committee is here today. they're talking about implementing the financial overhaul bill. mary shapiro of the sec will be at this hearing. sheila bair will also be testifying, as will the chairman of the board of governors federal reserve, ben bernanke. this is the hearing. it is about to begin. [captioning performed by national captioning institute] [captions copyright national cable satellite corp. 2010] . .

>> committee will be in order. let me welcome our distinguished panel of witnesses this morning. being here i can't recall that's the last time we gathered in such a setting with all the representatives of the major financial regulatory bodies with us. obviously this is with an adjournment vote last night when we planned this hearing some

weeks ago, we were under the impression we were going to be in session at least until the end of the week. obviously the agenda changed, but nonetheless i thought this hearing was so important i said we wanted to move ahead with you. i don't know how much participation we'll actually get from members. but i don't want you to believe that's a reflection of any feelings about any of you hear this morning. >> they'll probably like that. >> fewer questions here. if we do get a quorum, my hope is we do, i've discussed this already with senator shelby, we are going to move to executive session very quickly on a couple of housing measures that i believe have been agreed to. we have worked on them and i think we can deal with them fairly quickly f that happens we'll interrupt the hearing and i apologize to whoever is speaking at that moment for the interruption when that moment occurs. in the meantime i'll make some opening comments here. i'll turn to senator shelby for any opening comments, and jack

is here with us. since there are a few of us here, any other members have additional thoughts they would like to express we'll do that as well. we'll go into a question period. i'm not going to make the question period five or six minutes but 10 minutes. even 10 minutes is not a great deal, but given the representation of our witnesses here, i'll give each member a chance maybe get a little more depth than you are probably able to in five or six minutes if that's ok with you. the hearing this morning is implementing the so-called d.o.d.-frank wall street reform and -- dodd-frank wall street reform consumer protection act. i took over the chairmanship of this committee nearly four years ago, in january of 2007. over that time we witnessed the near collapse of the american economy, crisis that cost us millions of jobs, wiped out trillions of dollars, in wealth, and at long last provided the impetus of fundamental reform of our financial system that. reform should have happened a long time ago. many could make that case. for nearly three years this

committee has held hearing after hearing identifying and examining gaps, overlapse, and shortfalls in a regulatory system that have not been updated since 1930. today i believe we can say that thanks to the hard work of democrats, republicans on this committee, and i include every member of this committee who is involved in this effort, and with the sage counsel of our witnesses, many of whom who are here today whose prospectus we have considered carefully, we delivered the reform our financial system needed and provided the american people with the economic stability they deserve. we put an end to too big to fail bailouts and an era in which executives on wall street felt free to gamble with other people's money in the belief that american taxpayers would be there for them if they lost. now americans and executives alike no if a any puts itself in a position to fail, fail is exactly what it will do. we have increased transparency

and accountability in our markets, bringing $600 trillion derivatives market into the open and preventing shady dealers from operating in the shadows. we have established an early warning system so that we never again find out that a financial product or practice is unsafe only after it is already undermined the stability of our economy. and we have established an independent consumer financial protection agency to provide americans with a clear and accurate information that they need to make good financial decisions as well as with the security that comes with knowing that someone is watching out for your interest. and your interests alone. but as you will notice, there is no mission accomplished banner hanging behind me here this morning in this committee room. the work is not done. at all. hardly a mission accomplished. i have heard critics say that the new law leaves too much up to the regulators. but it was never my intention to have the united states senate, the house of representatives, or the congress as a whole do the job of regulators.

indeed, i don't think any of them want the senate or congress writing detailed prescriptions that require technical expert knowledge. nor could we afford to tie the regulate kwlors' -- regulate -- regulators' hands. what we have done with this legislation is to eliminate the gaps, overlapse, and shortfalls that have allowed some financial actors to gain the regulatory structure and some parts of our financial system to go unregulated entirely. the glass-steagall act of 1933 which established the federal deposit insurance corporation was 37 pages long. the securities exchange act of 1984 was 29 pages long. those two acts laid the foundation for nearly 75 years of growth and innovation in our financial sector and prosperity for generations of americans. but it took competent, energetic regulators to make those laws work.

our bill, some 848 pages long, the actual text of the bill, because times have changed. our financial system is far more complex than it was 80 years ago, and we are compete in a global marketplace which was not the case almost a century ago. we are asked to reform the entire financial system, and that can't be done in a handful of pages. but the -- like the glass-steagall act and the securities and exchange act, it will require very good, competent, energetic regulators. i wish i could write a law that prohibits a traitor from gamble -- trader from gambling his bottom line, or executive putting short-term gains above long-term stability. but we can't ledge stimulate morality and goodness knows we can't legislate wisdom. all we can do is establish a comprehensive framework and clear path forward and that is what we tried to do with this legislation. the regulators will have to interpret and enforce the law, and those who profit from the innovation and flexibility that

define our financial system will have to remember that evading the rules of the road in letter or spirit hurts all of us. this new law gives our president the ability to walk into the g-20 meetings as a representative of a world leader in financial services with a framework for the rest of the world to follow. when we first warned of the flaws in our system back in january of 2007, few thought we would end up on the path we have traveled since. after all, we are making money, what better proof of the soundness and stability of the system could there possibly be? i believe our economy will grow again. people will make money. and policymakers will be tempted to forget the lessons of this crisis. but mark my words here this morning, there will be another crisis as certain as we are sitting here. greed and recklessness will rear their heads again. and i can tell you with confidence that when that day comes we have provided regulators with the tools they

need to see it coming and to put a stop to it in time. before it wrecks the economy as this crisis nearly did. whether they will actually do so largely depends upon the foundation laid by those of who are before us today and the jobs you do in the coming weeks and months to lay that foundation within your respective regulatory bodies. with that, let me turn to my colleague from alabama, senator shelby. >> thank you, mr. chairman. welcome to all of you. taste not the first time you have been here. i hope it won't be the last. for millions of americans, the passage of dodd-frank provides little comfort as they confront a harsh economic reality. the unemployment rates now stand at 9.6%. economic growth is anemic. bank lending remains depressed. and housing values continue to fall in many areas. not since the carter administration has the nation's economy performed so poorly. the response of the administration and democrats in congress has been to enact a slew of new laws to expand the

size and scope of the federal government. with the stimulus bill, bank bailouts, obamacare, and now frank-dodd the democratic majority has clearly articulated -- dodd-frank, interchangeable. frank-dodd, dodd-frank, i think frank would like that, chris. >> let's see how it works. >> i apologize, dodd-frank, i don't think it's going to work. with the spluss bank bailouts, obamacare, and now according to the chairman, dodd-frank, the democratic majority is clearly articulated its vision for the future, more government, higher taxes, and greater control over the economy. for millions of americans, however, the democrats' vision has produced an unfortunate reality, higher unemployment, less access to credit, and trillions of dollars of government debt on the shoulders

of our children and our grandchildren. today we will examine the implementation of one of these bills, the recently enacted legislation known here as dodd-frank. rather than address the core issues that produced the financial crisis, i believe that dodd-frank legislation adheres to the warnout washington theory that more is better, more regulation, more agencies, more bureaucrats, and more spending. to make matters worse, the bill is delegated to the bureaucrats, the authorities that devised dozens if not hundreds of new rules for our financial system. the law itself provides no specific guidance in any number of areas, including derivatives, consumer protection, and systemic risk. in many instances, dodd-frank has outsourced this committee's responsibilities to un-elected bureaucrats. typically an implementation hearing involves congress making sure that regulators are

following the law as prescribed. today, however, the rolls will be reversed. we will be asking regulators to tell us what rules that they, they will be prescribing. consequently for all intents and purposes the real authors of dodd-frank will be the bureaucrats and our financial regulatory agencies. let's remember that nearly all of the major financial institutions that failed were regulated institutions. let's also remember that the regulators failed to use their already broad authorities to take the necessary steps to prevent the crisis. and finally, let's remember that conflicting agency rulesed -- rules created opportunity for regulatory ash taje. by ignoring these failures and adding another level of bure crass to -- bureaucracy to our already cumbersome structure, dodd-frank could potentially create an even more complex and dysfunctional system. for example, dodd-frank instructed the s.e.c. and the

cftc to jointly devise rules on derivatives. in doing so, the legislation intensifies the decades-long turf battle between the two agencies that we are quite familiar with. this likely ensures that the final rules will be more about protecting bureaucratic fiefdoms than protecting the overall financial system, thus rather than addressing the regulatory arbitrage derivatives we know a.i.g. exploited, this bill exacerbates the problem. additional-l by delegating the major policy decisions and therefore most of the real work, to the regulators, the dodd-frank legislation undermines the effectiveness of our regulators by asking them to do too much. for example, the federal reserve has approximately 70 rule makings and studies it must complete over the next 18 months. how can we expect the head of any agency to properly devise and implement so many complex

rules while also effectively discharging its existing responsibilities? the recent financial crisis painfully demonstrated that errors, limitations, and conflicts of interest among regulators often play a key part in causing a systemic breakdown. the majority has promised the american people that dodd-frank will make our financial system safer and will help revive the economy. as time passes, however, i believe that it will become clear that neither is true. by extending the government safety net over a much larger segment of our financial system, the stage, i believe, has been set for more severe economic crisis. under current law, the responsibility rests largely with the regulators to avoid future difficulties. congress, however, can continue to exercise its oversight authority by having hearings such as this one today. and also when necessary revisit the loan and make changes consistent with our findings and

the demands of the electorate. in this particular instance, change is not only a good thing, i believe it's inevitable. thank you, mr. chairman. >> thank you very much, senator. does anyone else want to be heard on this matter before we turn to our witnesses? before we go. very good. welcome to our wednesdays. i'll be brief in -- witnesses. i'll be brief in our introductions because you are well-known to those of us on the committee. neal is the deputy secretary of the u.s. department of treasury. prior to that serve in the obama administration as deputy assistant to the president. and we thank you, neal, for being with us once again. chairman ben bernanke, the federal reserve. thank you, mr. chairman, for being here this morning. sheila baird of the fdic been before this committee on numerous occasions. we thank you for your service, long-standing service because many of us new -- knew her when she was legal counsel to bob dole here in the senate. we thank you. mary shapiro is chairperson of

the u.s. securities and exchange commission. we thank you for being with us this morning. garrett is with the future tradings commission and long-standing service to our government and the private sector as well. we thank you. and john walsh is the acting controller of the curncy. assumed that position on august 15 having previously served as chief of staff for public affairs for the o.c.c. we thank you very much, john, for being with us as well. i ask you to again -- begin. neal, try to keep it down to five or six minutes or so. and again all documentation or supporting materials that you think would be worthwhile for us to have as part of this hearing, we look forward to. let me just say by the way in response to senator shelby without going into details of the statement here, obviously with my departure in a few weeks from here, this committee will have to continue its job, obviously, in the oversight function. and bob bennett and i will be on the outside watching as this all unfolds here. but obviously it will be very

important -- tim johnson will be here with a gavel in his hand. but the point being that what we didn't write into the law, you can't, obviously, that is the job on this side of the dais, that is to have the oversight consistently on how this is all working. that will be a very, very important function. in addition to the other jobs the committee will assume come january. but i underscore that point very strongly. it will be very important to see how this is working and how we are performing. with that, neal, thank you for being with us. we'll begin with your testimony. as i said to members, as soon as we have -- i think we are getting close. one away, then we'll interrupt to do a quick markup of two bills. neal. >> mr. chairman, ranking member shelby, members of the committee, thank you very much for the opportunity to testify about treasury's role in implementing the dodd-frank act.

mr. chairman, two months ago against tough odds congress enacted historic financial reform. passing the dodd-frank act was a major accomplishment for this country and it would not have happened without your strong commitment and that of your colleagues. congress stood on the right side of history and with millions of americans who have lost their jobs, homes, and businesses as a result of a crisis caused by basic failures in our financial system. >> neal, i want to congratulate you, you brought us a quorum. let me move us into executive session. if i may without objection, we'll go into executive session. we have a quorum present. and so the committee will now be marking up two bills s. 118, section 202 of the support of housing for the elderly act of 2009. and s. 1481, the frank melville supporting housing investment act of 2009. as we heard last october's hearing on these matters, these bills make critical reforms to

housing programs serving low-income seniors and citizens with disabilities. two groups who face tremendous challenges in finding affordable housing. first i call up s. 118, section 202 supportive houffling act. we have only one amendment to consider. my amendment number one, in the nature of a substitute, i would ask if any member wishes to speak on the substance amount amendment. if not i ask it be adopted. so many as are in favor say aye. those opposed, no. the aye vs. t the amendment is adopted. i now ask that the clerk will call the roll on that bill. voice vote? all those in favor of that bill say aye. those opposed, nay. the ayes have it. let me turn if i can to the second bill, i ask members consent that the staff be allowed to make technical changes by the way to that bill, the 118. i now call up 1481 the frank melville housing investment act,

we have only one amendment to that to consider. senator menendez's amendment number one. if any member wishes to be heard? if not, i move the adoption of the amendment. so many as are in favor say aye, those opposed, no. the aye vs. it. the ayes have it. spen, no further amendments i now move the adoption of this bill as amended and ask it be reported favorably. sfafere -- so many as are in favor say aye. those opposed, no. the ayes appear to have it. the aye vs. it and the amendment is adopted. i point out on a parochial matter, you may recall those of you here for that hearing, that a congressman from my state, chris murphy, who is the author of the bill in the house in the name of the frank melville nation was in dedication to someone who commit add long-standing career to the issue of housing issues, and senator cole, the other bill, was your bill. we commend you as well for that contribution to this effort. i thank senator shelby and my colleagues for allowing us to move on these two bills. it will be a great help to us.

