we know the toll it takes on investments in the future knowing when president clinton came into the office. he inherited a big debt and the economic bill we have passed. reducing the deficit. we had pay as you go as our guiding principle that was tossed over board the budget committee said the last time

here. a good deal of our focus was about this budget. it makes difficult decisions but does so again artfully, not cru crudely even coming out the same week the continuing resolution that shows the sharp contrast. creating jobs and meeting the nodes of the american people.

$1.1 trillion over the life of the budget we look forward. we are not reducing the deficit or strengthening the middle class we talked about reducing the deficit but caution not to go too quickly. they go with their wreckless policy. coming out of that the fiscal reform commission said when we go down this path of cutting the

spending, we have to be caution this year we can reverse this. part of what i'm adding to it. democrats are committed to reducing the deficit helping us win the future. is there a plan to put out details for what you want to see? putting forth the budget.

the president put out the budget. the republicans are saying if you lost the job, so be it. we will be addressing all aspects of reducing the deficit whatever we do for social security is not about reducing the deficit. it is about strengthening social security. these are two separate, different questions as with go forward, subjecting every lard for the harshest skrutity. speaker o'neil an president

reagan for decades to come. they were serious about doing that. they weren't there to eliminate social security. i want to put to rest the question. we all know the number of about 2400 pages i'm sure most of you read most of it. the better care through cost

saveings the healthcare bill is the direct response. the rest of the budget and focus. i hope we start getting used to having vouchers. helping to get us through what the president used as a comboel we want the debt to be 3.2% of the domestic product.

thank you. now the majority. they are realizing the government is difficult. the other majority snoeb taken up on that one. they are trying to balance or address the deficit on 15%. they are the governing folks. they have been running everything. they should come up with the proposals vm that bill provided

the republican option now the most resent final report on this bill to save jobs for our country people from all over the world and our economy have been complimentary. >> we would have been even deeper with the bush recession. the more time goes by and have

the fuller appreciation the clean energy jobs for the future. very, very worth it. lowering the cost, improving the quality expanding. the list goes on. i'm very proud that we began. very proud of what we had done.

we are very proud of our foyer fighters with us today. if you are not safe in your xhupity, really, what else matters. you have to be able to raise your family and honor all of the possibilities of our xoirnt. thank you all for making that possible.

>> in a few moments, the senate banking committee. in about 2.5 hours, house debate on extending the patriot act. testifying on the budget request for the next fiscal year. washington journal is live at 7 p.m. eastern. on c-span 3, a conference on

medicare spending and policy. we'll hear from the former republican chairman on the house ways and meevens committee. at 9:15 eastern. on c-span 2, a look at the war and political strategies for piece, a former minister is one of the speakers. live coverage starts at 10 a.m. eastern. >> c-span's book, abe ham lincoln, the unique perspective from 56 scholars, journalists and writers. while supplies lavt, the hard cover for the special price of $5 plus shipping and handling.

click on the book and be sure to use the code "lincoln" at check out. >> donald rumsfeld was both the youngest and oldest person to serve as u.s. secretary. >> testifying before the senate banking committee with the heads of the security and exchange commission and federal deposit insurance corporation about the

new law. this is a little less than 2.5 hours. [inaudible conversations] [inaudibleonversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

[inaudible conversions] >> i want to call to order the first committee meeting of the 112th congress. the last several years have been a historic time for this committee. i have big shoes to fill following in the footsteps of my recent predecessors. i'm thankful and humbled by this opportunity, and i look forward to working with all of my colleagues on the committee to make this a productive session of congress. we have five new members joining our committee, and i would like to welcome senators haggen,

muran, and i look forward to working with all of you. there is an important work ahead of us. i'm committed to an agenda that will bolster our economic recovery, make our financial regulations world class, and ensure that consumers and investors have the protections they deserve. to final parts of this agenda with with the implementation of dodd-frank and beginning the process of housing financial reform. we compiled a further list of issues the committee may consider which will be posted on the committee's websiteoday. this morning, we hold the first in ray series of -- a series of the dodd-frank implementation. there's no shortage of topics for us to discuss today.

in the coming weeks and months, we will take a closer look at many issues important to myself and the members of this committee. the committee's oversight will think to ensure that the letter in this spirit of the new l are being implemend by the regulatory agencies, public comment and proposed rules are being appropriately solicited and concerted and the new law is enforced. legitimate concerns are recognized and addressed and that they have the resources they need. the regulators have been hard at work, and i look forward to learning more about the progress implementing the dodd-frank act. i want to be clear that dodd-frank act has part significant and much needed

reform to our financial system. it improves consumer-investor protection, fills regulatory gaps by bringing oversight to the derivatives market, and helps provide -- avoid another financial crisis. this em policemennation -- implementation will create certainty for the business community, consumers, and investors. in turn, that certainty will bring market participants back to the table and restore consumer and investor confidence. a task of this complexity was such a global impact must be done with great care to avoid unintended consequences that could impair economic growthr send good paying jobs overseas.

our oversight agenda will make sure we're on the right track. i commend the hard work of all of the regulators. i look forward to working closely with all of you to be sure we get this right, and i thank you for being here today in an incredibly busy week with the release of the budget. because of the busy schedules of our regulators, we will limit opening statements today to myself and ranking members shelby and i ask the other members of the committee to submit their opening statements for the record. with that, i turn to senator shelby. >> thank you, mr. chairman. last year, congress passed the dodd-frank financial reform act as the chairman has mentioned. the president and jority proclaimed the act a his tore

click accomplishment. at the signing ceremony, the president declared the act would provide certainty to our markets and lifted our economy -- lift our economy to a more prosperous future. eight months later, the effects are no setting in. unemployment rate still stands at record levels. while the political forces that drove the passing of this, the hugecost of the act are now becoming clier. thedodd-frank partyi believe, is over. unfortunately, our economy is now preparing to pay the tab. our financial regulators have begun to implement dodd-frank and the decisions they make over the ne few months will impact every american. regulators will determine if americans can buy a home or a car, if they can get loans to start businesses. they will also determine what financial products are available and to whom they may be sold.

in dodd-frank, the majority party delegate the an unprecedented amount of authority and discretion to the bureaucracy. our regulators now have more than 200 rule makingings to complete by july. the work to implement the rules are staggering. for lobbyists, lawrs, dodd-frank is a gold mine. for the rest of us, however, it means more red tape, more government, fewer choices, and hi fees. today, i hope to learn more about how our regulators plan to mansion this un-- manage this workload. concerns are raised about the fairness of the rule making ocess. in the rush to comply with the unrealistic deadline set in dodd-frank, the regulators had to focus on speed rather than deliberation. while our regulators will do their best to comply with the

deadlines, congress, i believe, should seriously examine whether the speed of the process is underminding its integrity. there are early indications that it is. one of the hallmarks of our regulatory process is openness. yet, with so many rule makings considered simultaneously, public participation could be stifled. it may be practically impossible for parties to provide though comments on so many rules and for regulators to fully consider every comment in such a short time frame. they will receive an enormous quality of comments, what matters is the quality of the interaction of t commentators and regulators. i believe we should consider whether the final rules would be better if our regulators had more time to hear from the public. another consequence of the hasty rule making process is that our regulators may not be proposerly

conduct -- proposerly conducting propose rule. everything should include an understanding of its cost. unfortunately, there are serious questions regarding the willingness and the ability of our regulators to conduct such analysis. at the fcc, the position of chief economist has been vacant for 10 months. at the cftc, the commission of the chief economist was vacant for 11 months before finally being filled this past december. i believe the failure to promptly fill these key positions suggest that economic analysis is not a high priority for our regulators. in the light of the fact that the cost imposed by these rules may cause some americans to lose their jobs, our regulatory agency should make themselves aware of the economic impact of proposed rules before adopting them. while improvements in the rule making process can smooth

implementation of dodd-frank, i'm under no illusions it can offer long term consequences. dodd-frank is going to be very, very expensive. dodd-frank may not raise taxes directly, but consumers will soon feel its cost when they pay high regulatory fees, higher compliance costs, and higher prices for financial services. just this past week, the president's budget calls for the cftc to impose $117 million in new taxes in the form of user fees to pay for the cost of dodd-frank. over the coming months, the hidden costs will grow as our regulators impose new rules and regulations. i hope the committee will focus at least as much attention on the cost as it does the rules over the next f months. thank you, mr. chairman. >> the committee will now turn

