companies, american pension funds that have to come to the table but nowhere in congress is there a realistic conversation about putting the pressure on those companies or investing in real economic assistance that would help ukraine. we're willing to spend potentially billions of dollars to hand arms to the ukrainians apparently for free but we're arguing over guaranteeing loans to them in a manner that sort of i compare to arguing with your neighbor about how they're going to pay back the cost of the bucket of water before you deliver it to them to put out the fire. i just think that we should be much more generous with that country, but we're not having that debate but again, there's an obsession with the military power of the united states to the point of -- in the ukrainian debate almost ignoring all of the other levers and resources that we have at our disposal

and i don't argue for reducing america's comparative military advantage. i just think that there are other conversations and other tools that desperately need to be plussed up if we really want to keep ourselves safe and we want to be able to take the right kind of risks in the world that are really demanded by these new times. >> we've come to the end of the hour and there are many more questions than time would allow which suggest a degree of interest and i think your talk has sparked some interest in a good conversation. please join me in thanking senator murphy for coming and you'll come back at some point? >> i will. thank you. [ applause ]

a reminder as this program comes to a close, if you missed any of it, you can see it any time in the c-span video library. go to c-span.org. congress is back this week prior to their fourth of july break. the senate returns at 3:00 p.m. eastern today at 5:30. they'll vote on two nominations including peter nefinger for the transportation administration. fast track authority was approved last week by the house. that measure faces a key procedural vote tomorrow. watch live senate coverage on our companion network c-span2. and the u.s. house is back tomorrow for legislative business with bills related to homeland security and medicare spending. the rest of the week members

will take up carbon pollution standards, epa and interior department funding and depend on action in the senate and further consideration of trade legislation. live house coverage is on c-span. >> more hearings are scheduled this week at the security breach at the office of personnel management affecting the records of millions of federal employees and others who work for companies with government contracts and opm director will testify at a senate hearing on data security and spending for information technology and we'll have that live for you tomorrow at 10:30 a.m. eastern right here on c-span3. >> and elsewhere in washington today, the supreme court handed down a number of decisions. the associated press wondering the supreme court is making it easier for inmates accused of crimes and not yet convicted to bring cases aof force against officials. a wisconsin man sued jail

officers after they used taser guns and other tactics while transferring him to a jail cell. the court rules that a 66-year-old program that lets the government take raisins away from farmsers to help reduce the supply is unconstitutional. an 8 to 1 ruling says forcing raisin growers without giving up part is illegal, private property. two on same-sex marriage have not yet been decided. the next decision day for the court is this coming thursday. co-chair of the congressional policy, and the fcc rules and the issue with privacy and cybersecurity. >> you've got the basic principle. whose information is it?

is it automatically in the public domain because i choose to use a mobile app and we know that the way these things work go into the cloud and all that or can i use it and still have a reasonable expectation of personal privacy. if you take the latter view that it is personal that changes the way you regulate and the way you legislate. if you take the position that i am by act of being a part of by participating, by using the app i am foregoing my individual right to privacy. that's a different issue in its entirety. >> tonight at 8:00 eastern on the communicators on c-span2. >> treasury secretary jack lew testified last week before the house financial services

committee about the annual report about the financial stability oversight council. a board he oversees as it implements the dodd frank regulations. california democrat maxine waters is ranking member. >> committee will come to order. without objection the chair is authorized to declare a recess of the committee at any time. this hearing is for the purpose of receiving the annual testimony of the stability oversight council and i now recognize myself for five minutes to give an opening statement. when democrats first passed the

dodd-frank act they claimed the financial stability oversight council was one of its crown jewels. fsoc largely failed in the last crisis would now be able to clearly identify risk to financial stability and take action before these emerging threats met afts te sized into another crisis. the dodd-frank's supporters to recognize that among the greatest threats to financial stability is washington policy themselves including policies of the very agency he heads that sit on the council. fsoc simply refuses to look in the mirror and it conspicuously omits any references to specific government policies or agencies that is helping cause the system systemic risk it identifies. it is encouraged by the historically low-yield environment, the council reports and yet the council refuses to

identify the obvious source of the apparent risk and one of its own members, the federal reserve and the fed's unprecedented loose monetary policy. the council warns of le deuced liquidity in the capital bond markets and never acknowledges the dodd-frank's volcker rule. the council lists quotes risk taking of large, complex interconnected institutions as a threat and yet again it fails to mention that dodd frank amplifies the threat by empowering the council to designate certain firms as too big to fail thus, enshrining the concept into law. these designations will make only worse the profound threat ignored by the council and recently identified by the federal reserve bank of richmond and their barometer. that threat being that hardworking taxpayers implicitly or explicitly are now on the hook for a staggering 60% of the

liabilities of the entire u.s. financial system. the council turns a blind eye to other serious threat, fanny mae and freddy mac at the epicenter of the last crisis barely received a mention and it gets worse, our unsustainable national debt and $18 trillion and counting as all can see and perhaps the biggest exist earn threats we face and more debt incurred under this administration of our nation's first 200 years totally ignored. this is beyond negligent. it is beyond egregious. it is dangerous and frankly, it is offensive. another glaring omission from the report is any meaningful reference to economic both or rather the lack of it. along with obamacare, dodd frank is at the center of the administration's economic policies. as we approach dodd frank's fifth anniversary, we see the slowest and weakest recovery in the post-war era. we see an economic recovery that has created 12.1 million fewer

jobs and has provided 6$6,175 less income forty are every citizen compared to the average post-war recovery. compared to the average we see an economic recovery that has left 1.6 million of our fellow citizens mired poverty in working middle income families losing $11,000 in annual income that rightfully should have been theirs. i find it stunning that in its report fsoc can find a link in greece and stability in the eurozone, but apparently can find no link between economic growth and stability on this side of the atlantic. also, nowhere to be found in the council's report is the threat posed or stability growth in personal freedoms posed by the erosion of the rule of law under this administration. we know that our president seemingly never tires of admonishing us that he has a pen and a phone ready to enact whatever policy he sees fit.

regrettably he never seems to have handy a copy of the constitution, as americans become less governed by the rule of law and more governed by the whims of washington, fear doubt, uncertainy and pessimism are sewn. it is not lost on the american people that increasingly washington decides what credit cards can go in their wallets and what kind of home mortgages can receive and if they like their bank account if they can keep it. truthy never before in my lifetime has more unchecked unbridled discretionary power been give tonight unaccountable and unelected. this includes the financial stability oversight council which operates largely out of public view and yet its decisions have the potential to profoundly alter the lives and livelihoods of every american. fsoc typifies not only the shadow regulatory system and also the unfair washington system that americans have come to loathe. powerful government administrators and secretive

government meetings and arbitrary rules and unchecked power to punish or reward. mr. secretary, your council and the rest of washington needs to awaken to the obvious truth and that is when it comes to systemic risk, washington is a large part of the problem. now recognizing ranking member for five minutes. >> thank you mr. chairman, and welcome back, secretary lew. today we received the annual report, the financial stability oversight council as required by law. as we all know this year marks the fifth anniversary of the enactment of the dodd-frank wall street reform and consumer protection act. it's hard to believe it was just five years ago that we were coming to grips with the magnitude of the financial crisis which caused the greatest loss of wealth in a generation. all told the financial crisis cost our nation more than $13

trillion in economic growth and $16 trillion in household weight. not to mention the devastation of an unemployment rate topping 10% in many states in the lead-up to the crisis nobody in the private sector or in government was looking at the stability of our financial system as a whole. nobody was looking at the big picture and nobody had to deal with emerging threats before they caused damage to our economy. that is why we created the .a%1 stability oversight council as part of dodd frank. fsoc filled that void looking for possible weaknesses and it serves as an advanced warning, system to identify and address systemic risks posed by large complex companies, products and activities before they threaten the economy.

the council has ensured for the first time that our financial regulators are working collaboratively to identify and respond to emerging threats to financial stability and the with their february announcement, outlining enhanced engagement and opportunities for public input, they've doubled their efforts to engage with the industry and congress in a transparent manner. in its 2015 annual report, the fsoc noted substantial progress to protect americans from another crisis and indeed we have taken important steps to prevent another economic disaster from happening, including making our large banks more resilient through a stronger capital, leverage and liquidity standards covering oversight gaps in our financial system by designating complex interconnected non-banks for consolidated supervision and

reforming key markets like asset-backed securities and money market mutual funds. however, five years after dodd-frank became law my republican colleagues remain fighting the battles of the past. they continue to believe that if only we rolled back all of the rules of the road the financial system would magically unlock. growth in the market would suddenly police itself and they continue to ignore the lessons of the last crisis by doing all they can to undermine fsoc under the guise of oversight by focusing merely on dismantling dodd-frank. my colleagues on the other side of the aisle impede congress' ability to focus on the new, emerging threats to financial stablility identified in fsoc's 2015 report. like the financial protection bureau destroying fsoc has

become a leading component of the republican deregulatory agenda and while they waste countless hours working to undermine it, engines of job growth and american competitiveness like the export/import bank face a possible shutdown in just five legislative days. rather than renew a proven job creator like the xm bank republicans are spending their time bogging the fsoc down in countless document request and inquiries and effort to undercut its ability to protect homeowners, consumers and the american economy. so welcome secretary lew and thank you for your resilience in the face of efforts to stop the council from its important work. i look forward to your insight on areas of systemic risk the council has identified and hope to learn more about what fsoc is

