> yes, sir. >> that's an amazing number. if you consider, say in your small town of san diego, texas, that there are along the spectrum, there are people with better means and people with lesser means, now which group will 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 can go for a loan? do they have the capability, the wherewithal to go to dallas or houston or hobbs, new mexico, or somewhere like that? >> no, sir, but there are some payday lenders there in san diego. >> what they'll do is leave a vacuum there and people who are

not monitored and regulated will show up and fill that vacuum. is that the way you would read it? >> unfortunately. >> and and you don't give loans anymore because of the high risk. what risk do you find 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. >> a whole list of things, the full two sheets. >> having to escrow taxes and insurance, we're just not staffed or equipped for that type and never have in my 35 years. >> so again, we'll make it harder for people in rural areas and especially on the lower income spectrum to get loans for houses or trailer houses. do you find any competition from wall street for houses in your district? >> no, sir. >> basically what we're selling rural america with dodd frank is if you live in the rural part of

the country you'll be up the creek without a paddle. mr. chairman, i would yield back the balance of my time. i appreciate, mr. wilson, this you're providing a service that's desperately important for the low income part of the nation. thank you. >> the chairman yields back. >> 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. congressman carney with respect to the designation for sivies and wanted to know, chairman frank, is there some magic to the 50 million -- i mean, billion number or would you and there are lots of bills floating around that i signed on to with mr. luke demeyer and it suggests

maybe 100 million -- sorry, 100 billion capitalization sizewise would be preferable and i wanted to know your thoughts on. >> as i said before you were able to get here, i do agree that there's room for that i had the meeting in the federal reserve conference that you talked about doing that and the banks and that's a very good set of ideas, and i think that should be revisited. i think you find some absolute number below which you can't go and you look at other factors. you don't want too much uncertainty. i think you run into the problem carfan has talked about, but yeah, you said is it it a magic fb? no, but you always have to have a magic number. is 435 the magic number for house of of representatives? you always have to pick a number and it will always be somewhat arbitrary and calling it a magic number is inevita belieinevitabn

brothers started the last thing, so, and mr. carfan raised a good question about what is it that we're talking about when you say systemically important. you agree to which if you can't pay your debts that will reverberate throughout the economy. and that's the focus of the analysis. >> can you elaborate a little bit and i was here when you were talking about the non-banks being caught in that definition of sivies. your thoughts about asset management companies and i said the comment -- and 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 the leverage and their failure isn't going to

have the systemic effect and you had had aig which is an insurance company in the insurance business that was so good and they made money than they knew what to do with and with aig, the federal reserve, mr. bernanke came to us in september of 2008 and said i have to give an $85 billion to aig. we have changed the law and he could don't that because they weren't solvent and a week later they were telling us that they needed so much for the t.a.r.p. and they included so much for aig and they said no, that's an additional, 85 billion for aig. not only did they have the money to pay off. they had no idea how much they owed, but that's my view on asset management's insurance and as a general rule, no. there might be activities they're engaged in, yes. >> what would you say to the line of conversation that mr. wilson said about my colleague about rural america not being

able to benefit from dodd frank. >> it's not what i would say and it's what i have said. i do think, i would like to see a very sharp distinction in loans. i would like the main safeguard 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 morelyway for portfolio loans and if you say they're not subject to some of these rules, you will say they're unregulated and i think if people would hold the loans in portfolio that would be fine. when we had the fannie-freddie fight, i said make them keep the loans in the portfolio and don't have them securitizing much although by 2005 i was convinced we had to pass legislation to change it. the reason i ask is because i represent a large swath of rural alabama, and i 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. >> the gentle lady yields back and the chair would recognize the gentleman from georgia. >> thank you, mr. chairman. dr. kubiak, 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 bear. 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 some. >> absolutely. absolutely not. the fdic, to the best of my knowledge, and i was the line officer for all of 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 on basel, i never saw any cost benefit analysis that came out out of the federal reserve nor did i see any that came out of the occ. >> i was the chairman of the basel research task force for the last three years when the basel committee put out the cost benefit analysis on the effects of adopting basel three. i was on the group that was going to write the paper. the paper assignment came from the basel committee right before the ice lantic volcano erupted in march of last year and the meeting was canceled. there was no meeting of the group ever held and a draft paper arrived in my email box in june. i was not involved in any of the analysis. i don't know where the analysis came from.

i provided comments that were critical of thea, nal sis and not knowing where it came from and knowing many holes in the analysis. the comments were ignored and a final draft came in my mailbox 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 and 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 the analysis came from. it was not supported. it was built off of six or seven modeling approaches from 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. >> 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 basel implementation of basel 3 should even be measured and how it should even be measured. a paper fully drafted appeared in my mailbox in june for me 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 can give you many specific examples of that if you want 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 get the cap to figure out what the capital ratio should be the in the final rule that chairman the trying to get the ratio higher than they wanted. the fed wanted a lower, more lenient ratio, and, um, chairman

baird referred to this basel study as evidence that it didn't hurt things to raise the ratio, and the governor and pat pa parkinson actually called chairman baird and presented my critique of the paper asking her how she could use that discussion to -- to strong arm for higher capital when her own banking economist was on the committee and signed on to their results. i do not think this is done, general. >> thank you very much. i want to read something into the record. the american action forum places the price tag for annual compliance with the dodd frank act at 21.8 billion and 60.7 paperwork burden hours and the equivalent of 30,370 employees working full time to complete annual paperwork. these are up from 15.4 billion and 58.3 million hours last

year. that's 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 cent -- it's hard to say that this does not create any burden on our financial instewings. >> the time of the gentleman has expired. the chair recognizes mr. stetsman. >> thank you to the chairman and thank you to the witnesses for being here today and for sharing with this committee -- i would like to first of all, say, mr. chairman that i know for hoosiers back home who are having to deal with the rules