to executive session. thcommittee has been in executive session to consider the committee's work budget, procedure, and subcommittee structure and jurisdiction. every member should have received an should have in front of them a copy of the rules of procedure, t resolution of the budget, and the document on the subcommittee membership and structure which were thought of discussions between ourselves over the past three weeks and have now been agreed upon by me and ranking member shelby. budget and committee rules with pretty straightforward, and it will not take a lot of time here on the subcommitteesxcept to commend my colleagues for their interest and willingns to take on subcommittee assignments. i inte in this congress to encourage robust subcommittee

participation. i think it enhances the work of the committ if our subcommittees actually conduct hearings and proceed along those lines. i have always believed in the practice of providing the subcommittee chairs with the necessary resources to be able to do so. it is not just a rhetorical comment like one accompanied by getting work down. i'm very grateful to the subcommittee chairs and the last congress which did a very good job on a range of issues, and to those who have agreed to chair the subcommittees in this congress. holding hearings and providing counsel to the full committee how we should pceed. there's one clutch in the

document before you which is that senators were mistakenly place on four subcommittees and the committee rules only allow membership on three subcommittees. senator has gracefully agreed that this morning to withdraw from the economic subcommittee and senator brom on subcommittees will replace him. isk consent to make these modifications to the membership list before you. without objection, it is so modified. with that, senator shelby, do you have anything to add under organizational manners? >> no, sir. >> is there any further

discussion? senator merkley, i understand you wanted to discuss a proposal. >> thank you, mr. chairman. i'm going to be very brief because i did agree to withdraw the amendments at the request of our chairman, but i wanted to mention that the thought behind them, i think, is one we should continue to wrestle with which is essentially how do we make the u.s. senate less segregated? most state legislatures provide seating by demrat, republican, democrat, republican or have other mechanisms to decrease the isolation of the parties. the u.s. senators enormsly is split, and split in ways that are aggravated of the developments of the last two decades, specifically, senators used to live here with their milies, they were here for sweekds, had dinner together, those cnections are largely gone, and the fact, the ability to have connections in settings

like this is caused by the size of the room. there's ideas that various senators mentioned for addressing this. one is to have every other seating, and a second is to have our three central figures, our chairman and ranking of both parties occupy permanent seats, but have others grab their name tag on the way in. this is not the time to have a long institution, and i agreed to withdraw the amendments, but i did want to mention it. we have to keep wrestling on making our senate and nation less polarized and increase connection and dialogue between the parties. with that, i wra the two amendments, and thank you very much, mr. chairman. >> thank you. this committee has more often than not operated in a bipartisan manner,nd the hope thats is not necessary to sit side by side in order to work side by side. that said, i appreciate your thoughtfulness on this matter, and i'm confident that both

sides of the aisle will continue to work together. since there are no other amendments to be offered, i move the adoption and block of the committee budget resolution, the subcommittee structure, and membership document, and the committee rules of procedure by a proposed vote. all those in favor? all those opposed? the aye's have it, and the measures are adopted and blocked, and the budget resolution is reported. i have unanimous consent that the staff be allowed to make any changes that the rule will be waived. hearing no objections, it is so ordered. i thank my colleagues for their coeration, and now we can return to the hearing phase of our meing to hear from

regulators on their implementation thus far on the dodd-frank wall street reform legislation. before i begin the introductions of our witnesses today i want to remind the colleagues that the record will be open for the next seven days for any materials you'd like to submit. the hon national ben s. beer -- bernanke, federal reserveystem is serving second term as chairman which began on february 1 of last year before becoming chairman, he was chairman of the

president's counsel of economic for advisers from 2005 to 2006. also, he served the federal reserve system in a variety of roles in addition to serving as professor of economics at princeton university. sheila bir chair of the deposit insurance corporation, before that, she was in the policy of the management at the university of massachusetts. she was al the substantiate secretary for financial institutions at the u.s. department of the treasury from 2001 to 2002. the hon national mary schapiro

is chair of securities and exchange committee. she w appoind by president obama in january of 2009. previously, she was ceo of the financial industry regulatory authority. chairman schapiro served as commissioner of the fcc from 1988 to 1994 and chairman of the teacher's credit commission from 94 to 96. the honorable gary gensler is chair commodity futures and trading coission which oversees the options markets in the u.s.. chairman gensler previously rved in the treasury departmentnder secretary of domestic, finance, and assistance secretary of financial markets. in addition, he served as tenure

adviser to the senate ranking committee. mr. john walsh is act comptroller of the currency. mr. chairman walsh assumed the position last august and previously served as chief of staff in public affairs. he has been with the occ since 2005 and prior to that was the executive director of the group 30. mr. walsh also serves with the senate banking committee from 86-92. i thank you for being here today. i regret that i had my surgery on my voicebox recently, but i

hope it will clear up. chairman bernanke, you may begin your testimo. >> thank you. members of the committee, thank you for the opportunity to testify about the federal reserves implementation of the dodd-frank act. it addresses critical gaps in the framework, many revealed by the recent financial crisis. the federal reserve is committed 20 working with the other regulatory agencies to implement the act effectively. we are cooperating with the international counterparts to further strengthen regulation to ensure a level playing field across country, and to enhance supervisory cooperation, and we have enhanced the supervisory function at the federal reserve to better meet the objectives of the meet. the act gives the federal reserve important responsibilities to make rules to implement the law and apply

the new rules. in particular, the act requires the federal reserve to complete more than 50 rule makes and set formal guidelines as welas a number of studies and reports. we've been assigned formal responsibilities to collaborate with othe committees on a span number of rules and studies. so that we meet the obligations on time, we draw on expertise and resources across the system in banking supervision, economic research, financial markets, conser protection, and analysis. in all more than 300 members of the federal reserve staff are working on dodd-frank implementation projects. we created a senior staff commission to coordinate the efforts and created a tracking tool to facilitate management and oversight of the implementations. we made considerable process in our responsibilities. we have provided oversight to the counsel and assisting the

counsel in designing its risk monitoring and evaluation process and in developing its proceed childrens for identifying systemically important nonbank firms and financial market utilities. we also are helping the new aves of financial research develop data reporting standards to support the counsel's systemic risk monitoring and evaluation duties. we contributed significantly to the counsel's recent studies, one on the rules for trading and private fund activities, and the second one on the exponential limit. we are now developing for public comment the necessary rules to implement the important restrictions and limits. last week, we adopted a final rule to ensure activities prohillary clintoned by the rule are investedr term that the in the time period required by the act. we have been moving forward rapidly in other areas. we issued a study on the potential effect of th act's

credit risk retention requirements on securitization market as well as an advanced notice on credit ratings in the regulations of federal banking agency. in addition, in december,ed board and other agencies requested comment on a proposed rule to implement the rules required by the cullens amendment. in december, we requested comment on proposed rules r debit card interchange fees and inhibit the act on exclusivity arrangements and routeing restrictions. the board together with the fcc, ots provided the congress a comprehensive report on the agency's progress and plans lang to the transfer of the supervisory authority of the ots forthrifts and thrift holding companies. the issue and we and the banks established offices to build on our existing opportunity programs to promote diversity in

management employment and business activities. we continue to work closely with other agencies to develop joint rules to implement the credit risk retention requirements for securitizations, resolution plans or living wills for large bank holding companies and counsel designated nonbank firms, and capital requirements for swap dealers and swap participants. we e consulting with the fcc on a variety of rules to enhance the efficiency of th markets. including rules that would require most standardized derivatives to be traded and cleared require the registration and prudential regulation of swap participants and improve the transparency of derivatives. we are coordinating with the ftc on the agency's respective rule makings on standard for utilities and working with market regulators in central banks and other countries to update the international standards for these utilities.