currently doing to monitor for such risk and promote financial stability. as we hear additional details from you, i will be interested to hear whether republicans believe fsoc should take any action to address systemic risks or simply wait for another crisis. so i thank you and i yield back the balance of my time. >> gentle lady yields back. today we welcome the testimony of the honorable jack lew. secretary of treasury. secretary lew has testified before our committee on previous occasions so i feel he needs no further introduction. welcome, mr. secretary. we are happy to have you back. without objection your written statement will be made a part of the record. mr. secretary, you are now recognized for five minutes to give an oral presentation of your testimony. >> chairman ranking member waters and members of the committee, thank you for having me today and for this opportunity to testify on the financial stability oversight

council's 2015 annual report. i would like to begin by recognizing that we're a few short weeks away from the five-year anniversary of the enactment of wall street reform and the creation of the council. as we approach this milestone it's clear that these reforms have made it safer and more resilient while supporting long-term economic growth. wall street reform has put important investor protection in place, and served their customers, small businesses that need access to credit to grow and create jobs and working men and women trying to save for their children's education. a down payment on a home or their own retirement. wall street reform has worked. five years ago the council was created to be a forum for the entire financial regulatory community to come together to look across the u.s. financial system to identify threats to financial stability. today the council is doing exactly what congress designed it to do from asking the tough

questions that will make our financial systems safer to shining a light on emerging threats before they can evolve into the next financial crisis. moreover, the council member aejs work collaborateively at the table. the council has established a track record of conducting its work in an open-minded and deliberative manner incorporating suggestions from stakeholders including members of this committee that have made the council more effective. the council asks hard questions and only makes judgments based on facts and detailed analysis. before discussing this year's report i want to emphasize why each annual report is important. the annual report provides transparency about the council's work. each report covers a range of issues based on extensive, data-driven analysis and it contains the reviews of the community about current risks and emerging threats about the financial stability along with specific actions to mitigate

those risks. the findings and recommendations set down a marker for action providing clarity regarding the council's priorities and a road map for the year ahead upon this provides congress and the market a way to hold the council accountable for making progress. the report highlights the recent work and demonstrate its continued commitment to openness and good governance. for example, this year's report highlights a series of important council initiatives over the past year including enhancements to the council's transparency policy and supplemental guidance to the non-bank designations process and an ongoing engagement with the public providing potential risks for asset activities. last month the council released tsdz fifth annual report. this year's report focuses on 11 key areas and many of which have been discussed by the counts nil prior annual reports as well as its meetings over the past year. these include the potential innocentists for greater risk taking in a low-yield

environment and the need for continued progress to improve benchmark rates such as libor and the continued reliance on short-term wholesale funding. for each of these areas the report highlights where progress has been made and where more still needs to be done. cybersecurity remrabains a key area of focus for the council. it has been a leader of other areas adopting cybersecurity measures and we've seen it affect the larger financial institutions and the communities that form the bedrock of the financial system. that's why this administration and the council are focusing on how to continue working with the private sector to strengthen best practices information sharing and incident response. i commend the committee for focusing on the topic and recent hearings and we look forward to working with congress on this critical issue. this year's report also identifies several new, potential risks coming into focus which the council and member agencies will monitor over the coming year.

it will pay heightened attention to bolster the resiliency of central counter parties or ccps. the council also highlighted the market structure against various asset classes and the need for constant monitoring to ensure that market functions -- that markets function efficiently. the council recommends continued vigilance to the confluence of factors driving changes in market structure and the extent of their impact on market functioning and the provision of liquidity. promoting financial stability and protecting the american public from the next financial crisis should be a common objective we all support. yet opponents of reform continue to advocate rolling back these protections including the ability of the council and its member agencies to respond to future threats of financial stability. as the council's annual report demonstrates threats to financial stability are real and will evolve with the marketplace. we simply cannot let our guard down. i want to thank the other

members of the council and all of the staff involved with the 2015 annual report with their hard work and commitment. as we approach the five-year anniversary of wall street reform, we will continue addressing these threats and promoting the strength and stability of the u.s. financial system. thank you very much, and i look forward to answering any questions that you have. >> thank you, mr. secretary. the chair now yields himself five minutes for questions. >> i alluded to it in my opening statement, but by chance are you familiar with the barometer report of the richmond fed? are you familiar with this report? >> i have seen it in the past. i'm not sure which one you're holding. >> i'm sorry? >> i've seen it in the past, but i'm not familiar with what you're holing. >> so you have reviewed the document? >> i am familiar with it. >> you are familiar with the fact that it indicates that there's been a 61% increase in the explicit federal guarantees in our financial system since

the crisis, is that correct? >> i -- i understand that that's the analysis that's in that piece of paper. i haven't read the piece of paper. >> do you have any reason to challenge that a malsis. has fsoc come up with the contrary analysis? >> think if you look at the experience we've had since the financial crisis and since financial reform we've seen -- >> i'm just asking, mr. secretary -- >> i haven't looked at that piece of analysis. i can give you my response to the idea, but that's what i was -- >> okay, well let me quote from the report. there's $26 million according to the richmond fed in implicit federal back stock today. one of the final conclusions of the report is that quote it is essential to restoring market discipline and achieving financial stability to shrink this federal safety net. do you agree or disagree with their conclusion? >> i don't want to comment on a

report i haven't read. i'm happy to address the issue, mr. chairman. >> okay. how about their conclusion? do you believe independent of their report that it is important to achieving financial stability to shrink the size of the government's federal safety net? our financial market, is it important or not important? >> i think if you look at the financial stability situation today versus before the dodd-frank act and wall street reform, we have -- >> mr. secretary, i would be happy to let you have some context, but i would like for the question to be answered. it's a fairly simple question. do you believe that for the sake of financial stability that the extent of the federal safety net in our financial markets should be shrunk? >> think if you look at an issue that we have talked about before, i very much believe that it would be a good thing to enact reform in the area of gses. there was progress on that on a bipartisan basis in the senate

last year. it's something that couldn't proceed. >> so i can take your answer as yes? >> mr. chairman, i'll be happy to look at that report. i'm happy to offer my views on this issue. >> you don't have to look thea the report, mr. secretary. i'm just asking you about a conclusion. >> yeah --? i don't think i'm going to get an answer. let me move on, mr. secretary. >> i would be delighted to answer the question if you give me the time. >> i don't think i've gotten a sentence out. >> under dodd-frank it is comprised of agency heads as opposed to the agencies themselves. we can both agree on that? >> yes. >> okay. we can also agree of the ten voting members of fso, kr each was appointed by president obama, correct? >> um, yes, i believe that's correct. >> i alluded to it again in my opening statement i have read excerpts of this report and i have not read the entirety of the 150-page report. have you read the entire report? >> i have. okay, good. then, my staff read the entirety

of the report and i've read many excerpts. so in identifying emerging threats to financial stability, can you point to any page in the report where fsoc identifies a crept federal policy or rule as a contributing factor to an emerging threat because we can't find it. >> mr. chairman, we identified the threats that we see as real. many of those have a connection to federal policy. i'm happy to answer specific -- >> but under dodd-frank, you also have the mandate to actually make recommendations. so how do you make ria recommendation if you can't cite a source. >> it is my view that regulation is a significant risk to financial stability. >> last time you were here mr. secretary, was there increasing evidence that we are suffering great illiquidity in our corporate bond market. you admitted that. this report cites it. we know that when mid-market companies hoard cash they can't promote jobs and economic

growth. many economists believe this will be the source of the next financial crisis. somehow the head can connect this bond illiquidity to the volcker rule. sec commissioner dan gallagher has said the volcker rule has set the stage for a potentially dire liquidity crisis. similar testimony from the cftc commissioner john carlo, even former secretary of treasury larry summers has said, quote, there is a danger in their enthusiasm for keeping each individual institution safe that reg latter on authorities will lose sight of keeping markets open and liquid, and i think that is a legitimate concern. in your last testimony you found no evidence that the volker rule contributed to illiquidity. do you still stand by your

previous testimony that there is no connection between the volcker rule. >> trying to reduce it to one factor. >> i said a contributing factor, mr. secretary. >> you would allow me to answer the question. it's a complicated issue and it's an issue that i've spent a lot of time about. it's not a ten-second answer. >> is it a contributing factor or is it not a contributing factor? >> i think it is not -- it is not possible to say what is the single cause. i do not believe the federal regulation -- >> i understand, mr. secretary. my time has expired and -- >> may i just ask to address this issue because i think it's a very important issue. >> mr. chairman? >> i'd be -- i'd be happy to have the secretary answer the question. please, the secretary is recognized. >> mr. chairman, i think if you look at the question of liquidity, there are people trying to reach a simple explanation to a complicated question. we are at a point in the business cycle where we are

seeing naturally a lot of volatility as we move out of the deepest recession after the great depression, we're seeing some movement in interest rates that is a significant factor. we're seeing market structure changing rapidly. we're seeing the introduction of a high-level electronic trading and including high-frequency trading changing the structure of markets and we've also had a tremendous increase in the volume of issuance of bonds and that's having a big effect on market structure. >> i understand that all of that, mr. secretary. >> think all of this tries to point to a single thing. >> mr. secretary i did not say it was a single thing. i asked you the question, was the volcker rule a contributing factor and several minutes later you refused to answer the question and my only takeaway is that you don't see it as a contributing factor. >> i think that part of the issue, was there a desire in financial reform for certain things that are highly highly leveraged investments to be less

liquid and i don't think that's necessarily a bad thing and i don't think that's a bad thing to be a loss of market liquidity and i do not see a major impact in terms of broad liquidity. and we're open to asking the question as to what the impact of federal policy is. i just think it's a mistake to start there. >> you could have fooled me, mr. secretary. i now recognize the ranking member for five minutes. >> thank you very much, mr. chairman. >> i would like to offer you the courtesy of continuing your explanation, if you would like to have it. >> thank you very much congresswoman waters. i guess -- the thing i would add is that there's been a lot of focus on this issue since october 15th, and there's been a lot of telling of the story of what happened on october 15th that is just want based on the analysis or the facts and there was no breakdown in treasury markets on october 15th and that's not something that is supported and there was no liquidity crisis.