from dodd frank and the new standards that they have to be held to it is definitely a burden to them in ways that they've never seen before and mr. sure you remember the young man who was here a couple months ago that the gentleman from kentucky, mr. bar, 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 the depression, wars in between, recession, and -- but didn't know this this bank would survive dodd/frank and i think that sums it up in a lot of ways, what small banks, community banks, midsized banks are dealing with today and that

we are 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 -- i heard from others on the other side of the aisle about how, you know, washington saved our economy from going over the brink, and i'll tell you, there's a lot of folks back 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 not only just rural america but to

urban america, suburban 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, mr. carfang, there was a study done by oliver wyman that states that the impact of the volcker rule will be similar to the financial crisis which

disrupted liquidity and credit availability. can you describe how the volcker rule -- what impact it will have on liquidity and credit availability. will it be a positive or negative impact? >> the volcker rule will reduce the amount of proprietary trading done byback -- actually eliminate the proprietary trading or ring fence that so the depositors are protected. what you have then 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 will set 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 are not -- if there is 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

about the same time basel 3 takes place. what will be the combined impact? can you talk about that, on interest rates? what other effects could we see? >> i likened it to an experiment -- a chemical experiment where we're putting in ba sebasel 3, bank capital requirements, the volcker rule and a number of other things and, frankly, we don't know what the outcome will be. except that it's deer in the headlights on the part of corporate treasurers and medium-sized and small bankers. >> thank you. >> time of the gentleman is expired. the last member to be recognized is the gentleman from ohio, mr. stivers, and he is recognized now. >> thank you, mr. chairman. i want to thank the chairman for holding this hearing. i want to thank all the witnesses for bearing with us through what is a long hearing. the first question i have is for mr. deas. before i give you a question, i

want to thank gwen moore for her leadership on the centralized 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 happens if we don't actually get that passed? for end users like you? >> well, it will increase -- 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 and a company like my own would have to past cash margin which would subtract from money we would otherwise invest in our business. >> and if you had to do that would you continue to centralize your risk in a smarter way 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 uncertain 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 have for mr. kupi 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, is it cross referenced anywhere else? >> no, it's an arbitrary number. there's no scientific basis for $50 billion. >> and i think congressman luetkemeyer did a great job of talking about the american banker article yesterday that talked about two banks that are now approaching $50 billion. 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 truillo has said a $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? >> i think -- $50 billion i think is too low for the -- all the intrusive regulations that come along with it. my recollection, and it could be a bit fuzzy, was that the $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 as my recollection is that tied people's hands at the time, that they couldn't go, so they said it has to be bigger than cit so let's call it 50. i think it's reasonable to think that regional banks if you fixed the resolution mechanism so it didn't cause bigger banks if

they failed you could exclude regional banks. once that primarily do commercial banking are as big as 200 bltz rig$200 billion right . 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. but i think you need to fix the resolution process so if they do get in trouble, they fail and they're broken apart. that has to be fixed in the fdic. >> that was clear in your comments earlier in your original testimony. so 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 had hoped it would during this hearing. >> and i know that my other question to all of you is, and 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 -- >> and both sides of equation. >> the five standards created for nonbank financial institutions really focuses on interconnectedness and that's what the luetkemeyer bill really focuses on, you're absolutely right. but, you know, i guess my point in my last eight seconds is these regional banks that have been pulled into this are really a lot like mr. wilson's bank. they just got a little bigger and they do exactly what mr. wilson's bank does, they serve main street and i hope we can fix it. i yield back my nonexistent time. >> i would like to thank all of

our witnesses for their testimony. all members will have five legislative days within which to submit additional written questions for the witnesses to the chair which will be forwarded to the witnesses for 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. all this week american history tv in prime time has been looking at watergate, 40 years later. tonight at 8:00, we begin with the cbs news special report from

august 8th, 1974, leading into president nixon's address to the nation. that's followed by president nixon's address to the nation announcing his resignation. and at 8:50 p.m., a "washington post" event with journalist bob woodward and carl bernstein. elizabeth drew and ruth marcus, as well as ken hughes. they discuss president nixon's fall from power and the white house tapes that provide new insights into his presidency. that's all tonight beginning at 8:00 p.m. eastern here on c-span3. and on c-span, coverage of the annual western conservative summit with remarks by south carolina senator tim scott, faith and freedom coalition founder ralph reed, and others. here is a preview. >> the middle east, the bloodiest and most dangerous and most unstable region in the world, is in flames from tripoli

across the horn of africa all the way to the mediterranean. in syria a blood thirsty despot and dictator that this president drew a red line and said if he crossed it, he would pay, and then retreated at the behest of vladimir putin, that dictator has slaughtered 160,000 of his own innocent civilians in order to keep power while this administration sat in the cheap seats and watched it happen. catholic priests and evangelical ministers have been beheaded by al qaeda terrorists who were seeking to overthrow that administration. in egypt the muslim brotherhood took power, immediately began to destabilize the sinai peninsula, turning it into the wild west, and it has now been replaced by

a military regime. in iraq isis, an al qaeda affiliate, presides over a radical muslim caliphate that stretches from the syrian border all the way to the outskirts of baghdad, and, by the way, over 60,000 christians in iraq, the last remaining christians left in that country, have literally

mayor of washington marion barry jr. bob woodward interviews former counsel for president nixon john dean on the watergate scandal and sunday afternoon at 5:00, anthony marks sheds light on the library's past, present, and future. book tv, television for serious readers. the house oversight committee recently heard an update from irs commissioner john koskinen about his agency's response about congressional oversight and inquiries into alleged targeting of conservative groups. representative jim jordan of ohio is the subcommittee's chair and pennsylvania's matt cartwright is the ranking member.