i ask consent to waive the cordon rule. we won't ask anyone to explain what it is. we'll just waive it. that done? ok. we are back to regular session. neal, go ahead. >> thank you, mr. chairman. but the work required to make reform a reality as you noted, mr. chairman, in your opening is far from done. we now face the task of implementation. i know this process can seem remote or distant to many americans, it is enormously complex and involves unavoidably dense topics. before providing you with an update on our efforts, i want to list our guiding principles. these are the basic things all americans should know about how we are implementing reform. we are moving as quickly and carefully as we can. we are establishing full transparency. wherever possible, we will stremline and simplify government regulation. we will create a more coordinated regulatory process. we will build a level of -- level playing field here at home and around the world for financial firms. we will protect the freedom for innovation that is absolutely

necessary for growth. and we will keep congress fully informed of our progress on a regular basis. mr. chairman, ranking member shelby, since passage treasury hags been hard at work implementing reform. we immediately put in place a government structure. we established teams dedicated to treasury's four main responsibilities. those responsibilities include helping to establish the financial stability oversight counsel, laying the groundwork of office of financial research, launching the consumer financial protection bureau, and creating a federal insurance office. in my written testimony i have provide add detailed update on where we are with each office. but let me just say a few words about two of them. the financial stablingt oversight counsel and the consumer financial protection bureau. tomorrow the counsel will hold its first meeting. as chair treasury respects the critical independence of regulators to fulfill their responsibilities. we are working with other members to develop an aprofment that maintains that independence

while maximizing the coordination required for the counsel to fulfill its collective responsibility of promoting financial stability. tomorrow i expect that the council will take important first steps. it will consider draft bylaws, it will consider a proposal to seek public comment on the criteria to designate large interconnected nonbank financial companies for consolidated supervision. and it will consider a proposal to seek public comment to inform recommendations the council will make on how to implement the voca rule. treasury has made an important progress to stand the pro-- standing up to the consumer protection bureau. they have focused on building the necessary infrastructure such as human resources and i.t. and on the bureau's key functions including research, preparing for the supervision of financial institutions, and working with the various transer agencies.

mr. chairman, let me just conclude by saying that treasury and all the agencies involved in this process have and will continue to put enormous effort towards implementation and the ultimate goal of making our financial system safer and our economy stronger. >> thank you very much. chairman bernanke, thank you. >> before i turn to my testimony i'd like to thank you and senator shelby and the rest of the committee for helping get senate confirmation of janet yellin and sarah bloom to the federal reserve board. as you know i'm going to discuss in my testimony we have a great deal of work before us and having them on the board will help us enormously in carrying out responsibilities that we have. in the years leading up to the recent financial crisis, the global regulatory framework did not effectively keep pace with profound changes in the financial system. the dodd-frank act addresses critical gaps and weaknesses of the u.s. regulatory framework, many of which were revealed by

the crisis. the federal reserve is committed to working with the other financial regulatory agencies to effectively implement and execute the act while also developing complementary improvements to the financial regulatory framework. the act gives the federal reserve several crucial new responsibilities. these responsibilities include being part of the new financial stability oversight council, supervision of nonbank financial firms that are designated as systemically important by the council, supervision of thrift holding companies, and the development of enhanced prudential standards for large bank holding companies and important nonbank firms designated by the council. in addition the federal reserve has or shares important rule making authority for implementing the so-called voca rule restrictions. credit risk retention requirements for securitizations, and restrictions on interchange fees for debit cards among other provisions. all told, the act requires the

federal reserve to complete more than 50 rule makings as well as a number of studies and reports, many within a relatively short period. we have also been assigned formal responsibilities to consult and collaborate with our agencies on a substantial number of additional rules, provisions, and studies. overall we have identified approximately 250 projects associated with implementing the act. to ensure that we meet our obligations in a timely manner, we are drawing on the expertise and resources from across the federal reserve system in areas such as banking supervision, economic research, financial markets, consumer protection, payments, and legal analysis. we have created a senior staff position to coordinate our efforts and have developed project reporting and tracking tools to facilitate management and oversight of all of our implementation responsibilities. the federal reserve is committed to its long-standing practice of ensuring that all its rule makings being conducted in a fair, open, and transparent manner.

accordingly we are disclosing on our public website summaries of all communication was members of the public, including banks, trade associations, consumer groups, and academics, regarding matters subject to or proposed or potential future rule makings under the act. in addition to our own rule makings and studies, we have been providing technical and policy advice to the treasury department as it works to establish the oversight council and the related office of financial research. we are working with the treasury to develop the council's organizational documents and structure. we are also assisting the council with the construction of its framework for identifying systemically important nonbank financial firms and financial market utilities. as well as with its required studies on the proprietary trading and private fund activities and banking firms and financial sector concentration limits. additionally, work is well under way to transfer the federal reserve's consumer protection responsibilities to the new bureau of consumer financial

protection. a transition team at the board headed by governor duke is working closely with treasury staff responsible for setting up the new agency. we have established the operating accounts and initial funding for the bureau and we have provided the treasury detailed information about our programs and staffing in the areas of rule making, compliance examinations, policy analysis, complaint handling, and connell sumer education. we are also providing advice and information about supporting infrastructure that the bureau will need to carry out its responsibilities such as human resource systems and information technology. well before the enactment of the dodd-frank act, the federal reserve was working with other regulatory agencies here and abroad to design and umplement a stronger set of prudential requirements for internationally active banking firms. the governing body for the committee on banking supervision reached an agreement a few weeks ago on the major elements of a new financial regulatory architecture commonly known as

basal 3. by increasing the quantity and quality of capital, the banking firms must hold and by strengthening the liquidity requirements, bassle three amentse to restrain bank risk taking, reduce the incidents and severity of future financial crises and produce a more resilient financial system. the key elements of this framework are due to be finalized by the end of this year. in concordance with the letter and spirit of the act, the federal reserve is also continuing its work to strengthen its supervision at the largest, most complex financial firms and incorporate considerations into supervision. as the act recognizes the federal reserve and other financial regulatory agencies, my supervised financial institutions and critical infrastructure with an eye toward not only the safety and soundness of each individual firm but also overall financial stability. indeed, the crisis demonstrated that a too narrow focus on the safety and soundness of individual firms can result in a failure to detect and thwart

emerging threats to financial stability that cut across many firms. a critical feature of a successful systemic approach to supervision is a multidisciplinary perspective. our experience in 2009 the supervisory capital assessment program, properly known as the bank stress tests, demonstrated the feasibility and benefits of employing such a perspective. the stress test also showed how much the supervision of systemically important institutions can benefit from simultaneous horizontal evaluations of the practices and portfolios of a number of individual firms and for employment of robust, quantitative assessment tools. building on that experience we have reoriented our supervision of the largest most complex banking firms to include a quantitative surveillance mechanism and to make greater use of the broad range of skills of the federal reserve staff. a final element of the federal reserve's efforts to implement the dodd-frank act relates to the transparency of our balance

sheet and our liquidity programs. well before enactment, we were providing a great deal of relevant information on our website in statistical releases and regular reports to the congress. under a framework established by the act, the federal reserve will by december 1 provide detailed information regarding individual transactions conducted across a range of credit and liquidity programs over the period of december 1, 2007, to july 20, 2010. this information will include the namings of counter parties, the date, and dollar value of individual trangs -- transaction, and other relevant information. on an ongoing basis subject to the act specified by congress to protect the efficacy of the programs, the federal reserve also will routinely provide information regarding the identities of counter parties, amounts financed or purchased and collateral pledged for transactions under the discount window open market operations and emergency lending facilities. to conclude, the dodd-frank act

is an important step forward for financial regulation in the united states and it is essential that the act be carried out expeditiously and effectively. the federal reserve will work closely with our fellow regulators, congress, and administration to ensure that the law's implemented in a mapper that best protects the stability of our financial system and strengthens the u.s. economy. thank you, mr. chairman. >> thank you very much, chairman bernanke. i should say, by the way, i didn't say this at the outset, it's my failure. i want to thank all of you by the way. we had tremendous cooperation from all of you over the last several years as we worked our way through all of this. and particularly to you, chairman bernanke, obviously to the very difficult days in the early fall of 2008. in my view history will record your involvement and participation helped save this country. i appreciate very much what you did. we are grateful to you for your service. sheila.

>> chairman dodd, ranking member shelby, and members of the committee, thank you for the opportunity to testify on the if the dic's efforts to implement the dodd-frank wall street reform and consumer protection act. let me say at the outset what a pleasure it has been to work with you, mr. chairman, on this historic legislation, as well as many other matters over the years. this is a bittersweet moment for me as i'm sure it is for many of us in appearing before you what maybe i think my last time. i wish you well as you take on your challenges outside the senate. i also like to say farewell to senator bennett. it's been a pleasure to know you for many years and this will probably be the last time i'll appear before you but i don't think there's anyone in the senate who understands financial services better than you do. we very much miss. i wish you well as well. as chairman dodd said i believe it was :00 a.m. in the morning shortly after the final vote, quote, we have done something that's been badly needed, sorely needed for a long time, and we hope will protect our country, create the kinds of jobs and

wealth and optimism and trust once again in our financial system that has become so missing. senator dodd, i can report to you this morning that the fdic we are well on our way to putting this badly needed dodd-frank act into effect. with the u.s. financial system now stable and healing, we are moving ahead with some initial rules to implement the orderly liquidation process created under the act for systemically important financial companies. to restore greater market discipline, it is essential that the liquidation rules make clear to equity shareholders and unsecured creditors that they not taxpayers are at risk when their company fails. we hope to publish this preliminary set of rules in the near future. to more effectively carry out our new resolution responsibilities, we created a new office of complex financial institutions. this office will focus on monitoring risks that large complex i.n.s. tuesdays, reviewing the required resolution plans, and developing strategies to execute those plans should it become necessary. this office will also handle the

staffwork in connection with the new financial stability oversight council of which the fdic is a member. to ensure we have the information necessary to carry out the new orderly liquidation authority, we are working on implementing our new backup examination as granted by the dodd-frank act. this authority will likely play a key role in planning for any potential liquidation of any systemically important financial company. our board also recently strengthened our memorandum of understanding with the other primary federal regulators with respect to our backup authority for insured depository institutions. as part of any too big to fail, the dodd-frank act also calls for the largest and most systemically important banks to meet hire capital requirements. these requirements in concert with the new international leverage ratio and other standards are a major step in strengthening the safety and soundness of the financialcy tell and ensuring that credit is available. other important provisions in the dodd-frank act that have not received as much public

attention concern changes made to our authority as manager of the deposit insurance fund. the fdic has long held the view that the deposit insurance assessment system should cushion the impact of economic cycles on insured institutions, our in practice the opposite has tended to occur. the fdic board will soon consider a long-term strategy for managing the deposit insurance fund so that the fund can remain positive through the crisis without the need to impose sharp swings in the assessment rates. our board will look at assessment rates and dividend policy consistent with long-term fdic goals and statutory requirements, including the new minimum, 1.35% reserve ratio. we know the last two crises will event lullly fade from public memory and the need for strong fund will become less apparent. therefore actions taken now under the act should make it easier for future fdic boards to resist pressure to reduce assessments rates or pie larger

dividends at the expense of the long-term stability of the fund. finally, the fdic is actively supporting the new consummer financial protection bureau established under the dodd-frank act. we are working with the treasury department and other banking agencies to ensure a smooth transition and strong coordination as the cfpb is established. further, the fdic has taken internal steps to strengthen consumer protection by reorganizing our supervisory functions and create agnew division of depositor and consumer protection. this new division will direct our supervisory resources more effectively while maintaining the necessary coordination and information sharing between consumer protection and safety and soundness. in conclusion, let me say the success of the dodd-frank act will rise or fall depending on the commitment and enthusiasm of the various agencies to fully implement it in a timely manner. thank you for the opportunity to testify on the fdic's efforts in implementing the dodd-frank act. i would be happy to answer any questions. thank you. >> thank you very much, chairman

bair. thank you again for your tremendous involvement over these many, many months. we thank you immensely. chairman shapiro, we thank you for being with us this morning. we thank you as well for your strong leadership at the f.c.c. >> thank you for inviting me to testify today on behalf of the scushts and exchange commission regarding our implementation of the dodd-frank wall street reform and consumer protection act. and let me add my thanks to you, senator dodd, to those of my colleagues for your leadership of the committee an for shepherding regulatory reform through the legislative process. the pace and scope of s.e.c. rule making over the next year as we work to meet the act's requirements will be unprecedented in our history. given the scope and importants of the act, we are taking great care to implement its many provisions effectively and on schedule and to do so in a transparent manner that i core prates significant public input at every step. we believe that the execution of this landmark legislation

depends in large part on receiving detailed comments from stakeholders across america's financial system. thus, we began by immediately establishing a process for public comment that exceeds legal requirements, creating a series of email boxes to which the public are invited to send preliminary comments even before rules are proposed and the office comment periods begin. the response was thousands of comments received on 31 different topics has been extraordinary. we recognize that the process of establishing regulations works best not only when all stakeholders are engaged but when the discussions and meetings are transparent. therefore we ask those who request meetings with s.e.c. staff to provide an agenda which is posted on our website along with the names of individuals participating in these meetings and copies of any written materials distributed. in addition, s.e.c. staff is committed to reaching out as necessary to solicit views from affected stakeholders who do not appear to be adequately