there was a moment, and there was a blip and there were a lot of things going on but we don't see any evidence of regulation contributed to that event. there was a moment in time when there was a lot of off-risk sentiment because of events going on in the world and there was a huge amount of electronic trading going on and there was a blip in the market that obviously is very much worther of our attention and people took from that, i think, incorrectly the notion that somehow that was an event that was caused by a rule. it wasn't and we're doing a lot of work on it and look forward to issuing an analysis very shortly. >> thank you mr. secretary. one of the largest and most frequent criticisms by my republican colleagues have lodged against a stability oversight council is what they deemed to be a lack of transparency with respect to mono-bank systemically and

important financial institution or designations and while i think many of their krit sifrms are merely attempts to hamstring the council over the guise of oversight, i do appreciate that you and your staff have redoubled your efforts to engage with congress and with non-bank institutions and to open up your deliberations for additional public scrutiny. mr. secretary, would you describe precisely what changes to both the annually and to the five-year designation processes this fsot made to the announcement and please describe how fsot balances the need to protect sensitive market and supervisory information? >> congresswoman, thank you. we made a number of changes that were designed to response to concerns raised by this committee and members of the committee and by stakeholders

which give a great deal of earlier notis in transparency to the process to parties that are under review. i want to just underscore that there was a lot of back and forth even before so this is not as radical a change as it may sound like but it is more formal, and i think it is something that has lead to a good deal of kind of recognition that the system is more transparent which is our goal. the review process by necessity involves reviewing highly confidential business documents that are commercially sensitive but under law where we have to protect the documents and the information. we try our best in the context of that constraint which is a reasonable constraint and it's constraint shared by supervisors of these institutions as well, to be transparent with the public and the committee at the same time.

i think the changes that we've made have helped and fsot is a young organization and we remain open to suggestions on how to always improve the process. >> last month the chairman of the full committee and five chairman of each subcommittee sent a lengthy and onerous request for documents regarding the fsot designation process which contained at least 13 different sub parts. it is my understanding that more than a week ago you responded to that document request with an offer for an in-camera review of 1,400 pages of confidential business and bank supervisory information. since you responded my staff has begun to review those materials to your knowledge, have majority availed themselves of that opportunity and would you consider the production of such sensitive and voluminous document to be consistent with the council's desire to be

transparent with the congress? >> congresswoman, we did make that offer. we appreciate that the -- your staff has begun reviewing it, unless it's happened in the last day, i'm not aware that the majority has reviewed it but it could have happened in the last 24 hours. that's the right way for us to make clear that commitment to transparency, while protecting very sensitive confidential information. >> thank you very much, and members on this side of the aisle would you please allow the secretary to answer questions and give him the courtesy of not badgering him? this is a complicated subject matter that we're dealing with and he everybodies does the right to be able to respond in the time that it takes. i yield back the balance of my 3q ñ time. >> the time of the jennedel lady hasec expired. >> i would be delighted to answer the questions if you just give me the time. you know mr. secretary, we gave

you the time to answer some questions that were submitted to you after the last hearing which was back in march and lo and behold it took your appearance here today before we got the answers of them. in other words, at 11:18 last night we get the answers. that's march april, may and now half way through june so we give you a lot of time and it's just a pattern of this administration of ducking the questions and evading the answers and it's a pattern of yours and all these things and not giving a clear answer. you have such disdain for the american public that we have to bring you before this committee before you would simply answer the american public's question. it was the volcker rule and the secretary couldn't answer it and yet, mr. secretary you were able to come up with a litany of other factors and it was a factor with regard to the time that was happening high-frequency trading was a factor and volume was a factor

and you ran all of those, correct? that those were all factors and then did you say that regulation and voelker is not a final answer? >> what i said is it's complicated and we're open -- >> it is quite complicated and you listed the other four factors. all we want is a simple question. you did say that in the blip there was no evidence of regulation being a factor in that blip, correct? >> that's certainly my understanding. >> okay. so is it your understanding further going forward that voelker, therefore, is not a factor in any of that? >> congressman i think the volcker rule on. >> is it a factor? >> you gave us four other factors. is that one of the factors? >> congressman i listed the factors that i know are very real. >> do you know if this was a factor? >> i am not able to say -- >> you know about the other factors and that's the end of those questions. >> i'm trying to demonstrate an open mindedness that you're not

giving me a chance to express. i haven't ruled out anything. >> i'm claiming my time. with regard to the -- the f, is ot and the fsb, i appreciate that the fsot has announced it has a process with regard to the listing of the potential risk associated going forward with the designations. is there such a process with fsb as far as a due process system in place there that we are trying to get to with fsot? >> congressman, the fsb is a very different process than fsot. >> i understand. >> there is no consequence to the designation. >> i understand that. >> and so it doesn't have -- it doesn't have the powers that fsot. only fsot has the power to impose a regulatory burden. >> is there a process nonetheless, a due process? >> there is an open process where stakeholders share their views and certainly governmental entities share their views with the fsb, but it's a different

kind of a process so i don't think -- i don't think the same kind of due process issues apply when you're not designating a firm with the consequence. >> so it's not a due process. it's a different process is what you're saying? >> you're comparing apples and oranges and fsb and fsot is very different and there is an appropriate set of due process concerned. >> so within that process right now, the fsot is asserting its authority with asset managers and the like and i'm sure you're familiar with that and i know fsot had previously been looking at that issue and until fcc finalizes that would you go to fsb and make no final determination with the asset managers. >> i think there is a more basic issue. >> i'm not asking the basic issue. i'm asking the one question. >> i don't think the fsb's process is at all identical. >> we have a long -- >> what i'm asking you is as a member of ssb where you've told us repeatedly, it's done on a consensus basis.

i'm asking when you try to get a consensus would you say as your position is with the regulator which is the fcc you would ask fsb to stand down for now until this decision is made over here. >> so what we're doing at the fsb is trying to make sure that it's a thorough and complete review. >> i understand that all of that. >> you're being thorough, diplomatic and all the rest. simple question, until fcc finishes their process do you think fsb should stand down in this area? that's a simple yes or no question too. >> i don't know the schedule at fsb. >> i just asked you -- >> i don't think that the fsb can time all of its actions. >> i doubt that they can but can you assert your authority in that regard to try to do so? >> look it, this consensus process, let's understand what it's about. >> i'm not trying to get the consensus process. i'm trying to ask you if you would use your authority to represent the american companies on their behalf? >> i would have to look at where

we were and where they were and make a judgement at the time. >> the time of the gentleman has expired and the chair now recognizes the gentle lady from new york, miss velasquez. >> thank you, mr. i rememberchairman. >> mr. secretary, we have held a number of cybersecurity hearings this year in the small business committee to examine the toll of cyber attacks on consumers and businesses. many of the witness estated a clear, uniformed set of rules was needed to address this problem. can you elaborate on fsot's proposal for a national plan to respond to cyber threats that you mentioned in your testimony? >> thank you, congresswoman this is a hugely important issue on every sector of our economy and our country because truly there are exposures to cyber risk everywhere. the financial sector i think, has been a leader in taking it seriously and the largest firms

are putting enormous resources in trying to put systems in place that are effective. one of the things that we've done as a government that i think is very important is our national institute of standards and this has put out best practices. we have encouraged the private sector to use best practices. i've certainly encouraged other financial regulators to have the same view. i think that we're at a kind of a moment where it's not just a question of what does a firm do itself, but you have to ask what are the policies a firm has with regard to who it will do business with? a lot of the exposures come not directly at the firm, but when a third party connects to the firm. >> right. >> so those firms not just have to worry about what are they doing, but do they have good standards as to who they will do business with and our goal ought to be to bring all of those parties to the highest standard. i think it's premature to talk about having a single national

standard that's mandatory. we've put it out as a voluntary standard. i think many are going and using that standard, and i think it's something we have to continue to look at. >> and cost is an issue especially for small businesses. do you have any type of interagency, working relationship on this matter like sba, small business administration? >> we do work across agencies in many areas. in particular there are connections between, say, the utility sector and the financial sector because if your power goes out you're obviously going to face a risk. i'm not familiar with what the sba's program on this is. in the financial area, one of the things that we focused on is the need for smaller financial institutions to be able to work together or through organizations so that they can pursue best practices together because the burden for any

