help us protect that. >> i think generally fsoc has el taken the issue of cybersecurity broadly speaking very seriouslys it's listed that as a primary concern in its annual reports. n our agencies. >> and do we have any -- my time is up, i'm sure. do we have any best practices developed, yes or no? >> i think most definitely so. a lot of us are very focused on those best practices issues. we're in our own agency, i hope we will come out with some standards specifically on this. >> thank you. >> the time of the gentle lady has expired. the chairognizes the gentleman from florida, mr. ross. >> thank you, mr. chairman. mr. woodall, i have to just follow up on what my colleagues from texas was pursuing. as a litigator of 25 years, i know that the trier of fact, whether it be a jury or a judge, must rely on evidence brought

before them. that evidence of course is the best form when it is brought by an expert. when that expert testimony is n uncontinue verted, it becomes a clear matter of fact that that opinion should gain the day. clearly on this board, on fsoc, you are eminently qualified, and by far the only person who could be considered an expert in the insurance arena. you've experienced not only academically but also practically as an insurance commissioner. so i have to ask, what was it in your opinion that drew fsoc to disregard uncontroverted expert insurance opinion and designate metlife and prudential as sifis? >> i think what you outline might be a professional disagreement. i have a lot of respect for all my colleagues. we had a very hearty debate. i listened to them and they listened to me. >> i don't think they listened

to you is the problem. >> agreed to disagree. >> i think there might have been some influence. in reading your testimony about not being at the table with the iais, is that a factor that may play into the domestic category of creating these sifis, these non-bank sifis, because they're more concerned about the international process than they are the domestic process? >> well, but my job is to try to monitor the whole insurance industry, international, so i can give my recommendations. there is a statutory provision that every member is supposed to monitor developments in international insurance matters. >> and they haven't been listening to you, though, have they? i mean, that's clear in your testimony. >> well, i voted with them on aig. it was a unanimous decision. >> right. but with regard to the designations. >> right. these were companies that we had not had the type of problems with during the crisis.

>> right. there hasn't been a run on life insurance, has there? are people going to run in and cash their life insurance policies? because if they are, there are serious consequences to our economic structure that are way out of line. chair matz, 90% of prudential's balance sheet assets and liabilities are in regulated insurance companies and engages in no proprietary trading. fully collateralized. what would be the basis to your decision that prudential poses a risk to the financial stability of the united states? >> well, we look at the overall construction of the company's assets and liabilities. their balance sheet and off balance sheet activities. in their case, we looked at -- we were concerned about their derivative position. >> you testified earlier that you relied on the expertise of the staff. mr. cordray, you went on to say even further that everyone at

fsoc has their own expertise and relies on the expertise of fsoc staff among others. who are the other people that fsoc is relying on to make those determinations, if not the panel, and who are the staff? and what is their expertise in such arenas as insurance? yes, sir? >> so, i think we rely on fsoc staff. we rely on the analysis done by them. there are people loaned from the member agencies of fsoc who do work on this. then we talk to our own staffs. to go back to the point my colleague, mr. woodall, made a moment ago, in terms of insurance companies, there seems to be a lot of dissatisfaction here with the designation of metlife and prudential. aig is also -- >> they had a diversified portfolio. >> that's right. there have also been a number of insurance companies that meet the $50 billion asset threshold that have not been

designated. it's a spectrum and it's a judgment that has to be made. >> your fsoc staff, i don't know if anybody is as eminently qualified as mr. woodall, but let's talk about asset managers. what are we doing here designating asset managers as sifis? when in fact they are basically brokers. in fact the impact it will have on mom and pops, now they'll have to pay fees in order to justify why they're brokers with a sifi when we have not even established that an asset manager should be a sifi? yes, sir? >> we have not designated any asset managers as sifis -- >> they learned through a "wall street journal" article. don't you think it would be more prudent to allow these asset managers to have the ability to correct whatever may be wrong so they can save not only the financial system but also those with whom they serve and instead of waiting until the opportunity where a collapse may occur that

you seem to foresee? >> that's a point of view and these are are the -- >> if i went to the doctor, i would want to be diagnosed and treated then, not until i was on life support. i yield back. >> the chair now recognizes the gentle lman from washington, mr. heck. >> mr. woodall, i think i would like to direct this to you, if i may, please. over the last -- i'm over here. over the last couple of years we've heard a lot of witnesses, and no small number of the members of the committee indicate publicly and explicitly that receiving a sifi designation was locking in an unfair competitive advantage. it seemed to be premised on the idea that lenders would be willing to extend debt to them at a discounted rate. i'm having a hard time squaring that circle in the face of the fact that everybody who is a target for designation fights it tooth and nail. and secondly, the action of the s&p recently to downgrade the debt raiding of i think eight financial institutions. what's your impression? is this a good thing, to be sifi

designated? is it a desirable thing by them? does it in fact lock in a competitive advantage? >> it's a good thing if they are truly systemic and present a systemic -- >> a good thing for them? >> we need to know and they need to know what activities they're doing that make them a significant -- >> does it give them a competitive advantage? >> yes. we've talked about that. it can give them a -- >> why do they fight it? >> we don't know yet because the fed hasn't come up with what their capital standards are. >> why would they fight it and why would s&p downgrade them? >> they don't know what future is and high capital requirements will be and don't know how it will affect them and don't know what businesses they sell that they'd have to get rid of. >> tbd. director watt, as i pursue this, please remember i respect you. i won't go quite as far as the gentleman in texas bullet i have

affection as a former colleague and somebody i respect. since you've taken over, i've written you two letters or signed on to two letters. the first had to do with the forced marriage of the seattle and the des moines federal home loan bank. and i specifically asked that you ensure that the new banks' affordable housing program distribute its funding equitably throughout the combined district. that's something that when the bank was just in seattle, they ensured. and in fact, the des moines bank, the new consolidated bank, came out with its nine criteria for distributing funds and made absolutely no mention whatsoever of equitable distribution. i cannot exaggerate to you the depth of my disappointment on this. i convey it to you. i'm not letting go of this and i'm deeply disappointed that there was not more attention paid to this basic principle. the second letter that i sent to

you had to do with concerns about the proposed rule to limit membership, i think 66 of my colleagues got on. the rule came out, we hear rumors that it's not going to be changed. i've signed on to legislation with mr. lukemeyer, mr. carney, mr. mchenry, to sponsor a bill to stop it. now, in a private meeting i had put a question to you which i now put to you publicly and i'm asking you to respond personally, not necessarily with your agency that on. you are a longtime former member, much respected of this committee. given the forced marriage between seattle and des moines, given the blowback and apparent disagreement about the proposed membership rule, is it not time that the congress take a look at the basic structure of federal home loan banks? it has not been touched in 80 years. for all practical purposes, its

roots are the same as when they were created. i believe that in eight decades, circumstances have evolved and it should be up to us to take a look at that. in fact the disagreement you and i had privately was, i think it should be up to you or your agency to bring forth ideas of how we might do that. your reaction, please, sir. >> well, i think it is an ongoing obligation of congress to look at every aspect of the financial services industry and the housing finance industry, and i think there are important needs that could be looked at in the federal home loan bank system. >> thank you. comptroller curry, you are the sole director of an agency that is not subject to appropriations. how many times have you testified before this committee?

i'm sorry, is your microphone on? >> three times. >> over what period of time? >> since my appointment in 2012. >> director watts, same question. >> i come whenever you call me. i've been here one time. >> one time. >> since i was -- >> director cordray, how many times? >> i don't know here but in front of congress, more than 50 times the bureau has been called to testify. >> i think the point is clear. thank you. >> the time of the gentleman has expired. the chair now recognizes the chairman from new mexico, mr. pierce. >> thank you, mr. chairman. appreciate each one of you being here. i guess mr. woodall, you've been i think probably engaged in a discussion in a previous appearance you made in front of this committee talking about some of the downstream effects of the listing of aig and prudential and metlife.

so that's going to have an effect on the insurance market itself, will it not, if i remember from our previous discussion? >> yes. >> so we in the u.s. enjoy competitive advantage throughout much of the world. and coming from the business world, specifically repairing oil wells, which is filled with liability refuse we utilize that insurance market to great advantage, to allow us to create jobs, to do a better competitive effort than some of our friends overseas could do. so will there be downstream effects from any actions you all take regarding the too big to fail? will there be effects in the insurance market? >> well, yes. i mean, you used terminology that -- obviously if someone has increased regulatory expenses, it's going to effect how they operate in the market. >> so there's a possible threat from what you all do to the market?

mr. massad, have you discussed that in the fsoc meetings? >> i guess, congressman, i wouldn't characterize it that way. i would point out, for example, what we do can protect people. when we consider aig, for example, this government had to commit $182 billion to prevent the collapse of that company which would have probably taken us into a worse great depression than what we had in the 1930s. fortunately we were able to get all that money back. >> what about metlife and prudential? >> congressman, with all due respect, i was not there for the prudential designation. with respect to metlife, it is a matter under litigation so i don't think it's appropriate to comment on the reasons for it. >> would you have a comment on that? in other words, as fsoc, your underlying call is to prevent excessive risk to the u.s. financial system. and what i'm saying is there are certain financial risks to what

you are doing to the actions you all are taking. miss white, did you all discuss the potential downside of what you're doing here and how it might affect the market? you've heard the guy who's made his living regulating insurance and living in the insurance, and sometimes staff have not had that on-the-ground experience. so regardless of what anybody else says, do you all sit quietly behind the doors and say, hey, i would like to really take a close look at what we're doing? >> i think we have to carry out the mandate we were given, which is basically to identify and address systemic risks to the financial system. i mean, that's the financial stability of the financial system. >> you don't ifr ever think -- you don't think you as an agency could be the systemic risk, yourself? >> i think you want to consider all factors. certainly when we do our rulemakersings at the s.e.c. we directly consider all of the impacts. i think we do consider and

discuss factors, a wide range in fsoc, too. but our primary responsibility is to carry out the mandate we were given to -- >> well, the mandate -- excuse me, i keep shifting back and forth. the mandate is to watch for systemic risk, is that right? >> it's to identify and address systemic risk. >> so i'm saying, according to mr. woodall's discussion back some time, and kind of reiterating now, you all could be the systemic risk that you're trying to avoid, if you're not very careful, because this insurance market is extraordinarily thin. if you're watching, i don't mean to be rowing in other stuff, but if you're watching people bail out of the insurance market in health care right now, you understand what i'm talking about. we have disrupted an entire insurance market, and before you all do something that causes the same evacuation out of the insurance, just remember the poor saps out there in the field like myself who are just trying to buy insurance off the open

market to where we can do our business, and it could be that you all are the problem that causes that market to disappear. and that's my point. i would hope that you all would have more thorough discussions about the problem that you all represent instead of the systemic risk that maybe you ought to be identifying somewhere else. thank you, mr. chairman. i yield back. >> gentleman yields back. the chair wishes to alert all members that there's currently one procedural vote on the floor. there are 11 minutes remaining in that vote. i will recognize the gentle lady from missouri. members may want to go vote and come back. and then after the gentle lady from missouri, we will recess briefly for the vote. gentle lady from missouri's recognized. >> thank you, mr. chairman. thank you all for being here. i would like to quickly associate myself with my colleague across the aisle from georgia, mr. scott, about this very misguided administration's rule letting by the department

of labor on fiduciary issue. i would encourage you all to speak to the president on this issue, too. he did not seem interested in my concerns last night at the christmas party. i'm particularly interested in knowing the role the international forum known as the financial stability board has played with regard to decisions about domestic matters made by fsoc. due to the kind of nontransparent nature in which fsoc conducts its business, it can cause one to question i think whether our u.s. regulatoregulate ers are really fighting on behalf of the interest of the united states of america when they are at the international negotiating table or whether they are simply letting international counterparts make important decisions for us. mr. woodall, in your dissent to prudential sifi designation, you made the point that the international and domestic designation processes are not entirely separate and distinct. specifically, sir, specifically, you noted that an unnamed u.s.

national authority agreed to the international designation of prudential before the company's hearing and financial determination before fsoc. could you please be specific and elaborate? who is that? the national entity -- national authority. >> yes. the national authority. there are three at fsb, three national authorities. treasury and the fed and the s.e.c. >> yes. and who is the unnamed authority that agreed to the international designation of prudential before the company's hearing, before the company's hearing, and final determination before fsoc? >> well, that's hard to say. as far as i know, actually before the hearing -- >> one of three. >> before the hearing in prudential, the treasury notified prudential that they had been designated as a global sifi. >> before their hearing, before their final determination, before fsoc, treasury, if i understand your testimony, let

them know that they had been designated? >> that's my understanding. >> all right. this seems questionable. as you stated the u.s. representatives on the fsb, the treasury, the fed, and the s.e.c., they're not insurance regulators, as has been pointed out by so many of my colleagues, nor are they necessarily fi beta kappas from kentucky. meantime the fsoc is adopted by banking regulators who don't know much about the insurance industry. does it concern you that they're the only representatives in the room when decisions are made about insurance issues, sir? >> yes. i think that the fdic should be in the room at the meetings at the fsb and i think insurance regulators should be in the room if they're making decisions that are going to affect the businesses that they regulate. >> thank you. given the sequencing of fsb designations and later fsoc sifi

designations, how can u.s.-based insurers be confident their designations are a result of a domestic decision rather than an international process that isn't accountable to the u.s. policymakers like us? >> they are technically separate things. but they're not. >> they're not. they're not accountable to u.s. policymakers. thank you. can you describe what attention or consideration fsoc gives to designations by the fsb? >> no direct -- it's not mentioned. it's not mentioned in the discussions because we try to base it on what dodd/frank says. >> do you believe your colleagues would feel comfortable disagreeing with the decision or challenging a decision made by the fed, the treasury, and the s.e.c. at the financial stabilities board? >> of course, they're still just three votes on the board. the board, the financial stability board is not an organization that this congress

created by a treaty or any other statutory thing. it's kind of an ad hoc group. >> absolutely, it's an ad hoc group. >> it's really self-appointed. >> do you believe your colleagues would vote to de-designate any of the insurance companies if such companies were still designated by the fsb? >> i would hope so. >> one last question. since everyone has said that they -- i don't have much time left -- they rely on fsoc staff for info, is there a memo or analysis that is distributed to members before a vote? who writes this, is it treasury, is it the fed? would you allow the committee to view any of these documents? anybody. >> it goes through a committee called the non-bank designation committee. it goes to the secretariat which is within treasury. and you're looking at 600, 700 pages sometimes in these memos. they're more than memos. it's quite extensive with a lot of good work done by the top economists at the fed and other

agencies. >> thank you, sir. >> the time of the gentle lady has expired. the committee will now recess for the vote pending on the house floor. the chair expects the recess to last approximately ten minutes. the committee will reconvene immediately after the vote. the committee stands in recess. >> committee will come to order. the panel will take their seats. chair now recognizes the

gentleman from kentucky, mr. barr, for five minutes. >> thank you, mr. chairman. mr. woodall, since you've been the topic of much conversation as a fi beta kappa from kentucky, fellow kentuckian i'm going to leave you alone for the most part today. let me start with bank regulators, prudential regulators and just note at a macro prudential level fsoc and banking regulators have participated in international agreements with the financial stability board, basel and other forums and the main difference between u.s. requirements and those promulgated internationally is that it seems that our domestic standards are more stringent than our foreign counterparts. a few examples, capital surcharge on global financial firms nearly doubled the international standard. supplemental leverage ratio that is double adopted internationally. a liquidity coverage ratio more restrictive than the international standard and arbitrarily punishes certain

products. otc margin requirements that are considerably more punitive than international standards. so the question is this, for miss matz, mr. watt, mr. groomburg, mr. cordray, mr. curry. the question is, i assume that you all agree that these prudential rules and other reforms have improved safety and soundness, and if you agree with that general proposition, raise your hand. all of you agree these new prudential rules enhance safety and soundness. a follow-up question, do you believe that the benefits of these new prudential rules outweigh potentially the cost to international competitiveness? given that we have higher standards than that internationally? okay. most of you agree with that. when combined with volcker,

financial institutions seem to be making a couple of changes and the regulations are producing a couple results. one is that there's a migration of activities out of heavily regulated banks and into much less regulated non-bank financial firms, the so-called shadow banking system and i want you to address that. but also there is much talk about illiquidity in the markets, institutions dropping certain products and services, pulling back from market-making functions critical to investors, extension of credit affecting various fixed income asset classes in different ways. so my question to some of our market regulators, mr. masad, chair white. the fsoc annual report acknowledges that there are changes in terms of reduced liquidity in the capital markets, the office of financial research is corroborating this.

certainly there's other indicators. the center for financial stability found market liquidity declined by 46%. as you have noted and mr. curry noted this potential lack of liquidity that is resulting from regulation could mean financial markets have less capacity to deal with shocks and would more likely seize up in a panic as they did in the 2008 financial crisis. so given that our bank regulators are making the case to fsoc that this is a -- this is good for financial stability and yet we see a liquidity problem developing, from your perspective what do you make of all of this? >> well, i -- look. i talked about this at my last hearing. i think it's a concern of all of us in terms of, you know, reductions, significant reduction in liquidity. obviously there are rules that have very beneficial purposes that may or may not be causing that.

we do analyses to see whether volcker, for example, will report quarterly to this committee. the volcker rule, we have not determined that it's having a negative impact on liquidity. when we talk about shadow banking, i think we have to be careful, too. i mean, that covers a broad swath. i mean, a lot of the things that fit under that category are heavily regulated by the capital markets regulators. but i think, bottom line is we all, and should be very concerned about impacts on liquidity. >> i think we should look at regulation as a cause to financial instability as a result of the lack of liquidity we're seeing developing in the marketplace. that's something fsoc should be paying attention to and revisiting these regulations to the extent they compromise financial stability. finally let me go back to mr. watt lel really quickly. they are exempt from rules i'm talking about. agency mbss are carved out of the volcker rule and agency mbss

are the cash and cash-like equivalents banks need to hold to comply with capital and liquidity rules. any question to you in my limited remaining amount of time is why are these standards good for the private sector but not for gses under your oversight and why have a double standard if as you signal by raising your hand that these capital requirements are important for financial stability? shouldn't they be important for the gses as well? >> well, if they were not in conservatorship i think you would be absolutely right. >> well, why should we continue to have the risk on the taxpayer? >> well, because we continue in conservatorship because the legislative branch has not acted on gse reform. >> i think we should look at that double standard and i yield back. >> time of the gentleman has expired. chair now recognizes the gentleman from delaware, mr. carney. >> thank you, mr. chairman. thank you to the ranking member and everyone who is here today. this is the biggest panel that i can remember that we've had before us.

part of our responsibility i think for today's hearing is oversight of the fsoc and as i understand i was not here when dodd/frank was passed. the primary responsibility of the fsoc was to identify emerging systemic risks. and i'd just like to hear from many of you what you see out there as those emerging risks and can you share those with us? why don't we start with mr. gruenberg and go to controller cur ary in terms of your responsibility as part of the fsoc. what are the systemic risks and emerging vulnerabilities that you're seeing out there? >> the annual fsoc report outlines a series of systemic risks to focus on, interestingly, in this report the lead risk that it cites is cyber security and the potential consequence of vulnerabilities relating to cyber security could have for the functioning of the

financial sp system, and that certainly has been a focus of discussion and attention by the fsoc and i frankly think by each of our agencies individually. i'd also reference -- >> is there anything we should be doing or looking at with respect to providing you with the necessary tools? we're going to be talking about a data breach bill later today. >> i know that congress is considering legislation to facilitate information sharing which is one of the critical issues in terms of being prepared to deal with the cyber incident. so i think there is a significant role for the congress and certainly for all the agencies at this panel working among the regulatory agencies as well as with law enforcement and national security communities. it really is going to require -- >> in the classified briefings that we've had are pretty scary, frankly, and the attacks are coming on a regular basis, on a daily basis and frankly, it feels to me like we're fortunate

we haven't had a more significant attack than what we have had, and i know that institutions are dealing with it on a regular basis. controller curry, what would you say in terms of emerging risks or existing vulnerabilities? >> i would agree completely with chairman gruenberg. cyber security is the number one concern both as comptroller and member of the fsoc. i think the ramifications of a successful attack on the core system of financial institution regardless of their size could really undermine public confidence in our entire banking system and that's really why it's imperative from a regulatory standpoint to make sure all of our banks from the smallest to the largest are are prepared to repel attacks and are there a position to respond as quickly as possible in the event of a successful intrusion.

the chairman also mentioned, and it's in the fsoc annual report increased risk taking in a low-yield environment. we are very concerned about the decisions that the financial institutions we supervise are taking today, whether it's to go long or get into activities that they're either unfamiliar with or not prepared to deal with the risks inherent in those activities. we think that is a potential emerging risk for individual institutions and for the system. >> thank you, chair white, anything you would like to add? >> no, i think you can't emphasize enough the cyber risk. i mean, it's not a coincidence. it's listed first in the emerging risks in the fsoc annual report. >> thank you, director watt , you and i have had conversations about the last subject you talked to mr. barr about with respect to the gses and i know it's been your view that you're waiting on congress to act. what vulnerabilities exist there? increasingly the taxpayer or freddie and fannie are guaranteeing those mortgage-backed securities. what's your view of the sense of urgency around that issue?

>> i think we've been in conservatorship, fannie and freddie, for eight years. it is the longest conservatorship has has ever occurred under government control, and while the risk of the work that we are doing is much, much less now than it was at the onset of the meltdown, staying in conservatorship is just not sustainable. you have a high risk of losing the most qualified people to the private sector. it's just -- i could keep going on. >> so we should act? >> you should act, yes. >> thank you, mr. chairman, i yield back. >> time of the gentleman has expired. chair now recognizes gentleman

from pennsylvania, mr. rothfuss. >> thank you, mr. chairman. mr. woodall, your criticism of the metlife sifi designation process is a matter of record and has been discussed at the hearing today. your well-founded concerns are shared by many of us and ultimately we should ask ourselves whether it's wise for people with little or no experience in a given industry to be given the power to make significant consequential decisions such as sifi designation. there's a broader question as well i was hoping to get your thoughts on. many are concerned that american regulators are ceding responsibility to the fsb, which is composed of central banks, finance ministers and regulators from around the world. given our shared misgivings about, for instance, fsoc members without insurance experience deciding to designation an american insurer, shouldn't we also be concerned about letting foreign regulators who lack experience in the american financial services industry and who act in the best

interest of their countries take the lead in regulating our financial firms? >> that's a point that's been discussed quite a bit. a lot of it goes to the fact the european insurers have a different background. they have a different accounting system. their products aren't the same. now they're pretty well united with their solvency two regulation which goes into effect next year and they're working on equivalencies as to whether we're equivalent. there's been some temporary equivalencies given but if we don't get equivalency, it could increase the cost of our companies doing business in the eu countries tremendously. >> one of fsoc's most basic authorities under dodd/frank is to make recommendations to the

fed concerning which heightened pru determi prudential standards should apply but to date the fsoc hasn't done so. it would appear fsoc is putting the cart before the horse. designated companies for heightened supervision but make nothing recommendations for what those heightened requirements must be. the basic principle of regulation is that the benefits of opposing regulation should outweigh the costs associated with doing so. designating a firm for heightened supervision is not without costs. it's a serious matter that impacts firm behavior and may have broader repercussions for the financial services industry as well as consumers. chair white, how is it possible to ascertain the costs and benefits of designating an insurance firm as a sifi if the fed has not prescribed the heighten prudential standards that will apply to designated firms? >> well, again, i go back to sort of the primary mandate of fsoc which is to, you know, identify systemically important financial institutions that could impact the financial stability of the u.s. financial system. i do think, and now i think the fed has actually, i think

adopted, if i'm right, but certainly put out for notice and comment, i think adopted standards with respect to gecc. so that's there now. but i certainly understand the point that you're making in terms of if you don't know what the standards are that are going to be applied, it's obviously a part of your analysis that you can't do. i don't think we're obligated to do it. indeed, i think we're only gaited to deal with the issue of systemically important institutions in the first instance and not wait for that action. >> it is a good idea wouldn't you agree a basic principle of regulation is that the benefits of composing regulation should outweigh the cost associated with doing so? >> again, i think the premise of the responsibilities of fsoc is what a tremendous cost the financial crisis was and to try to prevent that, one of the tools that fsoc has is the systemic designation powers. however, i think speaking for myself, we certainly want to act on full information including that.

>> director watt, is the fsoc evaluating the fed's historically accommodative monetary policy stance to see whether that policy has led to excessive risk taking in the financial system? >> not directly. we are always evaluating every decision that all of these regulators make but we don't oversee the fed. >> do the fed's destabilizing monetary policies get a pass from the fsoc because the fed chair sits on the fsoc? >> well, that assumes they're destabilizing. i wouldn't assume that. that's your conclusion. >> so the fsoc isn't taking a look at the fed's balance sheet, for example, that has gone from $800 billion to $4.5 trillion. >> that's not in the jurisdiction of fsoc. >> thank you.

>> the chairman yields back. >> the time of the gentleman has expired. chair recognizes the gentleman from minnesota, mr. ellison. >> thank you, mr. chairman, ranking member. i want to thank each of you and your staff for your comprehensive and insightful written testimonies and i want to thank you for your service on the financial stability oversight council. we've all learned the painful reality that markets do not regulate themselves in a nation as powerful as ours, we must invest in regulation that identifies in response to emerging threats to our stability. so your report, 150 pages, details the council's unprecedented progress to protect our financial system from risk and to prevent an economic disaster from happening which i remember very well. i wish everyone running for president would read it, maybe then we could have folks talk about how to really understand how to protect our economy and

be successful in that effort. my first question is to controller curry. it's been a while since you've been before the committee. i want to welcome you back. >> thank you. >> and since you're here, i want to ask you again about a topic that you and i have spoken about in the past and that is the issue of somali remittences. our financial institutions are regulated by the closing accounts of money services businessing serving somalia due to compliance costs, reputational risk, inability to cover the cost, lack of clarity in the exams or for other reasons. >> congressman, as we discussed i think there are a variety of reasons why individual institutions are making determinations about what their risk tolerance is under the bank secrecy act and money laundering statutes. those are some of the factors that i believe some institutions are making.

in terms of regulatory clarity we've tried to make clear what our expectations are. we did put out in 2014 additional guidance on dealing with money services businesses but ultimately it's the decision of the individual institution whether or not to do business with an individual business or individual. >> i just want you to know that somali parliament, i've had a chance to talk with some of them, they are passing an anti-money laundering, anti-terrorist financing law. they haven't passed it yet but they're working on it. that's coming up. they opened up their embassy here in the united states and i believe the more stable that country is the less susceptible it will be for terrorists to come in and set up shop and operate, try to operate out of there. >> i think those are very good improvements. as we discussed, it's important there be a strong local banking system and a regulatory system overseeing its compliance with important laws like that bsa.