the transfer of the federal reserve coumer protection responsibilities specified in the act to the new bureau consumer protection is well underway. a team at the board headed by governorduke is working closely with the staff and at the treasury to facilitate the transition. we provided technical assistance as well as staff members to assist it in setting up its functions. we have finalize the funding agreements and provided funding. moreover, we made substantial progress towards a framework for transferring sff members to the cfpb and integrating employees into the benefit programs. one of the federal reserves most important dodd-frank implementation projects is to develop more strict standards for all large banking organizations and for nonbank firms designated by the counsel. beside capital liquidity, these

standards include stress tests, new counterparty credit limits and risk management requements. we are working to produce a well-integrated set of rules to significantly strengthen the framework for large complex financial firms and the financial system. complementing these issues, the federal reserve has en working for some time with other regulatory agencies and central banks around the world to design and implement a stronger set of prudential requirements for acting banking firms. these effortsesulted in the adoption in the summer of 2009 of more strict capital standards for trading activities and securitization exposures. of course, it also includes the agreements reached in the past couple months on the new framework for globally active banks. this should make the financial system stable and reduce the likelihood of financial crisis by requiring these banks to hold more and better quality capital

and more robust liquidity buffers. . . to oversee a broader range of financial firms and business models. it also requires supervisors to

chken macroprovincial approach that is the federal reserve and other financial regulatory agencies are expected to supervise financial institutions and critical the infrastructure's with an eye towards multi the safety and soundness of each individual firm but als taking into account risks to the overall financial stability we believe a successful macroprovincial approach to the provision requires both the multidisciplinary perspective. our experiee in 2009 with the supervisor decapolis as the program proply known as the bank stress test demonstrated the feasibility and benefits of employing such a perspective. building on the experience and other lessons learned from the recent financial crisis we have reoriented our supervision of the largest most complex banking firms to include greater use of horizontal or cost firm evaluations on the practices and portfolios of the firms. improved quality that surveillance mechanisms and better use of the broad range of skills of the federal reserve staff. we have created a new office of

financial stability within the federal research which will monitor financial developments across a range of markets and firms and coordinate with the council on the other agencies to strengthen oversight. the federal reserve is committed to its longstanding practice of insuring all of its rulemakings are conducted in a fair, open and transparent manner. cordingly we are disclosing our public website of all communications with members of e public including banks, trade asociations, consumer groups and aademics regarding matters subject to a proposed future rulemakings under the act. we also implemented measures within the act to enhance the fedel reserve transparency. in december we released detailed information regding individual transactions conducted between december 1st, 2007 and july 20, 2010 across a wide range of the federal reserve liquidity programs and we are developing the necessary processing is to disclose the information concerning the transactions

conducted after july 20, 2010 on the delayed basis as provided in the act hope to conclude the dodd-frank act is a step forward for the financial regulation in the united states. the federal reserve will work with overfill regulators, the congress and the administration to ensure the law is implemented expeditiously and in a mannr that best protect the stabily of our financial system and our economy. thank you. >> thank you, chairman bernanke. ms. bear, members of the committee,hink for the opportunity to testify today on the fdic's progresin implementing the dodd-frank act. first a quick to congratulate senator johnson on becoming chairman and it's an honor to be called to testify for the hearing. we appreciate your efforts in the past on issues like deposit insurance reform and we look forward to your leadership as we address future callenges in the financial industry. the recent financial crisis has great shortcomings in the

private sector risk-management and framework for the financial regulation. in the crisis hit, the policy makers were faced with a choice of propping up large failing institutions or risking bankruptcy as we saw in the lehman brothers failure. landmark dodd-frank act enacted last year created a regulatory and resolution regime to protect the american people from the sere economic consequences of financial instability to get it gives the regulators the tools to curb excessive risk-taking, enhanced supervision and facilitate the liquidation of large banks and non-bank financial companies in the event of a ailure. the act requires or authorizes the fdic to implement some of 44 regulations including 18 independent and 26 joint rulemakings which we are doing as expeditiously and has transparently as possible. many of the fdic rulemakings stem from the mandate to end to big to fail. first implementing the new orderly resolution of doherty we are making clear there will be no more bailouts of the large

financl institutions. our goal is the market expectations and financial restitution credit ratings should over time fully reflect this reality. consistent with the dodd-frank mandate our recent rule requires creditors and shehders, not taxpayers to bear the losses of the failure and makes clear that the fdic resolution powers would not be used to bail out another institution to bid to make the most effective use of the new resolution authorities, it is essential that we have access to the information we need to monir the entities and conduct advanced planning to wind them down without disruption to the broader system. to this end, the fdic and federal reserve are working to establish requirements for the firms to maintain a credible actionable resolution plans that would facilitate the orderly resolution. if the entities are unable to demonstrate they are resolvable, we should be repaired to require stctural changes so they can be run down and they can't make the structural changes we should

require the faster. the fdic is working closer with of the counterparts to develop the criteria for designating systemically important resolutions the will be subject to enhanced supervision andhe need to maintain the lans. the fdic board has also implemented the authority under dodd-frank to strengthen and reform the deposit insurance fund. the act will enable us to make a positive balance during the crisis. while also maintaining steady and predictable assessment rates over time. we've expanded the assessment base and used the deposit insurance assessments and removed reliance and credit ratings while making a large bank assessments more sensitive to risk. also under the amendment, the capitol requirements for bank holding companies and nonbanks will be made as strong as those applied to the community banks. the federal banking agencies are in the early stages to implement this provision and taking steps to implement the proposals for strengthening the capitol liquidity standards as the german bernanke mentioned. the dodd-frank act addresses the

misaligned incentives and securitization by requiring the agencies to develop risk retention standards for the loan securitizations ed define the standards for the qualified in residential mortgages the would not be subject to the risk retention. as of interagency process moves rward we believe the standards must conclude incentives to appropriately serve as securitized loans. research and recent exerience shows the importance of service and to market performance and risk but most securitizations currently don't provide the proper resources or incentives for services to effectively engage in lost litigation. as the implementation moves forward, the indust should understand dodd-frank torian no way intended to impede he ability of small and mid-sized institutions to compete in the marketplace. instead, they should do much to restore the ompetive balance by suspecting important institutions to great market discipline and regulatory oversight. history reminds us financial markets cannot function in an efficient and stable manner without strong clear regulator

guidelines. many americans have lost their jobs, their homes or both. even as some any of our largest nancial the institutions receive government assistance that enable them to survive and recover. we have a clear obligation to the members of the public who suffered the greatest losses as a result of the crisis to prevent such an episode from ever occurring. thank you very much. >> thank you, chairman bear. ms. shapiro. >> chairman johnson, ranki member shall be and members of the committee, thank you for the opportunity to testify today on behalf of the securities exchange commission regarding implementation of the dodd-frank wall st reform and consumer protection act. the act is intended to fill a number of significant regulatory gaps, bring greater public transparency and market accountability to the financial system and give the sec important tools with which to better protect investors. it also assigns the sec new authority for over-the-counter derivatives, hedge funds and credit rating agencies among

others. to respond, we brought together experts from across the agency creating cross disciplinary teams to draft rules and conduct the required studies. we put in place measures to ensure maximum input from the public and a highly transparent process and we continue to consult frequently with our fellow regulators, domestically and internationally. we have made significant progress today. the commission has issued 25 proposed rules releases, seven final rules releases and to interim rules. we have reviewed thousands of public comments, completed five studies and hope to do a number of public round tables jointly with the cftc. while my written testimony contains a detailed discussion i would like to highlight a few areas of particular interest. the key portion of the act seeks to reduce the source of the financial instability by improving the transparency in the derivatives market and facilitating the centralized clearing swap. the fcc has proposed rules regarding the swaps which together provide a clear more

stable and transparent to give this market. these include proposals that to mention just a few would lay out the reporting requirements for the mark participants and obligations with the data repositories, seek to mitigate the potential conflict of the clearing agencies and tablished the duties and the core principles of execution facilities. we also work on the reserve and the financial stability oversight council to develop the framework for supervising market utilities that are designated as systemically important. inddition to the erivatives, the dodd-frank act provides the agency with authority over hedge funds and private equity funds with assets under management in the u.s. of over $150 million. here we have proposed rules that would facilitate the registration of the private funded advisers and together with the cftc we have oposed rules to require the advisers to hedge funds and other private funds to report information for use by the fsoc.

the fcc is also acting to give more information about asset backed securities, and with a focus of the legislation. in this every we adopted rules requiring a bs issuers to disclose the history of the asset repurchase requests received and repurchases made and we have also adopted rules requiring to review the assets underlining the aps to disclose the nature of the reviews and provide a reasonable assurances with a perspective to the disclosures are accurate. the dodd-frank also includes prisions related to the executive compensation and further these prisions last month the cmission adopted rules requing the companies to allow shareholders to cast an advisory say on page vote at ast once every three years and requiring a separate advisory vote on the frequency of the say on page zero of at least every six years. additionally, the legislation substantially expand as the agency authority to compensate whistle-blowers.