represented by the public record on a pick issue. and our website provides detailed information on our schedule for all rules and studies required by dodd-frank through july of 2011. our consultative efforts include close collaboration with our fellow regulators as well. we are consummitting and core nating with the federal reserve board and the departments of treasury, state, and commerce and other agencies. our office of international affairs is meeting weekly with our rule writing staff to ensure appropriate coordination with our foreign counterparts. our goal is to establish an effective framework that crosses agencies and borders and which encompasses the full spectrum of financial regulatory issues. since the july signing of the act, the s.e.c. has issued interim rules requiring the registration of municipal advisors, approved exchange rules, eliminated broker discretionary voting on executive compensation, and revised regulation fd to remove

the exception for credit rating agencies. we have sought formal comments regarding the study we will conduct of the obligations of brokers, dealers, and investment advisors, and on the definitions of certain terms fundamental to derivatives regulation, including securities based dealers and others. in recent weeks the s.e.c. has held three joint round tabled to inform our over-the-counter derivatives rule making. yet our work is just beginning in october we expect to release at least six new packages of proposed rules for public comment. these will include proposals that would, among other things, establish ownership limitations and governance requirements for security-based swap clearing agencies, enhanced due dill gansz disclosure in the securities market, and require the corporate executive compensation and golden chair chutes be subject to scriesry shareholder vote. often the next month we will adopt an interim final rule for reporting on preact

security-based swaps. by the end of october we will have also completed our administrative process of establishing each of the five new offices created by the legislation. we expect to appoint the heads of these new offices during the months of october and november. also in november we expect to issue an additional nine new packages of proposed rules. thee will include three separate derivatives rules making releases regarding anti-manipulation rules, data -- and jointly with the cftc definitions and jurisdictional provisions to guide our derivatives oversight. by the end of the year we will have proposed all rules required to restructure the derivatives market and implement changes in investment advisor oversight. by january, six months after passage, we will have completed and submitted several studies and reports to congress, including one regarding the obligations of broker, dealers, and investment viders and one

looking at ways to improve investor access to advisor and broker dealer registration information. by then we expect the broad s.e.c. organizational review to have been completed and conveyed to congress as well. in conclusion, we are engaged in a comprehensive effort to implement the act. indeed, welogical write more than 100 rules and conduct more than 20 studies. while we will undoubtedly en counter bumps in the road, we are on track to meet the deadline. we are ensuring our process is transparent and the full spectrum of views on every issue is heard and considered. as we proceed with implementation, we'll continue to work closely with congress, consult with our fellow regulators, and listen to members of the financial community and investing public. thank you for the opportunity to be here. i look forward to answering your questions. >> thank you, chairman shapiro, very much. appreciate your work. let me make sure in the case of all of you, your respective staffs and others who are --

been working so hard are recognized as well. >> thank you, chairman dodd, good morning, ranking member shelby. members of the committee, i thank you for inviting me to speak here today on the implementation of the dodd-frank act. or the frank-dodd act. >> you have to go to the house to make that one. >> i'm honored to appear here today alongside my fell regulators with whom we are working so closely to implement the act and i'm pleased to testify on behalf of the commission and thank my fellow commissioners, there are five 6 us, each who have independent senate confirmed and will come and bring their views to these really concurrent resolution matters. before i move into the testimony, i do want to thank you, chairman dodd, for your leadership of the banking committee and in the senate. on a personal note, i think we first met about 13 years ago when i was asked to serve as the treasury department.

but also worked so closely with you on what became sarbanes-oxley. it's bittersweet and also, senator bennett. i remember many private meetings and pub lig meetings. i thank you. as sheila said, it's bittersweet. the dodd-frank act requires the cftc and s.e.c. working with our fellow regulators to write rules with regard to the derivatives area within 360 days. that means if one's not counting, we have 289 days to go. we set up 30 rule teams at the cftc and publicly put this out. we have two principles guiding us. one is the law itself. not to overread it, not to underread it, but do exactly as best we can what congress intended to do and wrote in the 840 pages that the chairman referred to. second, is to have broad consultation.

vote with the fellow regulators and public and congress as well. we are working very closely with the s.e.c. and federal reserve particularly, but also all of my fellow regulators here today. within 24 hours from the bill signing we had 20 team leads over at the s.e.c. for joint meeting. and with the federal reserve and other regulators the following week. in fact, to date we added it up, we have had 146 individual meetings of staff or chairman to chairman level between the cftc and fellow regulators, and 100 with the s.e.c. and about 45 with all of other regulators to date. we are also actively consulting with international regulators. i just returned yesterday from a three-day trip to brussels where i met with all the different senior regulators there. i know my other regulators are doing the same. two weeks ago the european commission put out their proposal on derivatives. and it's very similar and consistent with the dodd-frank

act. both are strong, clearing requirements. both have covering financial entities and have a commercial and user exception. both use data repositories and have strong risk standards for the dealers. we are working to harmonize to make sure as we go forward with the rule writing we are consistent with what they are doing internationally. we are also soliciting broad public comments as our other agencies are. we want to engage the public as best we can. we have had three days of round tables with the s.e.c. and we have also had many puppet meetings which we list on our sight. i think we have a list of 170 meetings on our sight with all the details and participants in the madgor topics discussed. we plan to actively publish rules starting tomorrow is our first public meetings and publishing proposals through the middle of december. we have cord nated that schedule -- coordinated that schedule mostly with the s.e.c. but shared it with all the fellow regulators here today to try to coordinate with them.

the next year of rule writing will test the talented staff of the cftc and fellow commissioners. though we do have the resources to publish the rules and move forward on the rules, we do recognize we would need significantly more resources about a year from now to actually implement these. with that i look forward to taking any questions. >> thank you very much chairman. mr. walsh, thank you for joining us and taking on the responsibilities of the o.c.c. >> thank you, mr. chairman. chairman dodd, senator shelby, members of the committee, it's an honor to testify before this committee where i used to work as staff to senator john heinz under senator bennett's predecessor and a privilege to testified before you, mr. chairman, on the dodd-frank act as your service in the senate draws to a close. the committee asked me to discuss our progress in implementing the dodd-frank act. our plans for integrating the o.t.s. staff and functions into the o.c.c. our plans for identifying

employees to transfer to the consumer bureau, and our views about how basil 3 further objectives the act. we describe a few challenges we have encountered thus far. to meet the laws' objectives, the o.c.c. is drafting a number of new rules, some jointly with other agencies, and some on a coordinated basis. the rules cover a broad range of issues including regulatory capital, proprietary trading, derivatives margin requirements, and appraisals, it also requires us to revise many of our existing regulations. as the office of thrift supervision is integrated, we are charged with reviewing and republishing all o.t.s. rules. we have worked quickly to identify each of our rule making obligations and established teams of agency experts to lead our work and coordinate with interagency efforts as appropriate. a group senior managers is directing and coordinating this effort. my written statement also

details specific tasks we have initiated, including support we have provided to the fng stability oversight council, and advanced notice of proposed rule making. we have issued on the requirement and reliance on credit ratings. we have begun work on an interagency basis to implement risk retention requirements for securitization. and to limit excessive or inappropriate compensation among other projects. we are still in the early stages of work on these projects, and we have encountered some challenges detailed in my statement. one of the most important tasks ahead for the o.c.c. involves the transfer of most functions from the office of thrift supervision. the o.c.c. will take on the task of supervising federal thrifts and writing rules for all savings associations while responsibility for state chartered thriferts and thrift holding companies will go to the fdic and federal reserve respectively. most o.t.s. employees will transfer to the o.c.c. and we are focused on ensuring the orderly and effective transfer

of these functions and staff. the o.t.s. employees transfer to the o.c.c. have essential skills and knowledge of the thrift industry that will be important to the o.c.c. in skearg out this new mission. i believe they will find the o.c.c. a supportive and rewarding place to continue their careers and we are looking forward to welcoming them to our agency. we are mindful of the importance of communicating about the transition process both with o.t.s. employees and the thrifts they supervise. i recently wrote to all federal reserve thrift chief executive officers about the transition and plan to continue reefing out to the industry. we are participating in industry events that provide opportunities to interact with thrift executives and we are developing an outreach program to provide information about the o.c.c.'s approach to supervision and regulation. we also have an obligation to work with treasury to identify o.c.c. employees who have the skills to support the rule making, supervision, and

examination functions that will transfer to the cfpb and interested in working for the new agency. we have been participating in planning for the new bureau and as the cfpb organization tation shape, we are committed to providing necessary support to that organization. finally, with respect to basil 3. we believe these capital and liquidity reforms which seek to improve the ability of banks to absorb shocks from economic stress, advances the objectives of the act. the dodd-frank act addresses many of the same issues as basil 3 which seeks improvements to quality of capital, addresses systemic risk concerns, mitt gates limits of excessive leverage of banking system, and establishes minimum liquidity standards. we think the framework strikes and appropriate balance by setting requirements for higher quality capital and liquidity while allowing the banking system to continue to perform

its essential function of providing credit to households and businesses. further, the extended transition period minimumizes any short-term disruptions in financial services while the economy recovers. thank you for the opportunity to testify today. be happy to answer any questions. >> thank you very much. thank you very much for your testimony. what i'm going to do if i can here is give a little more time to members this morning given the range of witnesses we have. so i'll ask the clerk, 10-minute time. we'll try to focus on that. let me pick up on the point, secretary, you raised at the outset of your remarks. the financial stability oversight council will be meeting tomorrow. to work on a number of issues. the substand tiffer functions you have identified, others have as well including designating certain nonbank financial companies with supervision by the federal reserve.

recommending heightened standards for large and interconnected financial companies, and several others that will be the job of this oversight council. i'm interested in hearing briefly from each of you, you touched on this already, who will represent your organization at the council. who will actually be there. who you are designating so we have a good idea who that is. what is your view of the key substantive priorities of the council. i would love to get a sense how you prioritize those issues at least in your view. let me editorialize a bit, we certainly expect the members of the oversight council to share information and to cooperate and create a atmosphere where any agency is free to contribute in all of this. this organization is not intended to be a top down but rather a collective gathering of equal partners in all of this. i would expect no one to hide

behind the work of the fed or the treasury, nor to be intimidated by it. i say that respectfully. obviously treasury and the fed have been very dominant players in all of this, what i want to have happen here is that level of cooperation where each of you have a responsibility to bring your designated knowledge and expertise to the table and that that information is shared. create agnew culture. because one of the problems -- creating a new clullture. because one of the problems in the past has been -- unless that culture changes how we operate. that shares of information. particularly the oversight council is going to need in order to succeed if it's going to work, that has to be a part of this. again i -- we can designate responsibilities but beyond that it ultimately depend on the leadership of the respective agencies to create that culture. i'm interested in having you comment briefly on this as well. let me run down with you, neal, if i can. who is going to be at the table tomorrow and what are your priorities? >> thank you, mr. chairman.

secretary geithner will be at the table chairing the meeting tomorrow for treasury. i think the points that you made, mr. chairman, with respect to the cultural issues of the council are critically important because while on the one hand the council members have clearly their own independent regulatory authorities and those need to be respected, getting the information sharing and the sort of collaborative effort to make sure that the down sill has its collective responsibility is also very important. that's something we'll be focusing on. i think in terms of priorities beyond getting that basic rhythm right, clearly the council has by statute four studies it needs to do that are important. two relating to the voca provisions and one relating to risk retention and the securitization area. a final one having to do with the overall economic effect of this regulatory framework. beyond that, the council, i

think, should and will prioritize the question of which nonbank financial institutions ought to be designated as systemic and beyond just firms also utilities. i think those are the core things beyond keeping abreast in range of ways of the various members' views about what systemic risks exist in the system and how we are addressing them and how they ought to be addressed. >> i appreciate that secretary geithner will be at tomorrow's meeting. i'm going to be interested who shows up at the following meetings. too often what happens is again this gets relegated. very good people, i'm sure you, but takes on less of a priority. i don't expect the treasury of the secretary to show up but someone, particularly someone who might be coming before this committee to be confirmed, within that structure has the responsibility. whether it's a member of a commission. someone designated that that's the person who will be there. we in this committee, in the

coming years, will be able to have someone who comes before us that we can talk to about this. so it doesn't end up being, i say this respectfully, some staff member who has been given the job to be there and we begin to see this -- culture begin to return. i don't expect you to answer that question. >> let me say, mr. chairman, secretary has been very, very engaged in these implementation issues. and he does absolutely expect to be very, very engaged in them in the work of the council and ongoing basis, not just tomorrow. he will personally be very much involved. whether that means every single meeting. i think that is his expectation. a number of his senior staff, myself included, will continue to stay fully engaged as well. i think the basic answer is secretary geithner expects he will be chairing these meetings on an ongoing basis. .

