going back to the repayment of tarp, $68 billion announced this morning, what is they expected return on investment for taxpayers? >> the way it was initially established these came with 05% bond. i do not have a press statement, but the treasury has already earned several billion dollars in terms of those dividend payments on the preferred. the full terms for the government include the value of the warrants that treasury took as part of these. we are in the process of going through a judgment about what the fair market value for the warrants is likely to be. in the release this morning -- some of those adjustments are in the several billion-dollar range that those banks will repay. so, people will bring all kinds of prisons to judge the return.

you have to get that for the country which are significant, quite significant. you have to look to the broader benefit in avoiding financial collapse because there is dramatically more credit available now than if these things had been forced to shrink. might have been if the banks were forced to shrink dramatically. >> that's the question. assuming you wouldn't allow repayment if there was any question of soundness to the institution, what kind of assurance do you have that the banks that return this money are going to be issuing credit which was one of the original goals? >> right. the judgment under the law was made by the federal banking agency that was responsible and there is a careful process of judging whether they could prudently repay this money and the figure reflects the judgment of the federal banking agencies. that means these banks are in a position where they can make normal business judgments about lending and i think by many measures lending is a very economic -- expanding credit is a very economic thing to do

today, but as i said, we are in a recession that followed a huge boom in credit. so it's going to be for many parts, many families and many businesses, borrowing will decline will as we go through this and that is a healthy and necessary thing. it makes it hard to judge because you don't know what would have happened and what lending would have been produced, but i think you have a financial system today that's sub tshlly stronger than it was two, three, six, nine months ago and is in a much better position to provide the credit necessary to help us get through this recession and get back on a growth path again. >> mr. secretary, we recently enacted to pass in the senate an historic credit card reform bill which i want to commend my colleague senator dodd and all those on the banking committee who worked so hard on it. it's been 25 years or more since we've done anything in that field. there was a third rail in this discussion which we couldn't bring up and couldn't discuss

for fear it would explode the whole process, interchange fees. interchange fees are the fees that are charged by credit card companies and imposed on retailers and there's very little room when it comes to the retailers to negotiate these fees. approximately 2% of our purchases using credit cards are paid back to the credit card company in interchange fees and the retail establishments across america are very concerned about this because they have little or no voice in that. i'd like to ask two questions about interchange fees. first is a more general question about what the treasury is doing, if anything, to look into the interchange fee system, but then in particular, since it turns out that the federal government is now accepting credit cards, it turns out there are over 200 federal entities that accept credit cards, amtrak, the postal service, the treasury's financial management services. it turns out that our government paid these credit card companies

over $200 million in interchange fees to visa and mastercard in the fiscal year 2007. i repeatedly asked the credit card industry and the banks to demonstrate that the rates that they've established are legit in the, to process the card transactions and, unfortunately, they have not been able to provide any data or information to suggest that the amount charged even to the federal government represents a reasonable fee. in fact, the gao report on this recently said that the fms tried to negotiate lower interchange fees with visa and mastercard and negotiations were not successful. in addition to the general questions of the fees on retail establishments across america. what is the status of your effort to make sure uncle sam isn't paying too much for the credit card companies for use of a credit card. >> this is a complicated

question and to be honest with you, vint thought about this very much yet and i would be happy to spin time with you and your staff and taking a look at both questions you raise. i think you asked the gao to do a stud of one of these dimensions and we would look carefully at the conclusion of the study, but i'm happy to commit time on this and to see if there's something we can to to protect the government's interest and not just to reform what you just raise happened. >> i think with the establishment of t.a.r.p. under the previous administration and its continuance under this ad n administration there has been a shift of personnel within the department treasury to deal with the obvious demands and the administrative demands and can you give me a general impression of whether or not this has created dislocations in other parts of the treasury that needs to be addressed and the payback on the t.a.r.p. funds is some indication that we maying

getting out of this business and get back to business as normal. >> the way that the legislation was written to provide funding for the administrative resources required to run the programs and we've substantially increased resources using the authority to restaff the office of financial stability and we'll also have to increase as we proposed in the budget, the rest of the domestic finance staff because they've got this greatly expanded and much more complicated set of challenges in the range of policies including the one you just raised and we did announce the appointment of the new deputy assistant secretary for the consumer policy issues in the financial sector. i do not believe we've had to devote resources from other parts of the government to these financial crisis imperatives on a scale that would jeopardize our capacity to carry out those broader responsibilities and we'll be very careful to avoid that risk, but there are parts of the treasury as i suggested where we think that we will need

