to mitigate systemic risk. that would be across all sectors, not just for banks. @@@@@@@@@ @ @ @ @ @ @ @ @ @ @ @ jo likewise, the federal reserve has some things to offer for scoop r vision. particularly the large provisions that are engaged in a lost non-banking activities to think a banking supervisor would do all of that as well. it raises some questions. >> ok. senator, two most important gaps

to fill are first making sure every important institution does come within the regulation. just be clear, it would be a perfectly good idea for the congress to legislate on that matter so that in the unlikely event that our successors did not share the same view, that they could not go in the opposite direction back to any situation which charter conversions could be done for the wrong route reasons. >> i understand that, but what you're saying that is that a world class institution, a specific regulator, could work? >> i actually think that, as sheila suggested earlier in the hearing, that what we have learned in this crisis is that there were a lot of different models of supervision and

regulation around the world. none of them performed particularly well. that seems to me more of a lesson in than anything about a particular structure or anything else. none of them performed particularly well. >> i would pick up on the point that your concept is a world- class financial institutions a regulator. one of the lessons that we have learned, and sheila has mentioned it a couple of times, is that we have banks and non- banks, providing the same kinds of services in a different structure. if you are a financial institution, you have world class regulators, currently. if you don't, you are operating in a less than regulated or unregulated requirement for it if you wanted to close that gap, there is a process by which you can do that, starting with the cfpa, the administration's proposal. the difficulty is how that is carried out. we suggest as bank regulators that we can do it more effectively.

but that is the start. you have to start looking at things like capital requirements, capital structure, for those who are not financial institutions. >> ok, currently, have made any progress -- have we made any progress, and not necessarily -- we as a general group -- toward regulation of derivatives and credit default swaps and those sorts of things? are we in the same boat as a year ago? >> i would say that we are. >> everybody agree with that? >> yes, and that requires legislation to fix. >> are we concerned about that? >> yes. i think it's huge. >> mr. chairman, have you gotten recommendations from these folks are anyone else on how to deal with these? >> we are working on legislation that comprehensively deals with this, and hopefully we can do

that and come back in the fall but that is the purpose of these hearings, to bring these ideas together. >> as anybody given concrete ideas -- >> written -- there have been all sorts of recommendations made. i will say, jon, that senator reed and senator bunning are working and an idea -- and number of our colleagues are working on various ideas to be part of a larger bill. >> i think it is someone could read it is somewhat distressing that, quite frankly, from my perspective, and i'm not an expert in this field at all, we have a lot of people trying to do good work, but there are still gaps, obvious gaps, and then at the banking level we have a myriad regulators out there and if i were a banker, i would be going crazy. i really would not know which person to be knowing who i have

to deal with -- let's just put it that way. and then if you take into consideration -- sheila, i think he said that community banks were not really a problem, but they are getting pressed as hard as anybody, as far as regulation goes. i think this is an opportune time, in the middle of a potential -- not a potential -- middle of a crisis to take a look at our regulation system and say let's simplify it. let's make it lean and mean and simplify it. i don't think that can happen unless we are willing to think outside the box and do things differently than we've done in the past. thank you all for being here. >> thank you very much. senator vitter. >> ms. bair, i wanted to ask you a few things that are a little off topic, but are important, and that has to do with the recent actions of the financial accounting standards board with

regard to bringing certain things up at an off balance sheet, on balance sheet, and what impact the will have on institutions. how will fdic to the consolidation of previously off balance sheets entities, and in particular, will the agency require additional capital for assets brought on balance sheet? >> well, yes, banks must follow u.s. gap, so if those of the accounting rules, the capital -- more assets are coming on balance sheet, then capital levels will be impacted accordingly. we still have concerns about the timing of all of this. we support the general direction of bringing this all back on balance sheet. but the timing still dismiss some heartburn, whether they need to be on this accelerated -- still gives me some heartburn, whether they need to be on this accelerated from work. the rules written now, as i understand, even if he retains

some portion of interest, the whole securitization might have to come back on balance sheet, and keeping people having some skin in the game. i think there are a lot of issues and questions about the timing, but we cannot control that. we cannot file letters and that is about it. but banks must follow u.s. gap. >> of the capital ratios set in law -- >> yes, they are set by statute. there is not a lot of flexibility there. >> not flexibility for phasing? >> not very much at all, no. >> senator, i think that traditionally, the leverage ratio follows gap completely. there can be variations, and at times, it has been more restrictive than cap. there is some flexibility to look at this and phase it in at some time. that is an issue that i think