coordination is going to be extremely important. in particular, many aspects required to set up this regime designating systemically critical firms and utilities, for example, comes from the council, and so that needs to be put in place so that we can

begin to implement the basic structure of the act. >> ok. ms. bair? >> yes, i will be attending and i will -- as long as i'm chairman i will be representing the fdic. i think it's very important that all the principals fully engage with this important effort. in terms of priorities, i certainly agree with neal. i think certainly from the fdic's perspective, the top perspective should be the designation of nonbank systemic firms. this is closely related to our ability to be prepared because that triggers a living will, resolution planning requirement. and so early identification of those entities which the council feels are systemic we also think is very important. i would also say that i hope that the council will look at systemic institutions and systemic practices or emerging risk. we see some emerging risk now, and being forward looking and proactive, trying to get ahead

of them, identify them and deal with them before they become a big problem is a very important focus for the council. certainly coordination is an important function, too, but i think people of good will will work collaboratively together and share information and respect each other's area of expertise to get this work done. i think if we all start to rewrite each other's rules, though, this council will become an impediment, not a way to facilitate reform. i think it's important to get the balance right and i think we are all committed to working together to make sure that happens. >> thank you. chairman schapiro. >> i will represent the securities and exchange commission and expect to be at every meeting of the council. obviously, everyone has said designation of nonbank institution is a critical and high-priority item. we have much to do to implement rules to fulfill the volcker

requirement under the act. we will be particularly interested in launching a study that predates the rule writing in that area and getting comment and getting the background that we need to do that in a thoughtful way. >> thanks. >> chairman dodd, i expect to be there and at every meeting. i am not sure under the commodities and exchange act i can send someone else to vote for me. i think that's pretty clear. i would compliment treasury. we are learning a new thing there. they have been excellent senator reid. the treasury has been excellent in terms of bids. in terms of priorities, at least for us as we see over the many months ahead is to designate some clearing-houses to be systemically relevant. we currently oversee 14 clearing-houses. we think that may grow to 20 or

so. but small handful would be good under title 8. the council would designate them. i hope to highlight that we will do that but it will certainly come months from now before it happens. >> i appreciate that. >> john. >> the basic operating rule as principal plus one i will be there. i'm sure that the comptroller nominated by the administration will be there. our chief national banking examiner is our support for our participation. i think the key challenge over time is going to be figuring out how to assess systemic risk across the entire financial system. we need to gather the data that's available in the agencies and the private sector to begin mapping risk across the system. we need agencies to bring issues to the committee, and i think that will be the kind of challenge as it develops its work. and the overall challenge is getting consistent policy across a number of independent agencies that's not so much a challenge for the -- we all

face. >> one quick question for you -- i'll wait for the next round. and you touched on this, chairman gensler, on the derivatives market and the deprex internationally. it knows no geographic boundary, obviously. and poses some issues. the european commission recently released its proposals. it talked about, which will be debated and finalized to the european union legislative process in the coming months, again, you suggested this to be the case, maybe develop a little further and chairman schapiro, i know you were planning to be there but for today's hearings. i urge you to get over there quickly given the importance. you can't be two places at once. is the european approach consistent with where we're going on this? we have sort of a sense of that, but i don't want to put words in your mouth. that's very important to be this harmonization idea that we

have a consistent set of rules to the extent we can around the world. mary, do you want to go first? >> i think the european union direction is consistent with dodd-frank, mandatory clearing of all eligible contracts, reporting of o.t.c. derivatives. strict capital and collateralization of requirements when contracts remain between two counterparties where they're bilaterally clear. there is reform very similar to what we're doing here. i think there will obviously be details. but in broad scope it's quite surprisingly almost to my way of thinking consistent with the approach that we've taken in the united states. >> we were told this is the fact -- i think we surprised a lot of people, but the fact that the administration -- led on this issue has had an impact on what europe has done. is that a fair assessment? >> i think there's no question

about it. when we lead other countries look very carefully what we've done. we often look to other countries to see if we can be consistent. i think there is broad appreciation among international regulaters that among every jurisdiction that it is in fact important to get them as close as possible so that we don't see business migrate for the wrong reason. >> and i would just add -- i mean, the european commissioner who has oversight over all this and recommends to their parliament and sharon bowles who sort ofs have either your or chairman frank's role in the parliament, we've been talking to them really since last summer and fall and treasury and the federal reserve has in addition to us it's been an excellent partnership. the clearing mandates has been very similar. the idea that financials would come in and nonfinancials was out, they sort of have a clearing threshold. so some nonfinancials would have to come in where we don't

have that. they have this trade repository and so forth. the one distinct thing, they said on the trading requirement they are going to take that up in about six or seven months in a different legislative package, so there's some timing delay. >> thank you. senator shelby. >> thank you, mr. chairman. chairman bernanke, as you well know, one of the goals of the dodd-frank legislation was to end government bailouts. the fdic was granted vast new powers under that legislation to resolve financial institutions so that no one institution is, as i understood it, too big to fail. if they think the fed will rescue failing firms it will continue to provide large financial institutions with below market financing perpetuating our already severe too big to fail problem.

with the passage of this legislation, dodd-frank, can you categorically state that the federal reserve never rescue a failing institution, such as a.i.g., for example? >> senator, i can say that because dodd-frank has eliminated the authority that we used to address a.i.g. which was the ability to lend to an individual firm so that -- whatever any future chairman may wish to do, that authority is no longer available, first of all. >> do you agree with that? >> i agree and i supported that throughout that eliminating that authority was appropriate if we were to ever develop a regime that would allow for an orderly winddown of a firm, and chairman bair and the fdic has been working very hard to develop a set of rules to govern that process. and i just may add, i think the most additional thing we need to do is coordinating with our international colleagues

because these firms are typical multinational and we would work with foreign regulators as well. >> how important is it for this message and the legislation that we passed is going to end bailouts? how important is that to people running financial institutions? >> well, it's extremely important, senator. i know from a political point of view, the american taxpayers don't want to be on the hook. >> do you blame them? >> i certainly don't blame them. but from a financial regulatory point of view, the other important aspect is that we want to have market discipline. we want lenders to large firms believe they can fail and make due care to make sure that the firms they're lending to is not taking excessive risks. >> what is your judgment on bosel 3 to sum it up? >> i think it's moving in a very productive direction. it has strengthened capital, raised capital requirements,

improve the quality of capital which is very important. it's created international leverage ratio. it's introduced liquidity requirements. it has addressed some regulations. it has made progress in providing stability for our banking system. there's still work to be done, though. >> chairman schapiro, what is the s.e.c. doing now to develop and also to implement a permanent solution to the credit rating agency that is deep and with us? >> well -- >> i now it's complicated. >> it is complicated, and as you know in 2006 when the credit rating reform act passed the agency had rulemaking. as your former staff in commissioner kathy casey. but under the law we have a number of additional requirementes that will be in place.

we worked with the agencies that a number of provisions take effect upon enactment of the law doesn't require s.e.c. rulemaking so they need to change their governance, for example, and those efforts are under way. >> how important is that to say ever bringing back the securities market? >> well, the role of credit rating agencies is one that -- is particularly important in the securitization market. and the law repeals section 436-g, which no longer allows the use of the -- or the reliance upon -- it requires the credit rating agency's consent to their ratings to be included in offerings. they will not consent thus far, and it's not clear whether securitization on what basis will continue to go forward until we reach some kind of accord with the rating agencies. we have removed the requirement from our rule that credit

ratings be included where the offer -- where the offering is dependent upon the rating. so we're working through those issues with the credit rating agencies. we're also establishing the credit rating agency office that the law requires that will report directly to me. we are employing the examiners that will be necessary to put them on an annual examination cycle which is particularly important and required under the law as well. there's a number of rule makings that will have to go forward relating to due diligence and other issues. some warrants in the asset-backed markets as well that require the role of the rating agencies and the s.e.c. to write rules. >> i hope it works. >> so do we. nor, i should say that the laws requires us to evaluate all of our existing regulations and to remove reliance upon credit rating agencies in all of those rules and that process is also well under way. we have already proposed that

in the asset backed securities market for shell regulation. >> chairman gensler, you have publicly argued against an end user exemption from the clearing requirements in the derivatives title that we passed, and you've argued repeatedly for keeping any exemption as narrow as possible. what steps are you taking to ensure that your personal aversion to the end user, exemption, does not interfere with your agency's mandate to carry out the dodd-frank legislation? what are you doing here? and how will it affect the end user? >> senator shelby, very good question, but congress writes the law. we are going to adopt exactly what you have. there's a clear end user exception for anyone who is hedging or mitigating a commercial risk for nonfinancial firms. and i think that was a balance to take that sort of 9% or 10%

of the market out. and that's completely what we're going to do is comply with the law. i think that was a balance that congress appropriately made. >> ok. thank you. secretary wolin, each of the regulators charged with -- excuse me. each of the regulators charged with rulemaking under the legislation dodd-frank is publicly committed to specific steps to provide transparency during their respective processes. you're familiar with that. will treasury follow this lead and post on its website or otherwise make public the names and affiliations of individuals who meet with treasury officials, including special assistants to secretary geithner, ms. elizabeth warren? will you do that? will there be transparency there? >> we will be publishing a

transparency policy that will be similar of what you ask about, and making clear that people can know who it is senior officials at the treasury meet with. >> going back to you, chairman schapiro. the s.e.c.'s experience in overseeing securities markets in which participants have the choice of several different trading venues, what is each of -- what are you doing to make sure that the cftc has the benefit of the s.e.c.'s expertise in this area? and vice versa, maybe? >> well, chairman, we do have a very different kind of model in the u.s. equity markets that's quite dispersed. there are multiple venues, exchanges, electronic communication networks and even internalization of securities transactions. we think there's a lot of virtue and there's some downside as well, but a lot of

virtue to that competitive model. we spent a lot of time talking to the cftc to the extent to which the exchange trading or swap execution facilities that will handle both security-based swaps and commodity swaps could benefit from understanding the -- what has worked well in the and the equity markets making sure they are not perfectly analogous. >> it has been tremendous cooperation around the s.e.c. i would add not to muddy up the hearing, within the next couple days i think we'll put out this may 6 supplemental report. there's a lot of lessons from there too, and our joint staffs, and we have a joint advisory committee from outside experts that will give us a lot of advice, too, that will address your point and lessons from may 6 can apply even to the derivatives marketplace. >> secretary wolin, i want to get into the question with

you. the treasury department i believe on september 21 conducted a mortgage disclosure forum with consumer advocacy groups and others. in a press release surrounding the former secretary geithner stated in response to the dodd-frank legislation, and i quote. "wherever possible we are committed to expediting completion of the law's requirements ahead of statutory deadlines." earlier in the month, secretary geithner stated in his speech at new york university, and i'll quote him again, and he says, "we want to move quickly to give consumers simpler disclosures for credit cards, auto loans and mortgages so that they can make better choices, borrow more responsibly and compare costs." that's his words. those are his words. these are laudable goals but seem to require rule writing

authority, which i do believe the new consumer financial protection bureau will have -- will won't have until a director is appointed an confirmed by the senate. do you believe that treasury has the writing authority without a confirmed director? and if so why? >> senator shelby, i think there is limited rule writing authority, but it is constrained until such time there is a confirmed director. but i think in the meantime there is plenty of work to be done to get these various disclosures ready. it's an important piece of legislation, an important part of the mandate of this new bureau. as you know, the mortgage disclosure example, the statute says it has to be done a year after the transfer date which should be july 21, 2012, and so we are keen to make sure that

this new bureau is ready to move forward with its mandates and its focus -- important focus on disclosure as quickly as it can do. it's the secretary's responsibility under the statute to stand this bureau up and we want to give it as much of a running start as we can, consistent with the -- >> law. >> authorities. >> it's been brought to my attention that the securities and exchange commission has posted its rulemaking agenda on its website. will each of you do the same thing? we're interested in transparency and what's going on. anybody against that. the s.e.c. is doing it. >> we did on the day the bill passed we put the 30 -- we put them in buckets in 30 teams. it was on our website. >> you're willing to do that? >> i think we have. >> what about you? >> as far as rulemaking, senator shelby, we'll be

transparent. >> rulemaking -- >> we are going to be as clear as we can. we are in discussion with the other -- >> what does that mean, clear as you can? >> we have the following issue we're working on very hard which many of our rulemaking is joint or consultative. we haven't quite got all those ducks in a row quite yet but we will certainly try to make that information available. >> let us know what you're doing. >> ok. >> thank you. >> thank you, senator shelby. thank you for your testimony. secretary wolin, in response to senator dodd's question about the systemic council, i think every respondant talked about the need for analytical evaluations. the office of financial research, you and the president and secretary geithner have really the opportunity, the obligation to create not just an organization but a culture which i hope is analytical and apolitical, which attracts the

best minds which are looking across the system and forward. can you give us an update as to where you all are in the process of appointing ahead and getting that staff? >> senator reed, thank you. you know, first of all, thank you for your leadership in creating the office of financial research. it is a very important opportunity for the council and for the federal government to have a much better handle on data and data analysis to make sure it's in good position to fulfill its various regulatory responsibilities and systemic risk responsibilities appropriately. we are hard at work in trying to begin setting up the structures that the statute requires. we want to do it consultatively with the other regulators to make sure we know what data is already being collected and how it's being collected so that we can move forward smartly on creating data standards and making sure that we don't duplicate efforts either public

sector or private sector efforts at data collection. the president and i think -- the president, i think, is reviewing possibilities for who might be the first head of the o.f.r. we are very much focused on making sure it's someone who has real experience and capacity in data collection, data analysis and its application in these important context. and, of course, want to make sure that the office, when it's stood up, has the independence that the statute intends for it. it's a part of the treasury but with independent leadership and budget capacity and so forth. and that's an important element so that the work of this office provides a clean, unbiased, unvarnished look at the issues which i think are critical and which give the government for the first time a real set of potential tools that it hasn't had. >> thank you, mr. secretary.

