>> i think that is why you need this. continuity. it's important to pay attention and report to the contras were inappropriate. and confirm on the basis that he has a particular responsibility for overseeing the federal reserve. >> thank you. the gentleman's time has expired. the gentleman from california is recognized five minutes. >> chairman bernanke, watching the market trends for treasuries, it appeared the two major creditors of japan and china have scaled back their purchases of u.s. treasurys. filling the void in demand have been other foreign governments. i would assume that would be far in banks and hedge funds and u.s.-based financial

institutions as well. clearly, there is a market way. the carry trades is in effect by these banks, which essentially amounts to borrowing at next to nothing from central banks and lending it back to the u.s. government at 1% or 2%, depending on how far they go out on the yield curve. have we backed ourselves into a you raise interest rates, that carry trade evaporates as does the demand in the treasury market and our ability to finance the 1.5 -- the $1.5 trillion deficit this year. who is going to lend to us if we do that? if foreign governments are scaling back and financial institutions can no longer make money in this market, where will the demand for treasuries come from?

>> this is a very large indeed market. -- and deep market. the dollar tends to strengthen because the money goes into the u.s. treasuries, but i have not u.s. treasuries, but i have not seen any reduction in demand u.s. treasuries. the foreign demand remains quite strong. i anticipate -- i do not anticipate any problems. there is always the question of price, and there the question is, well all of our creditors, including domestic, remain confidence in the long run fiscal stability of the united states? there is important for the congress to devise a plan to create a trajectory whereby we have a more stable debt position going forward. that is very important. >> i concur on the points that you have made publicly.

but getting back to the question of the extent that we are dependent upon the carry trade to finance our debt, do you think there's an element of truth to that point? >> there's sometimes a misunderstanding that they carry trade is an arbitrage opportunity. it is not. if that is a long-term security, there's a considerable risk on the life of the security. as short-term interest rates go up because the economy strengthens, then long-term rates might go up as well. that would affect our off- financing of deficits, and another good reason to get deficits under control. but we will do what is necessary to attract demand for securities. i don't see any reason to think

there will not be demand. >> let me ask a question of mr. volcker, too. with the introduction of mr. dodd's legislation in the senate, we now have regulatory reform bills in each chamber that institutionalizes rather than eliminates this "to big to fail" concept. the ultimate cost of "too big to fail" will be borne by our capital markets and the broader economy. the approach put forward in these bills essentially bifurcates our financial system, and those institutions that will be labeled systemically significant will likely see lower borrowing costs and greater access to capital compared to their smaller competitors. that would give these firms a significant competitive advantage. this is what happened with fannie mae and freddie mac. they wiped out the competition and they formed the duopoly of the secondary primary mortgage market because they're perceived

to be government-backed. mr. volcker, are we recreating the moral hazard problem by labeling these institutions "too big to fail?" how would you expect counterparties of these institutions to react to this label or even make -- even making the label official? >> with fannie and freddie in particular and the moral hazard, i think it is very real and it will be a real challenge to change that in the future. you're not going to do right now, but the market is wholly dependent -- mostly dependent on government participation, including support for fannie mae and freddie mac. so you're stuck with it. i don't think we need to get ourselves in that position in the future. i hope that is on your agenda next year when we reorganize the mortgage market. so far as other financial

institutions are concerned, i hope your opening comment that the institutional station of "too big to fail" is not correct. i understand your concern about labeling and i do not want to do that. that is part of the reason of the kind of proposals that i've made. i don't want that resumption to excess particularly for non- banks. banks to have access to the federal reserve. they do have deposit insurance. they are also heavily regulated. and that is the balance. so they do not have that much competitive advantage. the others do not have a competitive advantage. if they are extremely vulnerable. >> the gentleman's time has expired.