to have modest increases in baseline like in tax policy which is outside domestic finance and i think with that support, i think we'll be in a stronger position to meet these broader objectives, but my basic question is no, i am not concerned now that we'll have a substantial diversion of resources as important as the financial crisis is at the expense of other core priorities of the government. >> thank you, mr. chairman, mr. secretary, i want to follow up on the questions that senator nelson asked to with regard to the decision of gm and chrysler to terminate dealerships. this decision has been perplexing to many of the automobile dealers in my state. everyone understands that gm and chrysler have to restructure and shed costs in order to survive.

but the dealerships tell me that they pay for the cars, that they paid for the shipping and that they own their own showrooms. they pay for their sales people so they've raised the question of how does it save money for the automobile manufacturers to have fewer people promoting their products. could you shed some light on this for us? >> senator, excellent question, and i've spent this time. i've never run an automobile company -- >> until now. >> and i don't expect to be running one new, either, but since i'm looking at this and i guess i would say, i'm not sure this would be convincing or per sways testify you, that i think of the broad consensus that people looked at what will be necessary to put these companies back on a better financial foundation, i think there is a very broad consensus that to do that they need to get the distribution costs down and the distribution system more efficient and that's why the

companies at the center of their plans have proposed very substantial reduction in the number of dealers. now i know that i'm not sure that's persuasive, but my sense again in reading a bunch of -- and listening to a bunch of people who looked at them, and said this is an important part of that effort to get them down to a cost base that will allow them to be viable. it comes with enormous damage in those communities and it is a wrenching adjustment, but the reality is that these restructuring programs will leave the country with many, many more dealers than would have existed in the absence of these programs. the balance comes -- the balance perfect, but i think my sense of looking at it is that this is a necessary part of looking at this to get to a path where they don't need the government. >> was the decision to reduce dealerships made by the

manufacturers or was it imposed upon them by the auto industry task force? >> it was not imposed by the auto industry task force and it was a gesture made by those boards of directors and the management about what was a critical part of a restructuring plan. >> thank you. i'd like now to turn to the issue of financial regulatory reform. i introduced a bill in march to create a council of regulators to act as the systemic risk monitor. i know the other model for that is to have the federal reserve assume responsibility. i think there's widespread consensus that we do need to have a systemic risk monitored so that someone or some entity is looking across the financial system and identifying high-risk practices, policies or products.

and regulatory black holes so we don't have the problem of credit default swaps or the next product that comes along. the reason that i support the council is i believe there's value in bringing many perspectives to the table and many areas of expertise. the fed, frankly has its hands full. there are also issues about congressional oversight. we want the federal reserve to be independent in order to set monetary policy. if it's also going to be the systemic risk monitor, there's going to have to be more congressional oversight of these operations. so tell me, i know you don't want to precede the president in announcing his plan, but discuss with me the pros and cons of the

two approaches. >> well, should i begin by saying, that although i will not get ahead of the president, that we share many of the objectives that you laid out. i think a necessary part of the solution for the u.s. financial system will be a more effective body to bring together the responsible, supervisory agencies alongside the fed to make sure we're looking across the system as a whole, that we're keeping abreast in the change of the structure of the systems so we can better limit risks in the system and i think the council has a lot of merits in that context and i don't believe it's desirable for us to concentrate our authority for dealing with a future in one part of our complicated governmental structure. so although we're going to propose some important streamlining consolidation and simplification of the oversight regime, we're not going to propose to concentrate our

authority for systemic issues in only one place, it's too complicated to do that. the really important thing is that we have effective oversight in the core institutions that are critical to the system that we bring critical markets like derivatives under an effective framework of oversight and protections there, that we have much better enforcement and tougher rules for enforcement of consumer protection and we have better tools for managing future crises and we're going to have to have tougher constraints on risk taking involving better constraints on leverage and capital so that you have thicker shock absorbers and thicker cushions against future crises. the system is more robust to potential failure and those are the systems in our approach and we'll have the concerns and objectives that you laid out in the recommendations. >> thank you. >> thank you, mr. chairman. i don't want to beat this horse,

but i will just say this, and i like you. there's an overwhelming attitude in this country that bigger is better, and i think what we're allowing gm and chrysler to do by closing down these small dealerships is putting all of the forces into a few big dealerships because number one, they're easier to deal with a few people than it is a lot and number two, it will reduce competition and i'll tell you, if the dealership's making money i don't see any criteria for shutting them down and that's my only editorial comment and i only other thing to keep in mind is in rural america it's a heck of a lot different than then in urban america. it will have a big impact on the economy. please pass along that information even though you are not the one making those particular decisions. chairman ben bernanke talk about restoring fiscal balance.