chairman bernanke, in a similar note, title 9 of the bill requires, as you said in your comments, the appointment of supervision at the fed. do you have any notion of when that might happen? >> i don't have any precise information. i know it's the administration's responsibility. i know they have been considering alternatives but i don't have any specific information. >> switching gears. one of the provisions in the legislation in terms of the volcker rule allows 3% for an institution to continue proprietary trading. i say senator levin and senator merkley were the key people pursuing a much tighter regime, but nevertheless, can you give us an idea of how much additional capital an

institution like that if they have their proprietary trading operation forward can carry? is that something that's considered already? >> i'm sorry. that the bank would have to carry? >> that the bank would have to carry? would you require additional capital as one of the prudential ways in which you could protect the system from proprietary trading if the institution uses the 3%? >> well, first, of course, as you stated, senator, there's a 3% of capital limit that a bank can dedicate to that. >> right. >> but in addition, we have already in fact begun implementation of new rules for capital requirements, for trading books, for trading of securities and those sorts of things. >> essentially, you were already beginning to think about if one chooses this option to have additional capital even beyond what is

required by the minimum rules? >> well, on the volcker rule specifically we are of course engaged in the study that we are working with the council to help develop the study and we will put in rules to implement the intent and to figure out what the appropriate exemptions and so on are. on a separate track, the bossle 3 international capital requirements have already significantly increased the capital required against risky trading of all types that would be market-based trading as opposed to loans on the banking book. >> let me ask another question, too, as you go forward monitoring these operations, will you have on a frequent basis perhaps on a daily basis actual knowledge the positions that these trading units will be taking and also what units

the clients of the bank is taking? will we have that detail, that constant information? >> we don't have that information on a daily-type basis now. we mostly operate via rules and policies, assuring that the bank or the bank holding company is -- has a set of risk management tools that it's applying consistently and then we check to make sure that's happening. i think an open question is whether the office of financial research will be gathering more detailed position information and the like and it's certainly something that we may want to look at because that may be the only way in which to identify across the system crowded fradse or other risk that might not be visible from the perspective an individual institution. >> i appreciate the systemic approach, but in just looking back, it seems to me that the approach of looking at the risk assessment and evaluating it

and seeing that they were doing that they said they would be doing didn't seem to be particularly helpful in many circumstances in the past. if that's the approach thaw choose to take, it might very well be ineffectual going forward. if these major institutions are going to have under this exemption, a proprietary trading operation, i guess i would say, don't you think you need to know a lot more than their risk policies and on a periodic basis to look at what they say they're doing? >> we need to test what they're doing and to evaluate their positions but realistically we can't duplicate their entire operation. >> well, i understand that. >> we're going to have to assess based on sampling and based on spot checks and the like. >> i think chairman schapiro has a comment. >> since we have to define market making and underwriting activities that are permissible under the volcker rule, one of

the things that we'll be looking to is the new large trade reporting system that we proposed and the consolidated audit trail that should help provide us with much more granual information that we can share with fellow regulators to make a determination whether market making has been exaggerated and goes beyond what's been permitted under the rule and has been speculative or proprietary trading. so we are intent on working very closely with our colleagues on that. >> let me just both to chairman gensler and to chairman schapiro, the comments this morning reflect a cooperation and collaboration that's recent but is very commendable. and just specifically, i note chairman gensler, you are going to propose a rule tomorrow or in the next few days about clearing platforms. can you both comment on the collaboration that you entered into in terms of making sure that this rule is truly

reflective of both your equities and the business of clearing derivatives? >> the three things we're taking up form and all that we're taking up all the way through december we're sharing not only drafts but we share preliminary term sheets and we try to collaborate. on the governance rule tomorrow, i think chair schapiro can talk. they are about 10 days behind us. we couldn't get our commissioner schedules lined up. as of now i think they're nearly identical, the actual text and so forth. those 10 days may change some. our goal is on each one of these to be if not identical nearly there. that's certainly -- and i think mary and i have such a relationship -- i know future chairs may not -- but we've been benefited and we want to use that. >> chairman that peeo, do you have comments on that? >> i agree completely. the cooperation is something i have not seen in all my years of government. i think it's very positive.

even when we've had slightly different approaches, which i expect we will have on issues going forward, we are committed to asking questions about each other's approaches in our proposals so we can -- even if if we don't propose exactly the way bring them back as closely as we can at final. >> mr. walsh, please. >> just on this thought about risk management, i think large complex institutions thought they were managing particular port foal yoles and risks in lines of business and in a fact way but didn't expos across all activities -- expose across all activities and to capture risk provision is part of that risk management that chairman bernanke was referring to and that's an emphasis going forward. >> i think we've made progress, but my sense was and not

specific to one regulator is that there were these elaborate risk prortse and that -- procedures and if they would make sense it's ok. if you occasionly spot checked them that's ok. as you indicated you said it didn't work. i don't have a magic answer but i think there need to be much more gran lure approach otherwise we'll find ourselves back where we were. thank you. >> thanks very much, jack. i appreciate chairman gensler, you talked about how the two of you can't speak for future people sitting in these chairs. all the reason why you need to institutionalize this so there is not two people at this particular moment in time -- the relationship between the cftc and s.e.c. be good. any way for you to

institutionalize it will be very helpful as well. >> i agree with that and i'm personally dedicated to figure that out. >> i want to mention -- jack is finished but i didn't say earlier, i am grateful for all the members of the committee who worked so hard on this. even though we didn't up with the kind of votes, necessarily, on this. this work represents a lot of people. bob corker, the whole title 1 and title 2 that you and mark worked on is a large part of your efforts. i thank you. >> thank you, mr. chairman. i appreciate the way you've conducted this committee for the entire time i've been on it. thank you very much. i'll talk about that later. and i appreciate each of you coming today and nice to hear everybody's playing well with each other at the moment. [laughter] secretary wolin, the cftc, the

issue of consumer protection, i think there has been some discrepancy on whether or not it has rulemaking authority between now and july of 2011. you seem to indicate that you think it has limited rulemaking ability. i wonder if you can expand upon that and -- because i think a lot of us think that during this transition there absolutely is no rulemaking authority until it's actually transitioned. >> thank you, senator corker. i think, you know, the secretary has by statute a series of authorities to stand this bureau up, and i think those include, of course, working with the other regulators that are transferring both authorities and people as well as getting the bureau ready to undertake its rulemaking and its supervision and enforcement authorities as of the transfer date next july. i think it's -- i think the

rulemaking authority is circumscribed but i think the secretary does have capacity to do the things that i just talked about, getting these authorities and people transferred over. >> but not real rules across the financial industry then? >> i think that's probably right. it's quite limited. >> let me make sure i understand. so there's some ability to stand the organization up, but i think what you're stating today is there's absolutely zero ability to make rules as it relates to consumer protection that relate to the financial system? >> well, again, senator, absolutely zero. i think the bureau, the secretary on behalf of the bureau in this transition phase, as he's standing it up, has the capacity to do the sorts of things we did last week, have foray get on top of the issues, hear from people what they think and so forth. i think the authorities to actually issue a rule that would bind private parties, for example, in the mortgage area is a tough one until such time

as there is a confirmed director. >> let me just -- a tough one. that's a vague word. what i would like for you to, if you would -- i know we've had a good relationship. if you ever think that you have the ability to actually make a rule, would you make sure we all are aware of that? >> absolutely. >> at present it's my understanding as i leave here today that you do not have that authority until the organization is stood up on july -- in july of 2011? well, before doing such thing i hope you will talk with us. >> fair enough. >> because i assume we'd have a senate confirmed type of person in that position before you start making rules. >> the president is reviewing candidates for that role right now. i think committed to making sure he gets the best candidate he can and i believe that he

hopes to be in position to make a nomination on this role soon. as i said, i think the rulemaking authority insofar as you're talking about it, senator, depends on that process moving forward. >> and being completed? >> and being completed. >> ok. i understand that the treasury is going to be presenting a g.s.e. proposal around january 1. i think a lot of things we did over the last year, many of us will work on both sliles to try to figure out -- sides of the aisle to try to figure out the best pragmatic way of doing that. do you have something that's very trangible on january 1? >> we intend to certainly meet the terms of the statute. we are hard at work on this topic, as i think you know, senator, and we will come forward with an approach before that time. >> and i assume you're

involving other banking agencies and entities in that process? >> we are, senator. we are consulting within the government and without. >> let me -- let me make a suggestion to you. involving people up here and i think in this process of conversing about it. my recommendation for someone that won't be here, there is a lot of people interested that invite people to be part of that discussion. you might find yourself on a better track. just a thought. sorry. >> and i appreciate you intervening there. i think that would be a good idea. i actually think there are a number of people on both sides of the aisle that want to solve the problem. i think it would be good to have a little bit of discussion along the way. i now we're spending a lot of time in our office and i know others are too. it's an issue that we all together have got to figure out a way to deal with. i can't imagine anybody likes it the way that it is today and so i would hope you would do that and i thank you.

do you have any idea about the criteria that the f slot, i guess we're calling it, will define a systemically important entity? i imagine there are a lot of companies around the country that are wondering if they're going to be in the sites sights or not. and do you have any idea what that criteria might be? >> let me go back on the g.s.e. we had a fantastic working relationship with you, senator, and with all the senators on this committee. and on the dodd-frank legislation we fully intend to have a similar relationship on g.s.e. as we look very much forward working with you and others on the committee and across congress on what is clearly a critical issue on which we're going to have to work together. on the matter of f-sock designations, i should say in the first instance, this is really a question for the f-sock collectively to work through. as i said in my opening

statement, i expect tomorrow at its first meeting that the f-stock members will consider proposal to seek public comments on what those designation criteria ought to be so that we have, again, a robust conversation about that before the f-stock lands. i think not for me to make a judgment ultimately before the full range to make judgments about those cry tearia ought to look like. >> sharme bair, it's good to see you since you were meddling in all our affairs. i'm just kidding, of course. the working group was going to set up the risk retention standards. i know you jumped in

advance in that regard. i'm wondering if you had any input from the other agencies. i know the o.c.c. opposed that and i wonder if you might expand a little bit on that and i really appreciate your input. i wasn't trying to be -- >> if i could review the history. this is something where a number of members of the industry came to us late last year in anticipation of the new accounting rules. 166, 167. the change accounting for security assets and get true sale account and you can move up the sheet. we had a safe harbor that determined whether we would try to claw assets back that had been securitized if the bank fails and we were trying to provide for that safe harbor. the concern was that the securitizations no longer meet the true seal standard under

the new accounting rule so we provided some temporary safe harbor relief, provided for everybody going back. but going forward we thought given all the problems in the securitization market, the incentives were lax. the losses that had been created for banks, the problems we're seeing with resolution activity with failed banks that we should impose some conditions on the safe harbor going forward. and one of those pieces -- it wasn't just risk retention. we worked closely with the s.e.c. and one granular proposal. we tackled servicing issues too. we had problems with lack of oversight, inability to restructure loans because of restrictions in pulling and servicing agreements. so we addressed what we thought were key issues in the conditions. this has been going on for nearly a year. and 5% to 6% risk retention is

part of the rule for mortgages. that is consistent, again, with the s.e.c.'s proposal. the disclosure requirements are sync up with the s.e.c. so that we were trying to have one standard for everyone. yes, we decided to go ahead. the safe harbor that we -- that's expiring at the end of this month, we had to do something. i think it's important for people to understand, we had to do something. if we didn't do something we would have disrupted the securitization market, especially all of the outstanding securitizations we have now. we put in auto conform provision in our bill so that once agencies do get together and define what a q.r. plmplet is, the 5% risk retention no longer applies. we hope to some extent this would be an action forcing event so that those interagency rules can be done on a timely basis. it's a 270-daytime frame that is provided by dodd-frank. we hope that is met. we'd like to do that sooner than that. >> and that's the time frame to actually to find a qualified -- >> that's right.

but pending. we don't have underwriting standards now. frankly, we don't have a securitization market right now. nothing's happening. i think a lot of it is because investors are trying to have confidence to start it up again. they don't feel like -- >> why did the o.c.c. object to the rule? >> a fairly straightforward thought that we held the position since this was in a proposed rulemaking that it would be prmble to have a single poy policy on securitization and across all markets and securitizers and we didn't see the great downsize for the safe harbor for the 270 days and then having a set of rules in each venue that confirmed to one another. so it's a fairly straightforward point. >> mr. chairman, i sense slightly less playing well together than appeared. i think that these are the kind of things that are going to take a lot of oversight down

the road, but if you want to respond. >> well, thank you, senator. the 5 is in dodd-frank. unless the mortgages apply with these new underwriting authorities. we think we were consistent under dodd-frank. again, we hope this happens in 270 days. my experience with interagency rulemaking, sometimes the deadlines are missed. we originate mortgages. fichter is another example where agencies overshot these deadlines by significant amounts. we think it's good to have 5% resistance in place. if this can help facilitate a timely process we welcome that. we think that's very, very consistent what's in the letter of the law now >> mr. chairman, thank you for

going a minute, 40 over. i thank each of you for this testimony. this whole issue of securitization is one that i think we were all trying to understand how this 5% retention would work. i do look forward to talking to each of you. this is obviously especially in the commercial side. that means there's nothing happening right now. >> it doesn't apply to commercial. >> i understand that. i understand that. but as it relates to the securitization business in general, there are a lot of problems there and i do look forward to working with each of you to try to deal with that. the private securitization did have a risk retention of 5% vertical and hortzontal splice. the one did have the future in it. >> well, it's a wealth of knowledge sitting at the table there and we certainly look forward to working with you over the next couple of years. thank you. >> thank you very much. senator bennett. >> thank you, mr. chairman. thank you for having this

hearing. thanks for all of you coming together. it's good to have you all in one place. i want to start with chairman bernanke and chairman bair if you have thoughts on this, too. you know, among ending the tarp and setting up the resolution, i wonder if you can tell the committee what actual changes your agencies have been able to discern in behavior at the largest most interconnected financial institutions? what is the less leverage, those kinds of things? what are you actually seeing? chairman bernanke, i was always curious on the quan tative mechanism, can you describe that? is it up now? how are you going to use it? what are the inputs going to be? so, those are my first two questions.