individual firm would be to hide. that's one of the reasons it's so important to have legislation in that area to make the collaboration between firms easier and less risky for them. we've been very much of cyber legislation. but even pend inging the enactment we've put out executive orders to try and pave a way for firms to work together. >> thank you. as you mentioned lending standards have decreased as financial institutions try to find profitability in the current interest rate environment. while the loosening of the credit markets since the recession has been official for small businesses too much risk taking could again lead to problems. if interest rates were to rise what impact will this have on the markets overall, and specifically on access to capital for small businesses? >> congresswoman, i think there is at some point a trade-off between access to credit and

risk taking. we have raised concerns over the last couple of years that in some cases there may be an overadjustment where you look at the fico scores of home mortgages the averages have gotten very high. there are a lot of not very risky potential borrowers who are having access to credit issues. some of that requires a clarification of some of the policies put in place. it's why some of the agencies have been addressing the issue of putback risk. why am i answering a question about small business lending with housing issues? i think we all know for a lot of small businesses the pathway to credit is in part through their personal equity in their home mortgages. so the two are related. we've done a lot through our programs to reach out both through the sba and through programs we at treasury run to make available to small businesses. we work with the community banks and local lenders to encourage that lending. i think it's an important

question. i do think as we come out of the -- through the financial crisis into a period of calmer macroeconomic circumstances, that's an important time for more lending activity to be appropriate. the question isn't do financial institutions have no risk? do they take reasonable risks and are they not overly lemplged? >> thank you. >> time of the gentle lady has expired. the chair now recognizes the gentleman from missouri. >> thank you, mr. chairman. and good morning mr. lew. i was kind of taken back by your report. you know this morning in "washington times" there's a report that cbo put out i think yesterday. i don't know if you've seen the article yet -- >> i haven't seen the article. i know the report. >> thank you. they make comment here that headline cbo warns a financial

death spiral from debt. first line says rising federal debt threatens to choke off economic growth in a decade beginning a death spiral that will zap revenue from government programs even as demand grows forcing government to borrow even more. one of the things in your testimony here the second paragraph first line says created to identify and respond to vulnerabilities in u.s. financial system and provide a mechanism for agencies to talk to each other and take collective responsibility for addressing threats to financial stability. and yet in your report i don't see anything about debt. am i missing something? >> congressman, i think if you look at the risks to our economy from federal spending and debt we are in a much better position now than we were six and a half years ago. we've reduced the deficit as percentage of gdp in dollars at a historically quick rate and

that very report makes clear that over the next ten years we're in a pretty stable place. i think the thing in that report that people are concerned about is the long-term. and obviously there are still -- >> that's not what it says, mr. secretary. that's not what it says here. says long-term outlook for federal budget has worsened dramatically. >> i said for the next ten years. that report goes out farther than ten years. >> so we got just a little blip in the screen? go back to the lower part of the curb and then back up again? >> i think if you look at where we were in 2008 and 2009, we were careening towards a very treacherous place. we've stabilized it and it's improving. we still have long-term challenges -- >> mr. secretary if you just quote the president and use analogy of a car in the ditch we're maybe not out of the ditch yet, we're bumping along here with annual growth rate of less than 2%? 1%? something like that over gdp. and here cbo says -- the point i'm trying to make is cbo points

out the debt is a problem for our economy. and yet your report does nothing -- it says nothing about it. and you are supposed to be an agency that points out these problems. why is -- my question is why did you not point out that debt is a problem for our economy? >> our report appropriately looks at the threats to financial stability -- >> so you don't consider it a threat? >> i think if you look at what where we are today versus six years ago, the federal deficit has been brought under control for the next decade. >> part -- >> we are in a period where we need to get the economy growing. i totally agree with you our conversation should be about what can we do to grow the economy. we know there are things we could do. we could have an infrastructure program in place immigration we can do to grow our economy. >> oh. >> i don't think right now the debt 20 30 years from now is the thing holding our economy back. >> i think you've missed the boat, quite frankly. cbo points it out.

nothing in here. i think we're missing the boat. we've dropped the ball on this. next question, one of the concerns i have as a chairman of the housing and insurance committee, we've got the situation where we've designated some church companies as sifis. and one of the things that's fine if you feel there's that much risk there, we've asked before quite frankly to give us the criterion which you base your analysis and we've never gotten it. we had the undersecretary doing a great job getting us analysis on this. but i think part of your job also is to figure out how to de-risk things. okay, you pointed out there's a problem. how do it we get the problem solved? i think that also is what is in your report is in your first line here. it talks about addressing potential threats to find ways to get back to financial stability. so how do we de-risk -- do we have criterion in place to

de-risk insurance sifi? >> the analysis that led to firms being designated is laid out clearly in the record that's quite public. and i think each of the firms understand understands why they were designated. the question of how they -- you're really asking how could they exit because derisking would mean they no longer would be. we've made clear we are going to review regularly, annually the status of the firms. we've done that with the firms that have been designated. and changes business model and has less risk it would no longer be designated. >> i see my time is up. i'll yield back. thank you, mr. chairman. >> time of the gentleman has expired. the chair now recognizes the gentleman from new york. >> thank you, mr. chairman. mr. secretary, i just want to go somewhere else, but i just got to say i think from what you were talking about how we're better off than we were six years ago. i wish my colleagues had talked

about the person and when they had the opportunity to stop the person that drove the car into the ditch in the first place that caused us to have this debt and all this problem. so then when someone else comes along they say, okay, i'm going to help you get out of this ditch that i didn't drive you in, but i'm going to get you out of the ditch now. and you start pushing them to get them out of the ditch. now, you might not be going at 100 miles an hour yet. you're going maybe at 50. but now you're no longer in that ditch. you're out of the ditch and you're moving in the right direction. but yet you want to blame the person that is getting you out of the ditch instead of the one that put you in the ditch in the first place. and that's where we are today. we were in a ditch in 2008. and now we're driving ourselves out of the ditch. that is where we are today. let me go to where i really want to go to mr. secretary. dealing with asset managing, that's what i've been looking at dealing with fsot and the work around asset management and that industry.

and i know they don't, you know, assume all of the risk as banks would look at them differently. but i did see in one of the reports however and i'm concerned about hurting, i think that was in the fsot report et cetera, we have a lot of investments there, should we be concerned about this process of herding? >> congressman, i think that obviously asset management has grown as a sector. and there's a lot of individual and institutional assets there. we've been looking carefully at this question for some time. the risks are not necessarily just firm-specific. that's one of the reasons that we're looking across the industry at activities to ask are there activities that are we have not reached a conclusion. i'm reluctant to give a view until we've reached a conclusion. because frankly we've entered the process as have regulators around the world trying to understand and learn about a

growing and somewhat new industry. we have identified that as a question. i can't prejudge what the answer is. what i can tell you is that it is important that we complete the process and that it be driven by facts and by analysis. and if there's action that needs to be taken the appropriate regulatory body should do so. i think the notion that you cut these questions off because you think you might not like the answer, or because you think you know the answer is exactly what got us into trouble in 2007 and 2008. we have to be willing to ask the questions. and even if the answers end up being hard follow them to a logical analytic conclusion. i think that's what fsot is doing and i look forward to that process being completed. >> i know on some municipal levels and multiple state levels that have tried to benefit from a greater diversification management, which generally smaller asset managers and some

minority and women who, you know, have selective investment strategies. however, i'm finding that these small managers face real barriers that prevent them from gaining more market shares. has the treasury or fsot look sbood how we can get more sbers fi -- diversification in this industry? >> i think if you look at the performance of the smaller and minority-owned managers there's not a huge difference. some are successful, some are not. same with big managers. i think there's a tendency to bulk things up because it's easier to deal with a few rather than a lot of managers. and we need to push back on that. we need to make it clear that the door has to be open to new participants in this space. and we've tried through a number of things we've done to have that be the approach both in

terms of how we've managed some things within treasury and through other intergovernmental efforts we've had. i think we're making progress. but there's more progress that needs to be made. >> okay. because, you know as these asset managers get bigger and bigger, they play more and more of an important role in the sourcing capital to business that create jobs in various communities. and so, you know, that's one of the reasons why with banks we had to go to the community reinvestment act in the '70s. so don't you think we should be looking at some policy that can ensure we have more inclusion in the asset management industry so that we can also make sure they're investing or reinvesting in some of our other community sns. >> i think it's important for there to be broad participation and for the process to be open. i don't know that i would think you should have kind of mandatory targets. but i'd be happy to follow-up with you. it's a matter i have a great deal of interest -- >> time of the gentleman has expired. the chair now recognizes the

gentleman for monetary policy and trade subcommittee. >> right over here mr. lew. >> eshverybody's moved around. i don't know where to look. >> i've got five minutes, not 15 minutes so i'm going to try to quickly and respectfully move through a number of things. i too received the e-mail at 11:18 last night. and the answer to my questions on few things from three months ago. congratulations. you were actually very clear on one of my questions regarding financial services trade negotiations. i asked to explain -- for you to explain why treasury continues to oppose including financial regulatory managers in ttip. this is the most clear answer that i think i'm aware of and i think the committee has veen. you say t tip is not however an appropriate or necessary vehicle for addressing financial regulatory cooperation. you claim that it's already happening in financial stability board, international standard setting bodies and a number of others. i i disagree with the answer.

i think it should be included in, but i appreciate your clarity. but it does lead me to another question, which is having to do with local storage data requirements that many in europe are starting to push. and you -- it's my understanding the administration has highlighted the free flow of information across the digital world as sort of a centerpiece of the negotiations for both tpp and ttip. which is again a provision i fully support. i'm confused as to what that difference without a distinction might be as to why you are going to be doing that since it is -- it makes tremendous amount of sense to have us negotiate with our÷gn partners in this if it's bad for american business. but again you exclude financial services. and i'm curious, is it the administration's position that we're seeking to prohibit local storage requirements for everything except for financial services?