in november we propose the rule that they not a procedure for the would-be whistle-blowers to provide useful information to the agency. the rule because it clear the whistle-blowers' play a critical role in protecting investors. at the same time, it is designed to complement, not circumvent existing compliance regimes the companies operate. they also released to studies examine ways and irving investment advisor and broker-dealer framework. first dhaka published the stuff for the potential purchase for congress to consider to increase examinations of an investment adviser and second, we issued a staff study looking at the different standards of conduct required of investment advisers anbroker-dealers. most important, that study recommended that the commission implement a uniform fiduciary standas of conduct for the broker dealers and investment advisers when they are pviding personalized investment advice about the securities the

retail investors. in short, the commission has moved steadily and responsibly to implement the dodd-frank act as we continue to make progress we look forward to working closely with congress, our fellow regulators, the financial community and investors to craft rules that will strengthen the financial markets. thank you for inviting me and i look forward to answering your questions. >> thank you, chairman shapiro. >> members of this committee and congratulations on assuming the chair congratulations t the fight in the rest of the committee as well. i guess i'm a little partial haing the stature of this committee. think you for inviting me today to testify on behalf of the commodity futures trading commission, to think like commissioners and the staff for such hard work atthe cftc in fulfilling their such

permission. i'm also pleased to specy alongside the fellow regulators you today. in 2008 the financial system failed the american public. but there did a tour system as well field of the american public. the effect of that crisis has reverberated throughout america and the global economy and the u.s. hundreds of billions of dollars of taxpayers' money were used to bail out the financial system was in the ranks of failure, and millions of jobs have been lot and yet to fully come back. the cftc is working closely with the sec, federal reserve from fdic and office of the comptroller of the currency treasury and other regulators to implement the dodd-frank act, and we are coordinating and consulting closely with international regulators to harmonize oversight of the swaps market and ensure that there is a level field. we have received thousands of comments from the public and had

hundreds of meetings which we all post on the web site. for the vast majority of the proposed rulemakings, we have solicited public comment for a period 60 days. one area where the cftc is seeking input from the public relates to the timing and implementation of the various requirements under the rules. public comments will help inform the commission as to what requirements can be met sooner and which can be phased and implemented later. we re also under theact to propose rules along with the other regulators here with regard to margin requirements and the congress recognized there are diferent levels of risks posted by financial entities and those involving non-financial entities. this was the so-called end user exception from clearing. consistent with this, the proposed rules on the margin requirements from the cftc we believe should focus only on the transactions between the financial entities rather than those transactions that involve

nonfinancial and users consistent with how the congress did the clearing a requirement to be opposed the bill for t cftc is also supported the work of the financial stability oversight council for providing both data and expertise relating to a variety of systemic risks. we also have had the opportunity to coordinate with treasury and the council and e office of the financial research on the studies and proposals. the statutory mandate cftc does require additional resources. the u.s. futures market which we currently oversee invests about $40 trillion in size. the u.s. swaps market that will jointly oversee with the sec is about $300 trillion. or roughly seven times the size. we do not need seven times the people but we need more people and technology. on monday the president submitted a fiscal year budget of 308 million for the commission. this is essential for fulfilling

the mission. in 1992 we had 634 staff at the cftc. we are currently between 670 to 680. we actually shrink about 23% in the prior decade, and with this committee in congress's help we grow back to where we were in the 90's, but only last year did we get back to where we were in the 90's. furthermore, the cftc funding, if it were returned to the fiscal year 2008 levels, the agency would not be able to fulfil the statutory mission. every program would be affected. we would be unable to pursue fraud and ponzi schemes, market manipulations the did take senator shelby time to fill the office of the chief economist we wouldn't even be able to fill anjobs. we would have to go the other way and hae to unfortunately let people go. i don't think that is what the american people need us to do at this time after the crisis of 2008. the cftc fundamentally is a good investment and to promote transparency, open and

competitive arkets so end users and investors can get the benefit of the market'and the transparency in the market and the competition in those markets. there's also a compliment to ensure against fraud manipulation and other abuses. thank you. and i would be happy to answer any questions. >> thank you, chairman and mr. walsh. >> thank you, chairman johnson, senator shelby and members of the committee. i appreciate the opportunity to discard the activities of the occ has undertakento implement the dodd-frank act. let me begin as others have done by saying what a pleasure it is to appear before the chairman for the first time and by expressing our hope for a continuing productive relationship with my old kennedy including the five new members pure i am pleased to report much has been accomplished during the past six months on implementation of the dodd-fr act. progress in a number of areas is

discussed in my written statement. the single largest task is integration of the employees and functions of ocs and to the supervisory mission and we are on track to complete all transfers by the target date of july 21st. we firmly believe the talent and experience of the ocs staff woulbe essentials for the effective supervision of federal savings associations and forward and we are fostering an environment will mximize the career opportunities while ensuring they enjoy the ull protections afforded the employees by the dodd-frank act. we are also engaged in extensive outreach of the thrift industry, addressing concerns and clarifying expectations. we anticipate an orderly transfer of authority but will ensure the combined agencies can continue to provide effective supervision of both national banks and federal savings associations. in the area of the rule writing we are making progress on the many project supplied to us, but a few present particular shrub lunches.

an issue in recent testimony last september is the prohibition on the use of credit ratings. we recognize the misuse of credit ratings especially the structured finance contributed importantly to the financial crisis. but this was not true of the corporate and municipal ratings and after significant study and comment we have found no practical alternative for such readings that could be used across the banking sector. we have heard concerns from the regional and community banks that attempting to replace ratings with internal assessments of creditworthiness would be prohibitively costly and complex for them. although we certainly do not advocate a return to the total reliance on credit ratings there used within the defined limits as essential for implementation of capital rules including t ball so free capital from work. and we urge congress to modify this prohibition. a more geral concern is the need to coordinate implementation of dodd-frank requirements for capital and liquidity with basil iii. while they share many common objectives, it is essential to

implement reforms and a coordinated and mutually reinforcing manner that enhances the safety and soundness without damaging the u.s. competitiveness or restricting access to credit. my testimony describes the efforts to enhance the capitol and liqdity standards of u.s. financial companies with this coordination challenge in mind. finally, i would like to update the committee on steps the occ has taken in response to the foreclosure crisis since last testified on this issue. e federal banking agencies ve concluded examinations of foreclosure processing of the 14 largest federally regulated mortgage servicers, the examinations which we undertook in the late 2010 with the federal reserve, the fdic and the doherty yes found critical deficiencies and shortcomings that resulted in violations of state and local foreclosure regulations or rules. despite these deiciencies, we found the wones subject to foreclosure were in fact seriously delinquent and the servicers had documentation and legal standing to the

foreclosure. in addition, case reviews show the services were in contact with troubled borrowers and had considered lost mitigation alternatives including loan modifications. that said, the work identified a small number of foreclosure sales that should not have proceeded because of the intervening the condition. we are now finalizing the media requirements and sanctions appropriate to remedy comprehensively the problems identified. our actions will address to identify deficiencies and will hold services to standards that require effective and productive risk-management and appropriate remedies for customers who have been financially harmed. we are also discussing the supervisory actions with other federal agencies and state attorneys general with the view towards resolving comprehensively and finally, the full range of legal claims arising from the mortgage crisis. equally important, we are growing on lessons from these examinations to develop the mortgage servicing standards for the entire industry.