>> these are what are behind my concerns. >> the gentleman from new york -- the gentlewoman from new york, ms. maloney. >> thank you to paul volcker, a great president of new york state, and we are proud of your contribution to our country and your public service. there's a great deal of concern about the proposal in the dodd bill in the senate regulatory reform proposal that limits the fed's banking supervision to banks that are larger than $50 billion. first of all, do you see a need to make a distinction between large and small banks? and i would specifically like to comment on the federal reserve's interest rates steady by the federal open market committee which met yesterday, comprised a

federal probe -- federal reserve governors, the president of the new york fed, and on a rotating basis, the presidents of five of the regional reserve banks. does this have an impact on the fomc's activities, first mr. bernanke and then mr. volcker? >> if we of the regulator of only the banks, we are thinking that is a bad idea. we need to see a broad financial system. we need to have the information about the broader economy and know what is going on across the country, not just in the great state of new york, for example. there is a close connection between the need for the federal reserve to look at banks of all sizes, and our regional structure. exactly why we have a regional structure -- we have policy makers from 12 regions to speak

to local people, including local bankers, to get information about what is happening in their part of the country. but the regional structure of the federal reserve and the supervision of small and medium- sized banks, both of those things together provide us with information, qualitative the information, which cannot be obtained it nearly any other way. >> it's important to monetary policy to have the supervision of all the banks? >> also of financial stability, because we need to see what is happening in the entire financial system. >> mr. volcker, do you have of the position -- have a position on this? >> let me make one comment on this "to big to fail." the $50 billion limit, i don't

see that as the limit between who will be saved and who will not. $50 billion is much too low in my opinion. it's a rather arbitrary decision as to which the size of banks would be regulated by the federal reserve, apart from losing the contacts through the federal reserve. >> i've received a number of calls on this proposal. many from small banks who are concerned that they would not be part of the federal reserve system. they want to be a part of it. can you comment on the supervisory powers over your member institutions, and on various sack -- financial activities in which they operate? .

as a regulator of the banking system, we will be able to see what happens and be able to make

better decisions about how to address any potential risk to the broad system those kinds of products might pose. >> mr. volcker, any comments? >> no. >> feel ladies time has expired. the gentleman who -- the young lady's time has expired. the gentleman from texas. >> i have been an outspoken opponent of having a federal reserve's fed conducted itself to monetary policy tied to specific inflation targets. and your testimony, you deposit it is a critical element of conducting monetary policy to have the prudential regulator role, and i certainly have an open mind to that argument, but

is an historic evidence -- isn't the empirical evidence kind of murky if you looked at the u.k., if you looked at japan and sure many. clearly they did decouple the two. -- japan and germany. clearly, they did decouple the two. can you please elaborate on the evidence that is out there that might be convincing to members of this committee'? >> it is interesting. as you point out, there was a decoupling in the central spanking function. i believe in all three the current trend is strongly towards giving back the central bank to supervisory authorities, and in europe, the european central bank is being made essentially the financial stability regulator for the continent. i think the perception in each

of those countries was moving the central bank out of regulations deprive it of information it needed to be affective in the financial crisis, including executing its last resort function verio -- function. >> clearly we have not the couple. we did not avoid the recession. >> that is absolutely right. >> the question is we can identify problems. i have tried to identify some. there is some in the execution. surely, there are problems. i think the lessons of history are generally on the side of having integration in monetary and supervisory functions. >> on the next panel, we are going to hear from the doctors sitting over your left shoulder he was kind enough to quote me

in his testimony. i will quote him. it is another way to fit the public's first. systematic to others who caused them. -- which clearly takes us again to the whole question of too big to fail. i have a two-part question, and is that really in the eye of the holder thelma -- boulder? if so, in order for you to execute your charge in price stability, is it not counterproductive to have any type of designation of of fund

that creates the impression there are firms too big to fail. is there not another message as you have argued for that would avoid creation of an explicit fund, and could not the proper standards be used in order to avoid the designation of too big to fail but essentially solve the problem? >> the industry and not the taxpayer would bear the costs. i think it is important to make sure -- if an institution threatens the entire system that has failed, we need to be