>> well, we're seeing good movement. capital is moving significantly. one of the results of our stress test was to not only increase capital but to increase the quality of capital, have more equity. all of the banking agencies are pushing the banking organizations to improve their management information, risk management systems. some of the banks were not as able as they should have been and we should have insisted they be to identify risks in an enterprisewide basis running into the crisis. and so progress is being made on those lines as well. obviously this is a period where given we've come through a crisis, many banks are not taking risks. some of their portfolios are

conservative. we'll see when the economy normalizes. i think that things are moving in the right direction. we are -- at the fed we are moving towards a more, as i said, macroprudential and multidisciplinary approach. we are in the process of establishing a staff of office of financial stability which will draw on staff resources from a wide range of disciplines, economics, finance, payment systems, accounting, legal,est. which in turn will provide inputs and analysis to other parts of our operation. so in particular, for example, we have -- we revamped we revam supervisory organization to take a more multidisciplinary approach and, for example, to do stress tests which are based on mackry economic or financial scenarios, this office of financial stability is

responsible for doing the scenarios as an input into that stress test anational is i. so we are linking together these different parts of other expertise. as you mentioned, we have a quan tative evaluation -- quantitative evaluation. >> before you do that, had what you're describing been in place precrisis, what do you think the things that the macroeconomic trends that you picked up weren't picked up by the fed? >> well, i think we would have identified some of the broad-based risks that were occurring. the broad-based leverage. our office of financial stability decides providing inputs into bank supervision is going to provide general monitoring functions, looking across a range of markets and institutions and funding markets and the like trying to support our membership in the f stpbk and in our collaboration

with our agencies. so we plan to take a much more wholeistic viewpoint. i don't think that people prior to the crisis agencies were focused on institutions. there were significant gaps. this is our -- this is our intellectual framework. >> before i interrupted you, talk about the quantitative mechanism. >> yes. we are combining with our traditional bank supervision which goes and looks at the books of individual banks, sort of offsight -- offsite analysis, house trends, mortgage delinquency trends and tries to make broader assessments based on maiet variables and what the risks might be to the banking systems

and the interactions to those analyses is helpful. it was a very helpful addition to our streroade test that we d a little over a year ago that we were able to supplement the edank assessment with the value of their mortgage with the kind of metric analysis that drew on information about individual housing markets and the relationshmore of house prices macroeconomics and the like. >> that sounds to me lmare a bi step in the right direction. i'm wondering how youe ye planning on sharing the results with the public or are you? >> we are considering how best to do that. obviously the first step is to mence sure that our supervisory process is comprehensive and macro prudential and that's what this is all about. we ought to think collectively the people at this table as the financial stability oversight council about what kinds of

reports we'd lmare to provide. i think dodd-frank provides fsoc about financial stability. one thing from our analysis is to be part of the input about our chrebetive rsidorts of the congreroade and our reports abo the financial system. >> chairman bair, do you want anything to add to the first part? >> i think we are engaged in parallel efforts. as a backup supervisor we rely obviously on the regulators, including the fed, for holding company data which we were recently given nole authorities we foesed a lot, though, on liquidity monitoring and we're reporting on liquidity profile on an ongoing basis inc, we hdi having consistent rsidorting an having a horizontal analysis to identify outliers. i think your original question is what has changed, really, i

think the good noles is underwriting standards have gotten a lot better. and i think -- i lmare for the supervisors to take credit, i think it has mes. the maiet and all of this coming home to rest. but that has gotten significanfed,y better and i do think large financial institutions, at least, ensure dsidository holding companies are much more stable now. i think the increased capital at that time served us well. and so i think this is giving us more time to put these nole systems in place. but there's a lot of work to vo. i think we just went too far in the other direction and aroadeu that the market is cobrect without providing oversight but there's a lot of groundwork to be done. >> i know it's not the subject of this hearing, but just for the record, still, in places like colorado facing incredible challenges with small businesses access to credit and i don't think a lot of that is --

>> i wouldn't disagree with you on that. i think there is a problem with small business credit and i think we tried to tence a very balanced supervisory approach, telling our banks we want them to lend and the smaller banks, frankly, they are stronger than they are for the larger institutions. part of the problem, though, is the home equity lines or commercial real estate and its values -- the collateral isn't there apinmore. that's a key part of the problem, i think. >> i think unleashing that again is obviously so critical to our economic recovery and edoth anecdotally and also in the broader trends that i see we're still not there. i wanted to come back, chairman schapiro, to something that was a lot of interest to me when we were doing this bill which you talked with the ranking member about how we are trying to minimize the conflicts of interest at the rating agencies.

we are checking in on a regular basis. we will be happy to provide more information on that. >> that would be tremendous. thank you. the last question and i am the last person who wants any unhappiness to break out here, but i wanted to ask you, chairman gensler, and you, chairman schapiro, about one particular rule that you are going to be writing which is to determine what types of entities are considered major swap participants. how are you working together, what process is that going to look like to get to a result?

because part of, also, what i'm hearing out there, and just as a general matter, not related to wall street reform, it's just a sense of lack of predictability about things, what are the rules of the road? we need to understand that. bay the way, that's a sensitivity everybody ought to have as you think about publishing the rules and publishing notices in the meeting is there is a lot of people out there feeling that they have a complete lack of clarity about what the future is going to bring which is important for us to adhere and attend to. in a specific case, what's the process going to look like? >> i think you raised a very -- two very good points, trying to lower regulatory uncertainty so that businesses out there can understand where we are. we are going to put out proposed joint rules on definitions like major swap participant. i think our current hope is to do that in the middle of november right before thanksgiving.

we're human. we may slip. but i think congress really spoke to this. this category of major swap participant in the statute should be very small. why is that? because it's somebody who's not a swap dealer but has some systemic relevance. i think there are three prongs to it but three of them speak to -- if it fell apart or defaulted had to have some systemwide effect on the economy or the financial system. so i think the majority, i would even say the vast majority of end users i would envision, again, it's 10 commissioners between our two commissions. we'll have to comment on this. but i would envision it would be a very small set of companies because congress really has spoken to this in that way. >> yeah, i would agree with that. i think the three criteria set out in the statute make it not a tremendous category of market participants. the other thing we've done, because we recognize this is such an enormous interest,

we've put out an advanced rulemaking on how we should define a number of things, including in this particular area. so that i think will help guide us as well. and it's important as well because the whole regulatory regime attaches to it and that will be new for many market participants who might fall in this category. this is an area where we will get an enormous amount of comment and we will listen to it carefully. >> thank you all for being heemplet thank you, mr. chairman. >> thank you, senator. you've been very helpful at the end of that table down there but you've been very, very supportive and helpful in this process over the last couple of years and i personally want to thank you for it. .

in contracts that will already been entered into. i want to make sure that the record is clear in this hearing. do you see any part of this legislation at all applying retroactively to derivative contracts that were entered into before the effective date of the legislation? >> senator, i think it is a very good question. i can only speak for myself because, again, five commissioners, five commissioners and other regulators also as the federal

reserve and regulators had a very big role in setting capital and margin. but i think where this has come up the most and people have raised it in public and private meetings with me is whether, for instance, contracts that existed before the act stand and i think the act's very clear they do. but also some people have raised, what about that clearing requirement or margin requirements and so forth and i'm just sharing one commissioner's view. i think that we should look that that should be prospective, not retrospective. in that regard. and know that's something that a lot of people have raised. it is a whole rule-writing process and a lot of commissioners and fellow regulators. >> i would really agree with that. we have heard the issue most recently in connection with whether margin requirement should now apply. we also appreciate, though, that legal certainty is absolutely critical in this area. my commission hasn't dealt with this issue specifically, i think we would be hard pressed to suggest there art to be

retroactive application of margin but it's an issue we'll discuss extensively and also continue to take public comment on. >> anyone else want to weigh in on that? >> let me now go in maybe a bit of a different direction for each of you, actually. having served as the cabinet member and attended meetings like this where you have a complex piece of legislation that involves a lot of various areas, i have to tell you that, quite honestly, i see conflict as somewhat of a positive thing. just give you an example, sheila baird, if we wanted your boss to be tim geithner, we can do that. but we don't want that. we like a certain amount of independence, same way with ben

bernanke, if we wanted your boss to be tim geithner we could do that also. i mean, the words do exist in the english language to make that occur. if you can find the votes. but, the decision has been made that you operate independently and that independence is important to the functioning of our financial system and your regulatory responsibilities, etc. so, i appreciate the spirit in which you come here, which is to try to say, well, we're getting along. i've sat through those meetings and i didn't want the e.p.a. running the usda. so if they attempted to, i push back. so i need to know, because i think this is a very important for our oversight responsibility and i want to go right down the table here. i want to know very specifically the areas of conflict that have arisen and

the area of conflict that you anticipate arising as you implement this legislation. i'll start at this end, mr. secretary. >> senator, i think that, just to sort of say generally, the independence of the regulator's point is obviously a critical one that i've mentioned already. having said that, at least in this financial stability oversight council, vs. a cooperative spirit, establishing a rhythm to the council itself is also important and i suspect that in that context there will be plenty of good debates with people, as you say, as they should, taking different perspectives and offering different views. the only thing is that it be done in way in which information is shared and that the group understands that the ultimate role of that council

is distinct from the individual , independent responsibilities of the regulators as regulators , is something that is also important. the council hasn't had its first meeting yet so i think it's too early to tell, really, how that all is going to work out. it's in early days. i think that as we at treasury feel like we've tried to convene representatives of all the members of the fsoc in creating a governance structure and a set of bylaws by which the council can govern its affairs, it's been a conversation that's been very helpful, people have approached it in a very cooperative spirit. they haven't always agreed on exactly -- >> what are you not agreeing upon? you know, we might want to weigh in here and we have a responsibility to provide oversight. we want this implemented right, even though i didn't support it, i want it implemented right. >> i don't think there are disagreements as such. meaning, sort of clear fault

lines. i think on the question of what should be the appropriate transparency policy of the council, what should be, you know, the structure by which votes are taken, all those things. people have different views and they express those views but i don't think i'm in a position to say there's been, you know, controversies or fault lines. it's been a good, cooperative effort in that respect. and that may change. the council is in its pace inence and we'll see how it does at its first meeting tomorrow. but i think from this point, from the point of enactment to the cusp of the first meeting it's been quite collegial and people have been approaching it as they've said here at this table and there are others, of course, who are members, not at this table in a very helpful way. >> chairman bernanke. >> so i won't take time agreeing with you about independence. i think it's very important for

a lot of good reasons. one of the strategic decisions in the bill is to have a lot of shared responsibilities, so for supervision, oversight of utilities, of banks, of large complex institutions and the like, in many cases there are multiple regulators who have responsibilities shared and the like, i think that was the right decision because these are complex entities and different viewpoints, multiple sets of eyes are good. but i think inevitably there will be some disagreements or frictions at some point, but i have to tell you honestly, and i'm not just trying to put a happy face here in terms of the substance of the rule writings that we have so far addressed, i don't see any deep or principaled controversies at this point, just issue here on the margin.