the occ developed a framework of standards that we share with other agencies and we are now participating in an interagency process with established nationwiderequirements thar comprehensive and apply to all servicers, provided the same safeguards for all consumers and are directly enforceable by the agency. while we are still in a relatively early stage, we share the common objective to achieve significant reform in the mortgage servici and practices. thank you for the gipper committee to testify. i be happy to answer door questions. >> thank you. thank you for the testimony. all i will remind my colleagues that we will keep the record open for statements, questions and anyother material and would like to submit. and as we begin questioning other witnesses, i will put five minutes on the block for each member's questions. chairman shapiro and chairman

dan -- gensler, with congress this week we feel yet to appropriate the funds authized by dodd-frank, please describe how you are addressing the funding constraints in your perspective agencies as you continue to implement the dodd-frank act. >> i'm happy to go first with that, mr. chairman. for the purposes of conducting the studies and getting the rules required under dodd-frank we are using buckles agency teams of employees who are on board and have been longtime employees many instances and we feel the pressure of the budget continuing resolution with respect to that. in order to operationalize any of the rules we e writing we will require additional resources that are laid out in the president's budget request because we don't have the capacity now to take on the

examination of hedge funds for example which is under the legislation and the new entities that are partof the overhe-counter flop markt. with respect to the current core functions we are feeling the pressure of operating a continuing resolution and we're making difficult choices restricting the hiring across the agency and seectively hiring very special positions. we've cut travel and to me most importantly we have delayed very significant technology programs that would help bring the sec's technology of into at least the ntury if not this year, and that is having an impact on our abily i believe to achieve the core mission as effectively as we could come and quite frankly at the lel with which the american people have the right to expect. >> mr. gensler, please

elaborate. >> our agency got back to the staffing levels of the 1990's having been shrunken unfortunately i did in the prior decade. that staff is not enough o take on the implementation. we can write the rules and have the meetings of a quarter of t stuff right now is working one way or another on the rules writing. under the continuing resolution, we have had to make hard choices. the technology budget only 31 million last year. this year under the continued resolution we will probably have to cut about 45%. we are cutting travel and all the other things to be efficient. but technology is the key to move forward. we are also working hand in glove with the self-regulatory organization to see what can they pick up. can they pick up registration and examination functions and so forth, but we think it take on this path the market is about seven times the size of our

current agency. it is a new task to take on something that large, this small agency needs to be a larger. the president asked for $308 million next year. i know this nation of ours has a great budget deficit we all have to come together and understand better and grapple with. so i feel a little bit daunting to ask for more money for this agency at this time, but i really do think that this is a good investment for the american publicto avoid the crises like in 2008. >> chairman bernanke and comptroller walsh, community banks d credit unions are the backbone of our economy, which is why we work hard to protect liability in drafting the dodd-frank a. as the regulators institutions hold unr $10 billion of

assets, could you please speak to the impact of the dodd-frank implementation on these small institutions including the impact of the interchange rule the qualified to ensure that there are no unintended consequences moving forward? >> chairman johnson, we fully agree with you that the community banks, small regional banks play a very important role in the banking system and it's very important to minimize the excess regulatory burden on these institutions. we have tried to institutionalize that effort within the federal reserve and we have for example created a special committee that looks on at smaller banks and tries to ensure ruls written into the banking system broadly are not

excessively burdensome on the smallest institutions. we have also created a community bank council that meets three times a year wh a board of governors to give their views and so we are trying to reach out and understand particular problems. given the fact most of the prices to the problems are fosed on the largest institutions. we are for example currently developed as the dodd-frank requires a new set of regulatory capital liquidity risk management and other rules that would apply primarily to those banks of 50 billion or larger. we are trying to do our best to nimize the impact on small banks. with respect i will speak to the interchange will perhaps

chairman bear would like to speak to the qrm. the interchange has an exemption for te banks, smaller banks which of course we would put in the rule. i think this is something we are trying to better understand for the commentfor the outreach we are not sure how that exemption will be because merchants will exempt more expensive cards from smaller institutions or because networks will not be willing to differentiate the interchange fee for the issuers of ifferent sizes. it's possible that exemption will not be effective in the marketplace. it is after all allowable and not a requirement and so that exemption will not be effective and that other fees to the smaller institutions will be

reduced for the extent we proceed with larger banks. >> thank you. i welcome that question. i guess i would like to note first of all one of the things dodd-frank did this change the insurance premiums from one based on the domestic assets. we recently finalized rules on that and they will be effective in the third quarter and i will reduce community banks in aggregate, deposit insurance premiums like 30%. it shift more of the burden to the entities that rely less on the deposit insurance and gets the was that really in the secured liabilities. which tend to be the larger institutions so i think that is going to have a significant benefit for the community banks. on the qrm or why don't want to front run the rulemaking process, but the rule is supposed to be done and i can assure the committee the direction on the qrm will be focused on issuers of securitizations, not small mortgage originators.

they will not be burdensome for the community banks to reali community banks were not a problem, they were trying to corrt. you will be pleased when you see the rule that goes out for public comment back to my opening statement about the liquidation of 40 and implementation of title to authority will help further level the competitive playing field i this will go up has that authority is implemented and that will also help the community banking sector. i would also share as the chairman bernanke concerns about e effectiveness of the interchange and the positions to truly protect the community banks particularly if the networks are not required to have the structures and to continue to charge the higher fees so we are in consultations with the fed on this and reewing what the legal authorities might be from e

standpoint but this is an issue for community banks. >> mr. walsh, my time of, but please sum up quickly. >> to the qrm we are working with other agencies. i would note our community banking population is going to go up by half when we integrate the neal to 2100 institutions. we have a dvision devoted to the community banking and examiners are around the country to war attended to their concerns to be weakening quite a bit of outreach to the banks to try to understand their concerns as well as noted most of the changes in dodd-frank are aimed at the significant changes at the larger institutions with the smaller institutions to worry about the increasing weight of regulations that the changes and ply and as i noted the one concern with the credit ratings

biddeford for simplified could be of a benefit to the community banks. >> thank you, mr. walsh. senator shelby? >> thank you, mr. chairman. i will direct this question first to chairman bernanke in the than some others. in a recent financial times article, secretary geithner talked about the difficulty of designating non-bank financial lens etentions as systemic he said, and i will quote, it depends too much on the state of the world of the time you want people to get judgment about what is systemic and what's not until you know the nature of the shock, in def quote. i find the secrery's comments interesting given his strong support of dodd-frank. if it is impossible to know what firms are systemic until the crisis occurs, the financial

stability oversight council will have a very difcult time objectively selecting systemic banks and nonbanks behind the regulation. mr. chairman, as a member of the council, what is your view on whether the firms can be designated as a systemic without creating some type of arbitrary process? >> senator, it is a difficult problem. as you say, you have different type of frms respond to different types of shocks. it's also true that an individual industry with small firms might be subject to the broad shot as we saw with the money rket mutual funds for example. that being said, i think one of the problems with -- one of the sources of the crisis in 2008 was a very substantial gap in the oversight of the many large firms like aig for the didn't

have the strong consolidated oversight and i think the task doing the best we can to try to identify te firms which most likely pose the risk. >> what does do the best we can mean? >> we don't want to be arbitrary, as you point out, and so we have already put out the fsoc with the cooperation on the folks at this table had already put out a request essentially for input, but what we would like tdo is provide the but if we clear guidelines about the criteria that we will use to try to identify firms that are potentially systemic. admittedly those will not be exact numerical guidelines for example, but i do think it's important that the fact that each institution, each agency of the table has a specific set of institutions for which it is responsible, that we don't allow that fact to create gaps where there are important firms that

have no serious consolidated oversight. so i do think it is useful to do this, but i acknowledge your concern that will never be a perfect process. >> chairwoman bear. >> i do. i think it is to say what's not systemic and the congress said it is for bank holding company's -- >> [inaudible] and you are defending the fund. >> we are defending the fun, and so i think our concern about this is to make sure that if we have to use the resolution of doherty that we are prepared than we have a resolution plans and have had information that we need for an orderly wind down. so i think for me, senator, there are a number of factors that are intified for me is interconnectedness more than anything. if you fail, what else happens? who else gets hurt? it may be it is a two-step process based on some siple

metrics based on size and exposure taken to the second level and asked the vicinities to do what is called a credit exposure and do an analysis, do a scenario if you feel what happens. in terms of system it important factor and there are some that will be obvious and that is what we need, the of the provincial standards and reducing any concentrations they might have that would have broad collateral impact. there will be some gray areas in the resolution planning i would cite some conclusive miss. >> chairman bernanke, do you believe that you're in a better position now than you were two years ago to deal with the faure of a large bank for example the financial institutions or would that come

as a shock to you? >> would you be in the position to wind these down? what about a manufacturing facility? >> as chairman ear discussed the resolution regime and the other provincial requirements are aimed at financial firms which have the risk of bringing down the system. there's quite a bit more work to do to fully implemen all of the dodd-frank has put on the table in terms of resolution, provincial requirements and so on. we were better off today than two years ago but it will still be some time before we have completely implemented no only all of the rules in the context of dodd-frank, but i think very importantly as chairman bear has taken a we need to coordinate with international regulators

because so any large institutions are cross bords so we need to work together with other institutions. we have not gotten to the point where this set of tools is implemented but we are working very hard and it certainly is a focus of the fed and the fdic to get the resolution process up and running as effectively as possible. semidey think it is a lot more on top of things as to the capability of the bank to stand a lot of shocks as opposed to two years ago? in other words more diligent than two years ago the fed as a regulator? >> certainly we all learned the lesson from the crisis. >> what have you learned? >> the importance of being very aggressive and not being willing to allow banks to much leeway

particularly when they are inadequate in areas like risk-management where it turns out to be such an important problem in the crisis we have done a lot to try to strengthen and improve our supervision from a day-to-day basis, but we have also, and i don't want to take more time than you would like what we have also done a good bit of restructuring for the internal process so that we have, frd symbol, a lot more interaction between the supervisors and economists and financial market specialists who have different skills they bring to the table to give a broad perspective on what the tanker or the other institution is doing. >> how many banks today just off the top of your head still a lot of money with t.a.r.p.? i know a lot of them but -- >> a couple of larger banks still might be a couple hundred small banks, but the great majority of the money has been paid back efore and in the end