>> thank you. mr. watt, always a pleasure to see you. very proud of you and the work you do. welcome back to the committee. it must be weird to be on that side of the divide. anyway, i just want to say to you the report calls for legislation to address the conservatorship of fannie mae and freddie mac of the federal and state markets and mortgage markets. while congress has not acted on any particular proposal regarding the gses, i am interested in what your current policies are doing to improve credit access to african-american and latino borrowers. i have a chart up which i'll direct your attention to. as shown by the chart, we know that the majority of new households are going to be african-american and latino and asian-pacific american yet they seem nearly shut out of the mortgage market now.

gse loans to african-american borrowers in 2013 were 2.2%. gse loans to hispanic borrowers no 2013 were about 5.8%. both low. what policies can gse implement post-conservatorship to improve access to credit for african-american, latino and native american borrowers that fannie and freddie cannot implement now. >> you're asking about post-conservatorship? >> well, what can they do -- what is it that might be done later that can't be done now? i'm basically asking how do we make progress on this? >> well, a lot of what can be done after conservatorship depends on how gse reform is done and what the rules of the road going forward are. part of the challenge of being in conservatorship is one of the things i've found to be true is that lenders price uncertainty

and right now they don't know what the future is so as prices go up, there's a price to uncertainty of what the future holds in this area. so i just -- i mean, there are a number of things that need to be done to address this because we need the availability of capital for people to be either homeowners or affordable renters. >> the time of the gentleman has expired. the chair now recognizes gentleman from arizona, mr. schweikert. >> thank you, mr. chairman. it's been floated around a couple times. in many ways when i read many of the articles about what you're all doing it's a discussion of are we fighting the last war and

the concentration of risk of unintended consequences: you know, we have our section 113, the list of criteria, are we going to wake up tomorrow and find out that the shadow on the horizon, the black swan, was something that because of the concentration, the way you look at the world you completely missed but there have been a couple bits of testimony here that i need to drive into because i'm concerned about the things i heard. the gentleman from florida, mr. ross, was asking some questions about insurance and a comment was made and is it ms. matz? you stated on prudential one of the reasons they made your list, shall we say, is their derivative book. is that because they didn't have enough hedging of their interest exposure? i don't know if they were doing duration exposure but their interest exposure? and are you saying they had a derivative book and because they

were ensuring their interest, the derivation expore was that forced him on to your list, what did you see when you said the derivative book? >> they had such a large exposure that the failure of that institution or financial -- >> when you say "that institution,". >> of prudential. >> okay. so they're buying an additional hedge to protect their interest rate expose your that if it moves against their 100% coverage. explain how that would work. >> first of all, the derivative position is just one position. but if they are interwoven or so interconnected with other financial institutions that if they failed -- >> not if they -- >> i'm sorry, will the gentleman suspend? i wish to alert members that regrettably there is yet another procedural vote on the floor. i think we're drawing near to the end of the hearing and so if

members who have yet to ask questions wish to go vote now and return i think we can keep this thing going except for mr. tipton who's next. if members wish to go vote, i'm sorry to interrupt the gentleman. the gentleman from arizona is recognized again. >> thank you, mr. chairman. look, we're talking passage of this because everything i know about why your derivative contracts to protect your interest rate exposure that would be something you would find joyful, not put them into a designation. in looking over parts of the reports about prudential, their repo contracts are 100% offset and collateralized. i'm just trying to figure out where you found exposure. >> it's all exposure. i mean, what the assumption that -- >> if you're 100% covered and

you're also covered your interest rate risk, the expose exposure is what? >> the assumption that is made in making our determination is that there is material distress at the designated institutions. so we're starting from the assumption -- >> so i have an institution that's 100% covered plus also done additional financial products insurance to cover markets moving against them. >> but we're operating from the assumption that there's material distress at that institution. so if there's material distress, then they can't cover the outstanding debt that they have or the loans that they have. >> but they're contract loans. i mean, the insurance products that they're offering are all under contract. so they have the ability to say, according to our contract you may be making a claim for this but under the contract we have the ability to pay as the contract is designated. >> unless they're in material distress. >> okay, i'll give this to you in writing. we're talking past each other because it makes no sense.

when i look at your section 113 tests and i go up and down this, is it the last one, k, other risks that the council may deem appropriate? when i look at this particularly on an insured like this which is 100% covered and then hedged your coverage i'm trying to find out on this list where you find the exposures. >> it's the -- it's their interconnectedness with the other institutions and the assumption that that financial institution is suffering material distress. i mean, i think it's basic -- >> well, i wish i had you in grad school because there had been some fascinating questions. all right, my last 20 sends. mr. curry, you're the only one on the panel i've heard touch something that made me very happy and that was sort of the

unknown. the future financial markets are moving silicon valleycentric, the new ways people are going to borrow money, buy credit, invest, move around. isn't that much suffer a and much more robust than a concentrated banking system because the way capital is acquired is a much more distributed model? >> from the fsoc standpoint, we have identified as one of our emerging risks the financial migration and innovation of activities so it's an area we're discussing and will devote additional attention. as the comptroller, we're interested in that because of the impact of fin tech and innovation on the delivery of banking services. >> and i'm going to give you something in writing.

we're way over time. i beg of you, if it's creating diffused risk, if we're seeing a distributive model, please do not beat up innovation. we desperately need it. >> actually, i'm calling for fostering responsible innovation. >> with that i have to yield back. thank you. >> the gentleman yields back from a very salient point which i think he will agree with the chairman that just citing interconnectedness is not enough of a criteria because no one else from the panel, i see, was able to answer your question as well. my daughter's former lemonade stand is also interconnected if you go through the whole realm so i think there has to be more substance to it than that. but with that, i will yield to mr. tipton for five minutes. >> microphone, please. >> does that work?

thanks for taking the time to be here. we have a large group and i'd like to echo comments made by mr. lucas and mr. stivers in regard to community banks, something critical for rural america, particularly in my district. you've had to raise your hands simply because of the size of the panel several times here but i would like to be able to just get a sense of your feeling on the panel who is concerned about the challenges faced by america's community banks and financial institutions and small communities? everyone has raised their hand. in response to mr. stivers, you've made the comment that how much time does the council actually spend in regards to community banks and the answers were some or it's going to be at the staff level. i'd like to start with chair greenberg and maybe comptroller curry. if it is actually something this

is in your wheelhouse, why isn't more time spent on community banks? >> it actually is. the occ along with the fdic, a swee have we have 1700 banks. lot of the banks are community banks, that's been a major focus as my term as comptroller is to look at and make sure we have a strong, viable community banking sector. i think we're very fortunate to have a diverse banking system in the united states. we've looked at and as part of our process what are the burdens of -- particularly facing community banks? we've identified some areas where we think we can make a difference whether it's called reform, capital reform and we're looking at can we reduce the cost structures? we're looking at a white paper that encouraged from a regulatory standpoint, banks, particularly smaller banks in rural communities to collaborate

with, whether it's a joint venture, sharing employees, working on participation so that they can continue to be viable entities and serve their communities. >> if i may, let's talk about when you're talking about a vibrant banking system you're aware that right now approximately one third of the counties in the entire united states are served by only one community bank? do you recognize that? >> yes. >> how vibrant, how competitive is that? >> what we're trying to do is really make sure that this is, again, the balance between what's appropriate supervisory standards and how we supervise those institutions so that they can continue to lend, to be leaders in their communities going forward. >> you know, you've talked about collaboration for the banks to come together to share employees

what type of collaboration is going on that requires small community banks to answer to several master, if you will and driving up costs which are increasing the costs for loans, for communities, inhibiting those banks' abilities to survive, driving consolidation or actually failure of these small banks. >> i think the primary area we're addressing that for community banks is at the federal financial institutions examination council which all the state and federal bank and credit union regulators are part of and that's part of the mission of the ffiec. >> just as a little more follow-up on this, as we reviewed the fsoc minutes there's never a mention of small banks in the minutes. so i am pleased to hear that you are putting out some comments and some white papers. i think the question that our community banks would like to have answered is when are they

going to get some relief rather than talk? >> if i may say, congressman, i do think community banks have been a focus of enormous attention by the bank regulators who have responsibility for them. >> that's what really disturbs the community banks. >> community banks play a critical role in the financial system. we've shown at fdic studies that community banks account today for about 14% of the banking assets that hold about 45% of all the loans to small businesses and farms. so the role they play is critical. i think that's to be distinguished from whether they pose in and of themselves a threat to the financial system that would warrant fsoc's attention but they're critical to the financial system certainly can be impacted significantly by systemic risk

as we saw in this recent crisis. they themselves are not a source of systemic risk and where they are the focus, you know, are by the bank regulatory agencies and we have been conducting a review as we're required by law of the regulations we've imposed over the past ten years, we've held outreach meetings across the country, are seeking public comment and i am hopeful we'll come out with a series of regulatory measures that will be helpful in terms of reducing the cost of regulatory. >> i hope you can. because simply as mr. schweikert was pointing out, when we're talking about connectivity that's going on, while you may say and are accurate, they're not going to be systematically important to the overall economy of the united states, certainly feeling the impacts of those broader rules and regulations that through loan participation, whatever it happens to be that is cascading down and inhibiting their ability to address the people that you cite and i agree with you are very important, our small businesses and agricultural communities. thank you, mr. chairman, i yield back. >> the gentleman yields back.

>> thank you, mr. chair, appreciate it very much. i wish everybody a merry, merry christmas and a happy holiday season. thank you for being here. it's very important for us here on the committee and for our fellow americans. chair matz, i'd like to ask a couple questions if i may. are you familiar with the december 14 announcement by chair white dealing with the new regulatory process dealing with asset managers. are you familiar with that? >> i've read about it. >> can you remember what the content of that was, ma'am? okay, let me help you out. and could you speak closer to the microphone? my ears aren't what they used to be. chair white mentioned that she'd be looking at liquidity risk, leverage as per use of derivatives, stress testing and things of that nature. does that ring a bell? >> pardon? >> does that ring a bell? >> yes. >> okay, good. can you think of anything the s.e.c. is not doing to regulate asset managers, they've been so good at doing this for 75 years. can you think of anything she's

left out in the new way she's proposing to regulate asset managers? >> well, as i said, i haven't reviewed it, i have great confidence in chair white. >> great. i'm going to take that that you don't have anything to add with respect to her job regulating asset managers. are you familiar, ma'am, with the fsoc's decision to review asset managers, products and activities. >> yes. >> you voted on that, it was voted on in december of last year. are you familiar with section 113 of the dodd-frank act? >> yes. >> good. okay, there are 11 different parts of that section of 113, ms. matz, one of them which deals with what you folks are responsible for in weighing whether or not an asset manager, mutual fund, pension fund manager should be so designated a sifi. one of them, and i quote "the degree to which the company is already regulated by one or more primary financial regulatory agencies."

now, the s.e.c. is one of those primary regulatory agencies, right? from asset managers? okay. so my question to you, ms. matz, is that what in the world is fsoc even doing in this business? we have a regulator here that's been doing this for 57 years. you agreed there's nothing you can think of to add to her job but at the same time you voted along with everybody else to consider designating asset managers as sifis. so what am i getting wrong here? >> we didn't vote to consider -- >> speak up, please. my ears are bad. >> we didn't vote to consider asset managers as sifis, we voted to consider -- to have the staff look at the activities of the asset managers to determine whether -- >> well, that's legal speak. that's the same thing, isn't it? >> no. >> if you're asking the staff and you folks can decide whether or not an asset manager is designated as a sifi and looking at the criteria, that's the same thing. >> well, we have not made any

determination. >> i know, but why are you in this business? because our mandate is to look at those institutions that could pose a threat to the financial stability of the united states. >> the s.e.c. is already doing that. >> her mandate is -- >> i just read you the criteria. she's dealing with liquidity risk and leverage with respect to derivatives and stress testing and you couldn't add anything else to the parade so my question is why don't you folks move on? you have other things to do, why should you get involved in this space at all? >> two things. one that we have not made that determination yet but that the s.e.c. is not looking at the threat to the financial stability of the united states. they're looking at the narrow securities market. is that correct, mary jo? >> i'm asking you, ma'am. ms. matz, i'm asking you. let me ask you this question. since you folks clearly have gone down this path or are going down this path to consider whether or not you should designate an asset manager as a sifi, you must have some

analysis that concludes will what the s.e.c. is doing is not full. do you have that analysis for me? >> their mandate isn't to look at the -- >> do you have the analysis that you use, ms. matz, and everybody else used to so determine that the s.e.c. is not fulfilling their job? >> we did not come to that conclusion that the s.e.c. was not fulfilling their job. >> well, you had to make a decision based on what? >> based on our mandate. >> let's move on. are you familiar with a study done by douglas holts eakin, a director of the non-partisan cbo. >> the study on -- >> all right, you're probably not. it was done in 2014. let me give you the ultimate conclusion. it says the following "if an asset manager proposes that represents no systemic risk to the markets or to the economy, if they're so designated as a sifi then the costs will go up, we've discussed this today, the product offerings will go down and the long term rate of savers

for their retirement and putting their kids through college will likely go down by 25%." now also in 113 of the dodd-frank there are other risks you should consider. do you folks consider the risk to the small investor, a nurse in lewiston, maine, or a logger in dover-foxcroft, maine, that are trying to save money for their retirement or for the kids' education? are you considering the risk to them if the asset managers that run their money are so designated as sifi and they get dinged by about 25% in their rate of return? do you consider that? >> we have not made any -- even been given potential recommendation so we have not considered any aspect of it. >> do you factor in the economic cost to the people we're supposed to help in this country in making these decisions whether or not an asset manager should be so designated a sifi? >> we're not at the point of making that determination. >> time of the gentleman has expired. the chair recognizes the gentleman from arkansas, mr. hill.

>> thank you, mr. chairman, i thank the witnesses for being here today. so many questions, such a distinguished panel and so little time. very frustrating. chair white, if i could start with you, please. traditionally, your testimony and your -- in your capacity and previously always has our famous boilerplate that says the views expressed in the testimony of the chairs of the s.e.c. do not represent the views of the full commission or any commissioner. standard procedure. but while this is a good disclaimer for general testimony and we love it when you all give personal views occasionally and not stand on the party line, here in the concept of an fsoc testimony it causes me to want to ask you a few questions. of course you serve on fsoc as one of the ten voting members. here's my question. if one of the other four s.e.c. commissioners was opposed to one

or more of your fsoc positions, does dodd-frank require the fec to vote ahead of the fsoc to how you would represent that view at the fsoc meeting? >> it does not although i do consult with my fellow commissioners before and after the fsoc meetings but the short answer is no. >> so in that consultation, can you give me an example of where there has been disagreement between commissioners? >> it's more just informationally briefing of what's going to come up before fsoc, what i'm intending and under the structure i'm the voting member but the member of fsoc, if there is anything to take a position on at the meeting i convey that and obviously listen to any input or difference of point of view and then afterwards record to the commissioners on what transpired at the meeting but there's not a structure to take a vote in advance. >> but if a -- to continue sort of the line of questioning

earlier this morning. if you had a commissioner who was particularly passionate on a topic, would you be open to taking them to an fsoc meeting? >> you know, again i am totally amen to believe that point of view and making certain that i fully understand it and take it into account, again, under the current structure and protocol the chair or the head of the agencies that are the designated ten members, voting members can bring a plus one, as it's called in this town to the meeting with us, which has been a staff member. so it's not structured to have the other presidential appointees. obviously that creates sensitivities, no question about it, attend those meetings or vote on the matters. that's not the current structure. it's up to congress if they want to change that. >> it seems internally it would be good if there was a level of disagreement where a commissioner wanted to express their views to fsoc but that might merit a formal commission

discussion and view of the commission and potentially before you simply represent the commission in your own individual capacity. >> one of the reasons when i became chairman that i tried to change how we proceeded to get fuller input was precisely that but, again, existing structure presents the challenges you're outlying. >> one thing that i've only been in congress 11 months or so but one thing that's coming up consistently, that's why it's helpful to have so many of you in one hearing is this lack of transparency and the process that many in the industry feel. and yes it's a new industry and has growing pains and structure to put in place but there's a right way and wrong way to do things in washington. we know the administrative procedures act, we know our obligation to openness. in some cases we've taken action before we have ruled. i think we've referenced that we've designated insurance companies before we've set what

the standards might be for insurance companies. so one thing i looked it for in g-sifi, capital surcharges, there's a very transparent mathematic -- i've seen it written down, how to designate somebody for a g-sifi surcharge. that looked very transparent to me yet we don't have that level of information on routine decisions in considering non-bank sifi designations or even to some degree activities-based sifi analysis. who wants to comment on that? maybe chairman gruenberg you might comment on that since it's a banking and a non-bank designation. >> congressman, we -- as was discussed earlier, the fsoc established a process for a sifi designation pursuant to rule

making and public notice and comment. i think the rule making went through three series of public comments and the first stage of the process, as i'm sure you know, is a set of metrics, a set of thresholds through which an institution would pass and i must say there are a very high set of threshold which is almost by definition would be limited to the largest or most interlinked companies in the financial system and that is something that any company can calculate in terms of projecting what the impact might be. the chair recognizes the gentlelady from utah, mass love. >> thank you, mr. chairman. first of all, thank you for being here. i know everyone is excited about the holiday season, i want to wish you all a merry christmas.

and also to have such a great group of so many of you here today, it's really beneficial to me as a freshman. thank you, i've learned a lot today. i have just a couple of questions with. comptroller curry, you stated in your previous -- in your -- you previously testified that tailoring is important pool in the occ supervisory tool box because you've stated while bank asset size is a starting point in our assessment of appropriate standards it's rarely if ever the sole determinant. do you still agree with your statement to that effect? >> yes, i do. >> okay, so when a regional bank with simple trading lending model and minimal interconnectiveness grows to $49.9 billion to -- in total assets to $50.1 billion in total assets, what new requirements apply to that institution?

>> well, there is a cliff effect if it's under the holding company under section 165 of dodd-frank so it will trigger heightened capital liquidity and other standards because it has crossed that threshold. >> does it make sense to automatically designate that institution even though it does not engage in trading or other complex operations? >> again, i'm the supervisor of the bank. >> but i'm asking -- >> i just want to clarify. as we supervise the bank part of the holding company we are not driven by the asset figure in terms of how we supervise that institution. >> okay, but we just determined that new requirements are applied to that institution so i'm trying to figure out your thoughts on this and whether

that designation, does that make sense? in terms of engaging. >> asset threshold is initial, i mean it has value as initial or first screen so you can make general observations about some institutions at a certain asset size level may not be or may be engaged in a particular activity. you know, in my earlier testimony our focus as a supervisor is on that particular institution, particular activities in what it's engaged in and the risks those activities present and we deal with individualized or tailored plan of supervision according to that analysis. and assessment. so i guess what i'm asking you is if you think that an

institution like that without just having that automatically trigger, do you think an institution like that realistically threatened the financial stability of the united states? >> again, i think it's an individualized determination, and again, i don't think that there's any magic to any asset threshold. >> okay, so wouldn't it make sense to look more closely at some of the banks which are actually similarly situated and determine whether the designation is more beneficial or burdensome to the community in which they serve? >> again, i supervise the banking subsidiary and that's exactly what we do. >> but right now, automatically, instead of actually doing the work first to see -- >> that's the fact of the statute, yes. >> okay, well. that's i guess the point i'm making. >> yes, i understand. >> okay. if a $50 billion sifi were raised or eliminated, could the

fec still have the regulatory or supervisory tools that they need necessary to make sure that all supervised banking organizations are operated in a safe and sound manner? >> again, purely as a supervisor, that's what we would want to see to make sure we have to safe and sound institution. >> okay, so you are pretty much saying you would like to do that work first before it's automatically designated? >> that's what we do as a matter of course, as bank supervisors with the national bank. >> would you support that statute being changed? >> again, i think in previous testimony, that's really a matter for congress to decide what that initial first threshold is. in terms of my role as a supervisor as the bank, and i don't want to belabor that point, we will continue to apply risk-based focus to our supervisory activities and standards. >> thank you. thank you, mr. chairman. >> the time of the gentlelady has expired. the chair recognizes the gentleman from minnesota. >> thank you, mr. chairman, ranking member. thank you to the witnesses for

being here for so long today. for you, it's good to see you again. we first had the opportunity or inopportunity to meet while i was serving on the ag committee. i wanted to ask you, when -- i'll put it that way. i wrote it out so i'd do it right. does it concern you that the regulatory body comprised primarily of banking credit union housing and other regulators have the authority to intervene in markets that you, the cftc regulate and potentially substitute their judgment for yours in highly complex or highly technical matters? >> well, thank you for the question, congressman. i think the structure we have is a very good one in that it brings all the regulators together which allows us to look across the financial system, to look at emerging risks. there are issues in our markets where other regulators have certain responsibilities,

whether they're things like margin rules for swaps, regulation of central -- >> if i can interrupt you. because it's limited time. i wasn't asking for the mission statement. i'm asking specifically with respect to the cftc. i've heard all kinds of questioning today, and i've done a little reading about how the fsoc decided in spite of the one insurance expert voting member, they substituted their judgment in place of his. i'm asking you, doesn't it concern you, or does it present a concern to you that this body, this regulatory body might substitute its opinion for yours at the cftc? >> well, i see it as a structure which doesn't so much involve substituting its opinion for ours, but rather bringing regulators together so that they can share information, cooperate, and coordinate what we're doing. i think that's very beneficial to the overall system. >> let me put it to you this way. when the cftc members meet to

consider issuing a proposed or final rule, or deciding enforcement matter, even though you are the chairman of the cftc, your vote counts the same as all of your fellow commissioners, correct? >> that is correct. >> but when you sit on the board and you take a vote that might be different from what your fellow commissioners would do at the cftc, how is that not corrupting, if you will? maybe that's a very strong word. but the process that we put in place or that has been put in place to operate the cftc? >> the fsoc isn't taking votes on our matters. or on the rules that we're issuing. i don't see a conflict there, sir. >> what if your position on the fsoc differs from one of your four commissioners at the cftc? what recourse do any of those commissioners have for your votes on the fsoc? >> i try to have an open door with all my commissioners and always am willing to share my

thoughts and hear theirs. >> so they just have to trust you? >> well, i would say that the structure that congress has decided is one where each of us as individuals -- >> i know what they've decided. i don't mean to be disrespectful. but the bottom line is they don't have any recourse other than your open door, and then they'd have to trust you to do what -- to change or do what they're asking you to do? >> well, i think again, we try to have a good dialogue about all these issues, and i'm someone who likes to listen, and i try to respect other people's opinions and take those into account, sir. >> article 1, section 7, i'm directing this at you because of your experience and the respect you have for members in congress for your service here. and i'll just cut to the chase. the constitution gives congress the power of the purse, correct? >> yes.

>> when we look at the financial stability oversight council, how's it funded? >> it's funded the way you set up under the statute. you all have the authority to change it if you wanted to do that. >> well, let me help. assessments from bank holding companies, banking holding companies managing 50 billion or more in assets. are taken and placed in a treasury called the financial research fund. this money is giving to fsoc in the office of financial research without oversight. i've got a bill that would actually subject the fsoc and the office of financial research to oversight. do you agree with that, congressional oversight? >> well, i don't agree or disagree. if you can get it passed, i'm sure fsoc would comply with it. >> well, i'm looking at the budget that fsoc approved for itself in 2015. can you tell me, sir, under

non-labor costs, what is "included in other support"? >> we've got full briefing before we voted on that budget. at the time, i understood every aspect of it. i don't remember specifically what each category is now. but we didn't just rubber stamp that budget, i can assure you. >> would you submit that to my office on request? >> i think it would be appropriate for fsoc, for you to make that request to fsoc rather than to me individually. i would not submit it as an individual member of fsoc. >> thank you. >> the time of the gentleman has expired. there is another vote on the floor, approximately 12 minutes. we have three members remaining in the queue, one who has left to go vote on the floor. i think we can get through this and hopefully adjourn thereafter. the chair now recognizes the gentleman from florida, mr. posey.

>> thank you very much, mr. chairman. i'd like to read a couple quotes. this is from "the wall street journal." for the weekend of october 28th, the bank reported holding negative 1.4 billion of investment grade corporate bonds maturing in at least 13 months, according to the federal reserve bank of new york data. the figures, which signify banks have pledged to sell more bonds than they will buy, reflect the net holdings at banks that act as a primary dealer authorized to trade billions of dollars of u.s. securities with the fed and buy treasury debt directed option. on may 1st, 2015, richard kechum stated there have been direct changes with respect to the fixed income market in recent years. many have come in the reaction

of the failures and market impact coming out of the credit crisis. that has led to much higher capital requirements. the volcker rule that limits proprietary of bank trading, a range of other issues that have all had significant impact from the standpoint of liquidity of the fixed income market. and finally, the director of exchange traded funds for the search firm said volume in the corporate bond market has dried up so much that it alone may pose a significant systemic threat. and so my question for director cordroy, according to the fsoc website, the financial stability oversight council has a clear statutory mandate that creates for the first time collective accountability for identifying

risk and responding to emerging threats to financial stability. while the rest of the world has been identifying an emerging threat to financial stability, namely regulations like volcker rule and liquidity standards and other dodd-frank mandates that are draining liquidity from our fixed income markets, the fsoc and its chairman, secretary lu, has steadfastly refused to acknowledge that regulations are playing any role in creating this systemic risk. as a voting member of fsoc, what resources have you marshalled and what experts have you consulted to better understand the causes and consequences of reduced bond market liquidity? >> so i think i would add that to a point i thought i made earlier was also a good point, which is that as we add structure and regulations and requirements, we should consider the effects on the international competitiveness, and i also

think you're raising a fair point, which is we should consider the effects on potential liquidity in the markets, and it's been raised earlier in the hearing as well. these are the kinds of considerations that should go into the kinds of work that is being done by the fsoc, and frankly, work that's being done by the congress. quite a bit of the criteria that fsoc is employing is criteria that congress set, that we're merely following, enforcing, and carrying out. but i think it's a fair point that you're making about how different requirements and different structures can potentially affect on the one hand stability, safety, and on the other hand, potentially liquidity. so i think it's fair for us to consider that as we go. >> what kind of technical expertise do we have on the treasury staff to address that? >> so i think we have the same technical expertise there that we have on all the other issues the fsoc is considering, which

is there is fsoc staff itself in the office of financial research, and from the member agencies of fsoc, there was a graph put up earlier from a gao report. it was used at the time to suggest that certain agencies didn't devote enough people to certain problems, but what was notable is when you look down the columns, the aggregate number of peoples devoted to address certain issues was ranged from in the 50s to in the 90s. it's a considerable amount of support. this is very high level support. we're talking about some of the top analysts, economists, statisticians and researchers from all of these member agencies, including treasury and the federal reserve. they're the same kind of people who work on all the complicated difficult financial issues in our economy, such as monetary policy, fiscal policy, international issues, and the like. >> so essentially, we're talking about the treasury staff then? >> no. i think we're talking about staff from all the member agencies. and depending on the issue, there may be more or less staff

from different parts, more banking agency, staff on a banking issue, more investment regulator, staff on an investment issue, and the like. >> well, if compelling evidence is presented to the fsoc, that regulations are, in fact, contributing to the illiquidity of the bond market, and thereby creating potential systemic risk, do you agree that fsoc's mandate from congress requires it to make recommendations, which could revisiting the aspects of the post-crisis regulatory response like volcker? >> so you're asking me to speak only for myself, this is not a consensus view of fsoc. if that were shown to be the case, if the evidence were so demonstrated, i think that would be fair game. >> the time of the gentleman has

expired. the chair recognizes the gentleman from north carolina, mr. pittinger. >> thank you. in the report, it reviewed the consumer complaint database on page 28. the recommendation was made to improve the process of how difficult the complaints of the database can be identified, including a recommendation that they must be verbatim. do you recognize the grave concern that this is for these companies who are stigmatized. do you see the impact this is having, and particular if there's not an investigation to determine that these -- to verify these complaints before they go to the website? what does the department plan to do, the bureau plan to do to correct this? >> so, we actually just had a completed report and audit study done by our inspector general of the consumer complaint database. it was just issued in september. so less than two months ago, it

indicated that there were a very small number of errors in the system. and that was a report and study and investigation that we followed very closely. >> that's available for review? >> yeah. i believe publicly available, it's been issued. and gao has also looked at this over the years and made a number of recommendations to us. we're very mindful of those. we're very mindful of recommendations that you and your colleagues may want to bring to us as well. we do feel strongly that a public complaint database is important for institutions to step up their customer response. >> do you agree it should be verbatim to be deemed as being the same complaint? it will have to be verbatim? >> there are issues around the term verbatim. and i've been in discussions

with that with our ombudsman, with that with other overseers. it's something our consumer response group is looking at carefully to try to make sure that they scrub that. >> i appreciate that. >> we'll be happy to give you more information. >> will each of you provide the committee with any fsoc documents containing or relating to communications between the financial stability board and fsoc? each bodies members or staff concerning the designation non-bank financial companies, or systemically important financial institutions. as far as global sefis is that acceptable to each of you all? >> i don't have any. i can tell you that now. >> nor do i. >> i'm not a member of the fsb. i have attended one or two meetings. i'd like to hear the question again, but i don't believe i have anything. >> go ahead, chair. >> i was going to say, i think they're based on production of documents, but i would check. >> i think the basis is one of transparency. i think we've recognized the

lack of adequate transparency with the agencies and we're looking to find ways to rectify that. let's have a show of hands then, if you would, regarding your belief that fsoc's deliberations should be more open to the public. scrutiny than in current practice. would you all agree to that then? do you believe that there should be more openness? >> i think we've provided for more openness as we've been amending and changing procedures. >> do you think there's a basis to be more open? in light of what's been discussed today? let me say what i have in mind. clearly, we believe transparency is vital in our government. and i will be introducing a bill later on today that will provide a greater measure of transparency. here are the two elements of this bill. first is to testify semiannually, each of you,

before the fsc, and you cannot decline, it's a requirement. it would be mandatory. or permit all members of the financial services committee and the senate banking committee to attend all fsoc meetings, whether or not they're open to the public. would you agree that that would be acceptable? is there a problem with any of those? >> if you can get it passed, i mean, we'll comply with the law. i will comply with whatever law you pass. >> do you think that's reasonable? >> i don't think it's reasonable -- >> do you think it's reasonable? >> i certainly think we all should be responsive to bodies of congress. all of us at any time were asked without the necessity of a bill, but i think -- >> we're just saying to testify semiannually or allow us to come to the hearings. >> but i think in terms of the fsoc process, we have to be very careful about what it's designed to do, and also, the nature of

the -- >> it's designed toward openness. >> i think we should continue to look at the openness for sure. >> that's what it's designed for, thank you. >> the time of the gentleman has expired. the chair recognizes the gentleman from new york, mr. meeks. >> thank you, mr. chairman. the banking regulators just concluded that total loss of capacity, proposal for globally systemically important banks would require banks to hold a certain amount of capital, but also requires them to issue a certain amount of unsecured debt that can be converted to capital in case of the bank's failure. however some observe earn -- observers, including, i believe, your vice chair is concerned that the proposals call for banks to take on more debt at a time that the fed is getting ready to raise interest rates.