could you comment on that and where you see as going over the next few years, assuming that the economy gets turned around? >> it is true in critically important for this country that we put into place a framework that gives confidence that we will have the ability to bring our deficit down to a sustainable position over the medium-term. the president and his initial budget laid the path for dramatic reductions to bring the deficit down to a level at which a our overall burden is not growing. >> i heard that the debt will triple in 10 years now more than one half hour ago. >> we came into the administration where we had the chance to late a strong foundation for strong dollar.

i am a deep believer and have deep conviction in the central importance of fiscal responsibility. we began this year in the worst financial crisis in decades and because of that we had to do, with the congress, extraordinary things. by necessity it produced a short-term temporary increase in our deficits. there was no path that did not involve such through this crisis. at the time we propose that, the president acknowledged we will have to bring down the deficits at the time and it will have to be done with congress. it will be difficult. we will find recovering will be weaker. private investment will be weaker. recovery will be weaker. private investment will be weaker. interest rates will be higher

unless we're able to convince people that we'll have the will and the ability to do that. >> okay. too big to fail. it can't be an option in any industry, and i think we may be there in energy. we may be there in food systems and we're absolutely there in the banking industry. >> right. >> how do we fix it? do we fix it with regulation? how do we fix it? >> i would mention a few things and that will be at the core of what the president lays out soon. first, you have to have better design, tougher constraints on leverage, on risk taking in the core parts of the system. you have to have better oversight of the central markets like derivatives because those are the markets that sort of affect whether failure is going to risk wrecking the system or whether fail cur be system, you need thicker shock absorbers in the central markets too. you need resolution authority in response to senator bon's

comments that allow us to deal with the failure of a large institution like aig. i would make one observation, senator, to show how complex this is, it is not just the size and size is not the most important factor. it's the role the firm plays in the system, how connected it is, you've had in this crisis which are not the largest institutions in the world present risk of catastrophic damage because of how interconnected they are. so better capital applied across the system to limit scaled leverage, much better oversight and shock absorbers to limit the risk of the damage caused by failure and better resolution tools. >> neil said that the big guys had an advantage over the community banks in particular

because of their access to credit due mainly to t.a.r.p., i would imagine. do you think they have an unfair advantage? and -- >> i don't we have 9,000 banks in this country. i expect that ten years from now, we'll still have a financial system and it's very important that we have a financial system that has thousands and thousands of small banks across the country. it makes our system more resilient and stronger. and one of importance of the reforms is to make sure the larger institutions have constraints on leverage that are appropriate given the scale and risk. that will help offset some of the potential concerns you raised about level the playing field for community banks. >> thank you very much. mr. secretary, i was glad the president announced his supports for the concept for financial product safety commission and i

think the agency that tries to protect consumers from predatory traps a good idea. could have spared us some of the problems we're currently going through with pre-penalty payment on mortgages, for example. in a way that is the easy part of my question. the tougher part gets to the heart of the issue. and the heart of the issue would be an interest rate charge. is there too mh -- an interest rate that is too high in america? do we have an obligation as a country to say that certain levels of interest rates aren con shunable, illegal, unacceptable? i put in a bill to put the rate at 36%. i thought that was so high that we would be just fine. if you wanted to start a snake farm, you should put in a bill and watch what crawls under the door. the folks that came in from title loans and payday loans could sit and say to me with a

straight face, senator, you're going to put us out of business. 36% puts you out of business? yes. i ask them how much do you charge for the loans? oh, somewhere between 58% and 800%. people used to go to prison, they called it juice in the old days when people were engaged in that sort of thing in the back alleys, now it is acceptable, legal in this country. is there -- should there be a consideration about limiting interest rates charged for certain products in america? >> senator, i believe that we have to have a much stronger such of protections for consumers, particularly in the area of financial products that involve debt and credit. those where the failures were most stark. it will require more than institutional charpg changes. it doesn't -- it may be necessary but it's not sufficient for that. i think we need to have stronger