all the regulators are looking at now to address, try to address some of the issues the chairman just raised. but i think that the bottom line is that this stuff is going back on the balance sheet and banks will have to hold capital against it. it is a matter of timing and how it gets things done. >> i don't think anybody is arguing about the fundamental issue, but i am concerned with timing and facing, because it could have negative consequences if we are here tomorrow overnight. what is the current thinking about how that should be handled? >> i think the regulators are still discussing how this affects regulatory capital. at the accounting rule becomes effective at the end of this year. beginning of next year. and how the regulatory capital rules respond to that is something that we are discussing and providing some notice to the public shortly. >> when do you think there will be fairly clear guidance for

institutions about what to expect and what time table and what facing, if you will? >> if i had to guess, and this is an interagency process, i would say weeks, not months. >> and i assume all the agencies and regulators involved are in discussions about this? >> it is an interagency role as cap requirements like this always are. it is a discussion among the agencies. >> does anybody else have comments about that? ok, that is all i have. >> senator reed. >> since countrywide was brought up, i want to make sure i have some facts right. it started off with the national bank subsidiary. you regulated the bank, mr. dugan, and the fed regulated the holding company? under your policy in case law, the subsidiary of the affiliated

mortgage company was not subject to california law? >> so we regulated the bank, and it did a portion of its business inside the bank. it did all of the subprime lending outside the bank, not in the subsidiary bank. >> it was subject to california law? >> but the bank itself was not subject to california law, and it is also where they did not do their subprime lenng that caused them a number of problems. >> prime lending it was an entity that was subject to california -- a prime lending was an entity that was subject to california law, attorney general review, all that? >> at that time, before they switch charters, yes. >> did they do that, to your knowledge? what completed the use?

-- what template did they use? >> you will have to ask the regulators. historically, there has been this anomaly where the banking company gets heavily regulated, and the holding company affiliates were not subject to the same requirements for annual inspections, and that is a thing that needs to be fixed, and the federal reserve has been doing more on that area, but it is not the same, and i believe it should be. >> let me switch to mr. bowman. when countrywide came to your supervision, you were the holding company supervisor and also of the bank, i presume. and the company that the bulk of the subprime was a california-regulated market and it -- california-regulated mortgage entity? >> i don't remember the percentage of california as opposed to new york or other states. >> when you, your organization,

reviewed and inspected these holding companies, did you notice anything? did you inspect them, or just the fsb? >> we spent a lot of time with the fed and the occ earlier in previewing for what it was that was coming our way. we also convened shortly after granting the charter. the charter was granted in march 2007. we convened what i call a regulators conference, where we invited at had a regulators from many states come in and discuss with us some of their particular concerns, if any related to the operation of the if it's within a holding company structure, including new york, california, others. >> did that alert you to potential problems? >> yes, it did. it started to, sir. >> we had come a few hearings ago, mr. meltzer and doctor

rivlin, who had a longtime association with the federal reserve. their recommendation was that the federal reserve should get out of supervising entities and concentrate on the issue of the monetary policy, and perhaps other issues. my question -- i will let you answer last, the governor could i think you have an opinion on this. but to the other panelists, if the federal reserve, following this advice by two very knowledgeable and experienced people, does not perform as the supervisor for a large holding companies, who would or should? do we have to create another entity? what is a general knowledge about that? >> that is right. the fed is the holding company supervisor for the vast majority, not all, but the very largest institutions. i think he would decree a new

agency to do it. -- i think you would have to create a new agency to do it. >> you can put the holding company supervisor and bank supervisor in the same entity. i think, frankly, for smaller institutions, a lot of institutions, were the only subsidiary of the company is the bank, there is logic to that. but where u.s. companies with a lot of different businesses engaged in nonbanking activities, that is where the particular expertise of the fed, because of its clauses of the capital markets -- its closeness to the capital markets, all that comes into play, and replicating that would be the most difficult challenge for any agency to recreate either separately or inside the credential supervisor. >> very cook it, because i have to give the governor -- >> i think you could replicate that. the difficulty would be in