he says that this is a risky and dangerous proposition. is this concern legitimate? >> i think the insecure debt requirement is an important component of efforts to make these systemic companies able to fail in an orderly way without putting the taxpayer at risk, congressman. the experience is that when a financial institution fails, all of its capital, all of its equity is wiped out. the only thing that remains is debt held by the firm, which is then available on a closed institution basis after the institution fails to be converted to capital so that the private creditors of the failed company bear the losses for managing the failure of the institution. and as it turns out, most of the large financial companies in the united states, if you have substantial amounts of insecure

debt, it would ensure that they maintained the minimum amount. so if they get into difficulty, they can fail. and it's the private creditors and not taxpayers that are put on the hook. so for that reason, i think the proposal has merit. >> thank you. let me jump to someone who i'm used to seeing sit up here. it's still funny to see him sit down there. that's the honorable mel watt. in recent weeks, they've shifted from wholesale replacement to genuine reform as replacing fanny and freddie in the political environment seems more unlikely. replacing them is completely unlikely. we all want more private capital in housing finance, but my

question is do you believe there is enough private capital to fulfill the role the dses play without raising mortgage rates substantially. and what other challenges and lessons are you experiencing as you get more involved in the risk sharing mechanisms? >> we've tried out a number of risk-sharing mechanisms, trying to transfer as much of the risk to the private sector as possible. we are concerned that the private sector, the capacity of the private sector to take on this risk. particularly in an economic downturn or a distress situation would concern us greatly. if the entire system were converted to the private sector,

you would have that risk of not having a backstop during a downturn and you would have the risk of -- i think of increased cost to borrowers. both of which i think would need to be evaluated by congress as they evaluate the move forward. >> thank you. >> i would love to have gone back. let me ask this question real quickly. amid regular laegss and supervision, the good news is we are starting to see banks taking steps to reduce risks and exit out of certain risky activities. on the other hand, there's a concern because some of the activities are just shifting to less regulated shadow banking

entities and that banks are getting out of certain communities and in certain countries. so are we denying services to millions of lower income americans? because the profit margins are not as high or too low? >> to my knowledge, there's no evidence of that, congressman. it is something we would assess in the course of our analysis of the investment act. >> the chair recognizes the gentleman from south carolina for five minutes. >> i thank the panel for sticking around. it means a lot to us that y'all don't put hard stops on us, it lets us have some flexibility and do this throughout the day. i also apologize for having to to run and out throughout the day. we're having serial motions to adjourn. it has to do with guns, i'm told. >> couldn't explain it while i was here, so i certainly can't explain it now. >> i hear you. i want to go back to something

that mr. green said early on in the hearing today. he mentioned the metlife lawsuit and talked about the jurors, and said those folks don't have to have any particular insurance experience, don't they? and of course, they don't, that's not the way our legal system works. then he asked you if you agree with that. i think everybody agreed jurors don't need to have that. that's not really the standard. for the members of this group, right? does anybody think that ten good persons in true could serve in this role, or is it a good idea to have -- everybody agrees we should have some expertise, right? that's why you're there. and that you couldn't do this job if we just randomly picked you off the streets. so i didn't want people walking out of here thinking the standard for you folks is the standard for a juror. and i want to go into something that i believe he said to the chairman early on about the process you went through. your decision making regarding metlife. you said you were briefed

extensively, which i want to talk about a little bit. you said it was done by the fsoc staffers. let's talk about that. was this to you individually? was it to you and your staff? was it to you as a group? tell me how you were briefed on this, ms. matz. >> i was briefed by my staff who participates actively with the fsoc staff, the fsoc deputy's council. and then we were briefed extensively as a council, and we also received a great deal of briefing material. >> gotcha. all right. the final determination has been june 30th. do you remember the first time you were briefed on that? >> i don't. >> was it days in advance? weeks? months? >> it had been in the works for probably a year or more, more than a year. we were briefed on progress and consideration. so i couldn't tell you when it

was. but the staff worked on the designation for quite a long time. >> the staff worked on it. i get that. we do that here as well, as mr. watt would say. but how much time did you spend on it yourself? >> i spent a long time because it was a tremendous amount of information both to get in briefings and reading material. the basis was i believe 300 or-some-odd pages. >> okay. did you block off times during the day for reading those materials? >> i brought them home. at night and on weekends. >> i do the same thing. the reason i'm focusing on you, is you mentioned it during your opening statement. i think you also mentioned mr. holkrin in response to some of his questions. given your extensive responses on the material and the understanding that the statute requires you to look at 11 different factors, i want to go through them very briefly. you mentioned in your opening testimony or response that one

of the things that stood out in your mind was the derivative. that that was one of the things that stood out in your mind, making the metlife decision, or voting for the designation. so tell me what it was about the derivatives that you thought was important. >> we just can't discuss that right now because it's in litigation. so we have public information on the fsoc website, but we're not at liberty to discuss the details of the deliberation. >> let me ask you that way. i disagree with that, by the way. we get that a lot. i don't like it now that i'm here. because you can tell us stuff. we'll skip it then. you made the same determination for prudential. and you voted to designate them. and they are not in the lawsuit right now. so i take it you did the same level of preparation in making your decisions for prudential than you did for metlife? >> correct. >> so what was it about the derivative decision that prudential had that made you inclined to vote for the designation? >> well, it wasn't just one

item. it was the totality of -- >> i get that. tell me one thing about the derivative position. >> the size of it. i can't remember off the top of my head. it was a huge amount of derivatives. >> huge in relation to what? >> in relation to other institutions, how they were exposed to other institutions, and exposed other institutions -- >> that's not my question. in relation to the size of their assets? >> their exposure. it wasn't in relation to the size of their assets. we view it in relation to their exposure to the financial system of the united states. >> was it a billion dollars? what was the size of their derivatives? >> i don't know. >> thank you. >> the gentleman's time has expired. the chair now recognizes himself for five minutes. it's a fundamental american principle that in america we follow the rule of law. and for the rule of law to be meaningful, of course it has to be transparent. it has to be written down. people have to have the ability

to understand the law and see whether they're complying with it. we want to talk about that principle in the context of the fsoc's current approach and designated non-bank financial institutions, particularly insurance companies under that designation. under the rule of law, folks first ought to understand why they're being regulated, what are the standards we're applying to determine whether you'll be regulated and how they'll be regulated. what are the standards you'll be held accountable to if you are designated a non-bank sifi. mr. woodall, you've been very patient today. i have to concede, this is a panel full of phi beta kappas. i'm phi beta kappas. for this complex world of acronyms and regulatory

structure, we're trying to figure it out. in the construct of the rule of law that i talked about, i have offered legislation that i think is really a modest proposal. it's hr-3857. and here's what it does very simply. i'll read it here to make sure i'm getting it accurate. the bill would simply prevent fsoc from designating any further non-bank financial institutions for heightened fed supervision until 90 days after. first the federal reserve establishes prudential standards, as required by section 165a and b of dodd-frank. two, the federal reserve promulgates regulations exempting certain types of non-bank financial companies from supervision, as required by

section 170 of dodd frank. and third, the fsoc re-evaluates within calendar year 2016 each previous sifi designation and rescinds any such designation if it determines that the non-bank financial company no longer meets the standard for designation that have been brought forward. just would like to get your reaction. would that legislation prevent fsoc from doing its job? >> i was waiting to see what the question was going to be. would it prevent what now? >> fsoc from doing its job. would that seem like a reasonable proposal? the company that will be designated or entities that are designated, non-bank sifis have some way of understanding why it is they're designated that way

and and off ramp that would allow them to determine -- >> that was your third point. it seems to me that's what we're working for right now. to try to get more clarify in what that exit ramp is. i have submitted a list of 17 different options for the fsoc to consider. it's now being submitted by their deputies. there's ways to clarify that where it can be much more clear to the company what it needs to do. the company says tell us what we're doing wrong and we'll fix it. >> is there any way you can provide that list of 17 to the committee? >> yes. >> thank you. i guess i will open it up to the rest of the panel. can someone give me the rationale for designating non-bank entity sifis before establishing any public standard for doing so? and question two, before establishing the criteria that they will be held to?

>> i think the criteria by which we designate will set forth in the statute. and they were further spelled out as far as the procedures in our rules, which are subject to -- >> so you're telling me you believe that the entities that are being designated sifis understand the standards by which they're being evaluated? >> they are publicly available, and i think we also provide memoranda to the company prior to the designation. >> any others? thank you. seeing no one else in the queue and no further questions, i thank the panel for their stamina, and for their testimony today. without objection, all members will have five legislative days within which to submit

additional written questions for the witnesses to the chair, which will be forwarded to witnesses for their response. i ask our witnesses to please respond as promptly as you are able. without objection, all members will have five legislative days within which to submit extraneous materials to the chair for inclusion in the record. the hearing is now adjourned. s.

>> for more schedule information, go to our website, c-span.org. former transportation

secretary ray la hood joined us on "washington journal." he discussed his new book on his career in politics. then the $1.1 trillion omnibus spending bill. >> if you search the internet for your name and book, the stories that come up are like this. obama adviser found disappointment. those are the lead stories that come up about your new book "seeking bipartisan." is that fair? >> i don't like that headline because i think the president tried very, very hard. i believe bipartisanship is in the president's dna. i cite a number of examples of that in my book. i still think he believes in bipartisanship, and he practiced

it when he was a senator from illinois. he and i practiced it together when we were members of the illinois delegation. he practiced it when he named me secretary of transportation, a long-time republican. so i think the story that peter baker wrote in the new york times was pretty accurate. >> in your book, you talk about the fact right off the bat you felt shunted aside. >> not really me. i just felt the president, like most presidents, has a core of people in the white house that he really relies on. reagan relied on three people. george w. bush relied on rove and card. i've been around here long enough. i can name you -- nixon relied on a few others.

every president does, and so i wasn't too surprised by that. and on some of the things that the president tried to get done early on they asked me to take calls and to try to intervene, but i was not part of the inner circle. the inner circle are the people who helped the president get that job. >> you have a chapter in here -- you have some pages on an actual cabinet meeting that happened. i want to read just a little bit. and this was a memo that was passed out. you, referring to the president, call on each member of the cabinet to report two minutes each on highlights from their departments. you will call on the cabinet in the order in which their departments were created. then you will call on cabinet rank officials, then the national security adviser, are the chief of staff concluding.

the president met briefly with reporters following the meeting. he told them he delivered three messages. first, he was proud of the work we had done. second, we had to take extraordinary steps to shore up the system. i recount this first cabinet meeting to make these points. one, the meetings were much more highly scripted than i anticipated. two, the opportunity to give advice to the president was nil. three, it showed me how isolated the president was from those who did not fall within his inner circle. >> i think that was an accurate reflection of that particular meeting. in the beginning when we came in '09 the focus was on two things. getting the economy, which was

in abysmal shape -- we were sort of assigned $48 billion to spend it within two years and put a lot of people to work. secondly, really the idea that the president wanted to get out of iraq. those two were the -- and so cabinet meetings were really revor revolving around those two big issues, and i think most of the time the president was spending in the oval office and in meetings was how do we get the economy going and how do we get out of iraq. the part about getting the economy going, part of that fell to us because we got $48 billion in economic stimulus we had to spend within two years. and the president assigned vice president biden to oversee that entire process, so i developed a great relationship with vice president biden. he's an endearing friend today because of all the time we spent together on trying to get people

to work on transportation projects. >> last chapter, reflections on a career of public service. during my 35 years in politics and public service often with a front row seat on history, i did not ponder the meaning of passing events. time slipped by too quickly. as i move to the sidelines to write this account of my career, however, i am struck by two intertwined principle qualities of politics that concern me today. >> there's no question notwithstanding that congress just passed a transportation bill in a very bipartisan way. they passed an education bill to fix some things that were wrong with "no child left behind" in a bipartisan way. prior to that, we've seen a government shutdown. we've seen people elect eed to

congress under the republican banner, even though they're tea party people who don't believe in government, came here to vote no on everything, and we've had a terrible stalemate. people really came here with the idea that their number one goal was to do everything they could to make progress. i just think it is pervasive. the partisanship is very pervasive. i was pleased that congress passed the transportation bill in a bipartisan bill and the president signed yesterday an education bill to fix some things with "no child left behind." now the congress is working on trying to get out of town and passing an omnibus. hopefully that will be bipartisan. it looks like speaker ryan and leader pelosi are working on that. >> i want to show some video from 1994 and see if you

remember this. >> my name is ray lahood. l-a-h-o-o-d. from illinois, i-l-l-i-n-o-i-s. you don't pronounce the "s." i'm from the 18th district of illinois. our freshman class introduced and passed a resolution today to continue the work of a task force that's studied congress over a period of two years and the committees of congress. and as you all know, we have eliminated three committees, the district of columbia, merchant marine and post office. today the purpose of the meeting was to establish a task force to use the information that the

joint committee has available to add at least five freshman members to include the leadership of our conference over a period of time to study the entire committee structure to determine if there's du duplicati duplicati duplication. >> that was almost exactly 21 years ago. >> i just turned 70. i wish i looked that young and had that dark a hair these days. >> that was right after you you were first elected. >> right. >> what was that like to be a part of the first republican congress? >> i had worked as a congressional staffer for 14 years. i knew when i came here i knew a lot of members of congress.

i worked on the house floor. i knew all the people in leadership. newt gingrich, all the people we elected to our membership. the thing i was surprised about on election night was the republicans won the majority. i never dreamed that republicans could come back into the majority after being out in the wilderness for 40 years. because newt had nationalized the elections and put the contract with america out there for the american people and a lot of members ran on that, it was -- it was an exhilarating time to be in the majority, to have the opportunity to vote on all of these items that people had talked about as a part of the contract with america within the first 100 days, all of the reforms that we had talked about. it was an exhilarating time.

>> ray lahood -- by the way, the numbers are on the screen. we'll be taking those calls in just a few minutes for ray lahood. you were in the chair presiding the day bob livingston decided not to run for speaker. what was that day like? >> there was a chapter on impeachment. the reason we wrote about it was because it was clear speaker gingrich announced he was not going to stand for speaker and his staff said to him, who is going to chair the proceedings, and he said ray lahood because i developed a good style of chairing the house, making sure that we followed the rules. >> and you knew the rules. >> and we knew the rules and that was very helpful. so when the speaker's staff called me and said speak eer

gingrich wants you to chair the proceedings, i said this is going to be my one minute of fame. on the second day, as the house opened up, bob livingston from louisiana, who had already run for speaker and was known to have the votes for speaker, we were going to go and elect him speaker. but because of some disclosures about infidelity not dissimilar to speaker gingrich's disclosures that came about earlier. he said i'm not going to stand for speaker. i'm going to resign from the house after these proceedings are over and the air went out of the chamber. >> did you know in advance? >> i did not know. no one knew. as i said, democrats and republicans were scrambling around because the chamber was pretty full that morning unlike

other -- i think people recognized this was the second day. this was the day we were going to vote on the articles of impeachment. i think people wanted to hear what the new speaker was going to have to say and, boom, he was out. in the halls of congress, there were republican members like tom delay and others who were scrambling around trying to figure out who the speaker was going to be. frankly tom delay orchestrated the helection of hastert to be the next speaker. a democratic member -- i'm the chair. a democratic member comes up to

me and says -- >> i think you said it was a democrat of north carolina. >> yes, it was. he came up to me and said, if i could put together the votes, some of us have been talking. if i could put together the democratic votes, would you consider standing for speaker? i said, no, that's not going to happen. there are already people on my side of the aisle that have decided who the speaker is going to be and that's not ray lahood. i think that spoke to fact i had an ability to reach people on both sides. the other thing that happened that i wrote about in the book is another democrat approached me in the chair and said, should we suspend what we're doing here while we try and figure this

out? i just made a decision. i didn't check with leadership. i didn't check with the speaker's office. i made a decision that this was such a historic day after all that had gone on that we needed to proceed with the votes that were going to take place on the four articles of impeachment. and we did proceed and democrats walked out as we called for the first vote, and then came right back in and we finished the day up. after everything was over, all the republicans met in one of our rooms there in the capital to talk about who the next speaker was going to be. this was after all the votes had taken. the house had adjourned. i went to that meeting. speaker gingrich said now you know why i picked ray lahood to preside over impeachment because

it was done fairly in a way that reflected dignity on the house. people had their say and then people voted and they gave me a standing ovation. i was proud of the fact that we carried it off in a way that distinguished the house of representatives in a very controversial historic time in the history of the house. >> we need to stop destroying imperfect people at the altar of an unobtainable morality. >> the point he was making is that we all have our imperfection imperfections. we've got to look at the fact that president clinton was elected and he had his imperfections, but obviously then leader gebhart's point was these were not impeachable offenses. that's not what the judiciary committee concluded and it's not

what the house concluded. >> "seeking bipartisanship" is the name of the book. ray lahood, former congressman and republican from illinois. first call is henry in clyde, new york. democrat. go ahead, henry. >> caller: thank you for taking my call. what i wanted to say to mr. ray lahood is everybody keeps talking about how obama is not a strong president. obama is a strong president. but remember, the head of the senate said he was going to make obama a one-term president. now they have obama in a box and obama can't do nothing about it. can't get a coalition together to fight isis because they won't

vote him -- the legislation for him to go to war. those people over there like germa germany, france, they're not going to help obama unless they know their president is behind them. >> thanks for calling in. the president is in a box. >> if you look back at the nature of the presidency and you look back at other presidents, they faced very, very difficult decisions. i agree with henry. i think president obama is a strong president. i think his legacy will be what he talked about during his first campaign, implementing national health care, getting us out of iraq, although obviously we're back in there to a lesser extent than we were in '09 when he began his presidency. i think there are a number of other things that he will have

as a strong legacy, but what he did as president certainly is what no other president was able to do and that's to pass national health care. and he also brought a very, very lousy bad economy out of a tailspin. we're in much better shape today than we were in '09. he helped the automobile industry. the american automobile industry. he put a lot of people to work. he put a lot of emphasis in the economic stimulus on making sure our economy could come back and be strong, and he deserves a lot of credit for that. >> however, you are critical of his decision to give nancy pelosi the legislative levers to work with the republicans and that he didn't work directly with the republicans. >> peter, during the first two years, it was a democratic majority. i think even though rahm really

early on reached out to people on both sides of the aisle and made the effort to say we want to be bipartisan -- i think the president wanted to be. i think they made a decision we've got to get the economy going. we've got to pass this bill. i think speaker pelosi said, hey, we've got the votes to do it. let's go for it. i think that hurt the president's ability. left to his own instincts, his own bipartisan instincts, which i believe are there, if it was left up to him, i think he would have said let's try to continue to get some republican votes, but in the end there was a sense of urgency about getting the economy going. i think speaker pelosi said at the time we've got the votes, let's do it. >> go ahead, gary.

>> caller: thank you very much for taking my call. i love c-span. thank you, mr. lahood. i have a couple questions. do you feel that before health care enacted wouldn't it have been a good try from the commerce laws from state to state, open that up between states -- for insurance companies in california to sell me insurance in kentucky? i know every president tries to be bipartisan, but george bush did executive order and obama has done executive order more than any other president in history. don't you think that kind of slaps the republican leaders in the face when he does executive

order and says he has a pen and a phone and bypasses them? >> the purpose of the executive orders is when the president can't get congress to even go along with introducing legislation or having debates on bills. i think that certainly has been the case for president obama when congress has been stubborn about their willingness to debate issues that the president thinks should be debated or to put bills in the hopper and have a debate. i think he feels that his only other alternative is to sign these executive orders. other presidents have done it. it's certainly not unprecedented. for a year, the white house tried to work with republicans. i know senator baucus who was the try of the finance committee and tried to work hard with

republican senators on getting their help with implementing national health care. in the end, they made a decision they just couldn't come to a compromise, so the congress ultimately passed it. could there have been a better way of doing it? could they have included issues that you raise about the commerce clause and states selling insurance? probably, but i think there was a sense of urgency that they needed to pass national health care. >> joe is calling in from sun city center, florida, independent line. ray is our guest. go ahead. >> caller: hi. >> good morning. >> caller: my name is joe. good morning. what's the host's name? >> peter. >> caller: okay. i'll give you a little bio of

me. i was raised in a democratic family, raised by nuns. i cried when kennedy was killed. i voted for everybody up to carter. then mr. reagan came along and i noticed the guy was tough. people were scared of him. personally, myself, i'm laid up in a hospital bed in front of the television. >> hey, joe? joe, we're kind of losing you here. if you could get to your

question or your point for ray lahood? i'm sorry. we lost joe. let's take that opportunity, mr. lahood, if we could, and go into present-day politics as he was recounting his transitions throughout the year. what do you think of 2016 and the race that's going on currently? >> peter, i've been watching this kind of activity for 35 years of my public service year, and i've never seen -- certainly on the republican side -- a process like we have now. i think the fact that we have such a celebrity, donald trump, in the race, never run for political office, is using the most unorthodox methods to get elected, to get the nomination -- but there are

certainly are a wide range of candidates on the republican side. it looks on the democratic side like hillary will probably get the nomination. like all these presidential campaigns, it will be very, very interesting. >> have you endorsed? >> i like jeb bush. i do. i think he was a very strong governor in florida, and i like his positions on many issues. i like jeb bush. >> all right. going into a democratic administration as a republican, are you suspect on both sides of the aisle now? >> i don't know about suspect. i think people always viewed me as being bipartisan, and i don't think anybody was surprised when president obama nominated me for secretary of transportation, which has always been a kind of

bipartisan agency. so i don't think people really look at ray lahood with suspect. i think they look at me as more somebody has worked on both sides of the aisle, but i've been a republican all my life and i'll continue to be a republican. i couldn't have gotten the job with president obama had i not been a republican because he was looking for a republican and our friendship has endured even since we left the job. >> february 12th, 2009, my worst day on the job. >> that was the day of the air crash in buffalo, new york, when 49 people boarded a plane with the idea they were going to arrive in buffalo safely like thousands of people do today. and because of pilot error and very, very bad conditions, icing on the wings, the pilots did

totally the opposite of what they should have done, those 49 people perished. we implemented new rules on pilot rest. eight-hour flight. then they're expected to get into the plane and fly it and then they were poorly trained. they did the wrong thing when the plane iced up and they actually crashed the plane. but because of the families and because of our emphasis on safety at dot, we implemented more rest for pilots and better training for pilots, particular those who are flying these regional jets. >> amtrak funding. new formula written into the transportation bill. do you support it? >> i'm glad the congress passed a transportation bill. we need a vision. we need a plan. i like the idea that they

included a provision if there's a profit on the northeast corridor, which is where they make their money, that profit gets plowed back into the northeast corridor. i like that idea. i think it's a creative way to make sure the northeast corridor, which does make money. ridership is at an all-time high. they can get new cars, new equipment, and the money will be there for it. i think it's a pretty creative approach. then i noticed in today's paper they included a provision in there to raise the limit for people, particularly those that were killed or injured in philadelphia for the liability that's been incurred by their deaths and injuries. i think amtrak is doing well, and i think were treated very fairly in the transportation

bill. >> martin is on the republican line. we're talking about his new book "speaking bipartisanship." >> caller: good morning. >> good morning. thank you. >> caller: with your obvious large depth of knowledge of american politics and having served the country, you mentioned the tea party. you mentioned some positive things and some not so positive things about barack obama. how do you think history is going to view barack obama? because in my opinion, he's really the father of the tea party with his partisanship that he exhibited with his administration. he might not have been such personally as you pointed out, but he started everything with what happened his first two years. i don't think we would have the,

quote/unquote, tea party if it wasn't for him. interested in your take. >> i don't think he's the father of the tea party. i think the tea party came about because of -- and the leadership of the tea party came about from people who were anti-government, who don't believe in government, and helped elect people to come here in washington and shut the government down. they ran speaker boehner out of office. a year ago, they shut the government down. they vote no on everything. that has nothing to do with president obama's philosophy. i don't think we would associate himself with the tea party or consider himself to be a part of it. i don't either. >> is john boehner and paul ryan a friend of yours? >> john is. he had the unfortunate

circumstance of having a group of people in the republican conference who came here to be obstructionists, who came here to do everything they could to put a stop to things that they didn't believe in. they had some ability to do that. this is the tea party crowd. this is the crowd that basically shut down the government, ran john out of office, but he did a good job. he was a good speaker. he worked hard. he was a good leader. paul ryan i've known since he came to congress. i admire him very much. i particularly admire him for stepping up into this very important leadership vacuum and filling the vacuum and doing it in a way that i think really distinguishes him and the speaker's office. i think paul is going to be a very strong speaker. in my book, i talk about one of

the real pillars of leadership is listening. and i think paul will be -- is and will be a good listener. he's already doing that. part of listening then is carrying out what people have to say and i think paul will do that. i'm very high on paul ryan. he is the next generation of leadership in the house of representatives. and the house of representatives is very fortunate that somebody like paul ryan is willing to step up and fill the void and fill the vacuum and provide the leadership. and at great sacrifice. he gave up the chairmanship of the most powerful committee in the house. he and his family both make great sacrifice in terms of their time and energy. >> barbara is calling in from pearl, mississippi. republican. >> caller: yes. hi. how are you? >> hi.

good morning. >> caller: yes. i would like to nknow how easy would it be for the president to pass on the initiative he has been talking about about immigration and what can be done to fix the health care laws pertaining to people who have insurance. prior to this law, we always had great insurance. after this law was passed, we wound up with very high deductabld deductibles. you're paying $100 a month for insurance. plus you have an $8,000 deductible is very high. how can those issues be

addressed? >> implementing policies by the president. how easy is that? >> it's difficult because under our system of legislation passing it has to come before congress, which is an equal branch of government, separate from the administration, separate from the executive branch. we've seen how difficult it is for president obama to enact some legislation he's wanted to do. if you take the issue of whether there's global warming and clean air legislation, it's been very difficult. i give the president credit on he did pass national health care. he did get us out of iraq. he's working very hard on a trade bill. he supported this education reform, the transportation bill. it can be done, but it has to be done in a bipartisan way.

no one of the 435 in the house, no one of the 100 senators gets their own way. when congress solves big problems, when they address issues, they're almost always solved in a bipartisan way with compromise. and that's the beauty of our system. to the issue of can trump get anything done? i don't think donald trump will be the nominee of the republican party and i certainly don't any he'll be elected president. whoever is elected president will have to work with the men and women that come here from around the country, elected by the people, and reach compromise and work in a bipartisan way to solve the country's problems. >> so when the 435 of y'all would be up there and you would hear candidates say i am going to do "x," would you look at each other and say, good luck to

you? >> i think what people would say is not only good luck, but come on up here and talk to us about it and we'll see what happens. >> that talking to congress, does it really make a big difference? >> it really makes a big difference. one of the things we did, peter -- i co-chaired four bipartisan retreats. and our whole notion was if you know somebody, it's hard to criticize them. we had over 200 members of the house, 150 spouses, and 100 kids. first time a congressional kid met another congressional kid. first time spouses met other spouses. when you develop friendships, then you develop the opportunity to talk with one another. that kind of rapport and relationship building can go a

long way to get people talking to one another. if you read robert's book at president johnson and what he did, he'd invite people to the white house. he'd have them over for drinks. president reagan did the same thing. he had a lot of democrats down. bob michael was leader then. he would suggest a few democrats to invite down and president reagan could do it. they would get to know one another and boom. they'd begin to really work on issues. that is very, very important. relationships are very important in trying to pass legislation and solve problems. >> i want to ask you about two trends. maybe you don't think they're trends. automatic pilot on financial issues up in the congress and less and less significance of

the president's cabinet. >> well, the president's cabinet, i think, plays an important role with certain committees. you look at the homeland security committee now and you look at director of the fbi or secretary johnson while we're dealing with these terrorists, so they play an important role. i do think if you have a strong president, then obviously the congress is going to look to the president and the cabinet perhaps plays a lesser role. but in some of these issues they play a dominant role. i think arne duncan played a predominant role on this legislation that was signed

yesterday on reforming "no child left behind." i think our trade ambassador mike froman has played a role in working with congress on trade legislation. it depends on the issue, but i think cabinet members come in and out as the issues bubble up to a certain extent. i don't know if i really know exactly enough about that to really comment on. >> with the crs, the continuing resolutions, that's what i was looking for. >> i think paul ryan wants to get back to regular order. i really do. now he's come in late here on this particular budget, this particular cr, and this particular omnibus. i think he'll tell the budget committee next year give us a budget. then the appropriators hold their hearings, pass their bills, then those bills come to the house floor. i think that's what paul would really like to do as the new

speaker. and if he got that done, that would be quite an accomplishment. >> mike is in new kensington, pennsylvania. he's a republican. mike, you're on with ray lahood. >> caller: mr. lahood, thank you for taking my call. >> good morning. >> caller: good morning. i disagree with your characterization of tea party people that don't like government. they do believe in government. they just believe in limited government. i think our federal government has gone far afield of what the founding fathers ever intended the federal government to do. but my question is the davis bacon act, i think the davis bacon act keeps artificially

high the price of public service construction jobs. how do you feel about the davis bacon act because i think it should be repealed? >> i support davis bacon. i supported it when i was a member of congress. i think it does really help those people who build roads and bridges earn the wages for very, very difficult work. these people are limited in the number of years that they can work because of the hard work that they do. i think davis bacon has enabled many of these folks to earn a good living and to really be able to take care of their families. the reason i say -- i take your point about tea party being for limited government. my point is when i say they don't believe in government, they're the crowd that shut the government down. that's my point. if you don't believe in government, then shut it down. we don't need it.

but i take your point on limited government. i think it's a good point. >> i had begun my four and a half years in the cabinet with four expectations. all four proved to be unrealistic to some degree. the administration did not use my experience and network of relationships to build republican support for the president's major policy initiatives. even when they tried, which was not often, they did not mix. too many times i came late to the game or the inner circle didn't let anyone into the game at all. >> i think when you look at what president obama was facing in '09, terrible recession, focusing a lot on the economy, and relying on just a handful of people to really give him the kind of advice to get us out of the economic mess that we were

in -- and my point on that was when they put the economic package together, $48 billion, a lot of money, real money that came to dot, but then the assignment went to the vp, so i did have that relationship again with vice president biden on economic stimulus. when it was all said and done, they wished they had put $480 billion in because of all the good things we did and all the people put to work. when you're president, you're dealing with these tough issues like the economy, like a terrible recession, like trying to get the automobile industry back on its feet, like trying to get out of a wreck, your time is limited and the number of people you can talk to is limited, but that's the way it was. >> why did you leave congress?