committee will come to order. we want to thank our witness for being here again, and we'll start with some opening statements. i'll started first by recognizing the chairman of the full committee, the gentleman from california, mr. issa. >> thank you. commissioner, i know this is unprecedented to have a commissioner of the irs in front of this committee so often. i appreciate the fact you've been willing to be briefed and participate even beyond our requests at times. as we continue to explore a number of questions, the time line of the crash, the

inconsistency of the probability of lost e-mails by multiple people within government, we appreciate that you were not in government. you were not doing this at the time, but as you can imagine, not just the internet, not just fox, but america is beginning to question how convenient so many e-mails -- for the fact citizens united was objected to by the president, how many of them had loss of data and how much is not available to american people. a cover-up is normally described as something that happens during an investigation around here. in other words, things go missing during the investigation. but when it comes to the loss of data, it's clear that data began

disappearing and not being able to be yet found at a time when congress was just beginning to look at wrongdoing that is now confirmed that began with the president objecting to citizens united, that began with democratic members of the house and senate writing letters asking for investigation of people that were politically the opposite of their party, not asking for investigations about all people who may be involved in political activities in addition to their nonprofit work. it is clear they were driven within the irs and perhaps other areas by political bias and a belief that the president wanted a fix and that the fix had to occur. again, commissioner, you weren't in government at that time, but government is today, it is their time, it is their watch, it is their responsibility.

whether it's thef ec, the aiirs the department of justice or any and all of government's activities that led to the unfair treatment on the eve of campaign elections of conservative groups. it is clear that there was a convenient loss of far more data by far more people than is explained by the normal arit mattic probabilities. we will explore not only the time line but when this committee received that time line. it was your watch to give us accurately and keep us up to date on developments related to lois lerner and other parts of our investigation. it is my view that you could have done better. you will and have paid a price in public opinion for not being as forward leaning and proactive as you could have been, but that was yesterday. today what we're asking you to do is to continue working with

your ig and if we're fortunate enough to get a special prosecutor, work with him or her, and, of course, work with the groups that now have federal judges ordering the irs to show particular information and bringing it all together back to this committee because this committee has an intent to make to the greatest extent possible public what we can find is being done on behalf of the american people to bring back the confidence in the irs. so again, i appreciate your willingness to be here. these are not easy hearings, and each time you come, you leave with more questions from us and you come with answers to us, and that is the nature of an investigation that continues to evolve. so, mr. chairman, i want to thank you for recognizing me early. commissioner, again, you need to be part of the solution. i believe you have to a certain extent, and i believe you're committed to do more, and for

that i thank you, and i yield back. >> recognize the member from maryland, the ranking member of the committee, mr. cummings. >> thank you very much, mr. chairman. commissioner koskinen, i want to thank you for testifying before this committee yet again. this is the third time in the past month yew appeou've appear before us and that does not count a fourth appearance you made before the ways and means committee last month on the same topic. unfortunately, it appears that you and other irs employees are now becoming collateral damage in a fight for the spotlight among two republican committee chairmen, representative issa and representative camp. this is unseemly, it's embarrassing, and it's not a proper way to the run an investigation or to spend

millions of dollars in taxpayer funds. as the commissioner knows very well, when the chairman was informed of the crash of lois lerner's hard drive, he said that he would be holding the first public hearing before the ways and means committee. ten minutes later, chairman issa issued a unilateral subpoena compelling them to testify. he did not contact the commissioner before issuing the subpoena and did not hold a debate or vote. in response, chairman camp moved this hearing up several days so he was the first one in front of the cameras. it did not seem to matter to either chairmen that the irs provided numerous contemporaneous documents showing that miss lerner's computer crash was a

technological problem that she and multiple i.t. officials attempted to remedy. those facts apparently were irrelevant. the goal was to stoke the fire and to be the first to do so publicly. chairman camp has now asked the inspector general to conduct an investigation into miss lerner's hard drive crash which he has agreed to do. commissioner koskinen testified last time that he was here that the inspector general asked him to make his investigation the top priority, which meant not subjecting irs employees to any other interviews while the inspector general's interviews were going on. that was the ig's request. rather than waiting a few weeks, chairman issa disregarded the ig's request and demanded that the irs make its employees available to him now. commissioner koskinen explained that the inspector general did not want irs employees subjected to multiple interviews, but

chairman issa just began issuing more unilateral subpoenas. he forced the irs employees to appear before the oversight committee, and he excluded chairman camp's staff from participating when the commissioner testified here before, republicans accused him of obstruction claiming that he was hiding witnesses from the committee. when he again explained that the inspector general asked him not to subject irs employees to multiple interviews, chairman issa said he was going to follow up with the inspector general directly. well, that apparently didn't happen. yesterday i asked my staff to contact the inspector general's office to find out exactly what was going on. they spoke with the deputy inspector general for investigations and i can report what he told us. the deputy ig for vegs confirmed that his office is now conducting the investigation that chairman camp requested. he confirmed exactly what commissioner koskinen told us,

which is that the inspector general prefers that irs employees not be subjected to multiple interviews in order to avoid, quote, tainting their testimony, end of quote. without directly criticizing the chairman's actions, the deputy ig for investigations stated that as investigators working for the inspector general, they want everyone to allow them to complete their interviews first, quote, without distraction, end quote. as he stated then, there's no confusion of witness testimony and integrity of the investigation is not impaired. contrary to these requests, chairman issa has been forcing irs employees to come before our committee for transcribed interviews and since he's excluding chairman camp staff irs employees are also being forced to appear before ways and means. invariably after each of these interviews, chairman issa and

chairman camp issue dueling press releases with tidbits of information or cherry picked transcript excerpts in their effort to compete for more headlines no matter how unsubstantiated their claims are. the deputy ig for investigations also told us something else. over the past year and a half, they have obtained no new evidence that would change the conclusions in the audit from 2013. as i close, there is simply no evidence whatsoever of any white house involvement in the screening of tax exemption applications. the irs has spent $18 million responding to these duplicative investigations and commissioner koskinen is testifying before congress for the fourth time in just over a month. yet chairman issa informed committee members yesterday he will be holding yet another hearing on the topic next wednesday. we have the notice here, and with that i'll yield back. >> i thank the gentleman.