dealing with the state-chartered organizations, where you do not already have a right to little like the occ or to yes. -- do not already have a right to a little like the occ or ots. >> if the fed is the regulator, you have to be able to work with what is@@@@h

central bank to perform the dual mandate given to it by the congress of trying to maximize employment and achieve price stability, i don't think there's any way that without having an awful lot of attention to financial stability. to achieve financial stability, one has to have an influence upon the major kinds of financial activities which are going on in that -- performed by the larger institutions. i think the interrelationships between monetary policy aims and goals of financial stability really undergird the case for our central bank and central

banks around the world of being involved in supervision. point two, a graphic illustration of what can happen when the central bank is not closely involved in supervision was observed a couple of years ago in the united kingdom, where, following the decision to have a single financial services at the ready with all supervisory responsibilities for all kinds of financial institutions, the bank of england, the central bank, was not involved in supervision at all, and when a significant financial institution, northern rock, failed, the bank of england was not in a position to be able to make judgments about the failure of the iraq -- failure of northern rock and within the system. you have a robust debate within the uk now as to whether they need to return authority to the

bank of england in order to coexist, i assume, with the financial-services authority. there have been some proposals to put everything back into the bank of england. i personally would not think that would be a good idea. you raise the question, the issue of the ability to get information and enforce where necessary. it is important, if you are going to ask an entity to perform a role consolidated supervision, you have to make sure that they have the tools to do so. now, as it happens, right now there is, and i have no reason to expect there will be, quite a good relationship between the fed and the controller with respect to banks within holding companies, but we need to make sure that sometimes kinds of information that are not gathered in bank supervision or, for that matter, supervision of other kinds of regulated entities, insurance entities or

other entities, can, if necessary, be obtained in order to provide the kind of supervisory oversight of the whole institution that you are asking about, or looking for. i don't personally anticipate that there is going to be lots of utilization of such a thing, but i think you do have to have that kind of backup authority. >> i have gone way over my time. i'm abusing -- >> just if i could very quickly responded on the functional by the latter point, it may go to for the way it is now, but the way the administration has proposed it has pushed it too far in the other direction. >> point noted. thank you, my colleagues. >> senator martinez. >> i want to ask about the proposal of the in administration regarding the elimination of restrictions to interstate banking for in state

banks. communities in florida would be greatly concerned about that. i wonder if aggressive ranching did that contributed to excessive risk-taking, which, i desire to increase market share, may have had a lot to do with the problems we have seen lately. eliminating branch banking -- how would that change the competitive landscape? >> senator, the fdic has not taken a position on a particular provision. we don't have a corporate position on it. >> i do not think it would be a good idea to reimpose limits on interstate branching. right now there are some limits left for doing your first branch into a state. but basically, the decades-long restriction on them gradually evolved over the year to prevent interstate branching, i think it

did permit more diversification geographically, which is helpful in some circumstances. i would personally not be in favor of for the limits. -- of further limits. >> i would just say that you alluded to certain the circumstances in which interstate operations became a problem. i think that can be the case. but that is where it is important to focus on business model of the entity in question, and it ought not to be allowed to engage in unsafe and unsound practices, whether they involve excessive branching that is unsupported by sound business plans or other practices. >> let me point out that thrifts enjoyed the ability to branch interstate without restriction. with community banks, my impression is that that privilege has had some impact, but i am not certain how great.

>> my colleague from montana brought up the testimony from mr. ludwig, i want to go into another area of his testimony that i found very interesting. he makes the point, and i'm sure he could make it much better than i, which he may get a chance to do later, but he would suggest avoiding a two-tier system that allows the largest too big to fail institutions over smaller institutions. he makes the point that perhaps it would be also two-tier regulators, the best light it is in one system and others in another. the--- to regulators in once -- the best regulators in one system and the others in another. and not treating a bias and the system that would be in favor of those institutions to develop over those that were not too big to fail.