>> frankly, because i felt that i had done everything that i could possibly do. i was on the intelligence committee for eight years. term limit for that. i was on the appropriations committee. i wanted to get things done for my district. i tried leadership and didn't make that. i felt after 14 years it was time for somebody else. and we'd accomplished a lot. i like the idea of going out on top. i think in these public service jobs, they're not lifetime jobs. there's only so much you can do. after 14 years, i felt that it was time to do something else. i had no idea i was going to be secretary of transportation. i had no idea this rare privilege would have been offered to me, but it was the best job i ever had in 35 years of public service because i think we made a difference. >> bob michael, ray lahood,

aaron shrock, who represents peoria these days? >> darin lahood. he ran in a special election after aaron won the house. he got 70% and now he's been sworn in and is representing the 18th district. i know he'll be a great congressman and carry on the long, long tradition. our district was once represented by abraham lincoln. >> in those 35 years you've been here in washington, have the parties gone this way? there used to be quite a mix in the middle, didn't there? >> yeah, there was. i think the parties have gone to

their own corners. the republicans have gone to the right and the democrats have gone to the left. >> why? >> i think because it's maybe a result of real, real partisan party opportunities to elect maybe the more extreme people in the parties. our district in illinois is a conservative district, but illinois, i think, is still considered a democratic state. it's a way for the parties, i think, to reflect the more extreme points of view. i don't see that changing in the near term. >> al is in watertown, vermont,

on our independent line. >> caller: thank you for taking my call. i guess ray would think i'm an extremist because i would like to see the constitution and the way we got the republic set up enacted where we have two-year terms for congressman. what he's advocating for is an incumbent party where families and their sons and wives, he calls that bipartisanship when you can get a cozy party and cut deals. what should happen is debate on policy should happen in public? the omnibus was passed without me seeing it. the citizens don't know the relationships when you have the cozy little parties he's talking about. in terms of shutting the government down, i think it should be shut down when you're spending in more money than

we're taking in. you have us in a horrible position and guys like ray lahood are responsible for it. >> got your point. ray? >> al, members of the house do serve two-year terms. if you only want them to serve one two-year term, that's a pretty dumb idea frankly. i do think if you're on social security or if you're a veteran that served our country and received a veterans benefit, if you're getting medicare, i don't think you think it's a good idea that the government shuts down and those people are out of those benefits. our government provides a lot of good services. there are a lot of wonderful people that work in the government and serve the american people. we need to think long and hard

about obviously the opportunities that our government provides to our citizens. >> and joe in phoenixville, pennsylvania, democrats line. you are the last call for ray lahood this morning. >> caller: well, i'd like mr. lahood to talk about his idea of bipartisanship starting with the question when obama assumed office, he was confronted by an opposition party that vowed to do everything they could to defeat him and they have never stopped that effort. how do you expect that he would have been able to reach across the aisle and get those people to work with him in the face of such an attitude, and what did you expect him to do to overcome that? >> well, i do think the president made some very strong efforts. i think his chief of staff, and i think it fell on deaf ears. and that was not helpful.

and so we are where we are. >> how is rahm doing in chicago right now? >> well, he's struggling. but i think the fact that he's admitted that there are some real issues in the police department. he fired the superintendent of police. he's asked for a committee of outstanding citizens do an investigation. he's accepted the idea that the justice department will do an investigation. he went before the entire city council and apologized to the citizens of chicago. i think he's recognized that he needs to get back some ability to really have the confidence of the people of -- the citizens of chicago that voted him in office this year. >> have you spoken to can denny hastert? >> i don't know anyone that has talked to him. i have not. i know people have reached out to him and i don't know of

anybody except for maybe just a very small group maybe in the yorkville area where he lives in illinois. but i don't know anybody around here or anybody in illinois politics that has spoken to him. >> and how is your new republican governor in illinois doing, bruce rauner? >> he's doing what he said he would do. he said i'll stand up to 30 years of democratic control, the crowd that has made our state a huge mess. we have huge pension liabilities. we have an unbalanced budget. we have huge deficits. the state does not have a budget now because governor rauner has said there has to be changes. we have to make reforms in our state government in order to really -- in order to really make these changes. and so our state is in a stalemate right now, but i do think that he's doing what he

said he was going to do and i think people need to give him his due for that and i certainly do. and many of us support what he's trying to do. >> over the years ray lahood has always come over here and taken calls from our viewers. we always appreciate that. seek bipartisanship is the name of his autobiography. against minister of britain is meeting with ash carter. they will be holding a press conference at about 3:15 eastern time. we'll take you there live here let's start by taking a look at what house speaker paul ryan said yesterday to reporters about the omnibus and the

deadlines facing them. >> this is something i've more or less inherited from the last regime. i don't want to rush through here. i want to get it right. we've always had the third week in december on our calendar as a week we'd potentially be in session. we didn't want to come up against the deadline and rush something. we're negotiating what we didn't have to keep our members here saturday and sunday. >> what was that trip wooir? >> there really wasn't a trip wooir. i wasn't going to let december 7 let us rush legislation.

that would put the new deadline on september 16th. that's not an easy deadline to make up. we've heard thursday from hal rogers, the chairman of the house appropriations committee and others that there's a lot of work to be done still through the weekend in even to have text of a catch-all omnibus spending bill that would fund through the end of next september. that needs to be written by the beginning of next week. >> now, remind viewer who is is doing the negotiating of this big bill? >> there's two separate pieces in these negotiations.

>> there's 5:00 chultly a third basket this year which we don't always see which is the expired tax revisions. these are all sorts of tax credit that is viewers are probably familiar with. some of which they claim on their own irs forms. and those provisions have also lapsed. so that seems like it's getting bundled in with the same package this year. >> let's go to one of our callers. on the democratic line, we have middleton from ona west virginia. you've on with neil.

>> caller: hello. good morning. neil, i'm going to ask you a question. you're up here talking about what we're going to do now with the appropriations. why doesn't all the media condemn the people in the senate and the house for waiting until the last minute to get all of these riders in here for the president to sign because he wants to decline everything. this happens every time. wile don't all of you get together and condemn the house and sfat for doing this trick. they can do this during the year. why do they have to wait until the last minute. >> okay, let's give neil a chance to answer. >> well, this situation -- i'll

take the caller's comments and i will tell you that one of the issues this year that led to this particular standoff, this particular standoff was, in some ways, generated by the democrats want i wanting a bigger budget agreement. we started this cycle with a disagreement over the spending lefls themselves. and so the democrats, in fact, in the senate, united to preclude the republican majority from advancing appropriation bills, which is something that is the prerogative of the democrats. they certainly have enough folks to do that. once that happened, however, and once there needed to be a big negotiation on budget numbers in the fall, that led to the obvious situation where we were going to have one of these omnibus spending bills come december. so this go around, certainly, if there was blame for the process

not working, the blame goes in every sort of direction. it's not either party necessarily that gets all of the blame this year. >> so, neil, talk a little bit about the sticking points that might be. >> these are all behind-the-scenes negotiations. so our reporting indicates that there are any number of sticking points. but a couple of view everies might be most interested in. we have the environmental protection agency under the obama administration is wanting to do -- has issued all sorts of regulationings, some related to inland waterways, the clean power plants, the deregulated emissions. these are things that the republicans had wanted to block from being impb leapted. so there's clearly fightthat have been going on about that. one of the big fights that's emerged in recent weeks, or at

least becoming public in recent weeks, although it was in a bill earlier this year, is campaign finance reform. senate majority leader mitch mcconnell, desperately, really, i would say wants to change the way that the campaign finance laws are structured so that party committees and campaign committee like the national republican senatorial committee get more coordination rights in terms of how we can actually deal with candidates and to empower the committees versus outside money. and so that's one of those issues that's going to come up. >> the third one that i'll throw in, because it sort of became a fire storm a couple of days ago, is there are some questions about what they're going to do regarding abortion and access to reproductive health services. this is not the same as the planned parenthood debate, but it's related to that.

>> het's go to our next caller. on you are republican line, we have peter from valley college, new york. peter, are you with us? >> i have a question. >> go ahead. >> can you hear me? >> mitch mcconnell just used budget reconciliation to defund the affordable care act. and when you use that, you only need a majority of 51 votes to get that legislation to the president's desk. i was curious why mitch mcconnell did not use budget reconciliation to pass his defunding bill of the sank chew ware cities in california. apparently, the legislation couldn't pass because they couldn't get 60 votes. can you please explain why you didn't use it and if you could

have and what are the circumstances that it is used? thank you. thank you. >> well, you get one bite of the apple as a practical matter at the reconciliation process a year. the procedures are derived from a budget. you really can do it once. it had long been established by senate republicans and i suppose house republicans, as well, that they were going to use it sort of up in the obamacare or at least to pass the bill ending obamacare which the president will ultimately veto. but, regarding the sank chew ware cities question and other questions in the senate, there are a whole different set of rules that govern when you can or cannot use reconciliation and for which you can use it for. and the purposes have to be primarily budgetary in nature.

it's possible, i suppose, to be able to create a narrow relief. >> what about the syrian refugee program? >> i have been hearing that the republicans -- a group of house republicans would very much like to attach the syrian refugee issue to the omnibus bill. the number two democrat in the senate was making very clear to reporters that thafgs one that democrat leaders were going to sort of push up against in particular. there may be some room for more flexibility when it comes to the visa waiver question.

this separate issue, but also related and don't require visas to come into the united states. there seems to be bipartisan concern about that program and there might be an attempt to collect on that. there could be both democratic and republican votes. >> let's go to our next caller, wech peyton from london, kentucky. go ahead, you're on. >> good morning. >> good morning. yeah, i haven't heard anyone discus the national debt as it relates to our national assets. and the trend of that. and how that might relate to similar come parsons and, for example, ibm or apple, you know, equity ratio, et cetera.

>> one of the advantages that the u.s. federal government has when it comes to earnings ratios or whatever it may be relative to -- as opposed to a private company is, of course, that a private company cannot print money. there's no such -- there's no such thing as an apple currency. they may want to, i don't know. knowing -- there's apple may, but there's no actual apple currency. so, certainly, when you're talking -- there's no real good way to use it for apple again and then two apples can be between the company and the federal government in terms of its bookkeeping. >> okay. our next caller is general for from north port florida. jennifer, you're on with neil. >> i'm just curious if you have any information about tdroga

extension? >> yeah, talk a little bit about what the droga bill is. >> sure. excellent question there. the droga act provides funding for paying for long term health care needs of 9/11 first responders. and people who, on september 11th and in the aftermath, with the clean-up of the site of the world trade center, were affected negatively with all sorts of terrible health consequences of the fumes and part kals and everything that was going on there in lower manhattan. what we're hearing, some of you probably may know, that john stuart has been coming out to talk about that quite frequently. what we're hearing now is -- i found out again yesterday, the speaker -- the speaker's office told me he has assured members -- he's assuring people

that this is going to get done. they weren't committing specifically, publicly to which vehicle it was going to be in. so whether or not. it's actually in the omnibus spending bill or whether it hitches a ride somewhere else before the money runs out, speaker ryan says it's definitely going to get done. kin from long island, and he was saying that he has been sort of on speaker ryan's case about this just about every day, and that -- you know -- when you are in the new york metro area, it is a really serious issue. and it looks like that is going to be something that is going to get done. host: we are talking with niels lesniewski.cif you like to join us , (202) 748-8001 for republicans. (202) 748-8000 for democrats. (202) 745-8002 for independents. our next caller is on the

independent line. james from montgomery, west virginia. caller: yes, i would like to in westorruption virginia court system. i may or may not have a case coming up, but -- host: james, do you have a question about the omnibus spending bill checkup -- bill? caller: yeah, about reducing money. they gave west virginia money to do testing without going through congress about it. id i send him a list of stuff wanted him to look into about this case, and he got on there sometime in the first term and got up there -- he was in the yellow room, i guess they call it -- and made a smart remark. host: james, i'm sorry, i don't

mean to interrupt. we are talking about the omnibus bill now. unless it is a question directly for that, i'm not sure our guest can address the west virginia issue. let's move on. what is the next step for congress now in pushing this bill forward? guest: once we get past today, where the house is going to gavilan at 9:00 this morning -- gavel in at 9:00 this morning, and then we will see them advance the stopgap measure, what is going to happen when the bill itself, the bigger bill, the omnibus, is a substantial piece of legislation that will run somewhere north of 1000 pages probably. and what you will see happen, if you are a c-span viewer, is that there will be an announcement that will be made at some point, probably on monday if not sooner, maybe later, of what the

agreement actually is. and then in theory, there is supposed to be about 72 hours before the house can vote on that. so that would set the vote back until wednesday. but one notices the december 16, the date the funding expires, happens to be wednesday. so all of this is getting pushed every minute we go. we are pushing back further. on the other thing viewers should know is that someone who focuses specifically on the senate, i can tell you we are already at the point where any senator considers the disrupt. because the way the house rules committee instructed, they don't have the power to do that. any senator can seriously interrupt the timeline, particularly if the bill does not arrive in the senate until tuesday, wednesday. there may need to be another

stopgap bill to prevent it from being shut down on, say, thursday or friday of next week. host: on our democratic line, we have george from ohio. caller: yes, i am. host: go ahead. caller: i have a question. if donald trump gets to be nominee, howard that affect the senate? -- how would that affect the senate? guest: there is certainly concerned among republicans that -- and sort of republican operatives as well as, i think, lawmakers themselves -- that if esther trump or someone like him -- if mr. trump or someone like him is the nominee for president, then it makes it much more difficult for the republican party to hold control of the senate in the 2016 election. if you look at the electoral map that is facing the republicans for the senate in 2016, the

places where the have incumbent republican senators running -- looking at places like wisconsin, illinois, new hampshire, ohio and pennsylvania -- these are places that often skew more moderate to liberal when it is a presidential year. and so those are vulnerable senators to begin with. the fear is that if you have someone like donald trump , that you the ticket end up with a down ballot problem with more people coming out to vote for -- for the sake of this argument -- hillary clinton with the democratic nominee. if you had a hillary clinton versus donald trump general election contest, there is real fear among republicans about how the senate map with turnout.

ok.: up next on our independent line from massachusetts, we have ken on the line with niels lesniewski from "roll call." caller: well, i can understand why the republicans are cutting back on all the money when they want to increase the defense budget. it doesn't make sense. they are saying we are broke yet they want to start world war iii and spend money on defense. i have a defense agency right next door to us. it is all wrapped up and ready to go for the republican party as soon as they get in. they can start making weapons of mass distractions. the same thing where going to war with. i cannot understand why this country is so divided. united we stand, divided we fall. i'm seeing it fall right in front of my eyes. it is said. this is not the america i was born in.

i was able to get a job the same -- i was able to get a job. the same day, i quit. now, good luck. i'm sad to say all this stuff to people, but we've got to get -- just focus on a certain group of people. the mexicans, the kkk, it is all bad. host: let's give niels a chance to respond. guest: thank you, ken. how much is of going to be spent on defense spending versus nondefense discretionary spending is always, of course, up for debate. where at a moment to now the particular spending bill that is hopefully going to do next week. that question was resolved in the previous budget negotiation. it reached a two-year agreement

on the top line spending levels that allow them to develop what they call the budgetary allocations so that they can go forward with writing actual spending bills. now where at a point there is going to be a debate over how much of the money goes to the pentagon versus how much of it goes to the department of health and human services or any other agency. that question was resolved. but they are still working through this question of riders. we shouldn't have another debate about military spending levels at least for about another year and a half. host: on our democratic line, we have kate from maryland. kate, you are on. caller: yes, the guest there just said that term limits are done. hear himidn't correctly, but i don't understand that. if the guys on the hill had the

exact same term requirements as the presidency, after their two terms they are out of their and we are able to get some fresh ideas, some fresh perspectives up there on the hill where people have the opportunity not to decide on the same pool of -- host: i don't mean to interrupt you. i think you are referring to our last guest. right now, we are talking about the omnibus bills. do you have a question about the omnibus? caller: oh, no. i apologize. that really resonated. host: that's fine. guest: i assume the caller was talking about secretary lahood, who was on here earlier. i would say the term of a question, when it comes up and it does come up from time to time, generates sort of a degree of controversy. generally the sentiment of

longtime lawmakers -- >> and they're lawmakers so they're not going to term limits. but long-time lawmakers argue when it comes to things like a spending bill, you need to have people who are experienced enough in knowing how the government actually operates on capital hill in order to be able to oversee it and implement the policy. that's why you have senior members of congress, people like hall rogers who are actually the ones who write the spending bills. >> thanks for joining us today. >> thank you. >> on monday, we'll take you to a national security forum hosted by the center for new american security and defense one. panelists discussing future of defense industry will include robert werck and joint chiefs of staff joseph dunbard. it starts at 9:00 a.m. eastern live on c-span2.

a panel at the atlantic council examines the potential for a nuclear deal with pakistan. all persons having business before the honorable the supreme court of the united states are admonished to draw near and give their attention. >> monday on c-span's landmark cases -- >> you're under arrest. you have the right to an attorney, you have the right to remain silent. anything you say can be used against you in a court of law. is that clear? >> yeah, okay. >> are you sure you understand? >> that's right. >> he was 23 years old in 1963 when he was arrested in phoenix on suspicion of kidnapping and raping a young woman. after two hours of police questioning, he confessed and signed a statement saying his confession had been given

voluntarily. at trial, he was sentenced to 20 years. but his lawyer argued that he had not been told of the right to both an attorney or the right to remain silent. the case went all the way to the supreme court. follow the case of miranda versus arizona and the evolution of policing practices in america with our guest jeff rosen, president and ceo of the national constitution center, and paul cassell, university of utah law school professor specializing in victim he's rights and former district court judge. that's live monday night at 9:00 eastern. on c-span, c-span3, and c-span radio. for background on each case while you watch, order your coach of the landmark cases companion book, it's available for $8.95 plus shipping at cspan.org/landmark cases.

this is going to be fast. we have a very terrible bill on the floor. so many times it seems we come into this room and acknowledge another tragedy. today, i mentioned that monday marks the three-year anniversary of the heartbreaking shooting at

sandyhook elementary school. that's a little more than a thousand days. in that thousand days, there's been more than a thousand mass murders. more than a thousand mass shootings. almost one a day. sandyhook and san bernardino are bookends of a daily tragedy of gun violence that tears apart communities across the country. gun violence has claimed over 90,000 american lives in the past three years. we have the responsibility to address this. it's a public health issue. it's an epidemic. yesterday, as you may have noticed, i offered a privilege resolution to close a loophole

that puts guns in the hands of people on the f.b.i. terrorist watch list. republicans blocked the resolution for the sixth time then, for the seventh time this morning to keep the house from even debating the bill to end this shocking loophole. this morning, again, they blocked for the seventh time. 90% of democrats have already siebed. >> not just words, but honoring them with action.

we're coming up on the omnibus bill. that's why h is going to be a short meeting. a call for a 19-year ban on gun vie lengs. the gun ban -- excuse me, the ban on gun violence prevention research. american people want the facts. members of congress need the data. too many times, republicans say we can't make a decision because we don't have the data. well, let's get the data. lift the ban. even the maker of the -- i was on committee at the time. and he has now stepped away so negotiations on the tax extenders, we'll continue to

focus and we'll always have a big focus on violence prevention. this coming having moments of silence and no a. here we have two motions before us. i think we're working in a direction to get that done. i thought we were closer to a bill than that, but, nonetheless, the extender bill is another part of it. it's a massive, permanent give away, unpaid for tax package which is really the omnibus future.

have you heard anyone speaking out against this action? maybe they should be on the endangered species list, i don't know. it limb nate it is possibility of revenue reform that creates fairness and simplification in the tax code. what we want to do is do just that. simplify. make fair. lower the corporate rate. do what we need to do to create good-paying jobs here at home. this bill includes hundreds of millions of dollars in special tax breaks while neglecting hard-working families. and some of it is about

rewarding overseas activities. putting money in the pockets of the american people. i worked with president bush in landmark on that regard. that was seven years ago. it's time for this to be indexed. push push . >> while we agree on tax credits that benefit, we're concerned it's weighing too heavily toward corporate america. really, like, 4-to-1. the omnibus and tax extenders bill must be separated. i assume that they will be.

as i say, there's one group that will volt for omnibus. we'll see when it comes back without the riders and the extender bill which has very little support in our caucus. any questions? >> it looks like the terrorists in san bernardino have been planning this for a number of years. what does that say about the u.s.' ability to intercept an atecht like this? >> we had a briefing yesterday and we've had some more questions about that. i don't think we've heard the whole story yet. but our responsibility is to protect the american people any way that we can. we also have to protect our civil liberties and our country. and we have to keep that in ambulance. according to what we heard, it would have been very hard to

detect, but we'll see. this is an unfolding case and revelation. we'll see what else is there. yes, ma'am? >> have republicans responded to get rid of your bill in the omnibus? will democrats be able to reach a deal? >> i think of it more as an incentive for democrats to vote for the bill. this is, after all, a compromise. and we know we have a responsibility to keep government open and that's what we're striving to do, in spite some of the bad riders that are still in the bill from days gone by. that have, shall we say, os filled in the process.

i think it's a gift. i think of it more in the positive. >>. >> are you going to ask about the warriors? see, when the warriors are winning all of these games straight, he doesn't want to talk about it. that's the san francisco bay area. >> so, back to my question, the speaker has said that they are considering -- they're working on the tax incentive bill. is there a possibility that you get trade offs? if they do dlooef these bills apart, that that's considered this macro -- >> and what's the question?

>> well, the negotiation is being worked at that way. that you're looking at these two pieces of legislation side-by-side. because they want to get as many as possible. >> so the question is? is that how the negotiations are working? >> well, we'll see how it goes. i thought you were going to say if you joined them together. i i wouldn't vote for it. unless they have all the republican votes to do it. >> but they obviously want to get as many republicans as they can for the omnibus. >> okay. you already had your question. next? >> i'm wondering if it's starting to look unlikely that

you can still get an extender? >> no, they can have a republican extender bill. i've nevada been for it. i think it's far too expensive. i think the extender bill that is out there, as i said, is destructive of our future. it's the wrong way to go to have $700 billion in permanent tax extenders. there's no reason we have to two down that path. and, yes, there are a couple good things in there about child tax credit. i discussed those, too, before, with president bush. but it's time to have ind indexization for that. they don't want to hear about that.

as i said to senator hatch, i usually say i'm holding it up or i'm not in the loop. i can't be both. but i don't even want to be in the loop on that bill. oil, money that that means for the oil industry while it can't index for children, it's just too big, it's unfair and does not have the support of house democrats. it could have the support of others i'm not speaking for anyone kpept house democrats. and this is going to be the last question. >> some of the leaders have said that this republican controlled congress will have about a trillion dollars.lwéi republicans can be dishonest and

have how much over the last years? >> it sounds like it's a different view of what adds to the deficit. what i do know, as a stimulus to the economy, is to invest in child tax credit, earned income tax credit. because people send that money immediately, inject it into the economy. but then if you review -- small business 179, we created that. but you shouldn't be having it permanent and unpaid for. that's the issue. now, some of them are terrible. and they're permanent and unpaid for. so there's no just any case. others -- we have to pay for 9/11. what's that? about $9 billion? we have to find the money to pay for 9/11 for the health and compensation who, in an emergency, that should make it not have to be paid for.

in an emergency, risk their lives have consequence health that we owe them compensation. but permanent, unpaid tax breaks. this is not the right way. but they have the majority and this is their vehicle. there's some negotiation with them on i. i'm not part of that because i don't believe in it lt i think it's the wrong way to go. by the way, my members are the most local on this. i listen to what they have to say. i tell them what we're going to

do and i hear what they say back. they don't want us negotiating on it or anything. they think it's the wrong place to go. i think the american people understood that all of this talk about the budget and the rest. and this is a president who just has so much praise. when he took office, the deficit was 70% higher. it it's come down 70 pbts. %. so he's worked very hard to take down the deficit. if you want some of these extensions to happen, you have to go big. big means unpaid for. permanent. it's for how we want to invest in the future. take it off the table so that these are all the taken care of in any discussion we have about schism occasion or fairness in the tax code that really creates

growth -- creates more good-paying jobs in our country. it's about many more people participating. they have the majority. so they need to be ne gauche yated with, of course. the president has the signature, so that gives him leverage in that discussion. but i made it clear, don't count on my votes for that. the child tax credit, you say it's too big and destructive? >> it's in there. the child tax credit is in there. >> are you indexing it? >> they're not going to index it. instead, they put big oil in there. so when you see the bill, you say how can we get better balance to this bill by indeck saix. they come in and say no, not indexization. let's go on the other side and do big oil. it's not even an attempt.

>> but you know what, if they have the votes, this is what they want to do. we do not want to give -- we will not be accomplices. >> they want to finance it. we don't need to be for i. they'll have enough republican votes supporting their special interest friends to pass this thing in a second. and that's what i don't want to do to the omnibus bill. they don't want to support the omnibus bill. i don't know what happens to the whole pack oj of that. i think our responsibility is to keep government open for the american people they have

frivolously indicated that they'd be willing to shut it down. that is what we are doing. they could not have been thinking of the house democrats. a supporter said that when they came up with that. >> are you wi >>. >> are you going to make the wednesday deadline? >> the mexican foreign minister will speak at the migration policy institute. watch it live at 4:00 p.m. eastern on c-span. >> she was such an awe thentic person. i always thought there was more to the story than anybody had covered, certainly that i had wrote about.

she came, i think, the first modern first lady. in other words, she had a big staff, she had a very important project. she wrote her book as soon as she left the white house. she really invented the modern first lady. >> sunday night on q&a, she addresses her book lady bird in lyndon. she releases pages of the former first lady's diary. >> i think it's a perfect example of the conclusion of the women that saw something in those men the opportunity to really climb and make a mark on the world. and they married them in spite of parental injection. so she's a good example. and that's why i decide i i had to find out more about her. >> sunday night at 8:00 eastern and pacific.

this hearing is entitled oversight of the financial stability oversight council. today, we have 8 of the 10 members voting as witnesses today. according to earlier in the yar,

the chair has regrettably decline today give testimony today. and i recognize myself for three minutes to give an opening statement: washington rewarded them with vast, new sweeping powers over our lives and our economy. nowhere is it more evident than in the dodd-frank financial oversight council whose members set before us today. it's clearly one of the most powerful federal entities to ever exist and, unfortunately, one of the least transparent and least acountable, as well. first, in the hands of one-on-one political party and the one that controls the white house. the agency, themselves, are not members, thus denying bipartisan representation. it clearly injects into the

regulatory process and erodes agency independent and acountability. not subject to congressional approval removing yet another check and balance to its power. two-thirds of its proceedings are conducted in private. minutes of those meetings are devoid of any useful substantive information on what was discussed. the c.e.o. has said the proceedings make the opening look by comparison. they are all scripted. they treat their information as if it were state secrets. involving council's activities, it generates more controversy than nonbank financial institutions as systemically important financial institutions or sifis by acronym. designation is too big to fail

means today's sifi designations are tomorrow's taxpayer funded bailouts. om lousily allows huge swaths of the economy to be controlled by the federal government. >> in addition to sifi designations, refused to look in the mirror. its annual report specifically helping cause the system it identifies. greater risk-taking across the financial system is encouraged

by historically-low yield environment, the council reports. yet, the council refuses to identify the obvious source of loose, monetary policy. the council warns it reduced liquid day. >> amplifies its threat by empowering the council to designate certain firms too big to fail. the regulatory system secretive government meets, arbitrary rules and unchecked power to oversighted reform. the chair now recognizes the gentleman from new jersey.