especially careful. in particular, going back to a question raised earlier, we really have to address too big to fail, and the means the resolution regime has got to be one that makes sure all the providers of capital, including subordinated debt and so on, will be wiped out, but they will not be protected, and that the authorities have the ability to go further oup the obligations o the extent it is consistent with civility. we can only do this if people believe they think of send -- to take office. we did not have the flexibility in many cases to impose losses without creating the bankruptcy we were trying to avoid, so the well-designed resolution regime,

we can impose losses. >> the gentleman's time has expired. the young lady from california is recognized. >> i would like to thank both of you for being here today, and while we are not going to get into the volcker rule, i understand we're going to hold hearings to talk about it more, and i understand the president is very interested in what he calls the volcker rule very good i am looking forward to having you back with us again. having said that, i want to go to chairman bernanke. it was not until 2008, well after the mortgage loan products

have done their damage, the the fed finalized its rulemaking, for the act which covers gustin 1994, mandating the federal reserve prohibit this lending. you mentioned they examination the federal reserve has taken of its supervisors. i really do appreciate that. i am not going to get deeply into the consumer finance protection agency, which we have talked about so much, and the dodd bill, but here is what i want to try and focus on. i have this notion there are some products so bad, so predatory that they should have never been on the market. it seems to me that slides in the face in what those of you in the industry think about, the

ways you think about it. you feel that in a free market society businesses are able to come up with all kinds of ideas about how they want to provide products or services, and it is up to use to regulate them, not to prohibit them and say, you cannot do that. i do not understand why a regulator cannot take a look at a product and say, this is so bad, this is so predatory it should not be on the market, and we are not going to allow it to be on the market, or we are going to discourage it, and that is one reason i am so interested in different -- the consumer protection agencies. do you feel as a regulator said you should have the ability to say no? you cannot put the product on

the market. it is too bad. it is to predatory. absolutely -- >> absolutely, and we have done it. we have them practices like double cycle billing. if there are practices a consumer cannot understand, there is no reason to allow it. >> if i may, those were banned after they had been so abusive and out in the market for such a long time. we do not get to see these mortgage products. they are calling my office every day, and i am looking at an elderly couple who took out an interest only loan, and after five years that adjusts, and they had a 30-year adjustable rate, which is a contradiction in the way they show alone to

work, and what happens this -- shows alone to work, and what happens is that loan was 4.5% of your years ago, and that alone can go up to 9% after it resets. the couple was over 65, and in the next 65to 10 years, it can go up to 10%. we do not know what the interest rates are going to be, and they said they did not have that when they first took out the loan but an amendment was put in there, and they signed off on it. what can we do about that kind of thing? >> the federal reserve or whoever is in charge of consumer protection needs to make sure the products are safe for people to use. you were right to criticize the federal reserve for being late in doing the mortgage regulation. we did do some things, but we did not do enough. once we did it, and we have

worked hard on these areas. we bend a lot of bad practices, and you cannot offer a mortgage that has these practices anymore. i did not know about this particular case. we are looking at features -- some of them wages event because the public cannot understand what they are about -- we just banned because the public cannot understand what they are about. >> first question. i have a bill the suggests the gfc should be on budget. quick question. their obligations -- are they sovereign debts? the government has been pretty vague about it. i thought i knew were the

chairmen stands. where do you stand? >> my interpretation is standing behind -- >> do you think it is sovereign debt? >> whether it is legally sovereign debt, i am not the quick to tell you. we did not see equipped to tell you. >> i agree. -- i am not equipped to tell you. >> i agree. >> let's move on to the other questions. the report with regard to the lehman situation. it seems as though the answer you gave was that you were not the primary regulator in that case. let me ask it this way. the fed was on scene. the paper reports of your

people being over at lehman. was the federal whereof one of the -- aware of the situation? >> no. >> and the reason was because? >> they were hidden. we are currently the principal regulator of goldmansachs, and we have a dozen people on site and another dozen who are looking at the company. we had two people assigned to lehman, and their main obligation was to make sure we got paid back. >> the paper reports there were a dozen people. only a couple of the more. >> that is my assessment. >> before, women would not have had access to the discount window at this point.