>> there are a couple of questions, one being weather should be tier one entities designated as to begin fail, regardless of the occ and oversight. and weather as part of regulatory consolidation that you have a regulator based on size. we have concerns about designating institutions formally as tier one. i think you could probably say he was not, based on asset size, be -- you could say who was not, based on asset size, be systemic. if you don't have a right -- if you don't have a resolution system, it could be problematic. in terms of bank regulation, and like consolidated holding company supervision, -- are like consolidated holding company supervision, you should have a

federal charter and state- chartered we have a fairly large state chartered entities. the charter choice, i think, is a good one to have. you do want to have not given regulatory policies, but perhaps ones with -- more immediacy of it dealing with the state level banking supervisor is helpful. i would maintain that along the state federal charter as opposed to size limitations. >> i know we have a vote, and i don't know how much time have left, so i will leave at that. >> thank you. senator merkley. >> i wanted to start by asking the governor -- it is my understanding that some problems at citigroup and other major institutions result from moving risky activities back-and-forth between the holding company and national bank to minimize supervision. my question is whether by

creating a similar structure, instead of the fed and the occ, it would be the fed and national bank supervisor, whether we are creating the same risk in the new system of moving activities back and forth. >> senator, i think that under any system, you have got to have a set of requirements which apply across the system would to minimize the opportunities for regulatory arbitrage. that means within institutions and it also means between regulated institutions and non- regulated institutions. i would say, without talking about any specific institution, that i think there are certainly more circumstances in which institutions may have taken advantage of different applicable capital requirements, or bundling things in one form and moving them around the entity, and that part of what

needs to be done is to take regulatory steps that minimize those opportunities. the senator was asking earlier about -- senator vitter was asking earlier about bringing off balance sheet assets back on to the balance sheet. that is one way to combat regulatory arbitrage. >> do you think would make more sense to have a holding companies and the banks under the same regulatory agency? >> i don't, actually. with respect to small holding companies, particularly those that have only a bank -- it is basically a shell, and there was a bank, no other entities -- by now the additional holding company supervision is quite modest. as the bank holding company picks up additional activities, if it does any of its own capital raising, if it has even a small additional subsidiary,

if it does management from the holding company level, that is when an independent scrutiny of those activities seems a valuable. as you get to a bigger institution, even more complex institution, it seems that the task becomes more specialized, because you are looking not just at immediate impact on the bank, although that is important, because we are protecting the deposit insurance fund, but you are now also needing to examine how the whole entity is creating, can be creating risk in an of itself, and that involves different kinds of activities, different kinds of regulated entities that are, as you say, moving things back and forth or acting in parallel, and that is where i think you do need a different approach which looks at the holding company as an integrated whole, supplementing, complementing

the rigorous functional regulation that takes place in the subsidiaries. >> yes, please be very quick, and i will get my second question. >> i do think there are times where there are activities in the bank and holding company that there are some types of activities but subject to due to different levels of supervision and we ought to fix that. >> we have suggested in prior testimony large institutions have their own resolution plans so that they could be acquitted quickly if they got into trouble, at a creek -- and a key to this is separateness of what is in the bank. resolution is very complicated with these large institutions because of the interrelationships between the bank, and it is hard to tell the difference. we also, in terms of -- there is a provision called 23a which is designed to restrict banks

holding strings for the holding company. we have increased pressure to agree to -- the fed has the authority to approve these requests to move more higher risk assets into banks where they are funded with insured deposits. in terms of the incremental step, we would very much like to have a statutory role in that 23a approval process. >> i want to get senator bennett in before the vote. senator bennett. >> probably given the time, this will be more of a statement that you can ponder that question that i want answers to. but i would like to get some answers later on. it will come as no surprise that i want to talk about ifc -- ilc.

no one has discussed the ioc charter in their written testimony. testimony. the growth of ilc's has been one we talk about lehman brothers, cit, all had ilc's and as they wound down, those with assets that were the crown jewels. the ilc's had the most

value. and yet the proposal is to eliminate them and eliminate the charter. you made a comment that the center of this crisis is too big to fail, and much of the discussion has been in that area of two big to fail. may i respectfully suggest that the center of the crisis is not too big to fail. too big to fail as a manifestation that came out of the center of the crisis, and to put it in very much layman's terms, the center -- the crisis was caused because of a game of musical chairs with respect to risk. and we build more and more risk into the system because while the music was playing, more and more institutions past the risk on to somebody else, thinking, to use the phrase that sheila