>> mr. chairman -- >> the chairman of the full committee is recognized. >> point of privilege. there are a number of words in the gentleman's statements that disparage me and i object to his words and debate and ask that he withdraw or modify them and ask unanimous consent that among the terms that be withdrawn would be not only the unseemly statement but, in fact, when the ranking member disparaged me for a number of areas including my intent and essentially said that the items i said were not true. e additionally, the ranking member, while objecting to multiple -- well objecting to multiple claims of cherry picking releases or interfering with the ig fails to mention that in june of 2013 he released the entire john schaefer transcript which has compromised

this investigation by statements made in future transcribed interviews saying they had reviewed these in preparation for those. so i certainly would say that while questioning the intent and some argument about republicans not getting along, the ranking member managed to go beyond the ordinary opening statement and claiming the intent. in fact, the ranking member in june of 2013 went on national television claiming the investigation was over. this investigation is not over. i would ask that such items, including unseemly, be taken down. >> without objection? >> i object. >> okay. >> the gentleman objects. i understand, but i would reiterate that the decorum of this committee should not lead to personal attacks as to the intent of individuals on either side. the fact is this committee is

conducting vigorous oversight. we do so as a matter of our obligation as a committee, and i would make one last request. i ask unanimous consent that the staff place the time line into the record so that the ranking member's clearly erroneous claim that our request for this hearing -- our first hearing came after the events when, in fact, the time line will show that the subpoena had been served prior to the announcement from ways and means, and as the ranking member would know if he had ever chaired this committee, the fact is it takes a long period of time to prepare a subpoena, to write a subpoena, to go to the clerk and get it approved, and then to serve it.x so i would hope that the ranking member once he sees that in the record would recognize that, in fact, he has been clearly erroneous in his claims and i

yield back. >> i thank the gentleman for yielding. if we can, let's -- without objection, let's allow the time line in and let's move to the next opening statement. would that be satisfactory with -- >> mr. chairman -- >> would that be satisfactory? >> it certainly is satisfactory. >> i thank the gentleman. >> i just wonder though would just a brief response to the distinguished chairman. >> do you really have to? >> no, i don't really have to other than to say to you, mr. chairman, i certainly associate myself and i know my colleagues do with the sentiments that we should always speak with respect. we should never question each other's intentions. that has not been the practice as often as i would like on this committee. i certainly hope this would reflect a new day dawning here in the committee and that we can proceed civilly. i thank the chair. >> thank the gentleman for his comments. our subcommittee meets to

continue its oversight of the irs and targeting of conservative tax exempt applicants. we welcome back our witness, irs commissioner john koskinen. all kinds of questions need to be answered, and that's why for the third time in a month we have mr. koskinen here to answer and address what many of those unanswered questions. first, we were promised that the irs would produce all of lois lerner's e-mails. then we learn that some of miss lerner's e-mails had been destroyed and there was no way he could produce all the e-mails to congress. second, we were told the irs had confirmed all the backup tapes with the e-mails had been destroyed. then we learned last week from airs attorney thomas cane that a backup tape may in fact exist. third, we were told there was one hard drive crash, lois lerner's. then the ways and means committee disclosed there were seven or eight total crashes and

now we learn from mr. cane there may be as many as 20. think about this. the irs has identified 83 custodians of documents and information. the irs has identified these people associated with this targeting of conservative groups, and now almost a fourth of them may have had hard drive crashes. unbelievable. fourth, we were told the irs found out in april of 2014 that miss lerner's e-mails were lost. we learned from mr. cane that irs knew on february 4th, 2014, about the hard drive crash and that it found out just days later that the hard drive had been recycled and its contents were unrecoverable. that's why we continue to have hearings. that's why we have mr. koskinen back for the third time in a month. we'd like to get some straight answers. we've convened this hearing because today over a month after the first irs told congress it lost miss lerner's e-mails, there are still many unlend questions. there are questions why the irs

delayed telling congress about the problem with the e-mails. deputy attorney general cole told us last week that the justice department learned of the missing lois lerner e-mails from press accounts in the media. imagine that. one of the highest profile investigations in years, and the justice department has to learn about critical evidence by the central player in this investigation. they learn about that in news accounts, not directly from the internal revenue service. that's why last week sitting at this very table, deputy attorney general cole said he would have liked to have known about the e-mails earlier and he announced that the justice department was investigating why commissioner koskinen failed to disclose the missing e-mails in a timely manner. let me just reiterate that. james cole, deputy attorney general, united states department of justice said they are investigating why the internal revenue service delayed

months in telling the congress, the american people, and most importantly the fbi and the justice department about the loss of lois lerner's e-mails. rather than the irs coming to congress and informing us what it knew when it knew it, the irs waited four months. the irs only came forward to finally acknowledge the missing e-mails when it had no choice, and it gis closed the news the only way it knows how, by burying the information on page 7 of enclosure 3 in a friday afternoon letter to the senate. information obtained by the committee in the last few days provides more questions than answers about the missing e-mails, but remember this isn't information the irs is offering up willingly. it has taken almost a month for the irs to finally start coming clean and it's taking subpoenas to get people to talk. mr. cane -- we tried to for weeks to get mr. cane to talk. we had to subpoena him to get him to come for the deposition last thursday. the american people have this information only because the committee has been asking questions, and that's why commissioner koskinen is here today.

he's the individual hand picked by the president to clean up this agency, and that's why he's here today, to answer our questions. until we know all the facts, until we clear up all the confusion and all the misstatements about lois lerner's missing e-mails, the committee will continue to press for the truth. that's the mission of the oversight committee and that's why we meet today. i'd yield to the ranking member of the subcommittee, mr. cartwright. >> thank you, mr. chairman. first off, thank you, mr. koskinen for coming today. you know, we schedule these things on these little doohickeys and it asks you do you want to make this a recurring entry? when i see koskinen, i want to say yes at this point. >> so do i. >> i bet. >> at this point i am concerned that committee republicans are no longer using these hearings for the purpose of investigating what happened to the groups that were the subject of the inspector general's may 14, 2013, report.