so, the federal reserve in particular is working with everybody at this table and we found it to be very productive. i'd say there is some pressure arising from the fact that there is so much to do so quickly and so sometimes it's a challenge to make sure that everybody's been appropriately consulted and all the input's been taken and still meet all the deadlines. so there are some challenges here but i don't see any -- at this point i don't see any deep conflict it's or differences in point of view that are going to threaten the implementation of this act. >> i think there are a lot of different perspectives on a lot of different areas and i agree with you, i think that's not an unhealthy thing. i think it's a healthy thing. you come together and try to find the right solution based on different perspectives. and i would echo what chairman dodd said at the beginning. i think we should all come together collegially. it's a dangerous dynamic if one

or two players try to drive everything else. i don't think that will happen. so, yes, i'll name them, i think in just about all the major areas we bring different perspectives to the table. i don't think it's a bad thing and i certainly don't see anything that would rise to the level where it would need a legislative fission. we're honored that you gave us so much flexibility and authority and deferred to our hopefully good expertise and wise judgment in writing these rules and implementing this law. i think we all are committed fully to doing that. but there are will be differences and we will need to overcome that. i don't think that's an unhealthy thing. >> i believe deeply in the independence of the s.e.c. and i know every agency up here feels that way. but you shouldn't take the fact that we're here in agreement on many things at this early stage as sign that we haven't had lots of rigorous debate behind the scenes about very specific issues. and where we can resolve those

issues, among us, we want to do that where we can't we'll sometimes present the public through the comment process with options and alternatives for ways to address issues where we're not all perhaps entirely synced up to see what the experts and the public think might be the right answer on a particular issue. so there's lots of debate and discussion. there are very different perspectives that are being brought to bear on each and every one of these issues. but i think there's also tremendous commitment to try to get to the right answer for the american people in every single thing we do. and where we can't, you know, we might have some differences, and agencies will have to go forward doing what they believe is the right thing under their statutory mandates. but i think so far it's actually working the way you would wantworks that healthy tension -- want, with that healthy tension create spirit of collaboration. >> i would echo the thoughts about independence which are

very important, but the collaboration, i mean, i think it's what the american public expects of us. i think with nearly 10% unemployment they even expect it more and this was the worst financial crisis where the regulatory system failed as well. it wasn't just the financial system. you asked where there's been disagreements. i'll say in the clearing area, one area that we're supposed to oversee, and it might be sort of selfish, we want to have clearing standards that are rigorous enough that the federal reserve and the bank regulators think they can with stand the test of time, but also that international regulators will find our clearing houses equivalent and they'll stamp them that the international regulators will allow the u.s. clearing houses. so there's also a selfish goal in a sense for american commerce. that these things have that. we did have a little bit of an arms race on transparaphernalia

sy. these four agencies -- transparency. these four agencies and maybe the treasury, how we can be voluntarily, not do more than the law on transparency. i think that was healthy. i do foresee some debates in the future on how the s.e.c. and cftc take on this swap thing because futures regulation and securities regulation is not always aligned. we're trying and mary and i have been committed to avoid regulatory ash tragedy, but does that mean it should be alined with securities regulation or futures regulation or somewhere in the middle? that's where we'll have healthy debate, no doubt. >> i have some colleagues that i've gone over my time so i hate to cut it off here and maybe there will be an opportunity for you to offer your thoughts. but, mr. chairman, again, thanks for your leadership on this. it's been a pleasure being on this committee with you. >> i have a big question to ask on this because, for years, in fact, it was the independence and the stovepipe approach that

created almost, not only enshrined independence which we want, but also seemed to enshrine conflict without the ability to sit together and come to some common answers where you could. so the very idea of this oversight council is designed to perpetuate the independence but also to take as chairman bernanke pointed out, the collaborative multiple sets of eyes, to look at a situation, that one set of eyes or one perspective might not see as clearly. so, this is obviously going to be an experiment. week of done nothing like it before and it's going to require a lot of hard work. so i was very pleased to hear that so many of the principles tend to stay involved in this process. because what can happen too often is it gets relvated and people down the line and then it begins to fracture and fall apart and doesn't succeed with that goal of getting the cooperation necessary. so it's a great question and goes to the heart of whether or not this is going to work.

you and i can't lem slate that. -- legislation that -- legislate that. >> thank you very much, mr. chairman. i want to add my thanks to you for your hard work here on this dodd-frank wall street reform and consumer protection act. and i want to thank the committee, too, for all the hard work. to ensure that the act makes a strong and clear commitment to the protection and education and empowerment of our investors and consumers. now that we have enacted this historic legislation, i'm committed to ensuring that the provisions will provide tangible assistance and protection to hardworking americans soundly implemented. i work to develop many of the

act's provisions, to increase financial literacy and promote informed financial decision making. and so i want to go to that ladder and work on one part of it. secretary walden, title 12 of the dodd-frank act will help unbanked and underbanked families by increasing access to bank and credit union accounts. it will also establish programs to develop install dollar loan alternatives to high cost and predatory financial products. these provisions are particularly important to me personally because i grew up in an unbanked family. what is being planned to

increase access to mainstream financial institutions and services? >> thank you, senator, and thank you for your leadership on this extremely important set of issues. we are very focused on implementing title 12 and to continuing our work on the unbanked. as you know, i think we are staffing up in this area at the treasury. we have been working to really survey the landscape. we've had some pilot projects, i think you know, focusing on the unbanked and providing opportunities to access working with private sector entities. there's been a lot of excellent work that's been going on in the states and among a pretty wide range of cities. so we are gearing up. we of course are looking forward to being funded in this area, which is important for us to really take advantage fully

of the important opportunities that title 12 presents. we're very excited to work on this set of issues, because we believe that it is critical to the engagement of a wide range of americans in our economy and allowing them to do the kinds of things that they need and want to do to meet their own aspirations. so, we are hard at work, we will continue to be hard at work and we very much look forward to continuing to work with you as we move forward. >> thank you. chairman bernanke, consumers that sent portions of their earnings to family members abroad can experience serious problems in these transactions. the dodd-frank act requires meaningful disclosures of a remittance transaction cost and

steabs an error resolution process to protect consumers. the act also instructs the federal reserve and treasury to3 the act also instructs the federal reserve and treasury to expand the use of a.c.h. automated clearing house system. for remittance transfers to foreign countries. my question to you, why is it important to provide these remittances protections and make greater use of the aalso i system? >> senator, this has been an area of interest for me personally and for the federal reserve for a long time. remittances are an important contact point between many unbanked, particularly immigrant family, and the financial system and it's often an entray into the normal mainstream financial s.htec13 a so we want to make that as safe

and inviting as possible. the federal reserve, as part of its payment systems responsibilities, has been involved for a long time in the transmission of remittances. for example, agreements we've done with mexico and other countries, and we will reontinue, of course, to look for ways to reduce the costs and crease efficiency of remittances via aalso i.h. as required by the bill. i'd like to sami a word in particular about disclosures and error corrections as you mentioned. because of language and other issues, people use remittances are particularly vulnerable to disclosure problems so it's very important that they understand what the services that they're receiving and what the terms of that sehasice are. so we are already undertaking, already hard at work implementing the disclosure

requirements of dodd-frank and one thing in particular that we are doing, which we have used a lot in our consumer protection efforts in the last few years, is using consumer testing. that is, we actually either directly or engage an outside organization to try different disclosures on real life reonsumers and see -- and then see how much, you know, how well they understanduts- how much they get the information, how accurately they understand what the disclosure is trying to provide and we found this to oue very successful in the past and i'm hopeful that the new bureau will adopt these consmentser testing practices, because we think they're very constructive. so we're doing that now and we are looking forward to developing proposed rules along the schedule that the act requires. >> thank you for what you're doing on that. chairman bare, i commend the --

bair, i commend the fdic fork working toimprove financial literacy and improve access to mainstream financial institutions. i know that these issues are important to yoe fouand i respe your per speblingtive on them. what must be done to ensure that the doddyfrank act's economic empowerment activities are implemented in a meaningful wami? >> well, i think there's a number of new important tools that are provided in title 12 and some build off of some of the programs we have amportea tha, especially in the small dollar loan area. ff

and we set up our own advisory committee, that was up with of the first things did i. we have a lot of good minds of the banking second quarter, the community sector, to try to help bring more people into mainstream financial services and products and services that are appropriate for them. and not ones that can end up costing a lot of money. so, i think these new tools will be very important and certainly the new consumer bureau will also put an added focus on this area and i'm happy to see that i think, you know, i'm hoping that one of the outcomes of this crisis with is we will get back to more traditional banking services and there's an article in the papers today about more banks are now offering small

dollar loans. seeing it as an economically viable alternative because it's clearer to understand than credit cards and it's kind of a one-shot deal and perhaps easier for folks to manage. so i think there may be actually some positive things coming out of this in terms of banks getting backs to basics and consumers understanding they need to have their eyes open and with the new bureau having better and consistent rules, i think these are will all be helpful things. >> thank you very much. chairman schapiro. i'm pleased that the dodd-frank act will significantly improve investor problems. the act establishes the office of investor advocate within the commission, it provides the commission with the authority to require more meaningful presale disclosures, the commission will also conduct the studies on investor

financial literacy and on our obligations of brokers, dealers and investment advisors. can you please update the committee on the commission's work to implement these provisions and explain how they kim prove investor protection? >> i'd be happy to. we've had many conversations over the years about the importance of investor literacy. we have really revitalized our office of individual investor education and advocacy. as just an example of that, for the first time we brought a large groom of high school teachers to the s.e.c. this summer to train them in how to, in part, edcation -- impart education about financial matters throughout their course work and also in specialized courses. and it's a program that was enormously successful and we will continue. we do have the investor literacy study you mentioned,

we're in the project planning stage right no. it will focus on the current levels of literacy in this country, how to increase, particularly, as you mentioned, transparency of fees and expenses, soin investors can understand -- so investors can understand what they're paying for the product that they're buying and can compare products in a simpler way because they'll understand the fees and expenses. we're also looking at what have been the most productive efforts so we can model our own investor literacy efforts on ones that have been successful. and we're looking at investing goals and behaviors as part of this study as well. we'll report to congress within the 24-month period. we're also in the process of standing up the office of the investor advocate which will report directly to me. and we'll have a role throughout the agency in ensuring that while we believe we always have investors in the forefront of everything we do particularly in the rule making process, this will be a focal point to help ensure that the retail investor voice is heard

as we engage in many of our dodd-frank and other rule makings going forward. >> thank you very much for your -- [inaudible] i want to wish you well and thank you for your work as chairman of this committee. >> thank you. let me just say thank you as well for your instistence over the years on financial literacy. i was speaking to the economic club of washington last evening and talked about the financial literacy and the importance of it beginning at the elementary school level. getting people familiar with just basic math techniques and balancing a checkbook and doing other things. no one has done more consistently over the years to advocate on that than senator acalifornia you of hawaii. we owe you a -- asenator acalifornia -- senator acacka of hawaii. we'll be leaving together in january and i thank you for your friendship and support on this committee. you've been a great member of

this committee and a great member of the senate. >> thank you, mr. chairman. all 12 years i've been privileged to serve in this body. we've served together on the banking committee. you have considered establishing an alumni group? maybe we can be charter members. and i'd like to thank all of our witnesses today for your contributions. it occurred to me, mr. chairman, that while those of us on this side of the dash may have been the architects of this legislation, these men and women will be the builders who will be responsible for taking abstract concepts and turning them to reality, that will really deliver for the american people. i want to thank you for your dedication to making that process successful. chairman against lar, i was really heartened to hear about the sort of tension about more transparency. very often tension leads to, you know, sort of the lowest common denominator kind of decision making but maybe we're having a race to best practices here. that would be a happy outcome indeed. so i congratulate you for that and the others, i guess, some

of the reports of some tension have been exaggerated and that's a good thing. reconciling independence and consensus building is not always easy but i'm confident that all of you can get that job done. let me start with you. i want to follow up on something that senator corker raised and that's with regard to the new consumer protection entity. as i understood your testimony, you're allowed to stand up this agency and do some practical things and gather information, sort of laying the predicate for rule making. but really can't get into the meat of rule making, absent a confirmed head of the entity. is that a fair summary of your interaction with senator corker? [inaudible] >> thank you, mr. chairman. i thank you for the opportunity to comment on this further. i think there are a range of rule making authorities that do hinge importantly on there being a director confirmed. there are authorities that the secretary has under section

1066 of the bill that will allow him to do the business of transferring and so forth. and to make sure that the rule making and the supervision and so forth, that the new consumer bureau receives from the various other federal agencies from whom they're receiving those authorities, can go forward. so that would include rule making. but in that context -- >> i think we can agree, and i understand all, that you don't want to get undulyy constrained here. that's a job for the lawyers to work through. but i think we would all agree that there appears to be some significant area of rule making that will be impacted if there's not a confirmed head of the agency is that a fair statement? >> i think it's important for the bureau to have its full authorities for there to be a -- >> my question to you, what would be the practical implications if no one was confirmed for a considerable period of time? >> i'm not sure, senator,

exactly what those will be. we're continuing to work those through. there's an awful lot of work to do between now and then. the statute contemplates that work. once the various agencies that are contributing authorities that will become the bureau's authorities as of next july 21, there will still be a lot of room for the agency, the new bureau, to do its work. as it goes forward, you know, the president is committed to putting forward a director for a nomination for a director for the senate to consider and hopefully to confirm and i think that, as i said earlier, i believe he will be doing that soon. so i think there's a lot of things that the bureau is seized with. >> the reason for my question was, the crisis uncovered some significant areas where enhanced consumer protection is

important, despite best efforts. so some of us have, you know, reasonable hopes for this bureau. and yet i don't have to tell all of you how difficult it is to get people confirmed under the current environment, even in fairly noncontroversial, fairly straightforward situations. it's what i refer to hostage taking for unrelated reasons. it's unfortunate but it is a fact of life. who knows what's going to happen in november? it's entirely possible that getting confirmations done in a new congress may be even more difficult. particularly for a bureau as significant and complex as this one. so it's a call for the president, but it seems to me that somewhere in the -- there, confirmability is something that's going to have to be weighed. sometimes you can just decide to have a fight, even if confirmability may be unlikely. >> i just wanted to assure you that there will be no lacuna in rule making for consumer

protection until such time as that authority is transferred. the federal reserve will aggressively pursue its responsibilities and we are in fact working very hard on the mortgage rules that are in dodd-frank, for example, and we will continue to do that at the same time as we work with the treasury and the new bureau to make sure there's a smooth transition at the appropriate time. >> that's an excellent point. i had breakfast this morning with dan and he was informing me about the process that's being made. i want to compliment you on that. i've been thinking beyond the horizon, post transfer, but how vital the new entity will be. thank you both for your responses with regard to that. secretary wolin, again, something for you. this involves, and perhaps you as well, this involves the role. only congress could come up with a situation like this where you have to give your recommendations about implementation of the rule and indeed it has to be put into effect in some form but then

there's a nine-month study period and these timelines are not con temp rainious. my question to you, since you have to opine in some ways about how to implement this rule and go forward with implementing some iteration of the rule, what if any will this study have in the decisions that are ultimately made because the study may be complete after some of the decisions have been required to have been made? >> there's a study which the council has to complete by january 21 and the federal reserve is very much engaged in working with the council in doing that. it will be considerable time after that before any of these rules are implemented. in particular, i think there's a nine-month lag time and then even once the rules are in place there's a two-year con for mans period which could be extended further if necessary. i don't think that there will be any situation where rules will be put in place and then rescinded because we decided