>> no. we've been very firm on the issue of putting nontariff barriers in place where you have a local storage requirement for electronic data. i think the distinction is easy to make. i've tried to be clear in this committee before. we view prudential regulation as something that ought not to be brought under a trade negotiation or trade process. and that's the difference. it's not prudential regulation to say that there shouldn't be a -- >> so you're willing to have the financial services sector treated differently than any other sector in the u.s. economy? >> well, in general trade agreements do not bring prudential matters -- >> well, we've got the europeans -- >> we've said no to the europeans on this. >> well, yeah the europeans would like to do it. and it seems very odd. and i think a huge mistake. secondly, i do want to quickly move onto imf and greece. would you agree or acknowledge that the decision to bend the

rules, shall we say if not ignore the rules, regarding greece on the exceptional access network which was done with treasuries concurrence was a mistake? >> look, i think the actions taken in 2010 2012 to avoid an economic crisis in greece were the right thing for the imf. >> so it was not a mistake? >> -- for the united states. >> so just so i'm clear it wasn't a mistake? >> at the time. >> so now looking back do you think it was a mistake? >> no. if i could just take -- >> i'll take no because -- i'll take no as your answer. that's fine. because there is a discussion of putting those rules back in place at the imf. that is something that the imf board is interested in. and i'm curious why the administration from my understanding is opposed to that. why? >> so i think that there's occasions when it would be important for the imf to have

flexibility. >> so the rest of the imf board excludeing us wants to put those rules back in place because they believe that it was a mistake of what happened with greece? >> so i think that that's not exactly where the conversation in the imf is. there's a serious conversation -- >> i've had a number of conversations with folks from the imf. and involved with the imf. and i'm not sure that's an accurate portrayal. >> there's a range of issues and i think it's important to distinguish them. there's the exceptional access itself and there's a question of how to proceed into a new world of debt reprofiling. >> we also have -- >> we've tried -- >> -- new arrangements to borrow. i know that the administration's been trying to use that as a reason to not necessarily go into imf quota reform. but it seems to me if we're not going to address this exceptional access framework -- >> so, congressman, if i could just take -- i know you're running out of time. if i could take half a minute to

respond. >> i'm happy to take a private meeting on it too but we can only get you up here twice a year. >> this is a hugely important issue. obviously quota reform is critical to the u.s. place in the world. and we're working very hard to get quota reform enacted. i think exceptional access has serious questions. i have never pushed back on the kinds of questions you're asking. and i'm open to a serious conversation about it. i think looking forward finding a way for the imf to avoid having to use tools like that is in all of our interests. and i'd be happy to have that conversation. >> time of the gentleman has expired. chair now recognizes gentleman from massachusetts. >> thank you, mr. chairman. >> hello mr. secretary, how are you doing? >> just fine. >> you familiar with major league baseball? >> i've heard of it. >> you familiar with the team called the boston red sox? >> i have. >> so you purport to be an expert in baseball. can you tell me what's wrong with the red sox right now? >> that's a long -- >> no you refuse to answer that question. i need to know. is it the pitching, the

fielding, the hitting? come on, mr. secretary, answer the question? i can't believe -- if you won't answer that question, can you answer me why the republican baseball team can't seem to beat the democrats? come on, mr. secretary answer the question. you got plenty of time. oh, well okay, if you refuse to answer the question i guess i'll have to move onto some other areas because i just wanted to show that i guess badgering is not the exclusive realm of some of my colleagues. we can badger too, but it doesn't produce much. >> as a mets fan i'm showing great self-control though. >> mr. secretary, for everybody's sake in your next fsot report can you put a chapter in there on debt? you've got a great story to tell. i think my colleagues actually raise a good point. i mean debt in theory could be a risk to the economy. and you have a good story to tell it would satisfy everyone

including me. >> i understand. and, look we could discuss it and say why we don't think it's a risk. the report focuses on the things that we think are risks. it's a fair point. >> yeah. if you do it the next time, at least you take one of their arguing points away. and'f[é! you make some good points. and i think it's a fair thing to discuss. with that i am going to move onto a couple of things that not directly related to fsot but indirectly related to it. first of all talk about fanny and freddie. has fannie and freddie paid back every money they've borrowed from the american taxpayer? >> they have -- they have, i believe -- >> the answer is yes. >> i believe the answer is yes. >> i know it is. i'm asking the question i know the answer to. and by the way, haven't they also paid back billions upon billions of dollars above what they borrowed? >> i think i understand where you're going, congressman. >> hope so. >> and i think what they have not done is they've not removed

from the federal government, the federal taxpayer the risk that goes with those institutions having the backing of a federal backstop. >> that i understand. but the money that they're paying now above and beyond the money they borrow where does that money go? >> it goes to the treasury. >> goes to the general treasury. so basically homeowners that have -- >> and so does the risk -- the support that goes behind the risk. >> i supported all that. i'm not -- i totally agree with everything that was done up until they paid back their loans. my problem is they paid it back. they're stable. they're heading in the right direction. and it's time to get back to more business as usual. because like everybody else i want to keep homeowners keeping their own money to the best of our ability. and yes there are some risks but right now dollar for dollar risk is contributing to the general treasury account and that doesn't seem fair to me. it strikes me if we're going to have a general treasury account either we should tell people we

are charging you extra because you have a service or increasing taxes, neither one of which are sins to me. but in this case you're charging them through their mortgage for something that is unnecessary at this point in time. >> that's not the way i look at it. i see it the gses are still in conservatorship, which means the federal taxpayer is directly standing behind them if they fail in the future. >> well, they've done that from day one. >> well, no. from day one there was actual denial that there was a backstop. >> who denied that? >> it was in law? >> well, i would respectfully and strongly disagree. and i think pacts pointed out i was right. >> i think that we've seen over the last several years the estimates of the potential risk of a problem in the gses is still quite large. >> i understand. but if the money were going to a separate account to sit there and build up some kind of capital reserve, i think you'd have a fair argument. >> well, the -- >> doesn't bear up in my estimation. >> liability is born -- >> number one, they deserve

their money back now that they're stable. number two homeowners deserve lower interest rates unless they're being told what the money is being used for. right now some of their money is being used to support something other than fannie and freddie. i guess we'll have to disagree on that. with the last few seconds i wanted to follow up with something brought up. however, it strikes me trial and possibly fsot is pursuing a back door way to take over regulation of u.s. insurance companies via international agreement. that may be a little overstatement and i'm not a black helicopter guy. i kind of overstated it to make the point, but it certainly strikes me that some of the agreements we're about to make with some of our international friends may be pushing a little too far. with that i'll have to yield. >> time of the gentleman has expired. the chair now recognizes the gentleman from wisconsin, mr. duffy, chairman of oversight and subcommittee. >> thank you, mr. chairman. welcome, mr. lew. obviously you are the treasury

of the secretary and not the coach of the red sox. we are not going to ask you about their feelings. but if you were the coach, we'd expect you to answer the questions that we have about baseball. and when we ask questions we hope that you wouldn't give us answers about the history of baseball and how it came to be and you could talk about the history of fenway. you would actually answer the questions of what's wrong with the red sox. you've had a lot of questions today about the liquidity -- and i think the chairman brought out is this related to vulcar. i want to give you a chance to answer that question. is this something that you're looking at do you think the rules and regulations that have come since the crisis have had any part in the lack of liquidity in the bond market?