used, "i have no skin in this game any more." of the skin being this particular instrument. it starts with the borrower. he has no risk whatsoever. there is no equity in the house. he is getting 100% of loan. sometimes it is a liar alone. the broker who arranges the loan has no risk in the game, because he passes it on to the lender. the lender has no risk in the game because he passes it on to the gse. the tse has no risk, because with the rating agency that has no risk, it has rated it, and he can pass it on and securitized it to somebody else. at every step of the way, somebody makes money -- on a fee, a commission, whatever it might be. and when the music stops, it turns out that everybody at risk

in the game, because the whole thing collapses. i would like to know a regulator that can focus on that question, not how big you are, but where are you in this chain of musical passing on of risk, musical chairs, if you will? no more loans in the beginning. no more liar loans. brokers, you have to have some kind of risk if you get involved in brokering this loan, so that you will then, by market pressure, do your job better to see to it that you do not pass a bond with the letter maintains some kind of risk as the chain goes forward. the gse maintains some credit risk. the rating agencies, he will -- the rating agencies, you will get a risk. nobody had a risk, and the

bubble grew and grew and grew, because everybody was making money with no exposure. that is the problem that i want to solve with this restructuring rather than working around some of the turf battles that we have talked about. i will now go save the republic and you can respond -- [laughter] to chairman warner. >> anybody want to respond? >> i will just say a word, since this will be recorded. i actually agree with everything senator bennett said except that i think too big to fail played exactly into the narrative that he gave us, because when he was talking about the the gse's, some of the biggest institutions of all, regarded too big to fail, it was at the gse's is not the only problem, but it is a very important problem. i should be careful about

speaking for people on the panel, but with respect to things like making sure that risks are properly assessed by entities, and making sure that compensation systems in entities accurately reflect the risk and that employees are assuming, are important pieces of a reform package. >> i would say, speaking for myself, i would agree that, as i said, the ability to choose a state charter, a federal charter, we don't think is a driver or contributor to this process. we are not aware that the administration is going to propose that. speaking for myself, i do not see that they were in any significant way involved with what was going on. >> let me go ahead and ask my questions, and then i will call on senator schumer. spank you, senator schumer. -- thank you, senator schumer. i want to go back to where

chairman dodd started. this question of a single regulatory depository read a letter. some of you raised legitimate concerns. i know that folks on the second panel will perhaps have a different view. paul volcker has a different view. past chairs of had a different view. your point was valid, how you make sure you don't infringe on the insurance function. i think you can achieve that i have a backup authority and going in and checking those institutions, your ongoing role as an insurer and what senator corker and i have talked about, and expanded resolution authority. i also tend to think that the notion of an enhanced system at -- enhanced systemic risk council the would include the fed and treasury and the fdic and others would give you the ability to have those variety of voices heard and i would also

just raise one other point, that we have talked in a lot -- talked a lot about the truck during -- the chartering and the ability to change charters, and that beyond that, you have raised a proper questions. each of you have a licensing division. there is a question of the selection of a charter when you are starting an institution. i guess my first question would be having that very nature of the taurus at the beginning, not switching midstream, but the selection toys at the beginning, -- choice at the beginning, doesn't that create regulatory arbitrage? doesn't that create the arbitrage issue?

>> first, senator, sheila and i don't have any authority to trucker institutions. the banks we supervise are state-chartered. i would say, though, and she can respond to this better than i, but i would say that because we have a similar regulatory requirements -- >> if he could do it fairly quickly -- >> similar requirements for all institutions, and the fdic has to decide whether to grant insurance to each depository institution, no matter wants to be in short -- to be in short -- there is a way to contain that kind of arbitrage all permitting a useful kinds that states engaged in. >> i would agree that we have a licensing function, and i would say that just because you have a choice when you begin operating,

not necessarily arbitrage. there are differences with the charters and what they can do and how they can do it. some prefer to have a local, state government regulation, even though we have a local examiners on the ground there. the fdic does grand deposit insurance to all of them. it has been after they have been in operation, where someone is facing a problem and they seek to change the charter to avoid a downgrade or enforcement action and move to a different charter. that is what troubles all of us a great deal. >> in terms of choosing the charter at the outset, the thrift charter is unique in terms of the kinds of business that an entity would want to engage in. people choose a charter based on the business plan. in terms of people switching charges because of some received favorable difference, there are 50 to choose from, 52 to choose