they weren't such a good idea. >> the reason for the study, as i recall, was that many of us understood that there was a potential risk here that probably had to be dealt with but we were concerned we were taking a ready-aim-fire approach to this. we wanted to make sure you analyzed what the risk was, what the most effective way to go about handling it was and then we would ultimately put into place whatever that mechanism might be. that was really the heart of my question. kind of make sure that whatever we end up doing, it's informed by your analysis instead of being put in place and then the analysis came out later and would have led to a different result. >> that's the intention. it will then provide recommendations to the regulators who have to make rules in this area. it will be esense -- sequenced in the proper way. >> this very brief question,

you don't have to jump in but it might go to awful you. those of us up here in the hill like to think when we're finalizing these things and the cake has been sufficiently baked that it really can't be changed a whole lot. we agree tone gauge in colloquies in the floor of the -- agree to engage in colloquies in the floor of the senate. i'm curious, will you grant some weight to congressional colloquies where we take the opportunity to say for the record what our intent was? or is that in the legal realm of quhat lawyers refer to as an advisory opinion? interesting, but not granted a a whole lot of weight. >> as a former senate staffer i take this very seriously. many statements, colloquies, yes, absolutely. this is something that's of key interest and we strongly support it and there are a number of other areas, so, yes,

i think they absolutely -- we need to make sure we're adhering to both the letter and the spirit of congress' intent and so i think the legislative history is quite important in that regard. >> thank you. i wouldn't expect any of to you come up here and say, no, we're not paying attention to what you have to say. but there were some colloquies with regard to volcker and -- ok. well, unfortunately, mental at that lep think isn't part of my tool kit. i do think it's important with regard to volcker and some of these others things, that you look at what was said, give it fair consideration, try to make the ultimate determinations about what congress intended and so forth. enough said. but there are some in this area that i would recommend to your consideration. my last question and, chairman, if i could go over by one minute or two, i might have another brief one. it's great to see you again, chairman. i congratulate you in the excellent work you've done.

indeed, we were some clairvoyant back in the day about what might have happened with regard to the crisis. i know you're in a position to do something about it going forward. it's good to see you and i'm grateful for your leadership. these are somewhat technical. what is your view on whether regulators have the authority to impose marginal requirements on end users? again i'm talking about the end users themselves, not the transactions. >> i thank you for that compliment. i don't think anybody was clairvoyant. but the dodd-frank act does say that to lower risk of the swap dealers and to lower risk of the financial stment as a whole, shah thank various regulators sitting here would have authority to set capital margin on these dealers. if they're banks, it's the bank regulators, not banks, we get involved as well with the s.e.c. and this is an area where congress has spoken very clearly. there's a letter, even chairman dodd and chairman lynn con

wrote a letter on this -- lincoln wrote a letter on this. we're all taking that together. as i understand the intent was that a certain group of end users, the nonfinancial end users, are out of clearing and then as chairman dodd put in his letter, would be considered to be out of this margin requirement. so we're taking all of that together and taking very seriously the intent that congress, that the financial system, about 0% of the swaps transactions are between financials and financials and it's only about this 9% or 10%. >> let me get to my next to last question which does involve end users. i've discussed the importance of -- to the extent we can, the harmization of global standards . i understand end users have taken their approach, you're

now going to look at what we're doing. i'd ask you, what kind of effort will they make to harm onize these things, what implications that will have on our competitiveness if the europes -- europeans have taken one approach and we've taken a more restrictive approach? >> after three days overseas, i'm very optimistic, they put forward their proposals two weeks ago. their clearing requirement on then user issue aligns very similarly. financial companies would have to use a clearing house, nonfinancials would have, you know, a choice. they don't have to use it, unless they made a certain clearing threshold, a certain size. we don't have that, congress has spoken clearly, if you're mitigating a commercial risk, you're out of the clearing house. but i think it's very aligned, depositories are very aligned. they say they're going to take up the trading mandate later.

>> good. i would encourage you to keep an eye on that. to the extent that they aren't harmonized, they could lead to consequences that would hurt us commercially. >> we're taking it to heart in our proposed rule. in our memos, it where congress has left us discretion and in many ways congress has decided, but if they've left this discretion, we want to harmonize with the international wrrks we think the europeans will end up on this and the other regulators. >> thank you. if i could just have one minute with chairman bernanke. we talk bfered about the bass ilprocess -- basil process. i'm delited to hear your -- delighted to hear your opinion that it's moving in a positive direction. i understand some of our european friends have some domestic challenges that they've got to address. we need to be realistic about that. so my question to you is, were you satisfied with the progress made with regard to quality of capital? those things that will be

counted and those things that perhaps will not. are we moving sufficiently or are they moving sufficiently that this will harmonize in a way that's good for the global financial system? i think we've made a lot of progress. there is now a much larger focus on common equity as the principle source of loss absorption. there's very restricted ability to use other types of assets, no more than 15% can be noncommon. in negotiating that we particularly limited some of the types of capital that europeans had used, minority interests, things of that sort, that we didn't feel were particularly good forms of capital. so we really had made substantial progress and i think it was a very important achievement and the fdic and the o.c.c. joined the federal reserve at the meeting in basel and we all worked together, i

think, to get a good international agreement. >> good. let me thank each of you again for your public service. it's been a privilege for me to work with you. and chairman dodd, with you as well. >> thanks. chairman bernanke, i didn't ask you the question. i presume i'll get the same answer. we moved when we did here with the legislation, was that helpful in terms on the derivatives section, for instance? >> i'm less informed about the derivatives than chairman genslar and schapiro but broadly speaking on capital and on many of the issues, there's great interest in what we've done around the world and we have moved first and we've set an important and high bar and i think it's been very well received internationally. >> let me ask you, i'm not going to submit a lot of questions because you have a lot of work to do.

the last thing i want you to do is answer a lot of questions here. but a couple of things come to mind. let me ask, general, if you, will i'll give you a chance to jump in because mike asked a question he got down as far as you and didn't give you a chance to respond. in doing so, title three of our bill transfers the safety and soundness functions, personnel property and funs of the o.t.s., primarily the o.c.c., but also the fdic and the fed, let me say that i have great respect and admiration for the people who worked at o.t.s. this is not an entitlement, deciding to close down that regulatory body. this is awkward and it's difficult and it's very posh to -- important to me that it be done well and that people be treated with a lot of respect and understanding. i just want to know how that's going. this is a difficult time for everybody in the country and to do something like this can be tremendously disruptive, obviously, to a family and their concerns. i know we try to accommodate in

the bill. how are we doing on that? and then respond to mike's question. >> i mean, we are working hard at it. i've had a number of meetings with acting director bomen, our management teams have met. in fact, they're meeting this afternoon in new york to kind of start talking about how we're going to integrate the supervisory staffs and functions together. tremendous effort being made to ensure that we find the right places and the right fit for people at o.t.s.. they clearly have skills and abilities that we need. we need the people to comand do the work -- come and do the work. there's going to be a 50% increase on the number of institutions we're called to supervise and we cannot do that without the talent and contribution of o.t.s. staff. so we're working very hard to encourage them to look to a career in the combined agency. it would be very bad to have

them go elsewhere. >> i'm going to ask you to keep the banking committee staff informed as to how that's going, the progress. >> and we have to report to congress at the end of the six months. >> i knew that. but even during this time. >> ok. >> do you want to respond to mike's? we cut you off. >> the only thing i would say is that there's always some tension in the interagency process. i think it essentially has less to do with people's interests and goals being aligned than with kind of differences in mission and approach and agencies and that sort of thing. but we're an independent agency within the treasury. we participate in a lot of interagency discussions. we do interagency rule making with the other agencies. congress has endorsed, even expanded the need for that kind of coordination. but there are policy differences. we work those out. it's a process that can

sometimes beer to the white house, but it will work -- tortuous but it will work. >> thank you for your comments about the mortgage issues and the fed is working on those. to underscore evan baye's sk question, i know the administration's working on this, i've raised the issue, that of a confirmable nominee and we have to get somebody in place. this is a controversial section of the bill. don't have any illusions. regardless of the outcome of the election in november, they're going to be try to get rid of this bureau and it's going to be a lot easier to get rid of it if it hasn't gotten started. it's at risk in my view. until we get someone in running the place and demonstrating what it can do and the kind of rules it's going to develop. there will be people out to get rid of it. let me ask, if i can, ask both sheila bare and chairman bernanke, -- sheila bair and

chairman bernanke, we have the problems with the mortgage servicing company called ally, regarding certain improper actions by its employees and foreclosing on people's homes. those stories are very troublesome. obviously i guess i congratulate j.p. morgan for making the decision they did. i didn't read the whole story. i wonder if you might comment on this situation. i know it's not exactly the subject matter here. >> we are still learning about it ourselves and the o.c.c. might have something to add on this as well, as the primarily regulator of these large institutions. i think it's troubling and it's just a further indication of how wrong we went with the mortgage original nation process and securitization

process, which was deeply tied to some of the break town in what you'd orlando expect in terms of documentation and protecting title. so it's troubling. so we will learn more about it. but i think it underscores it going forward. we need to be very careful. we want to bring the securitization market back. we want to bring it back in the right way. weigh want a g.s.e. exit strategy but we want to make sure the alternative promotes stability in the mortgage markets. so i think it just is another indication of too many things went wrong in the mortgage original nation process leading into this crisis. we also think, though, as you know, chairman dodd, week of been long-time proponents of trying to rework mortgages as an alternative to foreclosure wrrks it makes economic sense. it frequently does make sense. so i think we continue to push and advocate that and various

venues. but this is very unfortunate and we are still learning more and i would also defer to the fed. >> just to say that obviously when evidence emerges and has emerged in this case combf deficiencies in the process of reviewing and approving these individual cases, we immediately went and talked to people both at jpmorgan chase and the other servicers where we are dealing and instructed them to go back once again. i mean, we've been to them a number of times to make sure they were rarping -- ramping up processing to keep place in particular with the mortgage modifications that we were all hopeful would increase as they have done. but not obviously to anyone's satisfaction. but asked them to go back and look at those processes. again, there are state laws that require quite specific requirements for the review and approval of cases and they must

comply with those laws and have clearly had deficiencies in processing. we both want to see that they fix the processing problems but also to look to see whether there's specific harm that has been caused in individual cases. so we'll be looking both for the procedural improvements but also any evidence of harm to consumers. >> any comments on this? >> only that it's been a man yearly challenge to the banks -- man jeerial challenge to the banks -- manager he'll challenge to the banks to deal with these. we continue to press them through guidance and supervision, to ramp up and make sure they have people and they're responding quickly to borrowers and the like. and unfortunately that has not always happened. >> i know that it's regulated by the fdic. >> they actually -- it was in the holding company.

the institution did not -- was not involved in the mortgage activity. it was not in the bank. >> again, i think it's one of these areas that i'm sure the committee will want to be kept informed, even during that period, we're not in session here, to be -- as these stories are breaking. the staff and i would appreciate if you kept us posted as to how this matter is resolving itself. with that, again, i thank all of you. i'm very impressed with the amount of work that's being done. all the other issues you have to grapple with, all of you seem to be working very hard to fulfill the commitments of the legislation. that's a very good news. i'm very grateful to awful you being here this morning and sharing your testimony with each other and we look forward to working with you and we're going to have a couple of hearings in the lake duck session, when we come back after the sessions. i look forward to seeing some of you then. i thank you all for your service and your contribution to this effort. the committee will stand adjourned.

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>> democratic leaders, house speaker nancy pelosi, and senate majority leader harry reid are scheduled to be meeting with president obama at the white house right now. that meeting's scheduled to begin a few minutes ago at 12:45 eastern. in what's reportedly going to be a final strategy session on tax cuts and other issues before lawmakers leave washington to campaign in their districts. this afternoon, coming up shortly, senators john cornyn and bohn menendez discuss how republicans and democrats are strategizing to gain more seats in the midterm elections. both senators serve as campaign committee chairmen for their parties and will talk about the 37 open seats in the senate this fall. from the national press club, you can see that live at 1:00 p.m. eastern here on c-span. then more about the upcoming elections with house minority leader john boehner. he'll talk about his vision for congress and discuss recent legislation the house passed before leaving town yesterday. the house will not return to session until after the

elections in november. republican leader speaks at the american enterprise institute and that's later today at 2:00 eastern. and after that meeting with president obama, house speaker nancy pelosi holds a news conference this afternoon on the democratic agenda leading into november. she'll be joined by steny hoyer and other democrats at the capitol. you can watch that news conference live at 2:30 eastern on c-span 2. >> weekend on book tv, explore the reality behind science fiction, the vision of einstein, and the fundamental forces of the universe with theoretical physicist and author michio kaku. join our three-hour conversation with your calls, emails and tweets live on "in depth." sunday on c-span 2's book tv. >> washington has one of the

more difficult mores -- mothers of all time, she was a very crusty, dam nearing, very self-centered woman who would you think that the mother of the father of our country would have all sorts of quotes from her and taking pride or pleasure in her son. we really don't have any. >> sunday, the first two of programs with author ron chernow and his soon to be published biography of george washington. on c-span's "q&a." and now we're live at the press club waiting to hear from senators john cornyn and bob menendez and discussing how republicans and democrats will gain more seats in the upcoming elections. you're watching live coverage you're watching live coverage on c-span.