protections. i think the credit card reform bill is a good step but not a sufficient step. we will propose a necessary set of stronger protections. now, i understand your -- the reason why you're supportive of a cap on interest rates and you've been exposed to a lot of the concerns on the other side of that in terms of whether that would have unintended effects in terms of denying people rights to credit. it's hard to make the case for why some of those products are necessary and desirable. but i do not believe those caps are necessary part of a strong credible consumer protection reg when i set out the proposals talk about whether they go far enough. >> if we can't sell the notion of a usery cap, shouldn't we

prevail -- credit unions have been coming to me saying, we're different, we're not greedy like banks, we're trying to serve our group of people that we loan to them. shouldn't we be talking about making credit available to the poor people who are lured in to these pay day loans and title loans, have credit available in lower amounts at reasonable interest rates so they are not exploited? i don't thing think we can continue to look the other way. but perhaps the banks bear some responsibility here. if we're going to have credit available for people who are truly struggling in this economy, why do we throw them to the wolves with the payday loans and title loans. >> i agree, people believe that an important part of the solution is to make sure all of our citizens feel they have the capacity to be part of the broader financial system that has these protections. one step towards the objective

you laid out is to make sure that they have bank accounts, have a relationship to allow them to access credit, on forms which are less vulnerable. the president's nominee for is siftant, michael barr spent his life's work on these kind of questions, one of the more thoughtful people in the country thinking on how to bring about reform in those areas. >> mr. chairman, mr. secretary another issue that keeps coming up is regulatory shopping. in other words financial instituti institutions will figure out which regulator gives them the most advantages. i saw this on the state level 20 years ago where we would have a financial institution come in and threaten to switch to a federal charter because our

audits were too tough or our consumer protections were too strong. i don't think that it's a coincidence that aig bought a small federally chartered threat or established a small federally chartered thrift in order to get on the regulation on the office of thrift supervision ots. which is generally viewed as being a weaker regulator than the comptroller of the currency. are you looking, as part of your reforms, on combining the ots with the occ? that's what my bill does to me, i think it's a brilliant idea and needs to be done. >> senator, you're absolutely right, one of things that help produced this crisis was in our country, we allowed people to choose the regulator. to put risk in areas where it

would be least well regulated. that level of unevenness proved tragically damaging to the stability of our system. fixing that will be critically important. as part of that we're looking at the areas in our system where we're most vulnerable to that kind of shopping for regulators. you pointed out one exam. . it is one of the more compelling examples of weakness in our system. just to say we're looking beyond in that, of course we're looking at that. we know it's something we need to do globally too. to make sure we're not vulnerable in the future, to risks just moving offshore to other areas where it could present a bigger risk to the system. more evenly enforced across the u.s. financial system and bring the world to the higher standards as well. >> you also made an excellent point where you talked about the

excessive leverage in the system. i think when bear stearns failed its leverage ratio was 30-1. something that a small community bank or a credit union never would have been allowed to have under our regulatory process. so i hope as you look at this issue that we're going to be establishing safety and soundness requirements regardless of the type of institution. it seems to me that bear stearns, the large investment banks, all of which have disappeared, been acquired or no longer exist, should have been required to meet the same kinds of capital requirements and leverage ratios that we would impose upon a community bank or a credit union. >> senator, i have a lot of sympathy for that view. i think that again, center piece of what we need to do for the

country is to make sure there are more conservative better design constraints on leverage applied across the core institutions that play a critical role in how the markets function, both in normal times and in distress. in the united states we were fortunate to have across the banking system a very simple easily enforceable crude constraint on leverage. for that reason, in many ways our financial troubles today are much less acute than there are for countries around the world where that kind of constraint did not exist. banking assets in our country today are one times gpd. two and eight times gdp across europe, in part because they did not have in place that kind of simple crude constraint on leverage. we want to have, thicker shock absorbers in the system, thicker cushions of capital against risk

that are more simple and evenly enforced and that they dampen future crises whether that amplify them. these are things -- very complicated things, we want to get them right. we'll go through a very careful process to bring experts together in thinking about what the right mix of those >> if you have not already looked at them i would encourage you to look at the canadian and the australian twin peaks system which a think -- i think also has benefits. canada has not had the kind of crisis we have had. it is very interesting the differences in their regulatory structure, mortgage lending, their tax deductions. it is fascinating to look at and look at their results. my time has expired.