this seems to be something different. and i want to say, we all ought to agree that the point of this committee, the oversight and government reform committee, is not publicly to harass federal agency heads, mr. koskinen. it is to conduct responsible oversight of the legitimate, critical issues within our jurisdiction. i believe that these repeated hearings that we're seeing today are both an abuse of authority and a dereliction of this committee's duty. i think it's abundantly clear that chairman issa and chairman camp are in some kind of taxpayer funded footrace over who can make the first headlines about lois lerner's lost e-mails, and we heard about requests for a time line, and we ought to look at that time line because it was on june 16, shortly after chairman camp of ways and means announced that he would be holding a hearing with

you, commissioner koskinen, on june 24th that chairman issa of this committee issued a unilateral subpoena compelling the commissioner to testify before the committee on june 23rd. in response chairman camp moved his hearing up to june 20th. so it's something like a children's fairytale that we're looking at here. in addition, chairman issa is no longer allowing staff from the ways and means committee to participate in the oversight committee interviews. chairman issa's refusal to hold joint interviews is resulting in wasted taxpayer money as irs employees like you, mr. koskinen, are now being subjected to multiple, duplicative interviews. i want to address republican claims that the alleged targeting of conservative groups is this government-wide conspiracy initiated after the citizens united decision involving the president, the irs, a conspiracy including the

department of justice and other federal agencies. this committee has obtained no evidence linking these accusations to what we all know now were inappropriate criteria used by irs employees in cincinnati. some of my colleagues on the other side of the dais has chosen to overlook the funneling of dark money into the political system of the united states. republicans have demanded accountability from the irs but have not demanded the same from corporations who influence our national elections. in january 2010, the u.s. supreme court in a 5-4 decision on citizens united allowed for-profit corporations, unions, and nonprofit groups to raise unlimited funds and register for tax exempt status under the 501 c4 designation and the irs became flooded with applications for this kind of status.

the 501(c)(4) is exclusively met for organizations whose primary activity is social welfare defined in the tax code as making charitable, educational, and recreational contributions to a community. now, while 501(c)(4)s are not barred from participating in political campaigns, it is stated plainly and clearly that political participation must be an insubstantial amount of the group's activity accounting for less than 50% of the group's expenditures. the irs' job was to make sure they were following the rules. not hiding the influence a select few individuals have on our nation's lek troral politics. this is about groups doing everything they can do to hide where they get their money, obscure their true intentions, and have undue influence on the political system tax-free.

anonymous money in politics is something we don't need in this country, something that disrupts the democratic process, and something that has to be changed. i commend chairman leahy and chairman udall for advancing a proposed legislation. i have co-sponsored the house companion to that bill introduced by my friend representative ted deutsche of florida. with that i will conclude my comments and yield back to you. >> i thank the gentleman. members have seven days to submit written statements. we're pleased to have the honorable john koskinen commissioner of the internal revenue service. you know how this works. you have done it a few times before. please stand and raise your right hand. do you solemnly swear or affirm the testimony you are about to give will be the truth, the whole truth, and nothing but the

truth so help you god. the gentleman answered in the affirmative and you're recognized for your opening statement or your statement and then we will get right to questions. >> chairman jordan, ranking member cartwright, members of the subcommittee, thank you for the opportunity to appear before you today. with your permission i will provide a brief intre duck tiff statement. before beginning my statement, i want to thank the subcommittee for its willingness to work around my travel schedule. in attempting to set the original hearing date, my understanding was you were interested in an overview of irs interactions with the department of justice. i'd like to touch first briefly on that subject, which is covered in more detail in my prepared statement. in general terms, the irs regularly and routinely interacts with the department in the investigation and prosecution of criminal and civil tax matters and also other financial fraud. our criminal investigation division investigators and develops cases and recommends them to the department's tax division for prosecution. these cases represent a variety

of tax issues including refund fraud, abusive tax shelters, and international tax noncompliance. the international area offers a good i will strution of what our coordinated efforts can accomplish. recent examples include the guilty pleas by credit suisse and bmp. routine interactions also involve the irs office of chief counsel which reviews all criminal tax cases developed by our criminal investigation division before those cases are recommended for prosecution. in addition, when the department of justice's tax division litigates a civil matter, irs chief counsel attorneys are actively involved collaborating on the arguments and positions taken. let me turn to an update on it's efforts the irs has made to cooperate with the investigation.

these include four investigations by congress, one by the department of justice, and one by the inspector general. added to that has been the recent new investigation by the inspector general of circumstances surrounding the crash of lois lerner's hard drive three years ago. to date we have produced more than 960,000 pages of unredacted documents to the tax writing committees and more than 700,000 pages of redacted documents to the house oversight and government reform committee. in addition, at the request of the oversight committee and other committees, the irs has been working on the identification and production of lois lerner e-mails. as part of this production, the tax writing committees have received 67,000 e-mails that we found involving miss lerner. we're continuing to provide redacted versions to the oversight committee which to date has received more than 54,000 e-mails from lois lerner. we are working to provide these documents as quickly as we can. in the course of collecting and producing miss lerner's e-mail

the irs determined his hard drive crashed in 2011. at that time miss learner asked i.t. professionals to restore her hard drive but they were unable to do so. nonetheless, the irs has or will produce 24,000 lois lerner e-mails from the period between 2009 and 2011, largely from the files of other individuals. the irs provided information about the hard drive crash to all six investigating entities in a public report we released in june. i would note that our june report to the extent that it focused on miss lerner's hard drive crash was based on reports we had already provided. those e-mails were provided in the normal course of production agreed upon previously. so all six investigators have had initial information about the hard drive crash since last

fall. also, additional e-mails about lo lois lerner's hard drive crash were produced to investigators prior to the release of the june report. i want to point out that consistent with a bipartisan congressional request, the inspector general has noted he's proceeding with his own investigation regarding the crash of the hard drive. the ig has asked the irs not to do anything that woot interfere with this investigation and we're honoring that request to the extent possible. in addition, on july 18 we responded to a recent court inquiry with detailed information regarding the crash of the hard drive. this information is consistent with what was previously provided in the six investigations, but we have provided the oversight committee and other investigating entities with a copy of that information. i understand that during last week's hearing with the doj there was a question as to what information the irs gave to the department about the hard drive crash. we provided all investigating ebtities with the same information in our june report