>> congressman, i think to answer the question fully would take quite a long time because it's a very complicated issue. i had tried to indicate that we are open to looking at any of the possible -- >> this is not a got you game at all. you identify risk in the markets, right? that's your job. and you do come in and you've talked about cyber and other things that are very complicated. that we can't wrap our heads around, but you tell us where you see those risks. and it's a very simple question because a lot of the commentators will say, listen it is complicated. there's a lot of reasons why there's a lack of liquidity in the bond market. but they will unanimously point to one of the causes could be the new regulatory regime and it's impact. so can you -- the commentators can talk about this, but you're not willing to answer that question today? >> in fairness, congressman, i'm

offering a much more detailed answer than the commentators. most of the commentators that i've heard with some self-interest have jumped to one explanation. i'm deliberately -- >> you do this really well. so i ask you about liquidity in the bond market and i mention commentators and you'll talk to me about commentators and the history of congressmenmmentating. the do-gooders who are looking for risk are actually the ones that are potentially creating the risk in the market? and so if you tell us yes this could be a cause of the lack of liquidity in the bond market you have to look at yourself, you have to look at the regulatory regime that's taking place since the financial crisis and you don't want to admit that today. that's not badgering. i think that's a fair question. and to say that it's too complicated to answer, i don't understand that, mr. lew. just give us a straight up shot whachlt what is it yes or no? >> i think if you look at the

many factors right now having an impact on liquidity, it's not my view that financial regulation is the principle thing that requires our attention. i have not said we shouldn't look at it. and i think these other factors are -- >> mr. lew, i don't know if you were a tap dancer when you were young. i didn't ask if it was the principle. this goes back to what the chairman was saying. you're playing with words. is it a contributing factor, which goes back to the point the chairman made, is it a contributing factor that rules and regulations, are you looking at that? not the main factor not the only factor, but a contributing factor yes or no? >> so if you look at liquidity you have to look at different parts of the market. >> i know. >> and if you're looking at treasuries it's different than if you're looking at high risk bonds. >> i'm going to ask you a yes or no question. are you looking at fsot yes or no, at whether the rules and regulations are having some impact on the lack of liquidity in the market? >> we're looking at all factors.

>> so you are looking at that? >> we're looking at all factors that can contribute. i'm saying that as secretary of the treasury. something many of the members of fsoc and other agencies are looking at too. >> we ask you simple questions and i think we're entitled to get straight answers from you. and i think if you think listen, the rules and regulations come have no impact the commentators are wrong banks and market makers have left the space but that has no direct correlation with the lack of liquidity, tell us that. >> congressman i think that the financial reforms made our system safer and sounder than it was. we have a stronger economy because of it. liquidity is still deep. >> is it creating a risk too? >> i think that when we look at the issues related to liquidity we should look at all potential factors. i identify the things that i'm aware of. >> one thing do you support tpa like the president? >> i do. very strongly. >> dually noted.

>> time of the man has expired. the chair now recognizes the lady from new york. >> thank you so much, mr. chairman. i am very pleased to welcome one of the favorite sons of the great city of new york. very good to see you. and i regret i had to chair another meeting. and i just got here. but i want to follow up with something that was raised by ranking member waters earlier. and while my good friends on the other side of the aisle have criticized fsoc for not being responsive to their document request, i'd like to point out that fsoc did make 1,400 pages of confidential documents available to this committee. and my staff and i believe the staffs of many others on this side of the aisle have been over there to treasury and reviewed these documents. and these were confidential documents laying out the detailed reasoning behind the fsoc decision to designate individual companies as

systemically important which is exactly what the majority asked for. so i think justsupplying 1,400 pages of documents review is being responsive. i want to make that clear. i want to ask, mr. treasury you said earlier that the issue of bond market liquidity is a0÷÷ legitimate one. but@v about assessing the causes of the lack of liquidity. and i agree with you i don't think we have any definitive answers yet. but i think it's incredibly important issue. i think it's also important to focus on potential problems in the treasury market rather than other markets. because the treasury market is a $12 trillion dollar market that determines the borrowing costs and so many other key markets as well. you mentioned the huge swing in the treasury market on october 15th of last year and said that there was no evidence of a breakdown market that day. and i agree. i agree with you on october 15

trading was continuous. and trading volume was heavy. so was it really a lack of liquidity driving the wild price swings, or was it something else? can you give us some more context for what the fsoc has found so far as it looked into this issue? >> thank you congresswoman. we have worked treasury together with other agencies that look at the market carefully and try to follow the transactions that day to understand what actually happened. and there was a huge amount of volume. and there was this 15-minute period when there was a price spike. but there was not a breakdown in the market. it's something we have to ask what happened then and what do we learn from it going forward. there was a huge amount of electronic trading going on. market structure has evolved. and, you know, one of the things with technology is you never go

back. so we have to deal with the reality and there's many positive things about electronic trading. so i don't say that critical of the development of electronic trading. that changes the structure of a market. we're looking at that. i can't sit here today and say i have a clear answer. we're hoping over the course of the next few weeks to complete our analysis so we can offer a more definitive view. but, you know, what i was trying to say before is there was a desire to jump to a conclusion that somehow financial reform caused october 15th. we see no link between financial reform and what happened on october 15th. maybe others will find it. but it's why we have to be so careful when we ask these questions about liquidity to treat a very complicated issue the way it should be treated. i have not ruled out looking at any of the contributory possibilities from any policy area or market condition. but we also ought not to jump to

a conclusion which many did very quickly in a way that i can understand why they did, but it doesn't mean it's right. and, you know, the treasury market remains the deepest and most liquid in the world. there are other areas of the market where there are some questions about liquidity that are quite legitimate where they're not electronically traded. so that is different. where the huge volume of corporate bond issuances raises some questions about would there be a good liquid market if there were a very stressed day? we're looking at all those questions. we take them very seriously. one of the things -- you got to separate the different kinds of liquidity because if it's a question of institutions keeping high risk proprietary investments on their balance sheet or not, that is not something we should go back to. we have a system that's safer and sounder because we've moved away from that. >> well, thank you.

and i look forward to your report. and i hope you'll personally brief members of congress. >> i look forward to. >> i think it's critically important. and my time has expired. >> time of the lady has expired. the chair now recognized the gentleman from pennsylvania, chair of our terrorism task force. >> thank you the chairman and thank you, secretary for your time here. we've had a couple of hearings to investigate terrorism financing. series of questions i would like to make part of the record rather than go through them and ask the secretary to give us a timely response. i'll submit them to the chair. actually i want to follow up on some questions and your quick responses from my friend of massachusetts with respect to the national debt. it was being referred to as the national debt, which is not in the fsoc reports, not even identified that number one the national debt is a good story it's a good story to tell about the national debt. and number two, it's not a threat to our economy.

and i think that you answered both in the ampleffirmative, you agree with that? >> again it's a complicated question. i think the national debt i was omb director with a surplus i believe in having a fiscal policy that lasts for the long long term. i think if you look at what we inherited, the stability we now have is a world of improvement and there's still work to do -- >> mr. secretary, the question is the debt itself. which in 2008 then president obama referred to as a $10 trillion national debt is unpatriotic and immoral. today there's a debt clock, it's right above us at the hearing. $18 trillion 159 billion -- >> but -- >> it's going up a million dollars a minute. >> it has come down. >> is it a good story? >> it is a good story. the deficit has come down as a percentage of gdp faster. >> the deficit started coming down, new administration, new speaker that took office in january of 2011. and because of fiscal restraint

in federal spending and growth of the economy that annual operating deficit is coming down. but it's not zero yet and the national debt continues to rise. is that a good story? >> i don't think it would be good for our economy if we were to have a balanced budget today. right now we have an economy which many of you have said isn't growing fast enough. we need to continue to look at keeping the economy growing and keeping an eye on the long-term. having a stable fiscal posture for ten years is huge progress. >> mr. secretary couple years ago then-chairman of the joint scheefs of staff as the national debt as our greatest threat to our national security. >> at the time our deficit was in double digits. it's now coming below 3% of gdp. >> i'm not asking about the annual operating deficit. i'm asking about the narnl debt. >> the debt as a percentage of gdp has stabilized for this period of time. we have made enormous progress. it was climbing. and it has stabilized. >> mr. secretary, last month you referred to a proposed amendment to combat currency manipulation in the transpacific partnership as a poison pill.

but also last monthed president said he was opening new efforts to combat currency manipulation abroad. can you describe what efforts or ideas the administration might have, what the role of treasury would be and whether you think they could be effective? >> the president and i personally take this extremely seriously. we put enormous effort through our multilateral and bilateral engagements to use the tools we've had. and we've had considerable success. we've helped push china and japan into a different policy. so i think we're using the tools and using the tools well. in the trade legislation that is moving through congress there are additional tools. one is that there's a negotiating instruction that says in tpp currency issues are a high priority. and we're working with our tpp negotiating partners to arrive at agreements that will give us more visibility and more ability to use the consul at a timetation process and public disclosure to get

them to do the right thing. >> can you identify the ideas the administration was referring to last month? >> and then i was going to say there's an amendment that we support that senator hatch and senator bennett put in in the senate which puts new tools in place which requires we do an evaluation based on objective criteria as to whether or not countries are violating what we would consider fair currency practices. if they are in violation it puts us in a position where there are several new tools including not being able to be in trade negotiations with countries that are violating. so i think we have important new tuls in the trade. >> i want to get to an important question on the treasury's budget which the president identifies the budget as a compilation of our nation's priorities. fin sin and otfi have been relatively flat funded. congress has met and probably exceeded the president's request specifically on fin sin. i want to say the organizations within the department of treasury do an outstanding job with the resources that they have. >> thank you. >> but we see terror growing,

you know, the challenges globally every single day. new organizations coming to light every single month. what can you tell us about -- >> congressman, i couldn't be prouder of our offices that work on threat financing. >> do they have sufficient resource sns. >> they do have sufficient resources. and they punch way above their weight. but if we thought we needed more resources tootd do the job, we would ask for them. >> time of the gentleman has expired. the chair now recognizes the gentleman from massachusetts mr. lynch. >> thank you, mr. chairman. first of all i think you're doing a great job, mr. secretary. and i know we had a disagreement last week on tpa, but i have never in my time knowing you have ever heard you address congress or the american people with disdain. that is something not in your makeup or character. >> reverence would be more like it. >> that's right. that's right. and a desire to serve.