is that correct? >> our objective -- lehman would not have had access to the discount window at this point. is that correct? you did get paid back, but is the because the collateral was adequate? >> it was largely the collateral. also, the loan we made was to the brokerage and not to the holding company, so that was a bit of distinction, but if we took collateral to make sure it was safe. >> you tell me you only had a couple folks at: -- at goldman. >> there were about a dozen folks. i got this number this morning. about a dozen people who go to goldman every day. >> i am not going to hold you to that number. in light of these reports is the something we should be concerned about?

if that's something we should be concerned about or something the fed should be concerned about? are you looking into it? >> lehman is no longer in existence, but goldman and morgan stanley and merrill are under the fed's position, so it is our responsibility and we are paying attention to these issues. >> are you specifically looking at their accounting to see if this same activity is done now, or was it going on at that time as well? >> i do not know. i have to check and see. this report shows came out this week. >> would that be one of the gaps we should be concerned about going forward. >> it is our response ability, and we need to do a good job, but there are other things to look at. in the case of lehman, it is clear, there were in a weak position independent of this accounting. " that is interesting, because new york did -- >> that is

interesting, because new york did 3 liquidity stress test, and each time they failed those. >> correct. >> were any additional recommendations made? >> we pushed them and secretary paulson pushed them to improve their position and raise capital if possible, but they were unable to raise sufficient capital. >> my understanding is the new york fed required no reaction from women in response to the stress test. is that correct? >> we have no authority to require them to do anything. >> did you indicate to the regulator they should require them? >> i did not have the exact information. >> if you can get back to me on this point. >> chairman bernanke and former chairman volcker, thank you for your public service very did you

both have had to take some unpopular actions during -- for your public service. you both have had to take unpopular actions, and with an -- without an independent said i do not think where it -- we would be where we are. last week the house approved a strong bill favoring a consumer protection agency, and senator dodd's proposal contains of euro located in the fed. chairman volcker, would you -- contains of euro located in the fed. chairman volcker, would you support this so each job could -- each party could do their job better? >> i think there is some overlap, because some of the consumer protection. i think they are distinctive enough that you can separate them. >> thank you.

with respect to the banks, i am concerned it will turn the cents per three defense focus from smaller institutions and focus its only on the largest -- it will turn the said's attention away from some -- the fed's attention away@@@@@@@ @ @ @ @ @ >> we learn a lot about the economy. it keeps us in touch with the country as a whole, not just wall street and we hope to retain those connections. >> if the senate proposal became law, what would that mean for banks and our local economy back in kansas? >> the globe and give the

oversight to the fdic -- the law would give oversight to the fdic. what it would do from our perspective, besides being quite disruptive for banks and regulators, is close of an important source of information and connection to the broader economy. economy. >> there are a lot of small banks. i think this is one area where it is possible that having more than one supervisor is not a bad thing. , because the fdic has a legitimate interest in knowing what is going on among a lot of institutions.

>> another issue i am interested in is looking at how we have become dependent on debt across the board, especially financial firms. the president of the kansas city fed wrote last month, the financial crisis has shown the levels risk-taking and leverage can go when our laws it -- our largest institutions are protected. a stable and robust financial industry would be more and not less competitive. equitable treatment of financial institutions will end the enormous competitive advantage the largest banks enjoy all over the country. as we think of how over leverage the largest financial firms became leading up to the crisis we experienced, if the fed is disconnected from smaller financial institutions who are not over leverage and leaving the fed with nothing to compare to, when that hinder the fed

boss supervision of larger institutions? reading the fed's supervision of larger institutions? >> -- would that hinder the fed's supervision of larger institutions? >> you can learn about the impact of regulation, and small banks can be involved in financial crisis as well. i think there's a lot to be learned from not restricting yourself. i agree we have to get rid of too big to fail. we have to have a system the where the creditors and shareholders can take office. >> thank you to both of you for your service to the country. >> the gentleman's time is expired. mr. paulson is recognized for five minutes. >> the document you sent contains the statement.