-- >> the ones that hadn't paid back, is a dangerous signal for you because the economy picked up a littlebit or -- >> i don't think so, senator. the relatively small banks, the relatively small number of smaller banks have not paid their dividend, would put as you know, we have had a lot failures of smaller institutions, and few of them had t.a.r.p. money to the great majority are either paid back more are on the track to pay back. >> are we going to continue to lose a lot of small banks, medium-sized banks in this country? rac the decline and to see the trend line. >> mabey chairman bear could take it. >> i think we peaked last year of 157 phill years but will be an elevated number of failures it will be lower.

>> on the watch list now roughly? >> eddy we've got about 700 -- >> 700 banks on the watch list. >> most of those do not feel only about 23% ultimately fail, and that is typical. the economy is improving, and i feel that our loss actually went down lasyear about 22 billion. so the losses were down significantly last year. the banks that are feeling much smaller which is why the losses or lower some things aren't getting better. the community banks as well. >> my last question if i could, directed to the chairwoman shapiro. the importance of the economic analysis, you repeatedly stated that economic analysis is important to the sec, but it's

my understanding that the sec has about 4,000 employees but has about 25 ph.d. financial economists. consider the importance of economic analysis that you've placed on what you're doing how would you determine the 25 ph.d. economts as the propriate number or have you done that? are you trying to >> we are absolutely trying to. if i could also speak to your earlier comments, i think that you know we are actively and aggressively recruiting for the chief economist at the sec, but i want t note that we would like that person also to lead the division of risk strategy and financial innovation, and the person that is acting head of that now is the phd economist and the university chicago where we also have an m.b.a., so we are not without significant economic expertise within the agency. we have about 30 staff economists and they are fully

engaged as you can imagine on the dodd-frank peery disconnect yodon't feel like it's adequate yet? >> i don't. i think it's important for us to have more capacity and economic analysis. it's part of my view of how we have to shift the entire focus of the agency. we will always have lawyers, law enforcement, that is important, but we also need and have been very successful in recruiting current market experience, new skill set, new typesof talent to the agency and economic analysis and financial analysis to also be the key components. they're also supportive of the pool riding and the studies we have to do so my goal would be to try to significantly if we have the resources grow that area of operations. thank you mr. chair. >> senator, please abide by the rule. >> thank you mr. chairman, i will.

>> i will. congratulations on your first hearing as chairman. i also want to thank senator merkley for the amendment he raised and say that if it is any sign of things to come we are delighted to have senator isaacson on this site. [laughter] it is working out perfectly. we are enjoying it. chairman bernanke, i want to get some clarity from you on the interchange issue because there's a lot of representation made when this vote cannot and this bill was passed that the institution's 10 million or below would be exempt, and what i took you to say is that there appears to be feedback that there may be some practical problems with implementing that. >> senator, i should first say the rule without comment we are still gathering information. by the statute, he smaller institutions will be exempt from

these restrictions, but there is the possibility as i mentioned that either because the merchants wouldn't accept the more expensive cds or because networks wouldn't be willing to have a two-tiered pricing system it is possible that in practice they would not be xm to from the lower fees. >> quote with the result of that be in practice? >> well, the statute limits the interchange fee to the incremental cost associated with the individual transaction, which doesn't cover the full cost if you include some fixed costs associated with setting the debate card program for the sample. so, it's certainly possible that some of the costs would get passed on to consurs and some way for a simple a charge for a

debit card or something like that, and i would just mean if the small banks don't have an effect exemption it would mean that whatever economic forces are impinging on the larger banks would affect them as well. >> i want to follow upon some of the questions the ranking member was asking about the fsoc. asking it in a dferent way because it is book about the institutions themselves the door systemically risky and it's also about the instruments i think, and i wondered if any of you would like to talk a little bit about what the priority setting looks like. how would you decide what t agenda is quinby for the council and over what period of time? is it something the treasury secretary coordinates? how do you detect where you ought to be looking versus whe you're not? >> to the extent you have the items already what those might be.

>> senator, first hour agenda has i think to parts in a sense. as you know, fsoc has to write a financial stability report once a year, and so for that purpose it makes sense that there would be an annual review of all the major financial sectors to try to identify any emerging problems or developments in those sectors and so that is a part of our process. in additn, we want to remain flexible so that any ongoing problems say to take an example the development in urope for example and the implications for the u.s. banks or money markets, in the developing event or situationcan be brought quickly to the council, the council set up and in fact there was a public discussion of this, the council had set up a committee of staff and deputies who are

covering different areas and who are presenting to the council short summaries where the have identified potential developments of interest and then the council members are getting feedback about what they would like to hear from other discussions. >> are they under strict instructns from the chairman? i'm going to ask you because you mentioned your up. is our own domestic fiscal condition something that the council is going to be taking up? are you aware of any other systemic risk greater than our own debt and deficits? >> that's a difficult question because that fls somewhere between the fiscal stability and financial stability, so the question is whether that is more congressional responsibility or fsoc responsibility. we haven't at this point discussed i don't believe, correctly, i don't believe we have discussed that so far. >> i would encourage you just because i think our financial

stability is so closely to the fiscal stability. >> thank you mr. sharing. i have three seconds and yelled back the balance of my time. [laughter] >> senator corker, we have a vote coming up at ten until 12 and i encourage you to the five minute rule. >> i got it, thank you. [laughter] welcome, allof you and thank you for your service and we miss you. ter dodd-frank, we haven't heard from you, and the phone has quit ringing and we are glad to have you here today, and i you appreciate the work each of you are doing. that is a sincere stament. there's a lot of talk about the budget issue and there is no question that is going to probablyget even tighter so there's more of a limitation and funding and we did receive some calls during the period of what

you're going to be a to do and i'm hearing some of you are not being able to invest in technology a there are some positions that were open in other areas and that kind of thing. would it make any sense? i know that you all have been really pushing of rules and regulations and i know people have een concerned at that would make any sense for us to slow you down a little bit to invest in higher technology and how your people and actually be slightly more thoughtful on the rulemaking? and i would ask that to chairman shapiro. >> thank you. as i said earlier, the real impact of the continuing resolution on the sec are on the core misi. the devotee to hire the examiners to travon for the enforcement cases and most particularly and build the technology we need to do the job that's right in front of us at this moment putting dodd-frank

aside and to think back to may 5th on the crash and how long it took after that to be able to generate the reports that gave the public an understanding of what happened on that day largely because we lack the technology capability to take in the kind of data and analyze it in a reasonable period of time. so for me, the budget impact as much or more right now to the core missions and to the dodd-frank limitation. once the rules are in effect and we would be very careful with how the sequence and implement their actual rules as the chairman said we will see comments on the industry about what's the right order, what do they need six months to be able to do because they have to build the system, what do we need to do because we need to build the system, and that will require additional funding to build those systems and bring in of the people needed to do hedge fund examinations for example or examine swap dealers or

participants or whatever others. but i think the standing of rules as written is a stress for sure and it's a challenge and it's affecting all of our capacities to do other things, but i think the crunch comes aftethe rules are in place and we have to operationalize them and we lack the resources to do that. >> thank you very much. chairman bernanke, i know that there are a lot of things each of you saw and got and some things you didn't ask for coming and i know one of the things you received was the interchange issue and i know you're being diplomatic but it seems to me that it is an impossibility that if a rate is set for the larger institutions it is not going to impact the smaller institutions as it relates to interchange rules. i mean, itoesn't seem to me to be a possibility. and i know again you didn't ask for this, it was an amendment th passed on the floor, but i was over the other day with senator kirker and we were watching a fed auction take

place at the bureau of the data and if you just look at the cost of that transaction, but electronic options itself, it's obviously very minimal, but a whole handful of folks paying tention making the ethical guidelines were in place, and i sure -- i know these institutions, these banking institutions have the same things. so the fairness of the price setting at some rate that is only transmission cost seems o me to be incredibly an error we're also going to be forcing people into credit cards over time. people that don't have credit are going to be forced into credit cards, which is a debt instrument, not something that is coming out of their account. it seems like me th whole issue is very perverse and something that is very shortsighted on a were part, sort of populist move, and i wonder if you would editorialize about that.