which we released to the public. doj did not receive any additional information. since releasing our june report, we have continued to cooperate with the investigations. since mid june we have produced to the oversight committee more than 100,000 pages of documents and made witnesses available for interviews with congressional staff. five of those interviews have already occurred. our deputy chief information officer has given three briefings for congressional staff including one for the oversight committee and as noted i have testified at four hearings, including the one today. this concludes my statement and i would be happy to take your questions. >> thank the gentleman. new touurn to the vice chair of the committee, mr. desantis. >> good morning, commissioner. mr. koskinen, are you aware that you currently are under investigation by the justice department regarding your role in determining when to produce lois lerner's e-mails? >> i am not aware of an investigation. i did see the deputy attorney general's statement last week before this committee that he

was interested in -- would be interested in why we had not provided him information in april as opposed to june, but i have not received any notice of an investigation. >> well, he tolgd us that it was something that the justice department would look into and he said that it was information that they did wish they had at the time that you discovered it. let me ask you this, the committee interviewed irs deputy associate chief counsel thomas cane, and he testified that senior irs officials, including katherine duvall counselor to the commissioner, realized lois lerner's e-mails were missing, there was a hard drive crash on february 4th, 2014, and that by mid-february they realized that the e-mails would not be recoverable off that hard drive yet you testified in front of this committee on march 26th, 2014, and after being asked numerous times whether you had produced all of lois lerner's

e-mails consistent with the subpoena, you said you would. if the senior irs officials knew in mid-february that the e-mails could not be recovered off the hard drive, why didn't you tell this committee that you'd produce them? >> as i have testified before, when i testified at previous hearings, when i testified in march, i said we would provide all lois lerner e-mails. as i have also testified since then, i did not mean to imply that if they didn't exist we would somehow magically provide them. we have provided you all lois lerner e-mails we have. with regard to when officials at the irs knew the impact of the hard drive crash, as i have testified several times in the 11 hours of hearing since june 13th, what i was advised and knew in february was that when you took the e-mails that had already been provided to this committee and other investigators and instead of looking at them by search terms looked at them by date, it was clear that there were fewer e-mails in the period up through 2011 than subsequently and there

was also, i was told there had been a problem with miss lerner's computer. it was not described to me in any greater detail. i was advised at the end of february that we were now reviewing all of our production capacity to make sure nothing had been done in the production capacity that would have explained or would have caused the loss of any e-mails. that process went forward but at the same time i would remind everybody we were focused primarily on the request from this committee and finance committee and the ways and means committee to provide -- complete the production of all documents we had related to the termination process and we did that and in mid-march provided a letter saying we had now produced all the documents we had regarding the determination process. >> i appreciate that. we asked mr. cole if someone responds to discovery request and says they will produce all of them, they can't just represent that and then know we're not going to be able to produce all of them and once

they figure that out, they have to come immediately and tell the opposing party, in this case it's a congressional investigation, so it's not the same. yet you guys sat on the information for several months and that caused this investigation from our end to be obstructed. let me ask you this about these backup tapes. the irs told congress that backup tapes from 2011 no longer exist, yet mr. cane testified in terms of this investigation, said they may exist. can you testify they do not exist? >> excuse me. as i understand from your press release, what mr. cane said was the information we provided in june was accurate to the best of everyone's knowledge at that time. what he said since then is that the inspector general -- >> what you said, too, with all due respect, you said on june 20th, 2014, to the ways and means committee, that we, meaning the irs, confirmed that

backup tapes from 2011 no longer existed because they had been recycled pursuant to the irs' normal policy. that was a definitive statement on your part. now we're getting information from mr. cane, the irs isn't exactly sure that that is, in fact, true. >> what mr. cane reported was information that the inspector general has started to review tapes to see if there's additional information on them. mr. cane said, therefore, there may be backup tapes that were recycled but may be recoverable. we have no information db i h--e no information about what the inspector general is doing with those tapes. the inspector general advised us he was reviewing those tapes and asked us not to have any further conversations, and i understand he asked this committee as well not to make the existence of their review of those tapes public, but at this point i have no information as to whether there's anything usable on those tapes. >> can you confirm to the

committee today, we've been told obviously about lerner's hard drive failure, then ways and means identified as many as seven or eight additional individuals who are relevant to the investigation whose hard drives also crashed during this period. now based on testimony from mr. cane, it could be as many as 18 or 19 different hard drives that have crashed that would be relevant. so can you definitively state to this committee the number of hard drives from relevant individual that is crashed during the period in question? >> i can tell you what i know at this time, which is in the first six months of 2011, over 300 hard drive crashes occurred, and there were over 5,000 reports of hardware problems. the first six months of this year, for example, over 2,000 hard drives have crashed. not -- >> i understand, but that's your whole agency. we're talking about people who happen to be relevant in a relatively small universe of people and the number of hard drive crashes seem to be getting

higher the more that we investigate. >> right. and in may i asked our people once we knew that there was an issue with miss lerner's crash i asked what the industry standard was for hard drive crashes. was advised 3% to 5% of hard drives crashed. i asked for a review of cust totians, how many of those 83 had hard drive crashes. we reported on june 16th to the ways and means committee in a staff interview that we knew there were probably at least six or seven. t next morning on the receipt of that information, they issued an erroneous release. it appears no e-mails from mr. flax were lost because the hard drive that crashed -- >> the number of -- >> i'm sorry, can i answer the question? >> my question was the number of

hard drive question. you mentioned the ways and means press release and numerous statements you've made before congress and i have read your other statements but the numbers, where do we stand on the number of hard drives? >> where we stand on the number is after thei g was requested by congress to do an investigation and the ig asked us not to do any further interviews or investigations, so we have not pursued further what the additional implications are, a, how many hard drives crashed of custodians or what the implications are because the inspector general is investigating that very issue, so i cannot give you a definitive answer at this point as to either how many custodians had crashes or if they did, how many of them lost e-mails because i would emphasize not every crash -- >> mr. cane put the upper limit at 20. my time is up. mr. chairman, thank you for indulging me and i yield back. >> the ranking member of the full committee is recognized. >> thank you for testifying before the committee today and for the third time in a month.