whee recognize bank supervision, including ours, needs to be more effective, and we will review our performance at multiple levels. i just came from a meeting with multiple bankers, and they talked about money for credit, and they want to lend it out, and their overwhelming concern was in regards to the uncertainty of regulators. these regulators are being inconsistent in a sense that when they come visit of thank, their demands are essentially preventing to loans from current -- preventing good loans from being made. i think every member of this committee raised this issue, and they've responded by saying they have told the people in the field to take a step back in

regard to what is happening, so there is still a disconnect. i met with 37 bankers, and it seems nothing has changed in recent times regarding the examination. what can the federal reserve do better to create some consistency for the bankers so credit is being put out in the market? >> this is one of our top priorities. what we need to do is get an appropriate balance between making sure the banks are safe and making good loans. on the other hand, making sure the economy can grow, so we need to find the appropriate balance, and we have done that the number of ways. we have taken the lead issuing guidance on small business lending, on commercial real estate lending, where the emphasis is on finding that the appropriate balance.

it gives you some insight into what criteria to apply when you are looking into a loan. one point we have made repeatedly is just because the asset value underlying alone has gone down does not mean it is a bad loans. as long as the borrower can make the payment, that still can be a bad loans. we have issued those guidances. we have done an enormous amount of training to make sure they understand it. we have been gathering feedback from the field, including asking for more data and information but also having reserve banks have meeting bringing in community leaders to try to get into details of what is going on. we have also tried to support the small business market with our program that has helped bring money from the securities

markets into the small business lending arena, so it is a very important priority for us. we were asked before about the interaction between being responsible for the macro economy and being a supervisor. here is one case where what is going on in the banking industry is extremely important to knowing what is going on in the economy, and we take that seriously. i realize it is still an issue. it is going to be a concern, because standards have tightened up. some people who were credits- eligible before are no longer eligible because their credit conditions are worse, but we think it is important that borrowers be able to get credit. >> this is an old problem. i remember when i was young learning about the federal

reserve, a chairman in the 1930 's repeatedly complained that the sole responsibility for banking supervision -- they were being too tough because they have a lot of losses on their watch, and they were over reacting in terms of strict regulations when it was inappropriate because the economy was in recession. there are a lot of times when and if you're just looking and banking regulation as your only responsibility, maybe it is going to be too easy when the economy is going well. i think really, the federal reserve is in a better position to get a balanced regulatory position, a regulatory approach,

simply because they are responsible for monitoring policies -- monetary policy and business practices as well. that is one of the effects. >> the gentleman from georgia is recognized. >> thank you very much, and welcome, chairman bernanke and chairman volcker. let me ask you, chairman bernanke, as we grapple with this whole issue of stripping the fed of its supervisors and concentrate on the larger banks, i must admit you make a good argument, but i am torn. let me give you an example where there has been a massive failure on the part of the fed. i represent the state of georgia, and in the state of georgia over the last 36 months, there have been 27 dain

failures of smaller banks, and -- 27 bank failures of smaller banks, and that accounted for 26% of all the bank failures in the country. one state. the issue becomes, where was the fed in this? is this not a sign of realization as to why maybe we are asking too much of the fed as we move into this new economic climate. i am wondering, where is the fed? how does this happen under your watch for one state accounted for 26% of all bank failures in only a short time in 36 months. 27 banks failed in one state. >> i make two points. the first is fear multiple regulators, and the question you have to ask is, did the fed do as good a job as everyone else?