>> i don't know if i can editorialize, but as i said before it is true that the statute requires us to look at the incremental costs and not necessarily the full cost. and it's going to have the various implications. one would be as i mntioned before probably some costs on the banking side will be passed on to consumers or will affect product offerings and so on. on the oversight, merchants will be paying less, and it depended on a stiff competition in that part of the market the media passing the savings on to the consumer so ere will be some transfers on both sides, and the issue really is what congress intended, what object see had. again, this process will certainly lead to lower interchange fees that will benefit some and impose costs on others. >> mr. chairman i know my time is up. there's no question the smaller institutions are going to be

impacted in a big way, and i think that we all know that and i hope that we will endeavor somehow to fix that here in congress. thank you and congratulations. >> senator menendez. >> thinks mr. treen and congratulations to the chairmanship i look forward to working with you. since i have five minutes let me try to get sustained questions and answers. one is i marvel at the people who was three years after our financial crisis still don't have the full regulation of the wall street derivatives and other key issues. i'm always asked by new jersey and why is it that no one has gone to jail? and so i marveled now that i hear tha your response to the question of the funding of your ability to pursue the converse tasked with the american peop

want to see is going to be sufficient to promote regulations but not sufficient to enforce them. is that a fair statement of what you have responded to? >> i think that we have a lot of responsibility once the rules are written for examination and enforcement, registration, taking in massive amounts of data particularly in the area where we will be able to rely on the self-regulatory organization and will be very difficult for us to do any of that without additional resources. so it is brought -- >> the cop on the beach without any bullets >> it is a concern that i have because if we are going to promote regulations pursuant to the law, but not to be able to enforce them than it is a hollow promise to the american people of what we said we were going to do so that they ould neveface the risks again of collectively assumi risks for the decisions of others. and so i appreciate your honesty

answer to that because i think that will dictate part of the debate as to how we go forward in the budget process to at least largely derived from the industry have the resources so that you can do the enforcement that the american people to see, otherwise i wouldn't be surprised to send everybody home. >> i agree with that, senator. i was just trying to say it is broad market analysis and surveillance. estimate is absolutely. i agree. >> second, i recently wrote to you, madam chair, about he cybersecurity and the tax that had taken place against nasdaq and whatot. i hope can give us some sense because obviously the market integrity is important and one of the ways is that we are sure that we are not having the market's being affected by thos who are attacking it, and i hope that you could give us some sense of where you are headed in

that regard. let me get my third question out and you can answer it to both of them. that is to both you, chairwoman shapiro and mr. gensler with reference to the title seven that ll swaps with their squier were not are required to the swap data repository. i'd like to know what you're agencies are doing to ensure that the information being reported to the multiple suppositories is not so fragmented and ultimately allows an accurate and complete view of the market activity. one of the provisions of god for the lead -- dodd-frank allows the repository to provide electronic access to the commission for all of the swap data repository information and i am wondering if you consider that. you can tell me what we are doing on cybersecurity. >> certainly. i don't want to comment specifically on the asdaq matter which is obviously

intensely under scrutiny by the regulators broadly but let me just say given the highly electronic nature of the markets and highly fragmented nature the financial and institutions broadly exchange and are having to face cybersecurity threats. we work very closely with the exchanges and have the automated review program, which are examiners that evaluate wth the exchanges, the quality of their information security that is in place and what the vulnerabilities they might have. we recently asked all of the exchanges to provide an audit of their information security policies, practices and systems so we can have a baseline understanding of where all of the many different markets are with respect to that. we are taking this extremely seriously and working closely with the fbi, secret service, department of justice to make sure that we are pursuing any of these threats as aggressively as we can. i can tell you the exchanges are

taking it seriously as well. this is their franchise. .. and hope to make final later this year that would have all the market provides two of the transactional information in the life from conception to execution that we get the ability to reconstruct trading market to look for violations of the federal securities law. >> with regard to stat, which is so critical to regulators to

get an aggregate picture, congress did you get every direct electronic fee from the data repositories in which we appreciate that. put that on proposed rules, working for comment. one of the challenges is aggregating the third spot with unwanted for interest rates swaps, for instance. not as part of the reason why at the cftc we believe disney to be efficient in these technologies. it actually recommends doubling technologies that we can be more efficient agency and then aggregate the data with those direct lectronics. >> senator johanns. >> mr. chairman, thank you. chairman bernanke, let me start with you nd i went to isit with you a little bit about the interchange rules that she put out. when you start out with an

observation. i think you folks send everybody. i think he stunned the retailers, the bangs. i don't think anyone ever expect to something this dramatic, district attorney and. do you agree with me that 80% of the transactions interchanged transactions are actually done by 8% in the house of the merchants out there? is that inaccurate statistic? i know it's very concentrated. obviously the large national firm's that account for a lot of the transactions, but i don't know the exact number. >> i think that's the best available information i can find. not only national firms were the biggest economic players. this isn't joe's hardware somewhere in nebraska.

doesn't it occur to you that really what we have done their is we've taken money from this site or the economy through congressional price-fixing and directed you to transfer that money to ths site or of the economy, impacting the biggest players really in the world on this side of the equation. >> senator, let me at first either comment about kryptonian. we find it hard to follow the language of this, which pretty clear. don't get me wrong. i'm not enough to messenger. if it feels that way, i'm sorry about that. you are just trying to do what we told you to do. not me. i voted against it. and they wish more of my colleagues would have. but the end result is this is really what you're doing is moving money from here to here in the debate layers that are

going to see the benefit, the big retailers. would you agree with that? >> retailers will benefit according to the fraction of their -- of the total debit transactions that they have. the question is to what extent -- and i'm sure there'll be some extent those savings are passed on to test donors, which is part of the objective. the mac that is the problem with price technique. we c't guarantee that, can we we can't guarantee that a single consumer will get any benefit from not much legislation. i mean, we hope we do. you might be able to make an economic argument that they will. but the reality is we don't ow, do we? >> know, senator. there is no guarantee certaily. >> now i might just go further because this sounds so preposterous to me.

we are seeing commodity prices go up. there's a lot of complex reasons for that like the energy and drought in china, it better, if better. but you know, good economists are now saying you are going to pay more at the grocery store or various products because the input costs e going up so dramatically. it's hard to argue against that at the moment. you would suggest that it would be good economic policy that we pass a law that the pce of the porterhouse steak or the price of a gallon of milk can only go so high, which you? >> no. >> yet. mr. gensler, let me go to you. you know, i have an interest in this and we all do. and one of the challenges i have and i'm guessing you probably

have it, too, is how do we fine end-user clicks like a small community banks out there that want to protect themselves so they are in the derivatives market to protect themselves against the risk they are incurring. are they end-users or are they financial and dictations that should be regulated here? >> the statute says that they are finaial companies. and so, most of the community banks are not swap dealers. in fact, i'm not aware of any. they haven't come knocking on the door. i don't think any probably are swap dealers, so they wouldn't be regulatedhat way. the question of the end-users is whether they are brought into clearing, with it they benefit in congress did give us authority to exempt them from

that. we've asked the public a series of questions to help us on that. we are working with fellow regulators here looking at that, not only for the community banks, but also foreign credit in situations and national credit union saslow. >> mr. chairman, thank you. >> senator reid. >> thank you, ladies and gentlemen. chairman bair, there's a great deal in the last several months trying to sort out mortgage foreclosure issues. the state attorney generals. everyone's been engaged. it seems than reports that with respect to oppose signing, liabilities have been established, the penalties have not. is that the crux at the moment? >> well, i would defer to the comptroller on this. they've been meeting most of