when you testified on june 23rd, 2014, and july 9th, 2014, you told us that the ig was investigating circumstances of miss lerner's computer crash. on june 11th, 2014, you wrote to this committee reiterating that the ig is conducting an investigation into the loss of miss lerner's e-mails and that as you previously testified you would honor the inspector general george's request to prioritize his investigation. has the inspector general expressed concern to you about the release of nonpublic information about an ongoing ig investigation? >> when the inspector general first talked to me and asked us to give a priority to his investigation and not to do any further investigation or witness interviews ourselves, he explained to me that they were

concerned that they did not want to muddy the waters. they wanted to have their ability to talk to witnesses and then go back and talk to them again without anyone having conversations in between time. so they were very concerned that witnesses that they were interviewing in the investigation be allowed to proceed with the inspector general only. >> and do you know when that was that you had that conversation with the inspector general? >> the conversation was shortly after they were asked by the finance committee and congress to make the investigation -- i can't remember what the date was in mid-june. >> the ig has expressed similar concerns to our committee. for example, on july 2nd, 2014, committee staff had a conference call with the inspector general in which the ig described the investigation to lois lerner's hard drive as, quote, very active, open, and ongoing, end of quote. and asked our committee to refrain from publicly disclosing

the nonpublic information regarding this ongoing investigation. is the ig's investigation into this matter still active and ongoing to your knowledge? >> to my knowledge, it's still active and ongoing. >> would the ranking member yield for just a question? were majority staff members present at that briefing where the inspector general conveyed that information? >> yes. >> our staff says that they weren't, and if i could, and you'll get all your time plus some extra if you'd like, inspector general called our -- called our counsel yesterday. he happened to be in my office with mr. meadows and said they had talked to you but did not express any comments you made in your opening statement or any statements you're making in your line of questioning. i just wanted that on the record. gentleman is recognized. >> well, why don't we have a meeting next week under oath since we're having all these honest hearings and let him -- >> i'm open to that.

>> because we can go back and forth on this, and i want to be very clear as to what was -- he said. so, you know, when you're talking about he said, she said, it's better we have them here and we'll do that if you so choose. i'd be happy to. the ig has expressed similar concerns again to this committee. it's your understanding that thei g investigation is still ongoing. >> it is, as far as i know. >> so in spite of the inspector general's request on july 21st chairman issa issued a press release stating that based on the interview of irs deputy associate general counsel thomas cane, quote, new developments, end of quote, have created uncertainly regarding the existence of backup tapes. commissioner koskinen, is it your practice to release nonpublic information about an ongoing ig investigation?

>> no. >> and why not? >> because we made a commitment to the ig we would honor his priority, that we would not do anything that would interfere with his investigation. he could talk to anybody he wanted. they could look at any evidence they wanted, and we would not have an ongoing discussion with any of the witnesses he was talking to because we did not want to interfere. >> of course, chairman issa's press released clear statements from mr. cane and other witnesses that undermined a partisan narrative. mr. cane told the committee that he was aware of a, quote, potential issue, end of quote, regarding the backup tapes but he did not know any additional details. when asked whether he had seen, quote, any evidence that any irs eu]o/ destroyed documents or e-mails to avoid their disclosure, end of quote, mr. cane said, and i quote, i

have not seen anything to that effect, end of quote. have you seen any evidence of obstruction by irs employees? >> i have not. >> yesterday the committee staff interviewed irs national director for legislative affairs, leonard aswer. he told the committee staff that based on the information available at the time, your june 13th, 2014, letter to the senate finance committee stating that backup tapes from 2011 had been recycled was accurate. is that right? >> i don't know what he said, but i understand from the press release about mr. cane that he said the information we had and provided on june 13th was accurate and that's what everybody knew at the time. >> now, we were also told that earlier this month he was made aware of an issue with a backup tape but that he did not know if

the backup tape from 2011 -- was from 2011 or whether it was mislabeled. he said even if the unrecycled backup from 2011, the irs does not know whether they contain e-mails from ms. lerner, not previously produced to the committee. sitting here today, do you know any additional details regarding the backup tape issue that the ig is currently looking at? >> no. all i know is actually what mr. kane said, that at this point, nobody had any information as to what was on those tapes or whether they were relevant. >> and until the ig determines the facts regarding this backup tape issue, are you in a position to correct your earlier statement? >> no, my point has been that we're going to honor the ig's investigation. i look forward, as everybody

does, to his completion, and we'll see what his facts are and what he determines happened three years ago, and we'll respond accordingly. >> and you were asked earlier about computer crashes, and you said that you were not aware of the folks who may have some relevance to this investigation with regard -- concerning their crashes. would you normally have that kind of information? >> normally, if things had proceeded as they might do, when i asked in may for the answers to this question, that is how many custodians had hard drive crashes in light of the fact the industry says they crash regularly, i had asked for a review of how many crashed and what the implications were. we had not completed that review when we provided our june report. and basically, we had that morning, the following monday, our i.t. people had been

advised, i had not been advised, that we knew there were six or seven custodians with hard drive crashes. that information was provided to the ways and means committee. we have not been able to pursue whether there are 6, 12 or 15 because once the ig started, we agreed we would not pursue those issues until they completed their investigation. >> now, just a last question. when the doj was here the other day, and this was -- you were asked about this a bit earlier. they talked about the fact that they had not gotten information about the crash back in april. so they got it in june, i think, like everybody else. why is that? >> when we -- in april, determined that in fact there had been a hard drive crash and some e-mails may have been lost, our next step was to in fact investigate how many e-mails did we actually have and could we find, and our plan and proposal