i think we have done a good job with small and medium-size banks, but we have been leaders in this area. one issue in georgia has been commercial real estate, and the federal reserve in 2005 took the lead in developing some guidance on commercial real estate about not having too much, about managing the risks better, about not having too much geographic concentration, and we got resistance on that, and it took longer to do, and banks resisted. it took longer than it should a half, but that is something we thought was important -- then it should have, but that is something we thought was important. banks have done better, because that has been a risk area. i would say we to those issues into consideration and did a good job of trying to address them. >> how can you say you did a good job when the fed's policy became -- made a decision not to

examine the books but to allow the books -- the banks to examine themselves but not their portfolios? when we saw some of these banks had a 78% portfolio just in real estate? if there is a problem area here have been able to detect, it was in the fed failure or willingness to allow these banks to self examine, to assess themselves, and you think i should continue, or do you not agree that might have been an area where the fed fell down? >> i do not agree. we examine the bank's and made sure they met appropriate capital liquidity standards. it turns out they should have been tougher.

we have done a lot of work internationally to strengthen those standards. >> i have year -- it might not be with you, but the fed announced they would no longer directly examine banks' portfolios but would instead rely on thanks self examination and self assessment. >> that is not our policy. >> that policy has changed, and this is inaccurate? >> it probably relates to the notion of the structure of banks using proprietary models as a way of evaluating risk of some of their physicians. it was never implemented, and clearly, it is very important whenever models are used that they be closely evaluated, and again, we are going to be very

careful to make sure banks are meeting the appropriate standards. >> you were aware, or were you not aware of the portfolios of these things were averaging between 75% and 80% in total real estate? >> the gentleman's time has expired, and i am being tough on him, because we have just been called for votes, and i would like to try to get the other three members who are here. if you can respond to that in writing, that might be helpful to us. the gentleman's time is expired. we now recognize the gentleman from texas for five ministers -- 5 minutes, and i encourage you to exercise your restraint as best as you can, and allow us

to release this panel and the sec to go with the next panel immediately after this series -- and let us be able to go on with the next? immediately after this series of votes is over. @p@p> >> the interconnectedness of any man -- the rejection of the fannie mae, the largest shareholder is the united states and every loan that is originated today in fannie mae is explicitly guaranteed by the treasury. when the mortgage -- when fannie

mae packages the mortgage-backed securities, the fed is a principal holder of mortgage- backed securities. you have $1 trillion with authority to go to 1.5 -- $1.25 trillion. fannie mae, every month, is incurring a loss, but loan that the treasury is making and the treasury is assessing fannie mae at a rate of 11% every month. in loaning fannie mae the money to make the interest payment. slows? does the treasury lower the interest rate to fannie mae so the losses are less? ford does the fed exit the mortgage-backed security, its

holdings in mortgage-backed securities? which part will move first, >> first, the federal reserve was very concerned about fannie and freddie for many years. this is an issue we pointed out. my assumption is sometime soon that congress will be able to reform fannie and freddie or perhaps break them up. at the point, there will have to be decisions made. my assumption is the mortgage- backed securities, which are already outstanding, will be grandfathered and will retain u.s. government backing they currently have, so at some point, there will be a change in the structure, and there will be

no more of the current one created. the existing will be assessed until they are either expired or purchased back. >> a couple weeks ago, i read the treasury had sold $200 billion worth of notes and had deposited that with the fed, and the explanation was to provide liquidity for the fed if the fed decided to liquidate its position of mortgage-backed securities. is that correct? >> the treasury restored what it had last year, an account at the fed. we pay interest on that account so the fed is not losing any money. that gives us more flexibility

as we manage policy going forward. >> my last question -- how does the fed acquire the mortgage- backed securities? does it require them directly from auctions, or do they require them as collateral from banks that are borrowing against them? >> we buy them in the open market. >> thank you. >> the gentleman from kansas city is recognized. >> thank you for having me here. my office is three blocks from the fed. i know him very well. we flew in together on monday. i am concerned about reasonable issues.