. >> i thank the chairman chlts i thank all of our witnesses here today. i guess all of our witnesses, you all have gotten to know each other pretty well because you meet regularly in closed door sessions where the public is not allowed to basically discuss to fundamentally change the u.s. economy. i take this minute to mention ourselves to you. we're the u.s. congress. we were created by article one of the u.s. constitution. we're the ones who actually elected representatives of the american public. and we're the ones who send you all of those pesky letters that you routinely ignore. i know you're confused by this setting that the public is here, there's tv cameras here. we're open to the american public. we are transparent and we are before the american public. so if there's one thing that you take away today, and that's the way you run your hearings, that's the way you conduct yourselves. you need to become more like us. more transparent.

more open to the american public, more showing what your age -- any agencies are doing and adocument these policies so that you are no longer working behind closed doors and in secret. with that, i yield back. >> the chair now recognizes the ranking member for five minutes. >> thank you, mr. chairman. and thank you to the distinguished members of the council for driving up for this hearing. we're joined today by council and fson. to monitor and respond to the tax of systemic risks that nearly brought our economy to its knees in 2008. this cuts across every corner of capital markets housing. that's how it's specifically

designed to draw on all of the expertise of the witnesses here before us today. unfortunately, many of my colleagues on the other side of the aisle seem to have a case of amnesia about this important mandate. indeed, it was only seven short years ago that our economy lost nearly $16 trillion in household wealth and $13 in economic growth. not communicating with one another and not considering gappings between their agencies are interconnectors within the financial sector. even worse, we saw too many cases where regulators were captured by the very entities they were meant to police. many of these lessons were meant to be forgotten as we've seen with recent mark-ups to

government-funding bills with poison pill riders are far too focused on dismantling wall street reform by attacking core elements like the fsoc and the consumer financial protection bureau. these attempts to roll back dodd-frank started the minute this reform was signed into law. and make no mistake, these attempts continue today even as our economy has experienced a remarkable rebound with 69 straight months of positive job numbers, gdp growth and a houses markt where sustainable access of credit continues with the law designing to ro voek. regulatory agencies for periodic information sharing about emerging risk and reporting on

those risks to the public. further, the council has now design >> further, the council has now designated four institutions for enhancing the ro vision by the federal reserve. this designation will ensure that companies like aig never again are able to engage in risky, unregulated activity that could threaten the entire global economy. and far from the talking points of some members on the opposite side of the aisle, this enhanced oversighted is not causing some large financial companies to consider whether simplifying their structures and breaking themselves up might provide better value to their shareholders. i've also encounselored that the money market fund industry is now less susceptible to bank-like runs as a result of the pressure. the fsoc to overcome gridlock at the securities and exchange commission. finally, aappreciate that

the koungs lors made an effort to conduct that's responsive to feedback and congress and outside stake holders, for example, with this announcement in february, the fsoc voluntarily agreed to certain due process and transparency measures to further essential to improve their operations. this type of dialogue should be applauded. as we hear from the voting members of the council today, i would be interested to learn more about their interagency collaboration, good work to addressing threats and this work is central to preventing the attacks that nearly crashed main street just seven years ago. thank you, mr. chairman. i yield back the balance of my time. >> >> thank you, mr. chairman. an inefficient secretive

structure that does not reflect the reality of the u.s. financial system can have consequences for businesses and the american people. this is particularly true of the banks that have been deemed purely on asset size. on the non-bank side it's with the overzealous enforcement climate prevalent today. it should alarm all americans, judging by what we know of the staff hours spent on non-bank analysis, which we will get into shortly in the question and answer period that i have, it's clear to me that these designations and the lack of a clear path for dedesignation say federal reserve driven effort to expand government power and influence. it's time to force more transparency, to require pragmatic regulation and to curb the scene crippling our institutions and their customers. with that, mr. chairman, i yield back. >> the gentleman yields back. today we welcome the testimony

of the honorable mary jo white, chair of the securities and exchange commission. timothy massad, chairman of the commodities future trading commission, roy woodall, independent member with insurance experience, debbie matz, chairwoman of the national credit union administration, and especially warm welcome to our former colleague, mel watt, director of federal housing, finance agency. martin gruenberg, chairman of the federal deposit insurance corporation, richard cordray, director of the bureau of consumer financial protection, and last but not least thomas curry, controller of the currency. since all of our witnesses have previously testified before congress, i believe they need no further introduction. without objection, your written statement will be made part of the record by agreement with the ranking member. each of you will be recognized for three minutes to give an oral presentation of your testimony. chair white, you are now recognized. >> thank you.

chairman hensarling, ranking member watters and members of the committee, thank you for inviting me to testify regarding the financial stability oversight council. as you know, the dodd-frank act established the council to provide comprehensive monitoring of the stability of our nation's financial system. it also provides a formal forum for coordination among the various financial regulators, assisting in bringing about the kind of collaborative, sharing of information and concerns that in my view is very important to safeguarding the u.s. financial system. as one of two capital market regulators on the council, the perspective that i and the sec staff bring to the council is important in particular the sec's historical mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation necessarily gives the sec unique insight into many areas in which the council is focused, such as

the potential financial stability risks of asset management activities and products, the ongoing changes to market structure and the role of central counter parties. s.e.c. engagement with the council on these issues helps to ensure that relevant expertise is brought to bear on these important subjects. with respect to designations of any non-bank financial companies as systemically important, i believe it's important to be data driven and conduct analysis throughout the process. the council is also focused on enhancing its process and the transparency of its functions, which i consider to be quite important. toward that end, as the ranking member indicated, in february of this year, the council unanimously adopted changes to the designation process, including increased and earlier engagement with companies under review, increased public transparency concerning the designation factors and an opportunity for designated firms to meet with council staff in

connection with the annual review of their designations. i look forward to our continued study of possible further enhancements and agree with the observation that the council is a relatively new organization and should continuously study ways to optimize its functioning. thank you again for the opportunity to testify today. i would be pleased to answer your questions. >> chairman massad, you are now recognized. >> thank you. i appreciate the invitation to testify today. the cftc oversees the u.s. derivatives market. although most americans do not participate in these markets, they are vital to our economy, affecting the prices we pay for food, energy and other goods and services. for the markets to work well, sensible regulation is essential. we learned that in 2008 when a lack of oversight led to a buildup of excessive risk that contributed to the worst global financial crisis since the great depression.

my perspective as the member of the fsoc is shaped by my responsibilities as cftc chairman and today i would like to highlight a few of the cftc's priorities that are particularly relevant. first is the implementation for over-the-counter swaps. where we have made great progress. a number of financial regulators have responsibilities in this area. and the fsoc provides a useful way to communicate. second area is making sure clearinghouses are strong and resilient. we are the primary supervisor of clearinghouses in the derivatives market, we work together with the federal reserve, fdic and sec on these important issues. the cftc has taken many actions to strengthen clearinghouse resilience, but there's more work to do in this area. another priority is strong resilient markets. following the volatility in the treasury market last year, it the fsoc served as a forum to share information. shortly after the events, staff provided a preliminary analysis of what happened in the futures

markets to the council and subsequently we worked with other fsoc members to prepare a detailed report analyzing what happened. together, we continue to look at these issues pertaining to the evolution and oversight of these markets. in addition, cyber security is one of our agency's top priorities and one of the greatest risks to our financial system today. here again, the fsoc plays an porn role in facilitating cooperation. another area of focus for the cftc that's important to fsoc is the oversight of benchmarks. integrity is critical and has been a priority in our enforcement efforts. one of the most valuable functions of the fsoc is to bring together agencies and regulators responsible for oversight of our financial institutions and markets. i believe doing so better positions us to identify and address potential threats to financial stability and better serve the american people. thank you and i look forward to your questions. >> mr. woodall, you are now recognized. >> thank you, mr. chairman, ranking member and members of

the committee for inviting me to appear before you today. mr. chairman, you have asked us be succinct in our oral testimony this morning. and the committee received my open testimony last friday morning and in review of your request, i do not feel it is necessary for me to expand on it in detail. but in short, as the committee examines ways to improve the structure and the operations of the council. my written testimony discussion falls into three broad categories. first, the background and legislative history of the independent member position in dodd-frank. second, the lack of explicit statutory duties and authorities pertaining to position other than just being a member of the council and the difficulties that has presented from being only, quote, three lines in the statute. the first line creates the position. the second one sets the six-year

term. and the third one sets salary. that's all that's in dodd-frank about my position. finally, the third section of my written testimony tries to go into my willingness to work with congress on how the role and authorities of the position can be clarified to strengthen the independence of the position in order for the holder of this position to be more effective in contributing to the work of the council. thank you. i'm happy to answer any questions. >> chair woman matz, you are recognized for the testimony. >> thank you. >> if you can hit the button, please. >> thank you, chairman hensarling. i appreciate the opportunity to discuss the financial stability oversight council. congress established the council in response to the 2008 2009 financial crisis. the crisis made clear that

financial markets cannot quickly absorb the collapse of very large interconnected companies. fsoc's primary goal is to prevent system wide financial crisis. the council's multi-agency structure also ensures that a diverse array of views on risks in each financial sector is considered when making decisions. from the beginning, the council has recognized the importance of transparency and public participation. the council committed to publicly disseminating timely information about decisions while balancing the need to protect proprietary information and avoid unduly moving markets. public feedback has helped fsoc clarify procedures, enhance analysis and improve decision making. as an fsoc principal, i'm committed to continuing such improvements. each council member brings to the table a unique perspective informed by our areas of expertise and experiences.

as a federal financial regulator for almost ten years, i lead an agency that now supervises and ensures more than 6,000 institutions with assets exceeding $1.1 trillion. financial institutions of every size must carefully manage assets and liabilities. in fact, major elements of fsoc's designation of an institution include the composition of the balance sheet, off balance street exposure and interconnectedness with the entire financial services sector. fsoc has moved in creating its process for identifying non-bank financial companies. in response to public comments and congressional feedback, the council has invited company participation earlier in the process. another important asset is its annual report. the 2015 report called for heightened risk management and supervisory attention in areas such as cyber security and

reaching for yield. in conclusion, fsoc has promoted collaboration across financial regulators, established rules and procedures which reflect public input, identified systemically important institutions and furthered public awareness of threats to our financial system. the council must continue to evolve, provide transparency and remain flexible when considered new issues. i look forward to your questions. >> director watt, you are now recognized for your testimony. >> chairman hensarling, members of the committee, thank you for the opportunity to testify today about the financial stability oversight council. and to be back before this committee on which i served for 21 years. as an independent regulator, fhfa is responsible for the supervision, regulation and housing mission oversight of fannie mae, freddie mac and the

federal home loan bank system. in addition, since 2008, fhfa has served as conservator of fannie mae and freddie mac. fhfa's housing financial market expertise contributes to fsoc's ability to understand and better assess broad, systemic risk. as i recall ensuring that fhfa contributed this kind of expertise to fsoc was especially important to congress, both because housing represents a significant part of our economy and because the most recent severe disruption of our economy -- that our economy experienced resulted from business entities and others making unsafe and unsound housing and housing finance

decisions. through fhfa's active participation in all fsoc committees, fhfa engages with other fsoc members to share information, evaluate policy matters and conduct risk assessments of business entities and markets in which they operate. fhfa also participates with other members of fsoc in making assessments of whether to designate non-bank financial companies for supervision by the federal reserve. if so designated, these companies are required to meet enhanced prudential standards. this is a significant and important fsoc function and it's one all members, including myself, take very seriously. these decisions are made only after extensive engagement with the company, a thorough analysis of the facts and careful deliberations.

going forward, i look forward to continuing to engage with fellow fsoc members to meet our duties and responsibilities in a manner that fosters transparency, is fair and analytical and contributes to appropriate risk management and risk reduction. i will limit my comments to these statements, and i look forward to answering your questions today. chairman gruenberg, you are now recognized. >> chairman hensarling, ranking member watters and members of the committee, thank you for the opportunity to testify today on the work of the financial stability oversight council. financial crisis that began in 2007, exposed a number of serious vulnerabilities in the u.s. financial system. some risks affecting individual products and institutions have been recognized, neither the financial markets nor the regulatory community was able to

see the whole picture. the fsoc was established in 2010 by the dodd-frank act to address this gap in the regulatory framework. its key functions are to facilitate information sharing among the member agencies, to identify and respond to emerging risks to financial stability and to promote market discipline. the fsoc is responsible for designating non-bank systemically important financial institutions for heightened supervision by the federal reserve. we now have the benefit of five fsoc annual reports which outline the key systemic risks facing the financial system and how they have evolved over time. the first report published in 2011 described a fragile financial system recovering slowly from the deepest financial crisis since the depression. in contrast, the most recent report describes a more stable but still recovering economy and

broad based improvement in most financial markets and market participants. three areas of risk that the fsoc has been following closely and in which are particular consequence to the fdic are interest rate risk, credit risk and cyber security which are expanded upon in my written statement. as previously noted, the dodd-frank act authorizes the fsoc to designate a non-bank financial company if the fsoc determines that material financial distress of the company or the nature, scope, size, scale, concentration or mix of activities of the company could pose a threat to the financial stability of the united states. fsoc policies and procedures were crafted to ensure an exchange of information throughout the process as the process has evolved, opportunities for additional transparency, both within the operations and the designation process were identified by the fsoc and in comments by external parties.

as a result, the fsoc undertook several initiatives over the past year and a half to improve both transparency and engagement with financial companies. these steps are outlined in my written statement. mr. chairman, that concludes my oral statement. will be glad to respond to questions. >> director cordray, you are now recognized for your testimony. >> thank you chairman hensarling, members of the committee for the opportunity to testify today. i'm glad to work with you and my colleagues on council to strength our financial system. as we're all aware, a few years ago, disruptions in housing market proceeded a financial crisis that caused significant damage to our people and our economy. the ensuing recession caused millions of americans to lose their jobs, millions of families to lose their homes as the ranking member noted. many saw their retirement savings diminished. severe deficiencies in supporting mortgage backed

securities in particular created shocks that offended the financial system. in the aftermath of the crisis, congress passed financial reform legislation to address the problems that led to the crisis and help ensure they would not happen again. among the steps taken were the creation of the financial stability oversight council and consumer financial protection bureau. the creation of the fsoc provides for the first time a means of comprehensively monitoring the stability of our nation's financial system. prior to the crisis, the u.s. financial regulatory framework focused on individual institutions and individual markets in isolation from one another. no one regulatory body was responsible for monitoring and addressing overall risk to financial stability which involved different types of financial firms operating in complex ways across multiple markets. the potential for supervisory and regulatory gaps were viewed as creating blind spots. after the crisis, congress recognized the need for a mechanism to bring financial regulatories together to monitor the system and coordinate the regulatory

efforts to respond effectively to emerging threats to financial stability. one approach that congress specified to address the issues was to designate certain financial institutions and market utilities as systemically important to the financial system. for the purpose of applying enhanced prudential standards in supervision. the fsoc includes consumer bureau, which is focused on protecting consumers in the financial marketplace. products such as mortgages and credit cards are involves in some of the most important financial transactions in people's lives. these products are often funded through complex financial markets and may constitute the underlying assets for more complex and highly leveraged securities. as the crisis made clear, financial stability, market discipline and consumer protections are closely interrelated. part of the mission is to help ensure the recent economic meltdown is not repeated. practices that led to the financial crisis. we are exercising the authority congress gave us to ensure balanced oversight and prevent

harmful practices. when honest and innovative businesses can succeed on the merits, fair competition drives growth and progress and the entire financial system rests on stronger and sturdier foundations. i look forward to continuing to fulfill congress's vision for our agency and my role in the fsoc. that's what we're here today working together to do. thank you again for the opportunity to testify. i look forward to your questions. >> controller curry, you are now recognized for your testimony. >> chairman hensarling, ranking member watters and members of the committee, thank you for this opportunity to provide the views of the occ on the functions and operations of the fsoc. the occ charters, regulates and supervises national banks and federal savings associations. these banks range from small community banks to multi-trillion dollar institutions that are among the world's largest financial institutions. they hold nearly $11 trillion in assets or just over two-thirds

of the industry's total. the occ's mission is to ensure that these banks operate in a safe and sound manner, provide fair access to financial services, treat customers fairly and comply with applicable laws and regulations. as the only federal financial regulator with prudential regulation as its primary focus, the occ has specialized knowledge about the safe and sound operations of the banks. in 2010, as part of the dodd-frank act, congress established the fsoc to identify, monitor and respond to systemic risk. the council brings together its member agencies to fulfill this critical mission. through its committees and staff, the fsoc provides a formal, structured process for communicating, coordinating and responding to emerging market, industry and regulatory developments as well as to unforeseen events. as one of the fsoc's ten voting members, the occ brings

considerable expertise to the council. our examiners monitor several areas of financial risk in the banking sector every day, including, credit, liquidity and interest rate and operational risk. these are among the risks that the fsoc reviews in its evaluation of risks with respect to non-bank financial companies and financial market utilities. similarly, as many of the institutions we supervise are engaged in asset management activities, the occ's expertise in this area is also quite robust. since its establishment, the council has demonstrated a sustained commitment to working collaboratively to fulfill its mission. the council members and their staff have developed strong working relationships and the council provides a constructive forum to hold conversations, share market sensitive information and to ask the tough questions that help make the u.s. financial system safer. the council has also made positive strides in enhancing its transparency both to the

general public and to the companies under consideration for designation. dodd-frank provides the fsoc with duties and responsible to promote the stability of the u.s. financial system. the issues that the council confronts in carrying out the duties are by their nature complex and far reaching. my written testimony includes additional information about the specific mandates congress has given the fsoc and a discussion of some of the important actions the council has undertaken. for our part, the occ is strongly committed to helping the council achieve its mission. thank you for the opportunity to appear today. i would be happy to answer any questions. >> the chair recognizes himself for five minutes for questions. by show of hands, how many of you have any professional experience in the private insurance industry? please raise your hand. i see two. mr. woodall and miss white.

let the record reflect that. how many of you have had experience in regulating insurance companies by show of hands, please, raise your hand. let the record reflect only mr. woodall raised his hand. as fsoc's independent member having insurance experience, you dissented in the metlife and prudential designation. you wrote, it confounds me that much of the council and staff continue to misunderstand the insurance regulatory framework. you went on to say that fsoc's analysis relies on implausible, contrived scenarios as well as failures to appreciate aspects of insurance and annuity products and importantly state insurance regulation and the framework of the mccarron ferguson act. do you still stand by those comments? >> yes, i do.

if i could expound just a little bit the basis of all of that and put it in perspective. i was pointing out that under the statute, there are two determination standards under which the council comes up with its idea that a company is a siffy. the first one is the only one that's been used so far. that is if there's a material financial distress at that individual company, which could be a threat to the entire u.s. financial system. the other is activities. are there activities that could be a threat. my push has been to get the second standard of activities to be used across sectors so we can get at the very things that are causing this systemic risk. across sectors. we have a situation where if we have a company and it knows it's

doing an activity that's systemically risky, it can sell it and then essentially we have lost them. they are there, but the risk and the systemic risk could be in the system. >> what are the implications of designating a traditional insurance company a siffy, since they are under state based regulations, we will have a duplicate regulatory system? do you believe those costs could be imposed upon policyholders and insurance company investors? in other words, what's the harm in designating an insurance company as civvy? >> it could come to higher prices because they have higher regulatory costs. also, with a higher regulatory cost, the products have to be priced higher. it puts them in an unlevel playing field with the people

and the companies that are not designated. >> chairwoman matz, prior to designating prudential, did you make inquiries, request, economic analysis on what this designation could mean to insurance policy holders? was that part of your decision making process? i'm sorry. >> no, it was. >> it was not. >> do you believe it should have been? >> that was not the mandate that we had. the mandate is to determine if material distress at a non-financial institution could cause -- could pose an emerging threat to the stability of the united states. >> under section 113-a2 of dodd-frank, there are 11 different factors you are to consider.

with respect to the prudential decision, to what extent did the leverage of the company play a role in your decision to designate it? >> it was the combination. we were briefed extensively on the financial -- >> i'm sorry. briefed by who? >> briefed by the fsoc staff and the staff that works with them, that participates with them. >> so does the ncua staff have expertise in insurance company leverage? what was the specific leverage of prudential that caused you concern? >> the determination wasn't based on the insurance activities. it was based on the financial activities of the company and how they are interwoven with other -- >> specifically, which activities were those that were interwoven that concerned you? >> the extent of their leverage.

the derivatives. >> i asked you about the leverage. >> securities lending. their debt position. the difficulty to resolve them if there was financial distress. it was not one factor. >> chair's time has expired. the chair recognizes the ranking member for five minutes. >> thank you very much, mr. chairman. let me first go to mr. woodall. is aig designated, mr. woodall? >> yes. >> should it be? >> well, at the time when they were designated, we were coming right out of the financial crisis. the first two designations were aig and jecc, companies who had

had some problems during the crisis. >> some problems? big problems. >> big problems. >> okay. so it should be a sifi? >> at that time. >> at this time? >> it's half the company it was then. >> at this time? should it be a sifi? let me just go on to mr. gruenberg. in the dodd-frank act congress recognized our banking regulators failed to engage in regulatory oversight of large banks leading up to the crisis. as such, we put in place enhanced prudential standards to set forth the basic requirements for a bank to be well run, capital resolution, risk management, among other factors at the same time the deliberative process in congress led to an exemption from the requirement. congress also directed the fed to tailor certain regulations for large regional banks based on size as well as provide the fed with the option to exempt certain banks above $50 billion from certain requirements.

both in committee and through potential riders to funding bills. congress is now contemplating legislative proposals that would undo this important work. these proposals would instead rely on the financial stability oversight council to affirmatively designate banks for enhanced prudential stand d standards for all but the very largest global megabanks. chairman gruenberg, do you think that such proposals would be ill advised? what did the 2008 financial crisis teach us about how the failure of one or more large regional banks could harm our financial system? and in terms of bank resolution, which failure during the crisis era was the most costly for the fdic's deposit insurance fund? >> hit the microphone, please. >> to answer the question question at the end, the most costly failure to the fdic during the crisis was the

failure of indy-mac, which was a thrift institution with assets of about $30 billion that ultimately cost the deposit insurance fund over $12 billion, which is the most significant loss during this crisis and i believe in the history of the fdic. and it does show the importance of having a prudential framework for larger institutions related to capital and other standards and to respond to the first part of your question, i -- as a general matter, i think the framework in place is a reasonable one. it generally gives discretion to the agencies to tailor the prudential standards to the size and complexity of the institution. and i generally think that's an appropriate approach. >> well, let me just ask you this so it can be reiterated. has the federal reserve began

tailoring enhanced prudential standards for banks above 50 billion with increased stricken genesee based on bank size? would you continue on that? >> yes. i believe -- i wouldn't want to speak for the fed. but just to -- as an observer, i believe the fed has done that generally focused the enhanced prudential standards on the larger institutions above $250 billion. and has tailored standards for those below. >> all right. can more be done in this regard without reopening dodd-frank to potentially negative consequences? >> yeah. i do think as we progress in this process that this is a focus for all of the agencies to ensure our regulations are appropriate to the size and complexity of the institution. >> so basically what you are telling us, there's been no resistance to fsoc, you know, taking a close look at what can be done and using its discretion

to make sure that not only they honor dodd-frank but they have the flexibility to make modifications where necessary? >> i agree with that, congresswoman. >> thank you. i yield back. >> the chair now recognizes the gentleman from new jersey, mr. garrett, chairman of our capital market subcommittee. >> thanks. i've been looking through the minutes -- if you can call them that -- of the fsoc published. one of the things i notice is to who actually shows up and who can attend fsoc meetings. people like the fed governor, dan truillo, who is not a member of fsoc is able to attend and attends various meetings of fsoc while commissioners of the various boards and commissions do not attend. seems that there's a -- not a very clear criteria as to who can and cannot attend. in september, according to minutes, the fsoc held with about 20 or so invited guests from various agencies.

yet again, the commissioners of various agencies are not on those lists. i'm going to take out of al green's methodology here and ask for a show of hands. all of you who are on the panel today who are part of a organization that has either a commission or a board, can you raise your hand so we know -- not everybody up there has a commission or a board, right? for those who raised their hand, do you trust your commissioners or your board members as their ability to keep things confidential? do the members who raised their hand trust their board members? maybe i should flip it the other way. is there any member who does not trust their board members or commissioners? they can't keep things secret? so, if that's the case, let me

run -- chairman, if any of the member of your commission wanted to come to you and ask to attend an fsoc meeting, you trust them, can they come to an fsoc meeting? >> thank you for the question. i don't think that's the structure provided for in the law. >> would you personally object to them being there? >> well, i think it is important for the fsoc to follow the -- >> i don't know there is anything in fsoc rules that -- is there anything specifically in the requirements that say they cannot attend, but other guests can attend? >> i'd have to get back to you on that, congressman. >> you allowed 20 other guests to be there in september, and i guess that was okay. did you know at the time they were there that they were allowed to be there or not? let me go to chair white, since he doesn't know. would you object if one of your commissioners wanted to attend an fsoc meeting? personally, would you have a problem with that? >> i think the protocol is for the chairman to pick one person, one staff person to accompany them, that's the structure on it. >> i understand what the structure is. i understand that you've been -- that the whole entire board has

been precluding openness and transparency. what i'm trying to find out is for all of you who have just raised your hand who said you trust your board or commission with secrecy, is there anyone that would say that they cannot attend? well, good. can i have an commitment then of all those who said they would not object that you would work for the next meeting to allow your board and commissioners? please raise your hand if you will not encourage your chairman to allow them to attend the next board meeting? let the record reflect -- >> wait. >> two people. mr. gruenberg, you will not recommend to the chairman that your commissioners be able to attend? >> correct. >> i would follow -- >> no, let me go there. you didn't raise your hand. do you not trust your members? are they not able to keep things secret? i want to be clear on that. >> no -- >> to me? >> i do, congressman. just a couple of points if i might. >> sure. >> from the fdic, as it happens, as a matter of statute, three of

the members of our board are statutory members of the fsoc. so majority of our board are represented. and i certainly have greatest trust in our other directors. i would note that i share with our other directors all of the information available to the fsoc. >> but you have no problem with dan truillo attending quite frequently. something about your board that you don't trust them is what i'm taking from this? >> no, sir. >> why do you object to them being there? >> it is a matter for the entire fsoc, a matter of functionality in terms of -- >> in september there was sum 20. for your own board members, i'm taking the perception here that either you don't trust your people, or you're doing something in secret. which one is that? do you not trust your people or you're trying to do something in secret? >> neither, congressman, for what it is worth. >> you haven't given us an

answer. will you recommend to the chairman -- the rest of the panel who raised their hands, will you recommend to the chairman these people, the meetings be open to the rest of the commission? >> i'll follow the congressional structure. i think -- >> there is nothing in the congressional structure. that's been pointed. will you make that recommendation? >> i would discuss it with my fellow members of fsoc and the chairman. discuss it with them as i have before, discuss it. >> so no one, will anyone here make that recommendation, positive recommendation? so let the chair reflect that no one who has come here before will make a recommendation, they want to continue to keep their meetings secret. >> time of the gentleman has expired. the chair now recognizes the gentle lady from new york. >> thank you, mr. chairman. mr. cordray, the cfpb's core mission is consumer protection, which may not seem link to systemic risk. however, i don't think that is the case. can you elaborate on what role consumer financial protection plays in the stability of our

economy and how your agency's work helps inform fsoc? >> thank you, congresswoman. first of all, congress set the structure of the council. and determined which agencies should be represented there. and it is a broad cross section of the federal financial regulators. in the case of the consumer bureau in particular, it is worthy of note that the financial crisis that gave rise to the council was caused, everybody agrees, people disagree somewhat as to the chain of events that led to this, but a meltdown in the housing and mortgage markets that transmitted through various channels through the economy and threatened the stability of the financial system, gravely threatened it. the very first issue that was raised at the first meeting, which is before i joined the fsoc.

i was not yet the director of the consumer bureau, was mortgage servicing and foreclosures. and there were briefings on those of the first several meetings. those are issues that are very central to the work that has been done in the early years by the consumer financial protection bureau. and all of us on the council are charged by law examining the economic system for emerging threats to financial stability, which we do the a annual report has been a very good and transparent and thorough account of the counsel's thinking about both present and emerging threats and is our best attempt to monitor and report on what we see in the financial system at that time. there were various issues that each member of the council and each entity that they represent is more or less expert in. and we share 245 expertise with one another to try to arrive at a broader, more comprehensive view of the system than each of us could do alone. >> thank you.

>> we have heard from opponents from the process that there is insufficient opportunity to engage with the council after designation. do sifi designated firms have opportunities to meet with fsoc staff to review their status? >> yes, congresswoman. as you know, as a statutory matter, we are required to reevaluate a designation annually. >> thank you. i yield back. >> the gentlelady yields back. the chair recognizes the gentleman from texas, chairman of the financial institution subcommittee. >> thank you, mr. chairman. chairwoman, there has been a lot of discussion about what it means for a bank to be systemically important. the office of financial research released a report where they examined the systemic risk indicators. they used the indicators that had been developed by the basil

committee and applied those to some of the largest banks and holding companies. it was an interesting finding that the report concluded that the least systemic usgsib was several times more systemical than the other major u.s. banks, the regional banks. yet all of those institutions fall under the requirement for enhanced provincial standards based on their asset size. so are you familiar with that report? >> i have not seen that report. >> you have not seen that report? >> no. >> one of the requirements -- the main functions of ofr is to furnish the committee with information to hopefully help them make better determinations. so i would avail yourself of

that report. would you agree that setting up certain standards to measure companies is appropriate? i mean, if you haven't seen the report, basically they took the basil standards, five of them, and applied them to the companies. do you think that's a good way to approach that? >> we have stayed away from creating bright lines and instead look at whether material distress at a company could pose a threat to the financial stability of the united states. and since each company has different business plans, different business models, we have not drawn a bright line or been very rigid about what the standard is. it is looking at the entire company and then making a determination on very deliberate consideration. >> director watt, have you seen

the ofr report? >> i have not seen the report you're referring to. section 113 of the dodd-frank requires fsoc voting members to at least 11 factors before designating a nonback financial for federal supervision including leverage, scope size, scales. do you think that's -- i'll start back with you, chairwoman matz, do you think that's appropriate to use 11 different factors in the determination of whether a nonbank company is systemically important? >> yes. >> director watt, would you agree with that? >> yes.

i mean, we're not second guessing the statute. we didn't write the statute. well, actually i was involved in writing the statute. but i'm not in a position to second-guess it now. i voted for it. >> well, i think the point i'm trying to make here is that it is a little puzzling to me that it is appropriate for nonbank entities to be subject to standards. and i think, in fact, director watt, you said your testimony you are committed to an analytical process. we subject these to 11 different factors. yet we only subject banks to one factor. that is size. so shouldn't we be -- if this is going to be an analytical process, shouldn't we establish factors for analyzing banks in a

way of analyzing whether they are systemically risky or not? >> i think these are really the same factors that any of us would take into account. it may not be specified in a statute for individual banks. but one of the primary problems during the meltdown is there was no supervision, they weren't answering to anybody. >> i'm not talking about nonbanks. we talked about -- >> i thought that's what this was designed -- specifically what the talk is about. >> the question is, we're subjecting banks based on their size. we don't even consider the other factors. shouldn't we be considering a litany of factors from we determine whether these banks should be subject to enhanced standards? >> i think it would probably be

more appropriate for mr. curry and mr. gruenberg to answer that. i don't regulate banks. but i would think that they take into account all of these considerations. >> but you do sit on fsoc, is that correct? >> time for the gentleman expired. the chair recognizes the gentleman from texas, mr. hinojosa. the gentleman from texas. >> thank you, chairman and ranking member waters for holding this important hearing. i also wish to thank our distinguished panelists for testifying today and for the dedication to ensuring safety and soundness of the foreman financial system through their participation on the financial system oversight council. as a senior member of this committee, i applaud the counsel's progress to date, and i look forward to hearing from our panelists on the counsel's priorities moving forward. two particularly important lessons come to mind today. first, it is absolutely essential to have a bird's-eye view of our financial system in

order to identify and prevent systemic risks from destabilizing the entire economy. in crafting the dodd-frank act in congress recognized this and had an entity of our banking, insurance market and housing regulators with ensuring the system as a whole. financial stability of the system as a whole. secondly, we should not just assume that the markets will will take care of themselves. instead, we must support and empower our regulators to be able to act when needed. we should be looking to strength our system and the safeguards we incorporated after lessons learned from the last crisis rather than berating our regulators in an attempt to restrict their ability to act by tying them up in bureaucratic knots.

the first question to mary jo white. much criticized report from the office of financial research discussed the risk that the asset management industry posed to the united states financial system, critics argued that the asset management industry poses absolutely no risk to our financial system. however, haven't counsel's actions, including the publication of the report by the offer spurred sec to take action with respect to money market funds? >> the answer is sec independently proceeded. i'm aware obviously of the public recommendation of the fsoc. but it proceeded independently in the structure of money market funds. >> can you elaborate on what sec were spurred by the fsoc and how these actions were making our

markets and investors safer? >> well, again, i think the sec proeldedded independently of the fsoc recommendation. certainly since i have been there as chair, proceeded totally independently. it was an important thing to do. to allude back to your first comment, though, it is very important that bird's-eye view, big picture view be provided by all the financial regulators that do sit on fsoc. >> thank you. the currency, some if criticized dodd-frank's structure for allowing some of the agencies to have voting rights systemically designations made by the fsoc. are you comfortable with with the deliberative materials received from the council staff and do these materials adequately prepare you to make informed decisions?