from, with the federal charter you have two. anyone who is looking to avoid some kind of supervisory enforcement action, as we've talked about here, we as a collective group have taken steps to avoid that, to make sure it does not happen for the wrong reasons. >> one, nothing from all of you, i think accurately reflecting -- one commong thing from all of you, i think accurately reflecting that the source of the crisis was from -- i would like to get all of your comments on -- would be consolidated into a single entity or maintain the current structure, how do we get our arms around this non-bank financial arena? clearly, what approach the administration has talked about is on the consumer and, specific

financial products, coming from this array of institutions. another is if they kind of bomb up to the love all of -- bump up to the level of becoming systemically risky, the fed would have oversight. what i am not clear on is should these non-bank financial sector have some level of dated a prudential regulation? i have not seen anybody propose , one, is it needed, and two, whether that day-to-day prudential regulation, in terms of safety and soundness, would land? >> i think you have a day-to-day separation because -- with the non-banks, you do not have that. >> should they have some? >> i think, actually -- no, i

don't think you need to go that far. i think the consumer abuses for the small entities for more of a significant driver, the lax underwriting, which then spilled over to the large institutions because of the credit situation that they created. but no, i don't think they do. if you have the ability to post credential requirements for systemic institutions or systemic practices, you don't need institutional -- >> the council for systemic and the consumer down here? >> i generally think it is a daunting challenge for the tens of hundreds of thousands of different financial providers to regulate them all around the safety and soundness, but i think the administration would do so and have the authority to do so for consumer protection. it does not get at what is a fundamental issue, the extent they engage in very bank-like function, and there is a safety and soundness issues like an underwriting standard, down

payment requirements. that is not really a consumer protection thing in the traditional sense. >> it goes to the, that senator bennett was making of making sure you have skin in the game. >> but part of the mortgage legislation that passed the house last year at, and standards that i would say were prudential standards that apply. that would be helpful for mortgage providers, but not necessarily all financial providers. there may be some instances where some of that is warranted. >> but what did senator bennett's approach that you originated a product and keep it in their -- it would put some requirements of safety and soundness on the institution? >> absolutely. >> i do think that the question of where regulation stops, how broadly the perimeter is cast,

is an important one going forward. we know that we will not have the same problems we had a few years ago. if it will be new problems. -- it will be new problems. i thought that one of the important roles of the council, some kind of interagency council, is precisely to that i tend to issues that don't seem under anybody's regulatory umbrella at that moment. >> beyond just being whether there is systemically risky -- >> i think you pointed out the problem. you have systemically risky institutions addressed, and regulated institutions already regulated that are addressed, and then you have consumer. but even if you have a practice that is troublesome, there ought to be a mechanism for somebody making an evaluation of that practice, and if the council saw that if one of its members had authority to regulate, it could

suggest it. the congress to think about giving some kind of the fall of backup authority to the council in the van -- >> very quickly, because the senator from new york is anxious -- >> the ability to regulate or oversee this group between the council and the cfpi. whatever scheme is brought up for past legislation, there are very creative people will look at that and they will find a way to get around it. whether it is at the state level or federal level or what ever else. people have a business model and they want to engage in a particular activity, and the preference is to engage in that activity with the minimum regulation. it is a difficult issue. >> i want to thank you all for being here. we have gathered here with one common goal, to make our financial regulatory system is

strong enough to prevent another severe financial crisis from happening. i've read the written testimony. if i were in your shoes, i would make the same arguments. but some would argue that there is a bit of turf protection here. that is natural, but should not be the dominant consideration as we move forward. . >> we and the committee have to see the testimony as coming from at least partially that perspective. i would ask you this, there are reasons for one strong powerful

efficient regulator. >> a hoj poj of different regulators adds to conflicts and creates one thing and another

thing. each them who is authority. my question to you is, do you disagree that one console i dated warrior would have these four problems or benefits even if you think these other benefits might be better for other reasons. who wants to go force. >> i'll start. each of the four things you mentioned is an important thing.