first, chairman volcker, here in this post-economic crisis, how should the fed and regional banks relate? right now it appears we have two seats of power -- the one you lead, mr. bernanke, and new york. i am concerned what happens to the regional barracks. are we going to a emasculate of further? how should we create a relationship between the federal board and regional banks? >> taking off of basic point that chairman bernanke has been emphasizing about the importance

of regional banks in terms of contact with regional financial institutions, it has been a great strength of the federal reserve. that is anchored to some extent in supervisory responsibility. supervisory responsibilities are shared between the board in washington and the banks. it is fundamentally the responsibility of the board in washington. they are delegated in substantial part through the banks, and i think that works out to the mutual interest, and what you do in terms of parceling out these regulatory responsibilities will inevitably bear on the point of the federal reserve if not immediately, over time.

god knows how many years -- 95 years almost -- issing regional system clearly controlled -- i think the regional system clearly controlled by the senate, yet it serve the country well. it serves the independence of the federal reserve and the credibility of the federal reserve. >> it should remain the way it is? >> you may consider this heresy, but the regional bank presidents and regional boards could be viewed as captive of the regional bank industry, since the president is chosen by

the regional banks in the region. three of the regional bank board directors are chosen by the fed. three are chosen by regional bank members. what would you think of having the three chosen by the region shows by d.c.? -- chosen by d.c.? >> to begin, i want to make clear the perception of conflict is more perception and reality. the members of the board are completely isolated from for supervisory positions, and most of them are lifetime employees. they are all approved by a board of governors in washington, so the conflict is not as great as it is made out to be. that being said, i think we would be open to changes of that

type to try to make sure everybody understands their role of those boards regionally is to represent their area, their broad public, and to give us the information provided by vegas and other community development people, business leaders, and so on -- provided by banks and other community development people, business leaders, and so on. >> you have got five seconds. which you just lost. the gentleman's time has expired, and i am going to go to mr. foster for a minute. thank you for waiting around until the end. >> of "the wall street journal" 's list of recommendations, the number one recommendation was improved capital standards, including the corporation of capital region the incorporation

of capital. -- including the incorporation of capital. i understand it is being dealt favorably in the senate proposal as well. what do you view the role of the fed in administering capital and in possibly administering the stress test? -- administering the stress tests often thought of the trigger? do you think that is appropriate and one likely to happen? >> we have a couple discussions that take place, and we have put the contingent capital idea on the table internationally. assuming we maintain our consolidated supervision and oversight, we would be working with functional regulators to develop stress tests at that level, so we would be very much involved in the setting of standards and analyzing whether or not the contingent capital

should be converted or not. we think that is an intriguing idea with details to be worked out, but we are looking at it pretty actively. >> thank you. countercyclical mortgage underwriting standards are being implemented at various levels in different countries around the world. simply put, when a housing bubble begins to develop, you turn of the down payment, and my first question is, and these policies been in place in the previous decade, how effective would they have been at damping down the housing fell, and secondly, -- the housing bubble, and secondly, would countercyclical underwriting products been implemented? >> it is a speculative question. i cannot give you a precise answer, but there are some

countries where they are using variables, and that is an interesting idea, and it is clear in retrospect that because of piggyback mortgages and other instruments that loan to value ratios got way too high in the u.s., and we are being much more conservative, but that is another interesting idea to look at. >> it is a concrete proposal i will get to you in writing. thank you. >> the gentleman yields back. i ask unanimous consent to insert into the record the fed policy statement for the role of a regulation. i ask unanimous consent to present my opening statement. hearing no objection, that is so

ordered. we thank both of these distinguished gentlemen for their patience and time. we will release them, and i will announce that as soon as the votes are concluded, we will convene the second panel, and we will be back promptly. will be back promptly. we are [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] >> we are in recess. host: caller

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