>> thank you, congressman. there is an extensive amount of material presented to me as a member of the fsoc in connection with any designation. there is a fairly elaborate process, three stages by which that information is developed. stage one is for publicly available information or from contacts potentially with supervisors. stage two, which engages -- gives notice to and engages a institution under con the designation committee. and finally we have a process, stage three, where there is extensive communication and development of analysis and records for the council's consideration. >> thank you. mr. cordray, has the fsoc taken a look at aggregate depth levels

from various areas of the economy? >> we have. and i believe we should. >> do you think the current amount of debt in the aggregate poses a risk to our economy and why or why not? >> i think everyone could have their own personal point of view on that. i think this is certainly one of the factors that the fsoc has looked at in terms of thinking about systemic risk is both debt and leveraging of levels of investment. and therefore how much risk could be transmitted through the system if there were adverse developments to the extent to which capital is deployed. so i do think that is an appropriate factor in looking at the kind of issues raised before the council. >> the time of the gentleman has expired.

the chair now recognizes the gentleman from new jersey, housing and insurance subcommittee. >> thank you, mr. chairman. we put up a chart, i don't know if everyone can see is it or not. the side, i'm not sure we can get there. i would like to follow up on the chairman's comments and questions with regard to nonbank designations. and what i'm concerned about is perhaps fed driven decisions on some of the designations. and if you look at the bottom part of the chart there you can see that the national credit union administration in 12 and 13 had two members that they dedicated or had done some analysis with regards to nonbank designations. and in '14 we have none. miss matz, are you an expert on insurance analysis? >> no. >> you are not an expert. and we have no one designated to do analysis. this information -- you can't read the fine print there. this analysis comes from data

given by your agency to the gao, if i'm not mistaken, which is in this report right here. >> i don't think that's correct, though. >> sorry, ms. matz. that's information you gave to the gao when requested. so my concern is the federal reserve has 25 people designated to make this analysis. you have zero. >> that's not correct. >> it's correct. >> it's been stated. i don't know where they got that information from. >> they got it from you. >> it is not from me personally. >> it is written on the bottom of the sheet. it says each agency, the information came from each member agency and represents individuals involved in the analytical work. >> it's not correct. >> how many do you have there? >> we have two people. >> two people. are they experts in insurance? >> they are not experts in insurance. >> they are not experts in insurance. how can they make educated

analysis is whenever you're making designations with regards to nonbank designations which involve insurance companies? how do you make that determination then? >> it is not the insurance part of the business that results in the designation. it's in the financial services part of the business. and how intertwined it is. >> so the insurance part of the business is not important with regards to the designation of a sifi? >> no. it's not. it is the financial services part of the business. >> the financial services part of the business is the only part that you look at? >> yes. >> wow. okay. mr. cordray, you sort of struck out across the board there as well. are you an insurance expert, sir? >> i am not an insurance expert. >> is this number incorrect as ms. matz indicated hers was? >> i'm not sure what analysis was used to get to that number. but the reality is each of us has deputies who work together on the fsoc on the analysis. then i am briefed and have a

chance to review the materials, extensive numbers submitted by companies you are saying this number is incorrect as well even though this is information your agency gave the gao? >> i am saying the slice on it here is not reflective of the full work done at the fsoc. nonetheless, i'm not an insurance expert, but certain members are not investment experts or banking experts. it is all of us together. >> mr. cordray, this goes to the heart of the matter here. you are sitting on a board that makes a decision on the designation whether something is systemically important or not. if you don't have the personal expertise, you need to have somebody on your staff. it's not an independent vote you're casting. it is based on whether somebody on this board is telling you it should be done. that's not the way the system should work. >> i don't think that's correct. there is fsoc staff. staff of the member agencies

contributed to worked together and our own analysis. again, to focus only on the insurance company potential designations is only a partial picture. there are bank designations, other financial company designations, investor area designations. everybody has relative expertise in some areas. >> okay. less in others. we're not done. you have zero people across the board. is that incorrect as well? >> i think your chart runs through july 2014. >> that's right. >> i took office in june. >> okay. >> shortly after that i have my staff involved in the designation. >> so now you do have some people involved in this designation? >> a few of our staff. >> one, two, ten? >> well, it depends on the issues. we're a small agency. we're limited in our resources. no one is fully dedicated to these issues. certainly i try to get people involved as necessary. >> one more quick comment before i'm out of time here. with regards to the sec, ms.

white, your numbers are 0, 2, and now 12. in your testimony you indicate -- or you say that it's important that it be data driven and conduct rigorous analysis throughout the process. how can you do rigorous analysis back in '13 when you made it approved with two people and now you have 12? was that a stumble back then and you realized you didn't have adequate staff? what was the problem back then? >> i can only speak to the time i was in there. >> you were there. >> i didn't participate in the designation. i would have is to drill down on those figures. what we do at the s.e.c., my written testimony reflects this is, again, it is not full time people devoted to fsoc work streams but who we need in the particular areas are called upon to assist me in analyzing the information. >> so the concern is still there, that we are not doing our job doing analysis. >> time for the gentleman has expired. the chair recognized another expired. the chair recognized another gentleman center missouri, mr. clay, ranking member of the financial institution

subcommittee. >> thank you, mr. chairman. thank all the witnesses for attending today. some have criticized the fsoc designation process as being opaque. gao also made several recommendations to the fsoc to improve its transparency. to your knowledge, how has the fsoc addressed the recommendation of the gao? would you also describe how the fsoc changed its process with the february 2015 supplemental procedures announcement. and, i mean, anyone can volunteer on the panel. there's so many to choose from. ms. white maybe? >> i think in terms of the gao specific recommendations, i think those were responded to by

the secretary of treasury as the chairman of fsoc not agreeing or disagreeing with the recommendations. i do think what i'll call process and transparency change made by fsoc in 2015 address a number of those in terms of both transparency, clearer information to companies as to when they can interact, when they are being analyzed in stage two. there is a lot of back and forth before those changes. i think a number of changes are responsive to those recommendations. >> can you -- yes, sir? >> just to respond to your question, congressman, i think the focus of the february procedures was to try to enhance engagement of transparency for the stage two process so it provided notice to the firm that it did advance from stage one to stage two and an opportunity for the firm to engage with the fsoc staff. if requested, the public information that the fsoc was

using as part of that stage two review, as well as notice if a firm is not advanced from stage two to stage three. and if a firm is advanced from stage two to stage three, they would be notified of that and a set of procedures with stage three. so it was an effort to provide both greater insight for the firm in terms of notice and greater opportunity to engage with the fsoc. >> could i simply add, to me this exemplifies vigorous congressional oversight. the congress and this committee had comments on fsoc. we have hand listened to those. we have listened to the gao reports. it is a new body. it's still just a few years old. transparency is developing as we go. and i believe has been responsive to a lot of the concerns raised here. >> and what changes have you made to the annual and five-year

designation review processes to ensure more due process rights are available to companies? mr. gruenberg? >> i think the procedures made clear that part of the annual evaluation process a company can submit information, engage with the staff in terms of the information being presented, and get feedback in regard to the process. and the procedures provide assurance of a hearing with the fsoc at least every five years. >> generally, general electric said it would share most of its assets operated out of g.e. capital. in making the announcement, g.e. noted the company will work closely with regulators and staff of fsoc to take the action

necessary to designate g.e. capital as a systemically important financial institution. further, g.e. ceo noted, we have a constructive relationship with our regulators and will continue to work with them as we go through this process. can you describe how fsoc will go about working with ge? anyone? yes, sir. >> there is an ongoing dialogue with the company as to what its plans are, what its structural changes are. that will continue at an annual review or sooner. a decision will be made once those plans have been actually executed. >> i see. thank you very much. mr. chair, i yield back the balance of my time. >> the gentleman yields back. the chair recognizes the

gentleman from michigan, mr. huizinga, chair and trade subcommittee. >> thank you, mr. chairman. i apologize. i had to step out i had visiting constituents. i wanted to make sure i understood where my fellow subchair was headed. and i think we're kind of on the same path and direction. i want to at some point get back to your written testimony, which i found very fascinating. i have a couple of questions there. but i would like to also see a show of hands who here believes that congress has the right to understand how fsoc makes its determination decisions? so if you believe that. let the record reflect that all believe that that is an important part. i would like to get a sense of

what materials fsoc materials were reviewed. are there memoranda prepared by by fsoc staff that you rely to to make your decisions. who here is willing to share that? raise your hands. who is willing to share that with us? nobody? let me repeat the first question i guess. >> can i make a comment? i think congress is entitled generally to whatever information it wants. i would want to simply check with staff to make sure we are abiding by our obligations to keep nonpublic information confidential. congress is entitled to get whatever information it wants. >> maybe that's not even public meeting. maybe that's a private meeting being able to share that. mr. gruenberg? >> congressman, i think the

analogy is one of our regulatory agencies considering action with regard to a particular institution. that is what fsoc is doing. >> sure. >> so two points. one, dealing with confidential supervisory information which would probably be an applicable standard here in the fsoc. that is generally not shared. although as we have at other instances, congress gets the information it requests. >> sometimes that takes longer than the time frame. you may have noticed around here. so you believe congress has the right to review the materials. >> i think congress has the right to request. >> those are two very different things. >> i think if you accept the premise we are dealing with confidential supervisory -- >> if we can do that, whether there are certain things -- what i don't want are redacted sheets

that look like they're blacked out all the way. i'm looking for a venue for us to review. frankly, if you hear a lot of questioning on both sides of the aisle, we simply do not understand. mr. woodall? >> i think there is one confidential memorandum that has been made public. the confidential basis in the metropolitan life case, it is my understanding has been filed in the court and is a public record. >> okay. >> i would just want to be clear that the reason i would not raise my hand is because i would not make a unilateral decision. this is a collaborative body. fsoc, if we got together, would turn over whatever would appropriately be turned over to congress. and i would be supporter of that being a robust order.

i certainly wouldn't make the unilateral decision. >> you sat on this side of the microphone. sometimes that takes far too long to get responses. >> that is not a justification for an individual member of a collaborative body. >> i fully understand. but you all just raised your hand. since you are the voting members, you all said we've got a right to this. so let's come up with a collaborative way of finding out how we're going to do that. real quickly, i was fascinated in your written testimony how you had been prevented from, quote, being in the room with international insurance policymakers. a number of us did a trip to switzerland back about two months ago. they seemed genuinely surprised that congress was not up to speed on exactly what team usa is saying and doing in that room. and also i would -- as we were indicating, many of us, both sides of the aisle again that

were on this strip, supportive of your involvement in that. they seemed genuinely perplexed that someone with insurance expertise was not being allowed to be part of that process. so real quickly, if you could comment. >> international things you work. the consensus within team usa, you have three u.s. equal representatives at the iais. >> and you said you had been supported by two of those for being in the room. >> right. >> the third that is not supportive is? >> it's treasury. without that consensus is. they are taking the position -- and i want to be fair about this. they are taking position that the statute gives me no such authority. i have no duties or responsibilities designated in the statute. >> the time has expired. the chair now recognizes the gentlelady from new york,

ms. maloney, ranking member of capital market subcommittee. >> i thank the chairman and ranking member for calling this important hearing. this is the most people i have ever seen at that desk in any hearing or reviewed in the history at a hearing. it's a very important topic. i am glad to see my former colleague, mel watt. welcome back. my question is, when the fsoc is analyzing whether a company is systemically important, it doesn't measure whether the failure of the company would destabilize the system in normal times. instead, it measures whether the company would destabilize the system in a period of stress in the financial industry. and i have two questions for the panel related to this. first, why did the fsoc choose that standard? it seems that this standard could certainly play a key role in determining whether or not a company is systemically important.

and secondly, what historical precedence does the fsoc review in making these evaluations in a period of stress in the financial community? do you look at the 2008 financial crisis, the asian financial crisis of 1997 and '98? what do you look at as precedent when you study these crises. i would like to start with chairman gruenberg and chair white, and curry and the panel's thoughts on these two questions. thank you. >> thank you, congresswoman. i think the view was the impact would be the most realistic scenario to try to assess this systemic consequence of the firm. and i think it was very much a product of the 2008 crisis experience. and i think we looked to the

experience another crises in trying to make these assessments. but i think that was a threshold judgment. >> i agree with that analysis and its guidance and it would be analyzing in a period of stress which would only make sense given what your purpose was in terms of judging and trying to prevent significant negative impacts on the financial system. things in times of nonstress don't work so well in times of stress. in terms of what is looked to, not limited to how things operated in the 2008 period, but that is typically part of the other scenarios as well. >> mr. curry and then watt. >> congresswoman maloney. i agree with my colleagues. i think in order to assess especially the interconnected

aspects of the financial system you have to assume in the first place that it is in a period of stress. i also think there is some textural support to take that approach. in terms of what we would look to for the range of historic experience i think the 2008 crisis certainly stands out in terms of its significance. its breadth and i think what people never would have assumed is the underlying source of it or the spark, the housing crisis. and i think that would be our approach. >> i was just going to refer you to a specific wording of the statute which said council determines that material financial distress at the nonbank financial company, that's the standard set up in the statute. it is an appropriate standard, i think.

but, again, we're not trying to second-guess the statutory provision that was written by congress. we're following the statute, not second-guessing it. >> well, i'd like to ask chair white, as you know, there's been a great, great deal of discussion this year about how the fsoc could improve its sifi designation. one of the suggestions i kept hearing, and probably you heard also, is the fsoc should tell companies what actions they needed to take in order to avoid being designated as a sifi. this struck me as a dubious idea. do we really want the fsoc to be making these kind of core business decisions for private companies? and in my opinion, the fsoc should identify the systemic risk. then the company should figure out the best way to restructure its business to eliminate the risk. and when the council adopted

changes in february, you decided not to include this suggestion. can you elaborate why they wanted this distinction and do you think it is important not to use the designation process as a way to tell companies how to be run? >> i largely agree with your assessment. i don't think fsoc should tell companies how to structure their business. i think maximum transparently is obviously something we care about at fsoc and is important to do. most often, i think the designations are not going to be based on one or two or three metrics but rather a business model. so it is a very complex under taking as well. i don't think fsoc got to tell people how to run or structure their business. >> our time has expired. thank you very much. >> the chair recognizes the gentleman from wisconsin, mr. duffy. chairman of oversight investigation subcommittee. >> thank you, mr. chairman.

just to reiterate. i believe when asked the panel who had insurance experience, it was mr. woodall and chair white. is that correct? so if i'm to ask the panel, if you were to point out the one insurance expert of all the witnesses today, who would you point to? >> mr. woodall. >> thank you. i would kindly agree with you. mr. woodall. >> i don't want to overstate my expertise. >> does it concern the panel that the one person with insurance expertise is the one individual who dissented in the designation of prudential and metlife? or chair matz, as you say, we're not really looking at the insurance side, we are looking at financial services side so it doesn't matter? >> that's correct. and also the head of the federal insurance office did support the designation and also has considerable experience in the

insurance agency. >> did they vote on fsoc? who is the one with insurance expert? i think the panel has all agreed on the oversight front that congress is entitled to do oversight over fsoc, is that correct? you all agree with that. our committee, under the signature of the chairman, sent a letter to jack lew asking for 13 different points of information from fsoc there were partial compliance with a couple of those. does the panel disagree that if we have already gone through a designation process, that congress is not entitled to nonpublic information? you don't disagree with that, do you? why aren't we getting this information? why aren't fsoc members complying with our request?

it is concerning for our panel. if you're concerned about the questions you get about the transparency of fsoc, it is because the elected members of this body don't have timely compliance or any compliance from mr. lew or any of you. if there's already been a designation, if we're asking about aig, prudential or g.e., you can make the argument with metlife there is litigation. so we don't want to give you that. you might say that. i won't agree with that. but fair enough. aig, prudential and g.e. will you comply with our requests about the analysis that went into the designation process? the memos, the correspondence, all that information. everyone here, will you comply with that request? raise your hand if you will comply with the request to provide us that documentation.

i got no takers. so, why not? mr. gruenberg, why not? >> congressman, if i may say, you raise a fair question. i think probably want to go back and look at the request. it seems to me the line here is when you're dealing with confidential supervisory information and we're dealing with the three companies you referenced. they are open institutions. so you have to strike a balance there. >> chairman gruenberg, listen, do you know there was a recent attack -- some allege by isis -- in san bernardino? >> yes. >> you know that, right? do you know this body gets intelligence briefings from the fbi in regards to terrorist attacks? i would argue american lives are in danger by these radical extremists. does anyone argue that anyone's life is in danger by the work done by fsoc? raise your hand. so we can get fbi briefings but

you won't give us briefings on the analysis that's gone into designation of certain companies in america? will you explain that to me? why am i entitled to briefings on isis and not from fsoc designation? >> well, sir, i can only speak to the fsoc issues. i'm not familiar with the intelligence side. as a general matter, certainly transparency and accountability is different. >> no, why can i get information on isis, and you can't send me information on designation? >> there are determinations in the -- >> fbi says it is nonpublic information as well. >> i respect that, sir. >> are you making decisions that affect someone's life? >> no. >> is isis affecting people's lives? >> yes. >> i would think that is far more serious information that we're entrusted with than the

information you have and aren't complying with. the bank of england sent a letter asking why berkshire hathaway is not considered a sifi. i think barack obama said he was a great friend. is there a political analysis and connectivity with people in power that go into the determination of designation on fsoc? >> not from me. >> anyone? >> no. >> i yield back. >> the chair now recognizes the gentleman from california, mr. sherman. >> thank you. >> folks, i do think your decisions are life and death. you'll never meet the people. we have another 2008, every one of our districts will have higher divorce rates, higher unemployment rates, higher drug use rates. and we will never be able to go to a particular funeral the way you can in san bernardino and say, this is what happened.

but there are thousands of americans who would be alive today if we didn't have the 2008 meltdown. so your work is every bit as important as those who are focused on terrorism. the -- ms. white, we've got the financial stability board. we don't have -- well, we have one of its members here. but it doesn't answer to you, the american people. how can we be sure that they don't push us to an activities-based approach on asset managers or anything else, that the decisions that are made that affect the american people will reflect the decisions made by those answerable to the u.s. government and that it won't be just a matter of, well, we went to the meeting, everyone else kind of wanted to go in this direction.

i've seen this. people talk about terrorism. we paid loans from the world bank to imf, and i was told oh, we'll never let that happen, it's all consensus. they said, oh, sorry, we got outvoted. so how do i know that to get along we don't go along with policies? >> as you point out, the treasury, fed and the sec, set on the fsb i think in 2009 when it was established very importantly to look over potential risks to global financial stability. but whatever comes out of the fsb in terms of recommendations or suggested standards is not binding on the u.s. and certainly with respect to where there is overlap and the designations that have been talked so much about. we act independently.

of the fsb. there's separate processes. >> thank you. there's all this focus on whether an entity has a lot of assets. lehman brothers didn't go under because it had too many assets. it had too many liabilities and contingent liabilities. ms. white, when you analyze whether an entity should be designated as sifi, do you look at the size of their assets, the size of their balance sheet liabilities, or on the size of their off balance sheet -- contingent liabilities, including credit default swaps. >> all the above. and a host of other factors too. >> i would hope you would focus on liabilities rather than assets. no one ever went under because they had too many assets. >> i understand. >> looking at contingent liabilities, mr. woodall, i would hope we would not count

those liabilities of contingent liabilities of regulated insurance companies because the state regulation of insurance companies seems to have weathered the storm. would we designate a company as a sifi just because they had a lot of assets and liabilities if all those assets and liabilities we're looking on were part of state-regulated insurance companies, where the state regulators determined they had adequate reserves? >> yes, congressman. one of the factors is the regulatory scrutiny that the company goes through. obviously we do have to look at not only assets and liability but the matching of the assets and liabilities. and in insurance companies, they are long-term liabilities. they are not liabilities of a bank that could disappear if everyone came in and withdrew their account. >> dodd-frank calls for annual

review of designations. do you have a way for a company -- do we have a good process to allow companies to be dee des ig nated particularly if they've reduced their profile, ms. white? >> i think there is a good process. you want to look at enhancing it. at least annually they have to look at that. and the companies can engage with the staff on those issues. and then every five years under some of the new procedures they're entitled to full hearing. >> i hope that you have refined that process further. i yield back. >> the chair now recognizes the gentleman from oklahoma, mr. lucas. >> thank you, mr. chairman. since we have this distinguished group together, i'd like to visit with my concerns with the at the basil 3 rule, as it is derived from services and the

impact it will have on the ability of my constituents to hedge risks. of course i would turn to our derivatives market regulators. when market participants utilize derivatives to manage their risks through futures, options, clear swaps, they must find a member of the clearinghouse willing to guarantee their transaction with the clearinghouse. how does the margin that a market participant posts to a clearing member affect the clear member's ultimate guarantee exposure, the clearinghouse? >> thank you for the question, congressman. i do believe it does reduce that exposure. let me say generally on this hat exposure. let me say generally on this issue that i support strong bank capital requirements and i support the slr generally. and the issue i've raised is really a very narrow one. i don't believe we should be excluding derivatives from the

slr. but i do believe it is important to make sure we are measuring the ex poerb herb accurately. and i do believe the margin that is held by the ccp, in other words, margin collected but then actually but then transferred to the ccp is how we recognize exposure. >> i would add you should always be judging variety of contexts and a variety of rule contexts as well. >> i would now turn to our ar banking regulator friends, chairman gruenberg. our in many instances these clearinghouse members are banks subject to basil capital requirements which require them to hold capital against the guarantee they provide on behalf of their clients. we can all agree banks have exposure in the event they are unable to fulfill the obligations.apital a and banks should hold capital pd against that exposure, but shouldn't that measure of exposure accurately reflect ther client's margin, offset the bank's exposure to the ey are

clearinghouse? >> congressman, i think the tou number one protection in the clearinghouse context is really that the member bank be strongly capitalized and to be able to perform in adverse 's exp circumstances. so having strong capital ratios really is a fundamental part of our regulatory structure and the safety and soundness in the clearing of swaps. just by definition, i just want to point out a leverage ratio is not by definite nation a risk-based measure. to so by definition, it would be inconsistent to import measures of exposure or risks as a general matter. >> congressman, i agree with cos controller curry. i think the core issue here is

the margin is posted with the ccp. but in addition that ccp is asking the intermediate jerry rl bank for a guarantee. and the potential loss from the derivative exposure could ow substantially exceed the margin that's posted with the ccp. that's why the guarantee is wod imposed and the capital is really designed to protect the bank against the down side werea risk from that derivative exposure. that we >> i would just simply note to my friends, if we create a system that we require such capital requirements above and beyond what appear to be necessary. we will cause financial institutions to not participate. and the next time we have a neeq lehman brothers or an fm global major failure in their clients need quickly to find a new clearing number, a new place to cover their outstanding positions of their margin there may not be any sources. i've been a member of this f ths committee through the wonders of

2008.st con when the worse case scenario occurs, you have to be totally prepared. i'm just concerned that we're headed in a direction that will, will limit my constituents's options, thereby increasing their costs and these r. risk-mitigating tools. i just simply note that. and to all of you and ask that you bear that in mind. we're undergoing pressure back home in oklahoma and in the ag and energy sector. it's real pressure. it is something that will take time to overcome.to but these tools have continued to be important. so let's not allow boswell to i. cause unintended damage. with that, mr. chairman, i yield back the remainder of my time.s >> the chair recognize mrs. lynch. >> >> thank you, mr. chairman.ank i thank the witnesses for your willingness to work with the committee today. i have a question for chairman gruenberg.day. a number of members on this an

committee have been working witg the vice chair tom honig on a proposal that would give regulatory relief to some of our small banks. that now, we are looking at banks, community banks that are in the. traditional business of banking taking deposits, making loans to businesses and individuals.f bak and the way this would work, we have not accepted all our recommendations. but we have focused on a number of them which would be to be ibf eligible for regulatory relief, financial institution must hold note trading assets, no ution mu derivative other than foreign exchange, have a limited note t notional value of all the bank derivatives or otherwise, and f maintain a ratio of gap equity assets of about 10%. no less than 10%, i'm sorry. in return for that, we would ass give, under this legislation we

would give relief in this form. those banks would be -- the couple pliant banks would be exempt from basil risk-based capital standards. the stress tests, in some cases they would be exempt. in other cases, they would be every 18 months instead of everh year. try to reduce the cost there for compliance. and also exemptions from tr submitting call reports and schedules.ons fr this actually goes back to mr. sherman's question before where we are actually regulating this activity.ctually not necessarily size. if a bank is not engaged in risky activity and they're doing the right thing, they a ought to be entitled to relief. this has been a high-cost issue for the smaller banks. i just wanted to get your sense on whether this is something that you would be receptive to? >> congressman, i am similar sympathetic to the concept.the c

the core concept being that if a smaller institution is very strongly capitalized on the leverage ratio, that's what you represented and doesn't engage in higher risk activities, it would be eligible to reduce or s compliance with risk-based capital standards. i think that core concept really makes some sense. and i think that certainly is an issue for congress to consider.c and i think it is part of our regulatory review process withio the framework of our capital rules that might be something that we might be able to consider on a regulatory basis. >> okay. i do want to fixate on that woro "sympathy." a lot of small banks are good with the sympathy. they're looking for actually relief now. >> let me say i'm open to pursuing that approach. >> all right. mr. cordray, do you have any do worries about that? have you thought about that outt proposal? it might be out of pocket on pro this issue.t of p

i'm not sure. >> no, we have been. if you look at our mortgage rules, we tiered the applicatiof of those rules on the qualification mortgage -- what we call the ability to repay rule. we made special provisions for smaller creditors. and in fact they have increased their share of the mortgage izao market with credit unions and community banks. and frankly, it's an appropriate, because if you look through the financial crisis, ct the default rates on loans that were issued by smaller creditors, particularly depository institutions, had a much better, that is, lower rate of default than other mortgages made generally in the marketplace. so when we can take that into account and think about how we can apply different provisions a for different levels of risk, i think that is entirely w appropriate and we will continue to do so. >> i do want -- you hit right on a point that i didn't mention, which is that in those cases

where a bank is willing to keep that mortgage in their portfolio, it would be deemed a qualifying mortgage, because you're not issuing to sell it, you know. up any >> we're comfortable with that, particularly for smaller entities.cks for but there were larger entities before the crisis that kept balances. and blew up the system, washington mutual, countrywide and others. at smaller levels i'm quite comfortable with that. >> fair enough. it in m thank you, mr. chairman. i'll yield back. >> the gentleman yields back. the chair recognizes mr. royce. chairman of the house foreign affairs committee. >> thank you very much, mr. chairman.ootbal >> i don't think your microphone is on. >> thank you, chairman. last month in a hearing before c the committee about due process issues with fsoc, johnathan macy of yale law school stated that with respect to the actions that the fsoc have

already taken, there is a significant danger of increasing rather than decreasing systemic risk. and his point, as he explained, was that this was because the fsoc is ignoring certain risk rt mitigation strategies and herding into strategies which decreases diversification and increases the systemic risk. this could also happen on indirectly with companies making choices to merge, sharing in the cost of compliance, and creating greater economies of scale.co we have seen this in the banking sector or, more directly, with the implied or explicit backing of the government, as with the case of the gses. so i was going to ask mr. curry, do you view the potential for regulators to create systemic risk as a problem? and what actions have you taken to make sure that -- and i'll also ask this of chair matz,

that the fsoc's enhanced standards of the fed are not increasing systemic risk per the thesis that the yale professor puts forward? >> congressman, the fsoc actually is looking at, and this is referenced in our annual report, looking at some of the consequences of changes within the marketplace, including regulatory changes. there are behaviors that have changed, institutions have either left or entered different types of business, the impact to nonbanks. those are all things we've we identified as emerging or potential emerging risks that require future monitoring and potential action down the road. >> chair matz? if you could just weigh in there. >> more specifically, as the designation is being considered,

the company has an opportunity to present any evidence to the staff, whether in person or in writing. and so if they think that there might be information that would be helpful in making the -- in determining whether to designate, they have every opportunity to make that information available to us. >> and lastly, i'll just ask chair white, do you agree that this is a problem? would you like to weigh in? >> i think it's certainly something that i think we need to be constantly keeping in mind, with all of our regulations, what impacts they're having, what mitigatorse we ought to be considering in addition. >> i'm trying to better understand how the interaction e on another subject here, between the office of financial research and fsoc members, works. after criticism by this committee and the public on an ofr report regarding the asset management industry, the fsoc sought public views on the industry, and later issued a request for notice and comment

on asset management products and activities. separately, the sec put out thee ofr report for public comment. can i ask the panel, do any of you see a reason why all ofr public reports should not be yo open to public notice and comment? does anyone take exception to that concept? for the record, mr. chairman, i would like to say that the o sah witnesses, for the record, saw no reason to continue the practice of ofr not allowing for public comment on their reports. that's the point i wanted to make. i think it's important that they do so.ime here and if i have time here, the fsc fsoc has not designated any asset managers as sifis, which is a step i support, as these firms operate with little

leverage if any, and the risks managed are borne by those whosc funds though invest. but the fsoc is now apparently c considering activities under the second prong of section 113 of a the dodd-frank act rather than material financial distress, the first prong.a my question is not about asset managers but rather how fsoc as came to this decision and why a similar process wasn't used when designating insurance companies. mr. woodall, is it fair for the fsoc to offer different amounts process to different industriesf and why not take the same amount of time and get it right? >> congressman, i think that we've already discussed the fact that inactivity, which has been, my main goal in the insurance r company, it's evolving now in co the council. the council is young. it's evolving.oung.