what you say is that there are costs to going single regulator route. one of the costs is that the fed loses some insight into how banks are functioning, how they are moving money and why the volatility of money is what it is. another potential cost is you have a single, all encompassing regulator and sometimes it loses perspective because it is the only game in town. >> i know the arguments on the other side, but you agree that these four arguments make some sense. >> i think a couple of them are strong. >> i would agree. those benefits are there and real and this is the right equation. you have to ask what are the costs. there are certain things the federal reserve brings to the

table in terms of closeness to the markets and expertise from the open market operators that would be difficult but not impossible to regulate, but that are real. second, as i mentioned earlier, it is hard to be good at it is it you -- it is hard to be good at it if you are not doing it all the time. >> i would just say that i think on the monitoring, if you look at the single regulator, they really were not any better. if you have a single monopoly regulator, that contributes to regulatory lax -- that regulatory laxity. it's not just a matter of picking bank charters, if you don't include securities common for of the graves dealers, and others, you still can't use a legal model that would fall outside of this. unless you put everybody out of this, you'll still have some degree of arbitrage. >> i would agree the single form

of regulator has not proven to be any more effective in terms of what we have now. i would also be remiss if i did not point out that since 2008, 79 financial institutions have failed. 50 national banks and 11 thrifts. i also need to point out that of t.s. and charter countrywide, -- ots and countrywide, countrywide was soldo bank of america. the ability we had to affect countrywide in that time was very limited. >> i have another question. this relates to the point mr. bowman just made. as you said, 54 of the 69 banks that failed this year are state- chartered banks.

i guess it is a historical anomaly why the fed supervises state chartered banks and mr. dugan supervises federally chartered banks -- when i first get to the banking committee in 1981, i didn't understand it. it just happened. let me ask mr. tarullo , most of the failed banks were not regulated by the supervisor or by ots. explain to me and this bair can answer as well. explain to me why the fdic and the fed should keep state- chartered supervision, particularly if we're giving the fed more responsibilities and other areas. if you think those functions should be kept apart, from the proposed national bank supervisor, why shouldn't at the very least merge fdic and the

fed supervision of this state chartered bank? >> can i ask the panel to try to answer quickly? >> i will ask unanimous consent that each panelist be asked to answer the question in writing. i did not realize we had a second panel and i was the last one here. thank you. >> it looks like we're going to have to reschedule the second panel, so i'm anxious for you to respond to the senator's question. >> mr. chairman, i am deeply grateful. >> the national banks would be

chartered by the -- would be supervised by the otc as a loss charter. members of the federal reserve system and would be supervised by federal supervisors by the fed and of their non-member banks, their fight -- their primary regulator would be the fdic. there are two answers to the question. one is that you suggest history. the controller was started in 1863 to create a new national charter which had a dual banking system ever since. i think chris unconcern on the part of state banking commissioner's that -- i think there is concern on the part of the state banking commission that they have had as their overseer of the federal level, the same entity that charters national banks. >> that is what we call in brooklyn tight. >> unquestioned. but the concern is whether or

not there be the same treatment of national and state-chartered institutions. second, are their gains from having the fdic and the fed supervising banks as well as performing other functions? i would suggest that the arts. >> -- i would suggest that there are. >> there are a lot more state chartered banks, so lot of these are very small institutions. >> a lot of the biggest failures were not under mr. bowman, but his predecessors watch. >> we have provided support for larger institutions and i think it needs to be taken into account. i know it is confusing that we have these multiple regulators and it's frustrating because it's hard to explain to the public. on the other hand, as a deposit insurer, we find helpful to have bank -- that people in banks all the time.

it gives us a window into what is happening and what emerging risks that might be. we could perhaps fix it up through a back up supervisory process, but if we were going to shift to that model, we would have to be must -- we would have been much more robust. with have to keep this data points continually into the risk assessments. that would add to the regulatory burden. supervisor perspective that we give that to state charters banks is useful to that function. >> if i could add to the confusion, the ots is the backup regulator for the state chartered associations. so you have a federal regulator at the state level. >> i would like to thank the panel for a very interesting morning and one that has been very helpful. i want to apologize to the next panel. i understand staff will be back

to about rescheduling. we want to hear your views and a dozen of the views from the second panel were perhaps more sympathetic to the single depository regulator and we want to get those views on the record and get a chance to ask questions. thank you very much to the first panel and we will reschedule the second. the hearing is adjourned. xxxñ

clear clear [inaudible] [inaudible] >> you are watching c-span,

public affairs programming. coming oup up, washington journal. . . .