so i appreciate that. you're a good man. we don't always agree, but i honestly believe you have the best interest of the american people at heart. and the administration's lucky to have you. i want to focus on a situation here. when a bank is convicted of a felony or a bank pleads guilty to a felony we have laws in place, congress has put forth some laws that says when they're guilty of these crimes we remove some privileges that they have. one of those privileges that they have is that of a well-known wn issuer well inform known seasoned issuer. we had a recent bout of guilty pleas by big banks. both in connection with libor and also the fx manipulation of dollar-euro exchange rates.

so normally those banks should be penalized by removing that designation which allows them off the shelf registration and other privileges. but what's happened is that i believe the secretary of labor is the one that grants these waivers, i'll give you a for instance. in the latest rounds of s.e.c. waivers, barclays just received their third wksi waiver since 2007. citi group has triggered a disqualification five times in the last nine years. and every single time we give them a waiver. we don't penalize them. so there's no difference in how they operate because we give them a waiver after they plead guilty. ubs just received a second waiver since 2008. so they broke the law, criminal conviction or pled guilty.

jpmorgan chase received sixth waiver since 2008. and the royal bank of scotland received its third since 2013. and ubs going back to ubs their last wksi waiver occurred while they were still under a nonprosecution agreement from libor. so they immediately failed. so the penalties congress has put in place don't happen. because s.e.c.'s giving them waivers. and i'm just wondering if giving these waivers continually and not punishing these banks is you know a moral hazard. is it causing them to behave just as they always have been? because it seems that way for me. >> congressman, let me start by saying i think we have made clear as an administration that no individual and no firm is above the law.

and we will prosecute and we will enforce regardless of who has broken the law. secondly, the violations of law that are behind these actions are very serious. they get to the heart of the integrity of our system. things like tax fraud things like terrorist financing, facilitation. i think if you look at the prosecution, if you look at the settlements, the numbers have been very large. >> but falls on the shareholders. the penalty doesn't go to any individuals involved here. and the banks continue to operate. there were $2.5 billion in fines, but they just keep on doing what they've been doing. and i have people in my district that are convicted of far smaller crimes. and they do serious time. and so, you know at least the way -- is there another set of penalties that we could put in? you would actually agree to

enforce? >> if i answer your first question and come back and answer your last question. i think if you look at the approach the prosecutors have taken, they have wanted to make sure they could hold accountable financial institutions and the individuals in them. and not have unintended consequences that they can't control. >> but these are intended consequences. that's my point. they intended them to be penalized and they're not. >> i would leave to the regulators to decide the right way to respond, but prosecutors need to know that they're not going to create, you know, an unintended consequence -- >> that's not the point here. >> i think on your last question there are a lot of things we could look at in terms of what the practices within the industry are and how you hold individuals accountable that are worthy of consideration. >> time of the gentleman has expired. the chair now recognizes the gentleman from texas chairman of financial institution subcommittee. >> thank you, mr. chairman secretary lew, good to have you back. i want to refresh your memory a little bit. back in march you and i had a

conversation a little bit about u.s. regional banks and whether they were systemic risk or not. you also referenced and you and i discussed a little bit the ofr report in february where they used i think five of the basel standards to analyze a number of banks. and if you recall that analysis showed that $50 banks systemic in fact went pretty far up the asset chain before they reach ed reached -- yet dodd frank says the trigger is $50 billion. so i guess my question to you is the chairman of the financial -- of fsoc, is the framework of basel in conflict with dodd frank frank? >> i don't think it's a question of conflict. i think the question is do banks

of all size pose the same risk and require the same exact treatment, the answer is no. and we have been very careful in designing rules to try and distinguish different levels of treatment for different firms of different size. that doesn't mean we have it perfect. there certainly is an openness to looking at issues there. but i have to say that the debate recently has taken on a kind of odd character. there's been discussion of exempting banks of $500 billion or less. do you know how many banks there are between $500 billion and the biggest banks? there's six banks. the largest financial institutions in the country in the world. so we have to be careful not to ask questions as if a $2 billion bank is like a $50 billion bank or a $50 billion bank is like a $500 billion bank. i would be happy to have this conversation. we are open to ideas of how to tier treatment appropriately. >> i guess that leads me into the other discussion you and i

had and that was about section 115. and i think one of the things dodd frank passed and it was passed in a pretty hurried manner and not in a very transparent manner but somebody just picked $50 billion but in section 115 they said, you know what you all can establish gives you the latitude to establish, you know, a different trigger or trigger mechanism if you choose to. and i think if i go back and look at your and my conversation you said that y'all had not formerly looked into it. you mentioned that you had informally looked into it. but there is in fact a process where there can be a formal process if the fsoc could go through -- treasury could go through that process and recommend to fsoc to change that. and i'm a little confused. there could be a formal process. but i think if you look there are a number of regulators taking a look at this issue to see what they can do with their regulatory flexibility. and i think it's a question of when you raise it to level of

formal review. i'll give you an example of the kind of issue we've looked at. the frequency of the examination cycle. there's a reasonable case that the frequency should be different for a small institution and a very large institution. so there are ideas here that could be pursued. the fact that it's not a formal section 115 review doesn't mean that people aren't asking these questions. if you look within the regulatory bodies they are looking at them. and we're obviously looking across the landscape. >> mr. secretary i think it's important to get their input but the truth of the matter is under section 115 those other regulators do not have that authority. section 115 authority resides in the secretary of the treasury. and last i checked that's you. so i just think it's kind of a little confusing here is that we've got one entity ofr using

these basel standards saying this is what the world looks like and then we've got dodd frank. and i think from a banking perspective it's a little confusing as to what standards should be in place. and i think it's really kind of time for you to take on that leadership role and exercise 115 and bring some certainty to the marketplace. >> i'd be happy to continue this conversation with you congressman. to be clear ofr expresses independent views, it doesn't express the views of treasury or of fsoc. i'm expressing my own views. and they won't always be identical. you wouldn't want them to be identical with ofr because ofr was put in place to be an independent institution expressing its own analytic views. >> i see my time has expired mr. chairman. >> gentleman yields back. the chair now recognizes gentleman from georgia, mr. scott. >> thank you mr. chairman. secretary lew, good to have you. doing a great job. >> thank you. >> i want to keep the conversation for a moment on

liquidity. it is a very serious issue. i'm very concerned about it. a number of experts are registering great warnings about it. liquidity to me is the key tombc4 protecting our financial system. it's also the key to being able to ascertain potential risk to our system. so it like provides us with a way of to be able not just look down the road for problems but see them before they turn that corner. so i also realize and i think you would agree you too are concerned about liquidity correct? >> i've said so yeah. >> yes. so the issue becomes will this liquidity worsen as the economy worsens? and specifically tell me what if there were another crisis? we don't want another crisis.

after they finished the depression they said they didn't want another crisis. but surely as we have a free enterprise system it's free to go up, sideways down whatever. so if we have another crisis would the financial system in your opinion have the liquidity to be able to come to the assistance of other financial -- of our financial system the way it did in 2008? when healthier institutions, it helped us a lot. they had the liquidity. they were able to buy up institutions like indy mac, washington":zá mutual, lehman brothers, rather than the government having to wind them down. >> congressman, i think when we talk about liquidity in the markets, we're not talking about institutions that merge or don't

buy other institutions or not. i think what we're talking about is is there a market for buying and selling bonds in a quick way with stable prices. so obviously the capital and the depth of the balance sheet of institutions will affect potentially both questions. but i think they are severable. let me make a couple of comments. one, i think that as we come out of the financial crisis there is undoubtedly going to be more volatility. i started testifying as treasury secretary concerned there was no volatility in the market now there's concern there is volatileity in the market. it shouldn't be a surprise as we see a return to the more normal economy there's more volatility. i think that the institution themselves are stronger than they were going into the crisis. they have more of a capacity to come through a period of economic stress in a healthy way. and that's a good thing.

i think in our fsoc report we look at the risk we see to the broad financial system. and we do include liquidity on the risk, but it's not the single factor that we're looking at. and i think it is also important to separate the different parts of the market because treasuries are very different from high risk bonds. >> yeah. let me ask you this other question. i don't have much time. but do you believe that there is any link between our anemic financial growth rate and the fact our institutions have to hold so much capital in reserve rather than putting that capital back into the economic system to good use? >> congressman, i think that there is a lot of money that is on the balance sheet of businesses. they don't even need to borrow to get access to. and yet there's a more fundamental question is why are they not investigating more? i think it has to do with a sense of confidence that they're

looking for. that the continued economic growth will be strong. >> but do you see a link? is there a causal -- >> i don't think there's a lack of access right now to capital that is the problem. i mean, i focused earlier on things like housing and small business because i think that's where the questions are real as to whether individuals or small businesses are having trouble accessing capital. large firms right now are not having trouble accessing capital. >> do you feel that these companies should have to hold as much capital in reserve as they are? and is that helping or damaging the economy? >> i think that the fact that our banks now have the ability to see themselves through a difficult period makes our system safer and sounder. they did not have the capital, they had too much leverage. and we saw in the financial crisis what the result was. we can't go back there.