and i welcome the idea of takin a pause and getting into looking at the activities across the segment. and i hope they will do that for the insurance industry. >> the time of the gentleman has expired. the chair recognizes the eman hs gentleman from georgia, mr. scott. >> thank you, mr. chairman. panel, i'm concerned about the department of labor's fiduciarya rule. let me explain why. i have spent most of my adult iy life working hard in the area of building in the african-american community. our president is a wonderful af person, he is a decent, good man. but as an african-american, i'm not sure that he has been properly advised as to how devastating this department of h labor ruling will be on the african-american families in terms of wealth building. i say that as one who, i'm a graduate of wharton school of

finance, where i got my m.b.a. i went off, and much of my work has been in investment. i had an investment portfolio in my own business that i started. as a result of that, they put me on the board of directors, executive board of directors of the wharton school. and there, in that position, we pulled together, along with joh, scully, who was the chairman of our board and chairman of pepsi-cola at the time, an who a extraordinary program of wealth building. but what we found out is there were three elemental areas that prohibited wealth building and u investment. and that was education, financial advice. and the overarching complexity and diversity of the investment options in our system. this department of labor rule will have a devastating effect on african-american communities and on other lower and middle af income, because they don't have

that money to pay up front with fee costs. and when you put a contract there for them to sign, they're going to run away. i know.e, becau i've been there. i've worked with the african-american chamber of commerce on this. so what i want to ask you all, you all are the financial goin stability council of the unitede states government.n-americ take for a moment and look at the most end stable financial caring in this country is in african-american communities.ank is it not too much for somebody on your committee to ask the president to hold off until we actually see just how tually s devastating it is, affecting dea african-americans? that's what i'm asking you to r- do. i asked ms. white, but she seems to have ceded her authority to t

the labor department. when we clearly put it, you were here. we wrote it into section 913, in dodd-frank, that that was the ap domain for the judiciary securities and change commission. at no time, no time, did we hear from the labor department or erisa talking about retirement. and if they do, wouldn't it be o respectful for them to sit downr with the regulatory agency thate handles financial investments, the sec, and finra, and work tht that out? i just urge you to examine these, because the devastating impact is terrible.cons my paper, "the atlanta general constitution," i urge you to read it. it talks about the struggle of african-american families to build and grow wealth. and the number one reason why

it's so slow is they can't get the education or the t fee information.ost of t rich people investing, they t wy don't have any problem. they can pay for that fee for service, most of them do. but when you get to annuities and trying to turn your life insurance into whole life or whatever, you need advice for that. anyway, i urge you to ask the president to put a pause on this and let us see what the impact on the black families are. now, i think i got time, we've got a terrible problem with the european union on this ant to equivalency with derivatives. december 15th is the deadline. and i want to know, because it's going to have a devastating n effect on our end users, on our exchanges and clearinghouses, if we don't get equivalency in

terms of our regulatory regime with the eu, especially when they've given equal status to ev singapore and other areas. what's the status on that, in that we're just a week away froi the deadline? >> thank you, congressman. they have pushed out that immediate deadline. i think we were still working in good faith to try to resolve this. i think we've narrowed our m oho differences. i'm hopeful we will do so.ers. i of course believe they should have granted equivalence some time ago.a quick but we recognize the issues they're concerned about and we're working very hard to work them out. >> thank you, sir.rvices i >> the chair now recognizes the gentleman from ohio, mr. esses stivers. >> thank you, mr. chairman.be i would like to go on a quick tour of the segments of the financial services industry. how many of the witnesses believe that small banks and 8? credit unions caused the crisis in 2008? could you raise your hand if you

believe that? did say i would like to point out that no one did say that. a coord and you have an important role as a coordinating council of regulators as well. i'm curious if you could go down the line, starting with ms. elle white, and could you tell me how many hours in the last year you've spent discussing and ve e identifying regulatory conflicts, where better coordination could reduce unintended consequences and costs and differing regulatory interpretations by agents in the field. just how many hours this year. if you could each give me a number of hours you spent. >> those discussions have occurred at the staff level. but i can't say -- i can't really give you -- >> you would say zero? >> i wouldn't say zero. >> at the staff level. okay. but on the council, that's what i care about, that's who you are.let' let's keep moving. >> i also could not give you a number.

>> okay. sounds like another zero. mr. woodall? >> i can't think of a definite figure, but there has been some discussion.ef >> okay.figure so some discussion. nobody can put an number on it in hours.. ms. matz? >> i would agree. put a >> let's keep moving, obviouslyl there's pattern here. does anybody have a number? will anybody give me a number? >> i quit keeping time when i left the practice of law. >> i'm still keeping time. let's move. >> we spend a lot of time >> i discussing a lot of issues.>> rg >> i got it. >> regulatory overlap is one of those. >> you're not discussing it iscn enough at the council level. the staff is discussing it, butt you need to discuss it. these are important community assets that dot the fabric of our country and the 15th try an district of ohio. and these companies, small companies, small banks and compn credit unions, are struggling to keep up. many of your field agents

actually misinterpreting regulations intended for big acu banks and put extra pain and cost on these small banks, and f they're having real struggles. t let's move to regional banks.thr how many of you believe that regional banks, and i'll define those as kind of 50 billion to $250 billion. how many believe that those regional banks caused the crisis? again, no -- oh, we've got a couple of hands there. >> just to make the point for what it's worth -- >> we're running out of time. be quick. >> the regional banks generally. are individually not systemic. i would point out, as was a mentioned earlier, the most expensive bank failure during this crisis and in the history of the fdic was a $12 billion f loss caused by the failure ofcad indymac, which was a $30 billion thrift. so a regional institution -- >> a failure of one or more $30i

regional institutions can have a significant consequence. >> it can, i believe that.n -- what have you done to use the regulatory flexibility?what hav that secretary lew says you have. can anybody explain to me exactly how you've used that xii regulatory flexibility? >> the occ supervises a range of institutions, small rural bankss to globally active banks. we're very concerned about the regulatory burden, particularlym on community banks. you know, the fsoc is not necessarily the form that we nea discussed reducing regulatory se burden. we do that on the banking and credit union side, on the ffiect the federal and financial institutions examination d abou council. we really are concerned about hw the impact of the process which is designed to reducing regulatory burden. >> i appreciate that. i want to talk about that.w you' but we're talking about regiona banks now.

can you tell me how you've used the flexibility that secretary luchl lew says you have. >> as the supervisor of a number of regional or mid-sized institutions, we place a great deal of value on collaboration and coordination with our other regulatory agencies.ic and i would include the fed, the fdic, and the cfpb. it's really a regulatory imperative to make sure we're au working together. >> you haven't answered -- you're trying to eat up time here. you have not answered one specific way in which you've dsk used your regulatory specif flexibility. could you give me one way? that's all i'm asking. >> as you know, congressman, one of the consequences is your requirement of submitting a onsu resolution plan. we certainly for -- >> the tailored plan is the onl true answer. and how that cuts a little coste they still have to do the c-cart stress test, the regular stress test. there are too many things built in that you have the power to fix.

i wish you'd take a look at it. i didn't even get to non-bank financial entities, and my time has expired.ook at please look at those things. thank you, mr. chairman. i yield back. >> the time of the gentleman has expired.i the chair now recognizes the gentleman from texas, mr. green. >> thank you, mr. chairman. i thank the ranking member and the august witnesses that have appeared today. wi in my years on the committee i don't think i've quite seen the number of financial stability heads assembled at one time for the purposes of questioning. so i thank you for being here. mr. woodall, much has been made of the fact that you are the only person on the fsoc with insurance expertise. incidentally, do you claim expertise in other areas to thir extent? >> i would say being on the council is a learning experience.

they're learning about insurance and i'm learning about banking. >> so you don't claim expertise in banking, but you are learning about it. mr. woodall, based upon what has been said, there seems to be an implication or indication that n only persons with insurance expertise should judge an insurance company.ecause m i ask this because metlife has appealed its case in the sense that it has filed in the federal district court in the district of columbia. do you think that judge ought t be an insurance expert to hear the metlife case? >> i'm not going to make any statements about the metlife mi appeal. underst >> i understand.well, i' well, i'll continue to ask you questions and you continue to have no response. do you think that the jurors who will hear the metlife case, if we do have a panel of jurors, do you think that they all have to have insurance expertise?>> of >> of course not. >> of course not. in fact, of course the length

and breadth of this country on a daily basis, we have jurors, ordinary, everyday working people who hear complex cases involving antitrust, in texas we had the pennzoil case, people hear these cases all the time . and make life and death decisions who don't have expertise in a given area that the case happens to be focused d on. do you agree with this, mr. woodall? >> i think the fsoc -- >> i think you do. let me continue. it appears to me, mr. woodall, h that the indication of only a person with expertise in a given area should be able to judge would lend itself to asking at least one question. have you made any decisions with reference to banks since you've been on the fsoc? banking >> banking regulators are the oa ones that do that. >> but have you voted on anything related to banks?d on have you had a vote since you've

been there on anything related to banks? >> not as such. >> not as such. well, i don't have the time to drill down with that, mr. drill woodall. there is a way to get to the o "not as such" answer, but i s sh don't have time to do it now. so have you voted on anything as such? >> when it comes to utilities -- >> i understand. so you have not recused yourself on issues related to banks? you're a fi beta kappa from kentucky. if you believe a person only have -- must have insurance anki expertise to sit in judgment of an insurance company on fsoc, raise your hand. if you think you only can do it with insurance expertise, raise your hand.and.

let the record reflect, none.exe let me ask the question another way.he que if you believe that you can sit in judgment of an insurance in company and not be an f fi beta kappa from kentucky, raise your hand. you're the only person who thinks you've got to be an fi beta kappa from kentucky. i assume i can now put in the record that you are a person wht believes you must be an fi beta kappa from kentucky before you can -- okay, that should go in the record. >> no, but -- >> i'm going to take it from that comment, mr. woodall, that you have joined the rest of your colleagues and the record should show there is unanimous consent that you don'n have to be an insurance expert e to sit in judgment of an rt insurance company? >> i'm not sure what an insurance expert is. >> i'm glad you said it, because some people have claimed you >>n are.

my assumption is you don't knowy what you are.laimed >> that was because it was put a in the title by dodd-frank. >> mr. woodall, i want to make s this very clear.at i don i love you.have t because sometimes it can appear that i don't love people because i have to ask the tough questions.r things i regret i didn't get to some other things. but god bless you, brother.u. >> thank you, mr. chairman. i'm going to address my first question to chairman matz. you said earlier designees > thn should have insurers. my understanding was the time of the designation, june of 2013, 0 98% of metlife's consolidated ma assets, 96% of its liabilities, 95% of its revenues, were in these highly regulated insuranc

subsidiaries. i just wanted to make sure i of understand the basis for your decisions. t are you saying fsoc analyzed only two percent of metlife's sd assets and five percent of its m revenues, and found those assets alone to be systemically 2% important and a threat to the financial system? is that your testimony?ly impor >> i do want to say that we ? cannot comment on metlife. but in terms of our designation of other insurance companies, we do look at how their balance ale sheet and off balance sheet ac activities could -- are interconnected with other systemically important institutions.sy >> i'm going to stick again with chairman matz on this, then open it up 0 others as well. as all of you should know, insurance companies are well. extensively supervised by

states, despite the existing regulation, fsoc has designatedh three insurers has systemically important. could you provide an overview of how and why you determined the state insurance regulation, in particular the state guarantee system for failed insurers, is n effective? >> thank you for asking that.ve? i don't think any of us, and i can't speak for anyone, but on this i would say i don't think d any of us think the restate insurers are ineffective. us our mandate is to look at how the activities of the insurance company affect the financial thi stability of the united states.a they're really looking at the effect on policyholders. it's a very different direction that they're taking. >> with making that determination of what you should pull away from the states, again, clearly legislatively, most authority of insurance companies is with the states.

i would argue for protection of policyholders but also protection of policyholder woulp by definition, you know, include the financial stability of that company.stabil those would be directly related. those aren't separate issues.ma what analysis did you as a voting member of fsoc rely on to reach the determination that that should be separated out, that states were unable to be e handle this? >> as i said, they have a ndle t different mandate than we do. they're looking at the institution and the solvency vis-à-vis the policyholders. we're looking at the institution and its interconnectedness with other institutions and its ability to threaten the financial stability of the united states. it's a different mandate. it doesn't mean that they're doing their job any better or worse than we are or vice-versa. it's just a different tack that they're taking. >> as you're making this decision, was there an independent analysis done by your agency? >> independent analysis of -- iw

>> again, the standing, i guess, of these insurance companies, they're ability, if there was a threat nationally, to financiali markets or i would say also to a policyholders, was there an i want analysis done by your agency to make the as the determination, again, that the states weren't capable of doing this, that this was something y that you all needed to do? >> we rely on the fsoc staff.thy we did not do an independent evaluation, no.lyendent >> let me switch to a little-discussed provision of the dodd-frank act, for exempting certain companies from heightened supervision. to date no such regulations have been issued.exemptin this requirement represents a tool congress created to differentiate between those that pose risk and those that do note and provide clear criteria for how they should conduct their businesses in such a way as to

be nonsystemic. chair white, why has this provision never been used?n nev >> i really can't answer that. it would have to come from the fed initially, at least.. >> i guess in my last seconds, a show of hands, following on from my friend from texas, who among you has advocated for a class ow financial company to be exempted from heightened supervision? if you could raise your hand, if you have advocated for a class o of financial company to be exempted from heightened you ha supervision. for the record, none raised their hand. my time has expired. i yield back, mr. chairman. >> the chair now recognizes the gentlelady from ohio, ms. >> beatty. >> thank you, mr. chairman. thank you, ranking member. let me associated my opening comments with those of my ank y, colleagues.ith th as someone relatively new, i've certainly never seen the number of people, which is not as

important as the work and the service you do. so thank you for that.we'v we've heard a lot of questions u about what you don't do. what's interesting to me is, i listen to the example about whad you would provide as it relates to giving us information. and i think the analogy was to us getting classified information for isis. we certainly know from everything we have read and we've heard that our country isn in trouble. so you were asked, and given that analogy, do you think, since your role is to protect the financial stability for us, are we in financial crises right now as we were, let's say, in s 2008? i'm trying to get, are we like isis is, a threat to your world? that's a yes or no, as we go a down the panel. are we in that same kind of threat in financial? >> no, but i think we can't be

complacent.. >> i would agree with chair white's statement. agree w >> me too.t. >> no. >> no.. >> i agree. >> no.>> >> okay.> i have an insurance question, ok but i'll come back to that, mr. woodall, since you've been asked so many questions on this. i would like to associate myself with the words of congressman scott from atlanta as it relate to the issue he talked about. but more importantly, about black wealth, or minorities. i am very concerned, and i know many of you have omwi boards, but my question is beyond omwi,t because i'm not pleased with the answers i have been given on omwi. while it's a big deal to me and section 342,with t i don't think people have taken it as seriously as we should. with that said, as a group, as you look at making your you

projections, as you evaluate where we should be financially, can at least three of you tell me what you do with minorities,c and more specifically and african-americans, as it relates to banks, financial institutions? how are they included? because you make projections keo that affect us and our constituents. so i'm concerned. can anyone address that? quickly. >> i'll start in terms of what we do with minority-owned -owned institutions and populations. in terms of minority depository populations, i have an advisory committee, how we can help alleviate them through technican assistance and other means directed by statute. as a bank regulatory agency we n also enforce the community by t reinvestment act which has a nc direct impact on low to moderati income communities.

and we have active outreach efforts associated with that, ok with both banks and interested groups. >> okay. >> i would add that we enforce the equal credit opportunity act. we recently resolved the largest redlining mortgage lending matter in the history of this n country. we've had significant matters in auto lending discrimination and credit card as well. this is an important means of aw making sure that everybody an ir across our society has equal access to credit and aren't discriminated against on the bases of race and ethnic origin. >> we'll take one more. >> we also have an extensive program as required by law to support minority depository institutions. hav the fdic also has an advisory er committee on in the case inclusion where one of the ha things we focus on is asset building for low and moderate income families. the mortgage crisis, as you well know, had a disproportionate gei impact on minority households and african-american households. >> thank you.

if congress were to reduce the ability of fsoc to perform its function of overseeing financial markets for threats to stability, how could that impact the u.s. economy? we'll go to the other end. ms. white? >> it would defeat the entire purpose of fsoc, which is a very important one, which is to look out for the financial stability of the u.s. financial system.e,h >> okay. mr. chairman, commodities future and trading commission, later a today the committee will be marking up a security-related bill which i'm sure should be very interesting to us. whi i'm interested to hear what tert measures specifically fsoc has taken to facilitate dialogue tog help us protect that. >> i think generally fsoc has el taken the issue of cybersecurity broadly speaking very seriouslys it's listed that as a primary concern in its annual reports. n

our agencies. >> and do we have any -- my time is up, i'm sure. do we have any best practices developed, yes or no? >> i think most definitely so. a lot of us are very focused on those best practices issues. we're in our own agency, i hope we will come out with some standards specifically on this. >> thank you. >> the time of the gentle lady has expired. the chairognizes the gentleman from florida, mr. ross. >> thank you, mr. chairman. mr. woodall, i have to just follow up on what my colleagues from texas was pursuing. as a litigator of 25 years, i know that the trier of fact, whether it be a jury or a judge, must rely on evidence brought before them. that evidence of course is the best form when it is brought by an expert. when that expert testimony is n uncontinue verted, it becomes a

clear matter of fact that that opinion should gain the day. clearly on this board, on fsoc, you are eminently qualified, and by far the only person who could be considered an expert in the insurance arena. you've experienced not only academically but also practically as an insurance commissioner. so i have to ask, what was it in your opinion that drew fsoc to disregard uncontroverted expert insurance opinion and designate metlife and prudential as sifis? >> i think what you outline might be a professional disagreement. i have a lot of respect for all my colleagues. we had a very hearty debate. i listened to them and they listened to me. >> i don't think they listened to you is the problem. >> agreed to disagree. >> i think there might have been some influence. in reading your testimony about not being at the table with the iais, is that a factor that may play into the domestic category of creating these sifis, these non-bank sifis, because they're

more concerned about the international process than they are the domestic process? >> well, but my job is to try to monitor the whole insurance industry, international, so i can give my recommendations. there is a statutory provision that every member is supposed to monitor developments in international insurance matters. >> and they haven't been listening to you, though, have they? i mean, that's clear in your testimony. >> well, i voted with them on aig. it was a unanimous decision. >> right. but with regard to the designations. >> right. these were companies that we had not had the type of problems with during the crisis. >> right. there hasn't been a run on life insurance, has there? are people going to run in and cash their life insurance policies? because if they are, there are serious consequences to our economic structure that are way out of line. chair matz, 90% of prudential's balance sheet assets and

liabilities are in regulated insurance companies and engages in no proprietary trading. fully collateralized. what would be the basis to your decision that prudential poses a risk to the financial stability of the united states? >> well, we look at the overall construction of the company's assets and liabilities. their balance sheet and off balance sheet activities. in their case, we looked at -- we were concerned about their derivative position. >> you testified earlier that you relied on the expertise of the staff. mr. cordray, you went on to say even further that everyone at fsoc has their own expertise and relies on the expertise of fsoc staff among others. who are the other people that fsoc is relying on to make those determinations, if not the panel, and who are the staff? and what is their expertise in

such arenas as insurance? yes, sir? >> so, i think we rely on fsoc staff. we rely on the analysis done by them. there are people loaned from the member agencies of fsoc who do work on this. then we talk to our own staffs. to go back to the point my colleague, mr. woodall, made a moment ago, in terms of insurance companies, there seems to be a lot of dissatisfaction here with the designation of metlife and prudential. aig is also -- >> they had a diversified portfolio. >> that's right. there have also been a number of insurance companies that meet the $50 billion asset threshold that have not been designated. it's a spectrum and it's a judgment that has to be made. >> your fsoc staff, i don't know if anybody is as eminently qualified as mr. woodall, but let's talk about asset managers. what are we doing here designating asset managers as sifis?

when in fact they are basically brokers. in fact the impact it will have on mom and pops, now they'll have to pay fees in order to justify why they're brokers with a sifi when we have not even established that an asset manager should be a sifi? yes, sir? >> we have not designated any asset managers as sifis -- >> they learned through a "wall street journal" article. don't you think it would be more prudent to allow these asset managers to have the ability to correct whatever may be wrong so they can save not only the financial system but also those with whom they serve and instead of waiting until the opportunity where a collapse may occur that you seem to foresee? >> that's a point of view and these are are the -- >> if i went to the doctor, i would want to be diagnosed and treated then, not until i was on life support. i yield back. >> the chair now recognizes the gentle lman from washington, mr. heck.

>> mr. woodall, i think i would like to direct this to you, if i may, please. over the last -- i'm over here. over the last couple of years we've heard a lot of witnesses, and no small number of the members of the committee indicate publicly and explicitly that receiving a sifi designation was locking in an unfair competitive advantage. it seemed to be premised on the idea that lenders would be willing to extend debt to them at a discounted rate. i'm having a hard time squaring that circle in the face of the fact that everybody who is a target for designation fights it tooth and nail. and secondly, the action of the s&p recently to downgrade the debt raiding of i think eight financial institutions. what's your impression? is this a good thing, to be sifi designated? is it a desirable thing by them? does it in fact lock in a competitive advantage? >> it's a good thing if they are truly systemic and present a systemic -- >> a good thing for them? >> we need to know and they need to know what activities they're

doing that make them a significant -- >> does it give them a competitive advantage? >> yes. we've talked about that. it can give them a -- >> why do they fight it? >> we don't know yet because the fed hasn't come up with what their capital standards are. >> why would they fight it and why would s&p downgrade them? >> they don't know what future is and high capital requirements will be and don't know how it will affect them and don't know what businesses they sell that they'd have to get rid of. >> tbd. director watt, as i pursue this, please remember i respect you. i won't go quite as far as the gentleman in texas bullet i have affection as a former colleague and somebody i respect. since you've taken over, i've written you two letters or signed on to two letters. the first had to do with the forced marriage of the seattle and the des moines federal home loan bank. and i specifically asked that

you ensure that the new banks' affordable housing program distribute its funding equitably throughout the combined district. that's something that when the bank was just in seattle, they ensured. and in fact, the des moines bank, the new consolidated bank, came out with its nine criteria for distributing funds and made absolutely no mention whatsoever of equitable distribution. i cannot exaggerate to you the depth of my disappointment on this. i convey it to you. i'm not letting go of this and i'm deeply disappointed that there was not more attention paid to this basic principle. the second letter that i sent to you had to do with concerns about the proposed rule to limit membership, i think 66 of my colleagues got on. the rule came out, we hear rumors that it's not going to be changed. i've signed on to legislation

with mr. lukemeyer, mr. carney, mr. mchenry, to sponsor a bill to stop it. now, in a private meeting i had put a question to you which i now put to you publicly and i'm asking you to respond personally, not necessarily with your agency that on. you are a longtime former member, much respected of this committee. given the forced marriage between seattle and des moines, given the blowback and apparent disagreement about the proposed membership rule, is it not time that the congress take a look at the basic structure of federal home loan banks? it has not been touched in 80 years. for all practical purposes, its roots are the same as when they were created. i believe that in eight decades, circumstances have evolved and it should be up to us to take a look at that. in fact the disagreement you and i had privately was, i think it should be up to you or your agency to bring forth ideas of

how we might do that. your reaction, please, sir. >> well, i think it is an ongoing obligation of congress to look at every aspect of the financial services industry and the housing finance industry, and i think there are important needs that could be looked at in the federal home loan bank system. >> thank you. comptroller curry, you are the sole director of an agency that is not subject to appropriations. how many times have you testified before this committee? i'm sorry, is your microphone on? >> three times. >> over what period of time? >> since my appointment in 2012. >> director watts, same question. >> i come whenever you call me. i've been here one time. >> one time. >> since i was --

>> director cordray, how many times? >> i don't know here but in front of congress, more than 50 times the bureau has been called to testify. >> i think the point is clear. thank you. >> the time of the gentleman has expired. the chair now recognizes the chairman from new mexico, mr. pierce. >> thank you, mr. chairman. appreciate each one of you being here. i guess mr. woodall, you've been i think probably engaged in a discussion in a previous appearance you made in front of this committee talking about some of the downstream effects of the listing of aig and prudential and metlife. so that's going to have an effect on the insurance market itself, will it not, if i remember from our previous

discussion? >> yes. >> so we in the u.s. enjoy competitive advantage throughout much of the world. and coming from the business world, specifically repairing oil wells, which is filled with liability refuse we utilize that insurance market to great advantage, to allow us to create jobs, to do a better competitive effort than some of our friends overseas could do. so will there be downstream effects from any actions you all take regarding the too big to fail? will there be effects in the insurance market? >> well, yes. i mean, you used terminology that -- obviously if someone has increased regulatory expenses, it's going to effect how they operate in the market. >> so there's a possible threat from what you all do to the market? mr. massad, have you discussed that in the fsoc meetings? >> i guess, congressman, i wouldn't characterize it that way. i would point out, for example, what we do can protect people. when we consider aig, for

example, this government had to commit $182 billion to prevent the collapse of that company which would have probably taken us into a worse great depression than what we had in the 1930s. fortunately we were able to get all that money back. >> what about metlife and prudential? >> congressman, with all due respect, i was not there for the prudential designation. with respect to metlife, it is a matter under litigation so i don't think it's appropriate to comment on the reasons for it. >> would you have a comment on that? in other words, as fsoc, your underlying call is to prevent excessive risk to the u.s. financial system. and what i'm saying is there are certain financial risks to what you are doing to the actions you all are taking. miss white, did you all discuss the potential downside of what you're doing here and how it might affect the market? you've heard the guy who's made his living regulating insurance and living in the insurance, and sometimes staff have not had

that on-the-ground experience. so regardless of what anybody else says, do you all sit quietly behind the doors and say, hey, i would like to really take a close look at what we're doing? >> i think we have to carry out the mandate we were given, which is basically to identify and address systemic risks to the financial system. i mean, that's the financial stability of the financial system. >> you don't ifr ever think -- you don't think you as an agency could be the systemic risk, yourself? >> i think you want to consider all factors. certainly when we do our rulemakersings at the s.e.c. we directly consider all of the impacts. i think we do consider and discuss factors, a wide range in fsoc, too. but our primary responsibility is to carry out the mandate we were given to -- >> well, the mandate -- excuse me, i keep shifting back and forth.

the mandate is to watch for systemic risk, is that right? >> it's to identify and address systemic risk. >> so i'm saying, according to mr. woodall's discussion back some time, and kind of reiterating now, you all could be the systemic risk that you're trying to avoid, if you're not very careful, because this insurance market is extraordinarily thin. if you're watching, i don't mean to be rowing in other stuff, but if you're watching people bail out of the insurance market in health care right now, you understand what i'm talking about. we have disrupted an entire insurance market, and before you all do something that causes the same evacuation out of the insurance, just remember the poor saps out there in the field like myself who are just trying to buy insurance off the open market to where we can do our business, and it could be that you all are the problem that causes that market to disappear. and that's my point. i would hope that you all would have more thorough discussions about the problem that you all represent instead of the systemic risk that maybe you ought to be identifying somewhere else. thank you, mr. chairman.

i yield back. >> gentleman yields back. the chair wishes to alert all members that there's currently one procedural vote on the floor. there are 11 minutes remaining in that vote. i will recognize the gentle lady from missouri. members may want to go vote and come back. and then after the gentle lady from missouri, we will recess briefly for the vote. gentle lady from missouri's recognized. >> thank you, mr. chairman. thank you all for being here. i would like to quickly associate myself with my colleague across the aisle from georgia, mr. scott, about this very misguided administration's rule letting by the department of labor on fiduciary issue. i would encourage you all to speak to the president on this issue, too. concerns last night at the in my christmas party. i'm particularly interested in knowing the role the international forum known as the

financial stability board has played with regard to decisions about domestic matters made by fsoc. due to the kind of nontransparent nature in which fsoc conducts its business, it can cause one to question i think whether our u.s. regulatoregulate ers are really fighting on behalf of the interest of the united states of america when they are at the international negotiating table or whether they are simply letting international counterparts make important decisions for us. mr. woodall, in your dissent to prudential sifi designation, you made the point that the international and domestic designation processes are not entirely separate and distinct. specifically, sir, specifically, you noted that an unnamed u.s. national authority agreed to the international designation of prudential before the company's hearing and financial determination before fsoc. could you please be specific and elaborate? who is that? the national entity -- national authority.