was we would pull all of that information together, including information about custodians and make a public presentation to the committees including a description of why it takes us so long in our archaic system to actually respond to requests for documents. we provided that information in the june 13 report, as i testified earlier. we did that before the complete production of lois lerner e-mails which is when we originally intended because the senate finance committee asked us for an update on both the determination process documents as well as the other investigations, other searches we were doing. we gave them that. we noted that we had had found nothing beyond what we had noted in our march letter with regard to the determination process, which was the subject of the investigations when they started. but we had not completed at that time a review of the custodians, nor had we completed until the end of june the production of tax writers of all of lois lerner's e-mails. we're moving toward producing

the redacted e-mails to this committee. so our plan was when we pulled it all together, we would be able to explain what our process was, the difficulties, what we had learned about lois lerner's e-mails, what we had learned about others and what we were able to determine. as i noted, we were able to recover 24,000 lois lerner e-mails. we thought all of that was important information for people to have rather than simply saying if there's a problem with her computer and now we're investigating how many e-mails there were, which would have triggered a hearing six weeks earlier. but we would not have known nearly as much as we know now. we don't know everything we would like to know because we have stopped asking people while the ig is doing their investigation, which we fully support. i have confidence that the ig is independent of us. he was appointed by a different administration. he's got 15 people working on it, according to the filings they made last friday. and we have told him personally whatever he needs, other documents, whatever people he wants to find, he can have access to, and we'll stay out of the way.

we have gone out of our way not to talk to anyone who potentially he might want to interview about what happened three years ago when the hard drive crashed. >> thank you, senator. >> real quick. russell george told you he did not want this committee in congress interviewing the same witnesses he was interviewing? >> no, he told me that he did not want us interviewing any witnesses -- >> that's fine, that's not the same as congress. why did you make it so difficult -- why did we have to subpoena mr. kane? >> because ig in our discussions said he did not want us to do anything to cause any of our employees to be interviewed before he had a chance -- >> just for the record. so the inspector general did not tell you that it would be -- it would hinder his investigation if congress interviewed the same people he was? >> if we provided names, let alone witnesses it would interfere with their investigation. and that's why we -- >> that's not my question.

>> i testified two weeks ago saying we were trying to cooperate with the ig and chairman issa said he understood that which is why you don't release full transcripts. >> you have conveyed to this committee that the inspector general told you he did not want this committee interviewing and he did not say that to you. that's all i need. the gentleman from north carolina is recognized. >> thank you, mr. chairman. commissioner, i want to go back to one thing that the gentleman from maryland just asked you and make sure i heard you correctly. so if you know the testimony that you have given to congress is not correct, you're not going to correct that until we get a final report from the ig? did i hear that correct? i thought that's what you said. >> what i said was the testimony that i have given in the past was accurate. as of the time of what i knew. i testified as to what i knew. right now the question is do i know any more about tapes, and i don't know anymore other than the ig is investigating whether there are backup tapes and whether they are recoverable. >> if you find during the course

of your normal business that what you told congress is incorrect, you will come immediately to us and let us know? is that correct? >> i'm happy to correct -- in fact, the chairman with regard to -- >> so within 24 hours of you finding that you've given us incorrect testimony you'll come and let us know? >> yes, sir. if the committee has any questions, the chairman issa was very thoughtful and said when lerner's lawyer talked about the records, he said here's what you said, here's what she said and correct it. i appreciated that. >> we appreciate the fact that you'll come back to us because i thought you were saying i'm going to wait until the ig -- >> i wouldn't know until the ig investigation is complete what the answer is in terms of how many custodians -- >> you won't know what they found until they come back, but you'll know -- >> are you saying you're not talking to mr. kane or anybody? you aren't talking to anybody in the irs about any of this?

>> i am not talking to any potential witnesses or the inspector general about what happened three years ago. >> so when you read the reports about mr. kane, did you talk to him and say, hey, this doesn't jive with what i know? >> no, because mr. kane is someone i assume the ig will be talking to in terms of what did he know and when? >> did you talk to someone who talked to him? >> no, i read the release this committee put out. >> all right. so did you read the release of the ways and means press release that talked about a scratched hard drive? >> i saw that this morning. it was put out last night i understand. >> does that concern you that it was scratched and not crashed? it concerns me. does it concern you? if that's accurate? >> if it's accurate -- i don't know the gentleman. i don't know what he said. >> if it's accurate, would that concern you? let me tell you why it concerns me. and this is an hp laptop. to get to the hard drive, it is

no easy task. you've got multiple screws that have to be taken to get to it. then once you get to that, you actually have a hard drive inside that has seven more screws that have to be taken off to get to the hard drive in order for it to be scratched. would that concern you if it were indeed scratched that there may be some other motive? >> it would be a piece of information that -- >> would it concern you, yes or no? >> i wouldn't know whether to be concerned or not. i don't know anything about, as i understand from the press release -- >> it concerns me and i'm going to ask my staff to see how long it would take to get to that hard drive to make -- if indeed it were scratched. >> i assume there's a lot of ways the hard drives can get scratched. i'm sure the ig will look into that and i'm sure he's already talked to that witness or would liked to have talked to him.

>> i hope so. let me go back to the numbers. earlier you said you had 2,000 hard drive crashes this year. >> yes. >> is that correct? so let me ask you about numbers. you know i'm a numbers guy because i just did the numbers real quickly. if you look at your entire body of some 84,000 to 90,000 irs employees, depending on which year, but let's take that. that is a 2.2% failure rate. >> correct. >> in the people that truly are involved in this, in that sphere of 80 people, if, indeed, we had 16 to 18 hard drive crashes, why would the hard drive crash of that group of people be ten times greater than what you have throughout the agency? can you explain? what would be the probability of that happening? >> first of all, i have no information as to whether that's the actual number.