>> all right. thank you, sir. >> time of the gentleman has expired. chair now recognizes the gentle lady from missouri, ms. wagner. >> thank you, mr. chairman. there seems to be so much interest in this issue of liquidity. so i just can't help myself. and perhaps i'll ask apy question that will help put this to rest for all of us. in going back to your march 2015 testimony, secretary lew on the issue of liquidity you said and i quote so i think that this is something that requires a lot of analysis. we're doing it. and i'd be happy to share with you a more complete analysis when we complete it. now, this was march of 2015. i didn't get anything at 11:18 last night. what's the plan here? >> well as i've indicated earlier, our hope is in the next few weeks that analysis of october 15th will be completed.

and we look forward to sharing it with the committee. it's been a complicated analysis. it's required a number of agencies working with very different bodies of data. and i'm very anxious -- >> so within the next three weeks we will receive -- >> i can't say three weeks. over the summer is the schedule we're working on. i hope -- i've been pressing people very hard to finish it as soon as possible. and as soon as it's finished we'll share it. >> and you believe that that will come this summer then? >> that's the schedule we're working on, yeah. >> and that should answer all of our questions about the importance of liquidity -- >> no. >> -- lack thereof? >> i wouldn't say any single analysis will answer all the questions. it will help us understand october 15th much better. and in the fsoc report we noted that there's a broad range of factors. and, you know, i must say identify takei've taken a lot of questions today that want me to comment on regulation. in the fsoc report we added regulation in the list of things we need to look at. we're open to looking at all the

causes. i identified the things i'm confident are things we need to be -- >> i've got several more questions here. we look forward to your report this summer. to date fsoc has designated four non-bank financial companies as systemically important financial strugs institutions essentially signaling to market participants that the government considers them too big to fail. as a result richmond fed president lacquer stated that shareholders and creditors of that firm can expect the government to shield them from losses during periods of distress. ultimately putding the taxpayer on the hook for a future potential bailout. for that reason i'm interested and i think others on this committee are also have mentioned this today i'm interested in how these companies can ultimately de-risk and shed their designation status from fsoc and remove the

implicit report carries with it. knowing is to reduce risk in the financial system. i think that you also would share that sentiment. i know that senator mark warner has told you before that there was never any intention of creating a hotel california i believe were his words with the designation process where you were able to check in any time you like -- or pardon me check out any time you'd like but never leave. secretary lew, in the absence of any practical guidance from fsoc on how to exit sifi designation is it possible for designated firms to know what they are supposed to do to reduce systemic risk? >> yes, congresswoman. i think that the process is clear that we review the designations annually. if the business of the designated company has changed and it no longer represents risk, they know what the risks are. we've identified the risks very

clearly. and right now it's been in the news that ge capital has changed business plans for reasons that have nothing, i believe, to do with the sifi designation but will cause there to be a review. and we'll have to see whether that changes their character. so we're open to when firms change their structure. >> they specifically though know how they can reduce risk. you've given them guidance on this? how to change their business model, their structure? >> they know what it is about their business that created the designation in the first place. they know what the transmission -- >> do they know from you specifically? >> there's a very long analysis that goes to the companies when they're designated that identifies for them the basis of determining the risk. if the basis then changes -- >> so you have a list? because i've got limited time here. a list of specific information on what firms can do to remove this designation? >> it's not a question of take steps a, b and c. it's a question of what are the

risk factors -- >> so you don't have a list. >> the risk factors are quite clear. >> the risk factors are quite clear to whom? >> to the firms designated. >> have you provided them with those -- >> have you provided them with the risk? >> yeah it's available in the list that's available to the public. >> the chair now recognizes the gentleman from california, mr. sherman. >> thank you for holding these hearings, i hope we get the other members to also testify, it's simply the sharm is a lofty position. if you were to interview the chairman of this question i'm not sure you would get the views that reflect every member. i'm glad that secretary lieu is here, but i look forward to hearing from the other ss. you have filed reasons to

dismyrrh prudential's lawsuit. this is a document filed on your behalf. you just put it on your website because it's a public policy interest. redacting any proprietary information about the individual company. why would the reasons for -- arguing the dismissal of the lawsuit be under seal? >> congressman, obviously it's a matter under investigation. i'm not going to comment on the substance of pending legislation. we have tried to be as transparent as we can be. while protecting legitimate commercial information that we need to protect. >> i would hope that you would make that document available for members of this committee since it's a public policy document as much as anything. lehman brothers didn't go under because it had too many assets

it had too many liabilities. i'm confused as to how there's discussion of mutual funds being listed as sifis. if the market dropped by thousands of points, that's terrible for the economy. it's terrible for me because i have my individual account. why would an unaveraged mutual fund be slas phied with a sifi knowing it has no liabilities? >> we have made the vumt that the area we need to spend considerable time on is looking at the activities. and whether there's risk with those activityies. >> are you looking at whether the asset management company

would go interrupt, whether the mutual fund would go bankrupt or whether the economy would suffer not because the sifi wasn't able to pay its liabilities, but rather because a big company was doing this or that in the stock market? >> ultimately, the questions of looking at financial stability involved looking at what the losses would be to creditors and associated businesses, not so much an issue here, what the run risk would mean in terms of the potential in the markets. whether or not it locks up essential services. we're looks not just at firms, but activities to see whether -- >> identity could be designated as sifi, not because of their inability to pay their liabilities would cause a problem, but just because their

activities cause a problem? >> no, the question is, are there activities within asset managers that if there were under a stress situation, a series of events -- these things don't happen in good situations they happen when there's bad situations. are there activities that present the risk we need to be concerned about? >> i need to move on to another issue. >> we ask the question knowing the answer could be yes or no. i don't sit here today with a firm view. >> we're, of course faced with this trade deal. they're usually enforceable only at the executive branch of our government wants to take action. with regard to china currency manipulation.

we pass a law requiring the executive branch to do thing ss you explained to the committee the last time i asked you about it the law is policy. it will not be followed. if the executive branch won't inforce u.s. laws because our trading partner ss would finds that offensive, it's difficult to see how any part of it would be enforceable. my time has expired. >> the chair recognizes the chairman from oklahoma. >> great5i$k to see you again. we work through the subcommittee chairman, the underclass man, didn't have a chance to ask you questions last time, that's appropriate, now you're back to the old guys on the back row. i share some of the concerns of my colleagues on both sides of

the aisle. but there's a real problem with this liquidity issue in the financial services committee, and i find it seems very hard to argue this reduction has nothing to do with the cumulative impact of new rules and regulations of the capital requirements. while we continue to work to improve the safety and soundness soundness, it's important we be ever mindful of unintendedly creating risk and harming the ability of end users to drive this economy and create growth. i have a particular issue i'd like to focus on and that's on the leverage ratio rule as it applies to the treatment of segregated margin.#itávhis is an issue that increases costs for end users and impacts their ability to hedge risks. congress required margin received from customers for clear derivatives belongs to the customers and should remain

segregated from the banks affiliate d affiliated affiliated on member's accounts. however, this margin is treated as something the bank can leverage and treats punitively by requiring higher capital requirements for clearing. if end users don't have the ability to hedge their risk more risk is introduced into the system, customers pay more, it cannot growth is harm. it's an example of leverage ratio rule when applied inappropriately in my opinion. can you tell me why does the rule treat customers as something they can hedge. >> the leverage rules apply to all assets, it even applies to treasuries and cash, it's a very increasing rule. i think it is reasonable to ask

questions as to whether or not there are intended consequences. and certainly you distinguish it safe from the volker rule. the volker rule exempted treasuries, a lot of the er questions i got earlier referred to the volker rule. i hope we agree it would seem to have the effect by requiring extra capital to cover these margin accounts that are segregated segregated. i hope you see where i'm coming from on that? >> yeah, look i haven't focused on the margin issue i have focused on the treasury and cash issue. you go back to the purpose of the leverage rule it's a very solid objective, which is to make sure institutions don't get over extended. and i think that where the --

what the percentage is makes a big difference in terms of whether it's the binding constraint or not. >> segregating the money makes sense. i think we did a good job there. let me ask you this, then. if regulators have been focused on removing risk from the banking system through the capital requirements, risk is going to exist somewhere within the system, if we remove it from the banking system, where does it pop up next? >> if the banks can't play this role, somebody will. will somebody who played that role be more of a danger to the overall economy than the banks? >> i think it is an overstatements, the banks aren't playing that role. they're still doing their core business. even under the volker rule, they're not prohibited from market making and holding inventory for market making. you're asking a question that i'm asking as well.

with the new -- the evolution of the markets, are there questions of financial stability that we need to ask that are different. you look at some of the newer players on the market, where the volume of trading is. i think it does raise questions both about the plumbing of the system, but also you know about implications on liquidity. >> historically the banks in making these markets. it would seem to be a better perspective of evening things out. the entities who are winding up taking their place, have made their money off volatility, if we take it away in the people who like to take the wave out give it to people who make more -- >> i don't think one can overstate the tradition of the banks doing things in their economic interest to maintain markets. clearly having