>> yes. the national authority. there are three at fsb, three national authorities. treasury and the fed and the s.e.c. >> yes. and who is the unnamed authority that agreed to the international designation of prudential before the company's hearing, before the company's hearing, and final determination before fsoc? >> well, that's hard to say. as far as i know, actually before the hearing -- >> one of three. >> before the hearing in prudential, the treasury notified prudential that they had been designated as a global sifi. >> before their hearing, before their final determination, before fsoc, treasury, if i understand your testimony, let them know that they had been designated? >> that's my understanding. >> all right. this seems questionable. as you stated the u.s. representatives on the fsb, the

treasury, the fed, and the s.e.c., they're not insurance regulators, as has been pointed out by so many of my colleagues, nor are they necessarily fi beta kappas from kentucky. meantime the fsoc is adopted by banking regulators who don't know much about the insurance industry. does it concern you that they're the only representatives in the room when decisions are made about insurance issues, sir? >> yes. i think that the fdic should be in the room at the meetings at the fsb and i think insurance regulators should be in the room if they're making decisions that are going to affect the businesses that they regulate. >> thank you. given the sequencing of fsb designations and later fsoc sifi designations, how can u.s.-based insurers be confident their designations are a result of a domestic decision rather than an international process that isn't accountable to the u.s. policymakers like us? >> they are technically separate things.

but they're not. >> they're not. they're not accountable to u.s. policymakers. thank you. can you describe what attention or consideration fsoc gives to designations by the fsb? >> no direct -- it's not mentioned. it's not mentioned in the discussions because we try to base it on what dodd/frank says. >> do you believe your colleagues would feel comfortable disagreeing with the decision or challenging a decision made by the fed, the treasury, and the s.e.c. at the financial stabilities board? >> of course, they're still just three votes on the board. the board, the financial stability board is not an organization that this congress created by a treaty or any other statutory thing. it's kind of an ad hoc group. >> absolutely, it's an ad hoc group. >> it's really self-appointed. >> do you believe your colleagues would vote to de-designate any of the insurance companies if such

companies were still designated by the fsb? >> i would hope so. >> one last question. since everyone has said that they -- i don't have much time left -- they rely on fsoc staff for info, is there a memo or analysis that is distributed to members before a vote? who writes this, is it treasury, is it the fed? would you allow the committee to view any of these documents? anybody. >> it goes through a committee called the non-bank designation committee. it goes to the secretariat which is within treasury. and you're looking at 600, 700 pages sometimes in these memos. they're more than memos. it's quite extensive with a lot of good work done by the top economists at the fed and other agencies. >> thank you, sir. >> the time of the gentle lady has expired. the committee will now recess for the vote pending on the house floor. the chair expects the recess to last approximately ten minutes. the committee will reconvene immediately after the vote.

the committee stands in recess. >> committee will come to order. the panel will take their seats. chair now recognizes the gentleman from kentucky, mr. barr, for five minutes. >> thank you, mr. chairman. mr. woodall, since you've been the topic of much conversation as a fi beta kappa from kentucky, fellow kentuckian i'm going to leave you alone for the most part today. let me start with bank

regulators, prudential regulators and just note at a macro prudential level fsoc and banking regulators have participated in international agreements with the financial stability board, basel and other forums and the main difference between u.s. requirements and those promulgated internationally is that it seems that our domestic standards are more stringent than our foreign counterparts. a few examples, capital surcharge on global financial firms nearly doubled the international standard. supplemental leverage ratio that is double adopted internationally. a liquidity coverage ratio more restrictive than the international standard and arbitrarily punishes certain products. otc margin requirements that are considerably more punitive than international standards. so the question is this, for miss matz, mr. watt, mr. groomburg, mr. cordray, mr.

curry. the question is, i assume that you all agree that these prudential rules and other reforms have improved safety and soundness, and if you agree with that general proposition, raise your hand. all of you agree these new prudential rules enhance safety and soundness. a follow-up question, do you believe that the benefits of these new prudential rules outweigh potentially the cost to international competitiveness? given that we have higher standards than that internationally? okay. most of you agree with that. when combined with volcker, financial institutions seem to be making a couple of changes and the regulations are producing a couple results. one is that there's a migration of activities out of heavily regulated banks and into much less regulated non-bank financial firms, the so-called

shadow banking system and i want you to address that. but also there is much talk about illiquidity in the markets, institutions dropping certain products and services, pulling back from market-making functions critical to investors, extension of credit affecting various fixed income asset classes in different ways. so my question to some of our market regulators, mr. masad, chair white. the fsoc annual report acknowledges that there are changes in terms of reduced liquidity in the capital markets, the office of financial research is corroborating this. certainly there's other indicators. the center for financial stability found market liquidity declined by 46%. as you have noted and mr. curry noted this potential lack of liquidity that is resulting from

regulation could mean financial markets have less capacity to deal with shocks and would more likely seize up in a panic as they did in the 2008 financial crisis. so given that our bank regulators are making the case to fsoc that this is a -- this is good for financial stability and yet we see a liquidity problem developing, from your perspective what do you make of all of this? >> well, i -- look. i talked about this at my last hearing. i think it's a concern of all of us in terms of, you know, reductions, significant reduction in liquidity. obviously there are rules that have very beneficial purposes that may or may not be causing that. we do analyses to see whether volcker, for example, will report quarterly to this committee. the volcker rule, we have not determined that it's having a negative impact on liquidity. when we talk about shadow banking, i think we have to be careful, too. i mean, that covers a broad

swath. i mean, a lot of the things that fit under that category are heavily regulated by the capital markets regulators. but i think, bottom line is we all, and should be very concerned about impacts on liquidity. >> i think we should look at regulation as a cause to financial instability as a result of the lack of liquidity we're seeing developing in the marketplace. that's something fsoc should be paying attention to and revisiting these regulations to the extent they compromise financial stability. finally let me go back to mr. watt lel really quickly. they are exempt from rules i'm talking about. agency mbss are carved out of the volcker rule and agency mbss are the cash and cash-like equivalents banks need to hold to comply with capital and liquidity rules. any question to you in my limited remaining amount of time is why are these standards good for the private sector but not for gses under your oversight and why have a double standard if as you signal by raising your

hand that these capital requirements are important for financial stability? shouldn't they be important for the gses as well? >> well, if they were not in conservatorship i think you would be absolutely right. >> well, why should we continue to have the risk on the taxpayer? >> well, because we continue in conservatorship because the legislative branch has not acted on gse reform. >> i think we should look at that double standard and i yield back. >> time of the gentleman has expired. chair now recognizes the gentleman from delaware, mr. carney. >> thank you, mr. chairman. thank you to the ranking member and everyone who is here today. this is the biggest panel that i can remember that we've had before us. part of our responsibility i think for today's hearing is oversight of the fsoc and as i understand i was not here when dodd/frank was passed. the primary responsibility of the fsoc was to identify emerging systemic risks.

and i'd just like to hear from many of you what you see out there as those emerging risks and can you share those with us? why don't we start with mr. gruenberg and go to controller cur ary in terms of your responsibility as part of the fsoc. what are the systemic risks and emerging vulnerabilities that you're seeing out there? >> the annual fsoc report outlines a series of systemic risks to focus on, interestingly, in this report the lead risk that it cites is cyber security and the potential consequence of vulnerabilities relating to cyber security could have for the functioning of the financial sp system, and that certainly has been a focus of discussion and attention by the fsoc and i frankly think by each of our agencies individually. i'd also reference -- >> is there anything we should be doing or looking at with respect to providing you with

the necessary tools? we're going to be talking about a data breach bill later today. >> i know that congress is considering legislation to facilitate information sharing which is one of the critical issues in terms of being prepared to deal with the cyber incident. so i think there is a significant role for the congress and certainly for all the agencies at this panel working among the regulatory agencies as well as with law enforcement and national security communities. it really is going to require -- >> in the classified briefings that we've had are pretty scary, frankly, and the attacks are coming on a regular basis, on a daily basis and frankly, it feels to me like we're fortunate we haven't had a more significant attack than what we have had, and i know that institutions are dealing with it on a regular basis. controller curry, what would you say in terms of emerging risks or existing vulnerabilities? >> i would agree completely with chairman gruenberg.

cyber security is the number one concern both as comptroller and member of the fsoc. i think the ramifications of a successful attack on the core system of financial institution regardless of their size could really undermine public confidence in our entire banking system and that's really why it's imperative from a regulatory standpoint to make sure all of our banks from the smallest to the largest are are prepared to repel attacks and are there a position to respond as quickly as possible in the event of a successful intrusion. the chairman also mentioned, and it's in the fsoc annual report increased risk taking in a low-yield environment. we are very concerned about the decisions that the financial institutions we supervise are taking today, whether it's to go long or get into activities that they're either unfamiliar with or not prepared to deal with the risks inherent in those activities.

we think that is a potential emerging risk for individual institutions and for the system. >> thank you, chair white, anything you would like to add? >> no, i think you can't emphasize enough the cyber risk. i mean, it's not a coincidence. it's listed first in the emerging risks in the fsoc annual report. >> thank you, director watt , you and i have had conversations about the last subject you talked to mr. barr about with respect to the gses and i know it's been your view that you're waiting on congress to act. what vulnerabilities exist there? increasingly the taxpayer or freddie and fannie are guaranteeing those mortgage-backed securities. what's your view of the sense of urgency around that issue? >> i think we've been in conservatorship, fannie and freddie, for eight years. it is the longest conservatorship has has ever occurred under government

control, and while the risk of the work that we are doing is much, much less now than it was at the onset of the meltdown, staying in conservatorship is just not sustainable. you have a high risk of losing the most qualified people to the private sector. it's just -- i could keep going on. >> so we should act? >> you should act, yes. >> thank you, mr. chairman, i yield back. >> time of the gentleman has expired. chair now recognizes gentleman from pennsylvania, mr. rothfuss. >> thank you, mr. chairman. mr. woodall, your criticism of the metlife sifi designation process is a matter of record and has been discussed at the hearing today. your well-founded concerns are

shared by many of us and ultimately we should ask ourselves whether it's wise for people with little or no experience in a given industry to be given the power to make significant consequential decisions such as sifi designation. there's a broader question as well i was hoping to get your thoughts on. many are concerned that american regulators are ceding responsibility to the fsb, which is composed of central banks, finance ministers and regulators from around the world. given our shared misgivings about, for instance, fsoc members without insurance experience deciding to designation an american insurer, shouldn't we also be concerned about letting foreign regulators who lack experience in the american financial services industry and who act in the best interest of their countries take the lead in regulating our financial firms? >> that's a point that's been discussed quite a bit. a lot of it goes to the fact the european insurers have a different background. they have a different accounting

system. their products aren't the same. now they're pretty well united with their solvency two regulation which goes into effect next year and they're working on equivalencies as to whether we're equivalent. there's been some temporary equivalencies given but if we don't get equivalency, it could increase the cost of our companies doing business in the eu countries tremendously. >> one of fsoc's most basic authorities under dodd/frank is to make recommendations to the fed concerning which heightened pru determi prudential standards should apply but to date the fsoc hasn't done so. it would appear fsoc is putting the cart before the horse. designated companies for heightened supervision but make nothing recommendations for what those heightened requirements must be.

the basic principle of regulation is that the benefits of opposing regulation should outweigh the costs associated with doing so. designating a firm for heightened supervision is not without costs. it's a serious matter that impacts firm behavior and may have broader repercussions for the financial services industry as well as consumers. chair white, how is it possible to ascertain the costs and benefits of designating an insurance firm as a sifi if the fed has not prescribed the heighten prudential standards that will apply to designated firms? >> well, again, i go back to sort of the primary mandate of fsoc which is to, you know, identify systemically important financial institutions that could impact the financial stability of the u.s. financial system. i do think, and now i think the fed has actually, i think adopted, if i'm right, but certainly put out for notice and comment, i think adopted standards with respect to gecc. so that's there now. but i certainly understand the point that you're making in terms of if you don't know what the standards are that are going to be applied, it's obviously a

part of your analysis that you can't do. i don't think we're obligated to do it. indeed, i think we're only gaited to deal with the issue of systemically important institutions in the first instance and not wait for that action. >> it is a good idea wouldn't you agree a basic principle of regulation is that the benefits of composing regulation should outweigh the cost associated with doing so? >> again, i think the premise of the responsibilities of fsoc is what a tremendous cost the financial crisis was and to try to prevent that, one of the tools that fsoc has is the systemic designation powers. however, i think speaking for myself, we certainly want to act on full information including that. >> director watt, is the fsoc evaluating the fed's historically accommodative monetary policy stance to see whether that policy has led to excessive risk taking in the financial system? >> not directly.

we are always evaluating every decision that all of these regulators make but we don't oversee the fed. >> do the fed's destabilizing monetary policies get a pass from the fsoc because the fed chair sits on the fsoc? >> well, that assumes they're destabilizing. i wouldn't assume that. that's your conclusion. >> so the fsoc isn't taking a look at the fed's balance sheet, for example, that has gone from $800 billion to $4.5 trillion. >> that's not in the jurisdiction of fsoc. >> thank you. >> the chairman yields back. >> the time of the gentleman has expired. chair recognizes the gentleman from minnesota, mr. ellison. >> thank you, mr. chairman, ranking member. i want to thank each of you and your staff for your comprehensive and insightful written testimonies and i want

to thank you for your service on the financial stability oversight council. we've all learned the painful reality that markets do not regulate themselves in a nation as powerful as ours, we must invest in regulation that identifies in response to emerging threats to our stability. so your report, 150 pages, details the council's unprecedented progress to protect our financial system from risk and to prevent an economic disaster from happening which i remember very well. i wish everyone running for president would read it, maybe then we could have folks talk about how to really understand how to protect our economy and be successful in that effort. my first question is to controller curry. it's been a while since you've been before the committee. i want to welcome you back. >> thank you. >> and since you're here, i want to ask you again about a topic that you and i have spoken about

in the past and that is the issue of somali remittences. our financial institutions are regulated by the closing accounts of money services businessing serving somalia due to compliance costs, reputational risk, inability to cover the cost, lack of clarity in the exams or for other reasons. >> congressman, as we discussed i think there are a variety of reasons why individual institutions are making determinations about what their risk tolerance is under the bank secrecy act and money laundering statutes. those are some of the factors that i believe some institutions are making. in terms of regulatory clarity we've tried to make clear what our expectations are. we did put out in 2014 additional guidance on dealing with money services businesses but ultimately it's the decision of the individual institution

whether or not to do business with an individual business or individual. >> i just want you to know that somali parliament, i've had a chance to talk with some of them, they are passing an anti-money laundering, anti-terrorist financing law. they haven't passed it yet but they're working on it. that's coming up. they opened up their embassy here in the united states and i believe the more stable that country is the less susceptible it will be for terrorists to come in and set up shop and operate, try to operate out of there. >> i think those are very good improvements. as we discussed, it's important there be a strong local banking system and a regulatory system overseeing its compliance with important laws like that bsa. >> thank you. mr. watt, always a pleasure to see you. very proud of you and the work you do. welcome back to the committee. it must be weird to be on that side of the divide. anyway, i just want to say to you the report calls for

legislation to address the conservatorship of fannie mae and freddie mac of the federal and state markets and mortgage markets. while congress has not acted on any particular proposal regarding the gses, i am interested in what your current policies are doing to improve credit access to african-american and latino borrowers. i have a chart up which i'll direct your attention to. as shown by the chart, we know that the majority of new households are going to be african-american and latino and asian-pacific american yet they seem nearly shut out of the mortgage market now. gse loans to african-american borrowers in 2013 were 2.2%. gse loans to hispanic borrowers no 2013 were about 5.8%.

both low. what policies can gse implement post-conservatorship to improve access to credit for african-american, latino and native american borrowers that fannie and freddie cannot implement now. >> you're asking about post-conservatorship? >> well, what can they do -- what is it that might be done later that can't be done now? i'm basically asking how do we make progress on this? >> well, a lot of what can be done after conservatorship depends on how gse reform is done and what the rules of the road going forward are. part of the challenge of being in conservatorship is one of the things i've found to be true is that lenders price uncertainty and right now they don't know what the future is so as prices go up, there's a price to uncertainty of what the future

holds in this area. so i just -- i mean, there are a number of things that need to be done to address this because we need the availability of capital for people to be either homeowners or affordable renters. >> the time of the gentleman has expired. the chair now recognizes gentleman from arizona, mr. schweikert. >> thank you, mr. chairman. it's been floated around a couple times. in many ways when i read many of the articles about what you're all doing it's a discussion of are we fighting the last war and the concentration of risk of unintended consequences: you know, we have our section 113, the list of criteria, are we going to wake up tomorrow and find out that the shadow on the horizon, the black swan, was something that because of the concentration, the way you look

at the world you completely missed but there have been a couple bits of testimony here that i need to drive into because i'm concerned about the things i heard. the gentleman from florida, mr. ross, was asking some questions about insurance and a comment was made and is it ms. matz? you stated on prudential one of the reasons they made your list, shall we say, is their derivative book. is that because they didn't have enough hedging of their interest exposure? i don't know if they were doing duration exposure but their interest exposure? and are you saying they had a derivative book and because they were ensuring their interest, the derivation expore was that forced him on to your list, what did you see when you said the derivative book? >> they had such a large exposure that the failure of that institution or financial -- >> when you say "that institution,".

>> of prudential. >> okay. so they're buying an additional hedge to protect their interest rate expose your that if it moves against their 100% coverage. explain how that would work. >> first of all, the derivative position is just one position. but if they are interwoven or so interconnected with other financial institutions that if they failed -- >> not if they -- >> i'm sorry, will the gentleman suspend? i wish to alert members that regrettably there is yet another procedural vote on the floor. i think we're drawing near to the end of the hearing and so if members who have yet to ask questions wish to go vote now and return i think we can keep this thing going except for mr. tipton who's next. if members wish to go vote, i'm sorry to interrupt the gentleman.

the gentleman from arizona is recognized again. >> thank you, mr. chairman. look, we're talking passage of this because everything i know about why your derivative contracts to protect your interest rate exposure that would be something you would find joyful, not put them into a designation. in looking over parts of the reports about prudential, their repo contracts are 100% offset and collateralized. i'm just trying to figure out where you found exposure. >> it's all exposure. i mean, what the assumption that -- >> if you're 100% covered and you're also covered your interest rate risk, the expose exposure is what? >> the assumption that is made in making our determination is that there is material distress at the designated institutions. so we're starting from the assumption -- >> so i have an institution that's 100% covered plus also done additional financial

products insurance to cover markets moving against them. >> but we're operating from the assumption that there's material distress at that institution. so if there's material distress, then they can't cover the outstanding debt that they have or the loans that they have. >> but they're contract loans. i mean, the insurance products that they're offering are all under contract. so they have the ability to say, according to our contract you may be making a claim for this but under the contract we have the ability to pay as the contract is designated. >> unless they're in material distress. >> okay, i'll give this to you in writing. we're talking past each other because it makes no sense. when i look at your section 113 tests and i go up and down this, is it the last one, k, other

risks that the council may deem appropriate? when i look at this particularly on an insured like this which is 100% covered and then hedged your coverage i'm trying to find out on this list where you find the exposures. >> it's the -- it's their interconnectedness with the other institutions and the assumption that that financial institution is suffering material distress. i mean, i think it's basic -- >> well, i wish i had you in grad school because there had been some fascinating questions. all right, my last 20 sends. mr. curry, you're the only one on the panel i've heard touch something that made me very happy and that was sort of the unknown. the future financial markets are moving silicon valleycentric, the new ways people are going to

borrow money, buy credit, invest, move around. isn't that much suffer a and much more robust than a concentrated banking system because the way capital is acquired is a much more distributed model? >> from the fsoc standpoint, we have identified as one of our emerging risks the financial migration and innovation of activities so it's an area we're discussing and will devote additional attention. as the comptroller, we're interested in that because of the impact of fin tech and innovation on the delivery of banking services. >> and i'm going to give you something in writing. we're way over time. i beg of you, if it's creating diffused risk, if we're seeing a distributive model, please do not beat up innovation. we desperately need it. >> actually, i'm calling for fostering responsible innovation. >> with that i have to yield

back. thank you. >> the gentleman yields back from a very salient point which i think he will agree with the chairman that just citing interconnectedness is not enough of a criteria because no one else from the panel, i see, was able to answer your question as well. my daughter's former lemonade stand is also interconnected if you go through the whole realm so i think there has to be more substance to it than that. but with that, i will yield to mr. tipton for five minutes. >> microphone, please. >> does that work? thanks for taking the time to be here. we have a large group and i'd like to echo comments made by mr. lucas and mr. stivers in regard to community banks, something critical for rural america, particularly in my district. you've had to raise your hands

simply because of the size of the panel several times here but i would like to be able to just get a sense of your feeling on the panel who is concerned about the challenges faced by america's community banks and financial institutions and small communities? everyone has raised their hand. in response to mr. stivers, you've made the comment that how much time does the council actually spend in regards to community banks and the answers were some or it's going to be at the staff level. i'd like to start with chair greenberg and maybe comptroller curry. if it is actually something this is in your wheelhouse, why isn't more time spent on community banks? >> it actually is. the occ along with the fdic, a swee have we have 1700 banks.

lot of the banks are community banks, that's been a major focus as my term as comptroller is to look at and make sure we have a strong, viable community banking sector. i think we're very fortunate to have a diverse banking system in the united states. we've looked at and as part of our process what are the burdens of -- particularly facing community banks? we've identified some areas where we think we can make a difference whether it's called reform, capital reform and we're looking at can we reduce the cost structures? we're looking at a white paper that encouraged from a regulatory standpoint, banks, particularly smaller banks in rural communities to collaborate with, whether it's a joint venture, sharing employees, working on participation so that they can continue to be viable entities and serve their communities. >> if i may, let's talk about when you're talking about a vibrant banking system you're

aware that right now approximately one third of the counties in the entire united states are served by only one community bank? do you recognize that? >> yes. >> how vibrant, how competitive is that? >> what we're trying to do is really make sure that this is, again, the balance between what's appropriate supervisory standards and how we supervise those institutions so that they can continue to lend, to be leaders in their communities going forward. >> you know, you've talked about collaboration for the banks to come together to share employees what type of collaboration is going on that requires small community banks to answer to several master, if you will and driving up costs which are increasing the costs for loans, for communities, inhibiting those banks' abilities to

survive, driving consolidation or actually failure of these small banks. >> i think the primary area we're addressing that for community banks is at the federal financial institutions examination council which all the state and federal bank and credit union regulators are part of and that's part of the mission of the ffiec. >> just as a little more follow-up on this, as we reviewed the fsoc minutes there's never a mention of small banks in the minutes. so i am pleased to hear that you are putting out some comments and some white papers. i think the question that our community banks would like to have answered is when are they going to get some relief rather than talk? >> if i may say, congressman, i do think community banks have been a focus of enormous attention by the bank regulators who have responsibility for them. >> that's what really disturbs the community banks. >> community banks play a

critical role in the financial system. we've shown at fdic studies that community banks account today for about 14% of the banking assets that hold about 45% of all the loans to small businesses and farms. so the role they play is critical. i think that's to be distinguished from whether they pose in and of themselves a threat to the financial system that would warrant fsoc's attention but they're critical to the financial system certainly can be impacted significantly by systemic risk as we saw in this recent crisis. they themselves are not a source of systemic risk and where they are the focus, you know, are by the bank regulatory agencies and we have been conducting a review as we're required by law of the regulations we've imposed over the past ten years, we've held outreach meetings across the country, are seeking public comment and i am hopeful we'll come out with a series of

regulatory measures that will be helpful in terms of reducing the cost of regulatory. >> i hope you can. because simply as mr. schweikert was pointing out, when we're talking about connectivity that's going on, while you may say and are accurate, they're not going to be systematically important to the overall economy of the united states, certainly feeling the impacts of those broader rules and regulations that through loan participation, whatever it happens to be that is cascading down and inhibiting their ability to address the people that you cite and i agree with you are very important, our small businesses and agricultural communities. thank you, mr. chairman, i yield back. >> the gentleman yields back. >> thank you, mr. chair, appreciate it very much. i wish everybody a merry, merry christmas and a happy holiday season. thank you for being here. it's very important for us here on the committee and for our fellow americans. chair matz, i'd like to ask a couple questions if i may. are you familiar with the

december 14 announcement by chair white dealing with the new regulatory process dealing with asset managers. are you familiar with that? >> i've read about it. >> can you remember what the content of that was, ma'am? okay, let me help you out. and could you speak closer to the microphone? my ears aren't what they used to be. chair white mentioned that she'd be looking at liquidity risk, leverage as per use of derivatives, stress testing and things of that nature. does that ring a bell? >> pardon? >> does that ring a bell? >> yes. >> okay, good. can you think of anything the s.e.c. is not doing to regulate asset managers, they've been so good at doing this for 75 years. can you think of anything she's left out in the new way she's proposing to regulate asset managers? >> well, as i said, i haven't reviewed it, i have great confidence in chair white. >> great. i'm going to take that that you don't have anything to add with respect to her job regulating asset managers. are you familiar, ma'am, with

the fsoc's decision to review asset managers, products and activities. >> yes. >> you voted on that, it was voted on in december of last year. are you familiar with section 113 of the dodd-frank act? >> yes. >> good. okay, there are 11 different parts of that section of 113, ms. matz, one of them which deals with what you folks are responsible for in weighing whether or not an asset manager, mutual fund, pension fund manager should be so designated a sifi. one of them, and i quote "the degree to which the company is already regulated by one or more primary financial regulatory agencies." now, the s.e.c. is one of those primary regulatory agencies, right? from asset managers? okay. so my question to you, ms. matz, is that what in the world is fsoc even doing in this business? we have a regulator here that's been doing this for 57 years.

you agreed there's nothing you can think of to add to her job but at the same time you voted along with everybody else to consider designating asset managers as sifis. so what am i getting wrong here? >> we didn't vote to consider -- >> speak up, please. my ears are bad. >> we didn't vote to consider asset managers as sifis, we voted to consider -- to have the staff look at the activities of the asset managers to determine whether -- >> well, that's legal speak. that's the same thing, isn't it? >> no. >> if you're asking the staff and you folks can decide whether or not an asset manager is designated as a sifi and looking at the criteria, that's the same thing. >> well, we have not made any determination. >> i know, but why are you in this business? because our mandate is to look at those institutions that could pose a threat to the financial stability of the united states. >> the s.e.c. is already doing that. >> her mandate is -- >> i just read you the criteria. she's dealing with liquidity risk and leverage with respect to derivatives and stress

testing and you couldn't add anything else to the parade so my question is why don't you folks move on? you have other things to do, why should you get involved in this space at all? >> two things. one that we have not made that determination yet but that the s.e.c. is not looking at the threat to the financial stability of the united states. they're looking at the narrow securities market. is that correct, mary jo? >> i'm asking you, ma'am. ms. matz, i'm asking you. let me ask you this question. since you folks clearly have gone down this path or are going down this path to consider whether or not you should designate an asset manager as a sifi, you must have some analysis that concludes will what the s.e.c. is doing is not full. do you have that analysis for me?

>> their mandate isn't to look at the -- >> do you have the analysis that you use, ms. matz, and everybody else used to so determine that the s.e.c. is not fulfilling their job? >> we did not come to that conclusion that the s.e.c. was not fulfilling their job. >> well, you had to make a decision based on what? >> based on our mandate. >> let's move on. are you familiar with a study done by douglas holts eakin, a director of the non-partisan cbo. >> the study on -- >> all right, you're probably not. it was done in 2014. let me give you the ultimate conclusion. it says the following "if an asset manager proposes that represents no systemic risk to the markets or to the economy, if they're so designated as a sifi then the costs will go up, we've discussed this today, the product offerings will go down and the long term rate of savers for their retirement and putting their kids through college will likely go down by 25%." now also in 113 of the dodd-frank there are other risks you should consider. do you folks consider the risk to the small investor, a nurse in lewiston, maine, or a logger

in dover-foxcroft, maine, that are trying to save money for their retirement or for the kids' education? are you considering the risk to them if the asset managers that run their money are so designated as sifi and they get dinged by about 25% in their rate of return? do you consider that? >> we have not made any -- even been given potential recommendation so we have not considered any aspect of it. >> do you factor in the economic cost to the people we're supposed to help in this country in making these decisions whether or not an asset manager should be so designated a sifi? >> we're not at the point of making that determination. >> time of the gentleman has expired. the chair recognizes the gentleman from arkansas, mr. hill. >> thank you, mr. chairman, i thank the witnesses for being here today. so many questions, such a distinguished panel and so little time. very frustrating. chair white, if i could start with you, please. traditionally, your testimony

and your -- in your capacity and previously always has our famous boilerplate that says the views expressed in the testimony of the chairs of the s.e.c. do not represent the views of the full commission or any commissioner. standard procedure. but while this is a good disclaimer for general testimony and we love it when you all give personal views occasionally and not stand on the party line, here in the concept of an fsoc testimony it causes me to want to ask you a few questions. of course you serve on fsoc as one of the ten voting members. here's my question. if one of the other four s.e.c. commissioners was opposed to one or more of your fsoc positions, does dodd-frank require the fec to vote ahead of the fsoc to how you would represent that view at the fsoc meeting? >> it does not although i do consult with my fellow commissioners before and after the fsoc meetings but the short

answer is no. >> so in that consultation, can you give me an example of where there has been disagreement between commissioners? >> it's more just informationally briefing of what's going to come up before fsoc, what i'm intending and under the structure i'm the voting member but the member of fsoc, if there is anything to take a position on at the meeting i convey that and obviously listen to any input or difference of point of view and then afterwards record to the commissioners on what transpired at the meeting but there's not a structure to take a vote in advance. >> but if a -- to continue sort of the line of questioning earlier this morning. if you had a commissioner who was particularly passionate on a topic, would you be open to taking them to an fsoc meeting?

>> you know, again i am totally amen to believe that point of view and making certain that i fully understand it and take it into account, again, under the current structure and protocol the chair or the head of the agencies that are the designated ten members, voting members can bring a plus one, as it's called in this town to the meeting with us, which has been a staff member. so it's not structured to have the other presidential appointees. obviously that creates sensitivities, no question about it, attend those meetings or vote on the matters. that's not the current structure. it's up to congress if they want to change that. >> it seems internally it would be good if there was a level of disagreement where a commissioner wanted to express their views to fsoc but that might merit a formal commission discussion and view of the commission and potentially before you simply represent the commission in your own individual capacity. >> one of the reasons when i became chairman that i tried to change how we proceeded to get