this. we are not the primary regulator of the large servicers. the way i envision it is all agenci of an hoping for some type of global settlement that would include robust enforcement actions as well as more appropriate media measures, and putting rhaps some type of genetically streamlined modification to help our worst get a fair shot at the mortgage and also help clear the market because there's an increasing backlog here. but hope this is the key elements of any final package, but john might have something to add. >> is this an issue -- what is holding up his helmet? attorney genral miller was here months ago talking about how they are working. can you elaborate briefly aquatic >> well, we have been at work actually sent last week. here in the committee on a series of examinations. with the fed, the ots and fdic

participating to some extent in the exams to identify the problems and develop both the facts on the ground and also to develop with the appropriate remedies or two that. and those remedies include both remedial actions that the servicers will have to take to fix what's broken and there's clearly banks broken as i mentioned in my testimony. there's also the question of the penalty phase if you will of that process. so we have finished the work. we are kind of getting to the point now where we will be delivering document to the bank spent talking about civil money penalties. but the comprehensive settlement that we are talking about is one that would also involve violations that are under the purview of other agencies. the department of justice, ftc, state attorneys general. and our effort has been to

achieve a kind of comprehensive settlement that will kind of put the problem to bed and let us get on with remediation. the specific supervisory peace is kind of one piece of a broader effort. >> you are recommending that their modest bond in the pelty phase. anagain, some of -- from following these revelations in the news paper, it seems like there was some intentional activity and also just -- in fact, it can get their green to the penalty phase, son negligence. and so, are you mearing these signs in terms of the overall impact on the people who lost their homes through this process in terms of the benefit the

banks derived from a ease prior to detection the operation? >> although one is amazed at what the l. street journal finds out, in this cas we have not made decisions about the level of penalties. that is the next phase to come. we will be discussing that with deral reserve and there will be penalties are holding company in services. in terms of the sword of penalties involved, they will include other things than just those we are looking at. >> i think you have to move for some expedition because again the last time we were all here together visiting, we were talking about how much progress we were making and, you know, you've got to come to a conclusion very quickly as chairman bair said in tes settle in the market in. just a quick question because i have only a few seconds left,

mr. chairman. dodd-frank creates the position of vice chairman of supervision for the fed. how close are we to getting that person in place and in the interim who was taken the lead in terms of what you now have as an extraordinarily more complicated and vast supervisory responsibilities? >> well, the administration has not yet nominated anyone, so we are so nowhere in that respect. but governor cirillo who has had bitter banks provision area and has testified before this committee and number of times is taking the lead on the supervisory and relevant programming issues. >> thank you. >> welcome to the committee. senator curt. >> thank you. congratulations and i look forward to working with you on the subcommittee.

chairman bernanke, i'm an admirer of yours that jst finished the lords of finance, which is a human story of what central bankers go through. a quick question on dodd-frank titles one and seven, which creates the oversight council and talks about systemic risk, regulatory gap and the key phrase, regardless of legal charm. they brought authority authority to examine risk here if you have now established this financial security to look at any potential daners out there. would you be able to locate u.s. states as a source of systemic risk? >> our office of financial stability of this mall office where we tried to get risks that might emerge and doesn't have any for example. the risks arising for sates within the munical market would be something the federal reserve would pay attention to, but the appropriate venue for

that would be the council where we would discuss mutually any complications or ramifications of development they are. >> just notes there were state-funded pension of 54%, but a new analysis could be as low as dirty. "chicago tribune" reported this morning the state deficit is at $168 billion we have concerns about california. i would just note that young state representative from the assailant wrestled with this issue in 1840, named abraham lincoln. the senate passed a resolution in 1841 advising treasury secretary webster not to guarantee state that to preserve the full credit of the united states. so it would appear that this could be a source of systemic risk in something fully within your capability to examine. one other question, he wall street journal" two days ago reported that our largest

creditor, china, had sold $11.2 billion itreasuries in november and another 4 billion in december. $15.2 billion unwinding is about a 1.1% reduction in their total holdings, now dow to 892 billion. do you s this movement by america's largest creditor abroad as a source of systemic risk? >> the international balance and reserve accumulation is included in principle the systemic risk and i think they contributed to the crisis. that being said, i wouldn't make much of those data. first of all, they are actually complete data. and secondly, in the short run the main determinant of chinese accumulation of dollars does there need to keep them pegged at the level they choose. so it's prety much they take whatever they need to take in order to keep their current get the desired level.

>> thank you, mr. chairman. i was stuck to chairman warner, one who will continue in spain and portugal on the adequate side of the imf, which this community really needs to work on. >> senator akaka. >> thank you very much, mr. chairman, and congratulations on being airman. good morning to our witnesses. your agencies have worked late on implementing this law. your efforts i would say have a large part been prompt, thorough and transparent and we do appreciate that. before we begin, i'd like to thank you speech for your leadership and recognize your stats for the extraordinary efforts.

chairman shapiro, i was pleased that the commission staff study on obligations of broker-dealers and investment advisers. i'm also encouraged by the recommendations in favor of the human uniform fiduciary. i know an area you have an interest in, so i have two questions for you. first is how can confusion at the very obligations of financial professionals harmed investors, taking advantage of the base? and second is how can a uniform fiduciary's pandered reduce investors caused and improve performance? >> thank you, senator. and they do share my great

interest in financial literacy. i always appreciated that the port. think one of the things w learned that the fcc commissioned a study by the rand corporation several years ago that looked at the issue of whether investors understood the relationship they had with the broker versus relationship with investment advirs and found there was significant confusion and our current study references much of the work that was done by the rand corpotion. the issue goes to whether the interest of the customer must be put ahead of the interests of the financial professionals. the customer must come first or whether it is current under the broker dealer regime, the duty to only provide suitable recommendations, understanding the investment goals and so forth of the investor. so it is a sitability standard poker dealers, a fiduciary duty to put that under the investment research reme.

we thought it wasn't fair to his customers to guess which standard of care they were receiving when they were dealg with the financial professional. it is not something that is transparent to investors. and so the staff study does recommend as the dodd-frank act authorizes the commission to study, that a uniform fiduciary standard accord, no less stringent than the one that applies be applied across financial professionals when giving advice to retail investors about securities. i think that this standard will alleviate confusion for investors because it will become uniform. i think while the corals are hard to quantify a common assessment attempts to do of that and we've asked for data in that context. i think the benefit to investors of having their interests but first or also hard to quantify, but will be very real over time. and so, our next ages for the commission to consider the

report carefully and make a determination about whether to move forward with specific rules that would create the fiduciary standard of care. >> chairman shapiro, through the.frank at, we provide the commission with the authority to require meaningful disclosures prior to the purchase of an investment product for services. more effect is entirely disclosures can greatly improve investor financial decision-making. what is the commission's plan to implement a specific provision and to promote more responsible investor behavior in genal? >> well, this is anarea of longtime interest to me, that investors get decision useful, accessible information at the right omits in the process of

making a decision about whether or not to invest. what we often see is to get information after they've made the decision to invest. sot would be my hope that we cod -- when our calendar is a little bit more open, post getting too many of those dodd-frank providing provision, that we that we could turn our provision back to the provision factory point-of-sale disclosure inquiry and see if the commission can do something to help investors get really useful information, not pages and pages and get it at a time that will help them makehe right decision. that would be my hope that at some point later this year will be a left turn our attention back to those issues. the mac thank you very much for your response. >> welcome to the committee. senator graham. >> thank you very much. i want to be a good member of this committee. this is myfirst hearing and want to impress you. i assume that's done by speaking

less than five minutes. [laughter] i want to talk just about about a broad issue in a very specific one. we've had lots of conversations about small community banks, credit unions, small financial situations. they certainly dominate the communities in kansas and a crossers date. and in all the response to questions that have been given in your testimony, you indicate an advert to treat differently, to recognize the difference between a community bank. i would assume you agree they are not a cause of systemic risk to our economy. and yet, the comp in conversation with community bankers, credit unions is very much about the regulations that are coming our way. this conversation predates dodd-frank, but it is exacerbated by dodd-frank.

so while you regulators think we understand them and treat them differeny, there does not seem to be a recognition on the part of anchors. my question of are my bankers firmly complaining types who have it wrong or are my regulators wrong in which they say we are taking care of this issue. we are not overly regulated community banks. and mr. shelby and this question about the loss of small banks, the immediate response ms. bear by you was number of closures. that's a component suppose it was maltings. what i've noticed in our economy is affecting by consolidation. there are perhaps economic reasons consolidation should occur, but it i question if it is recurring because of the regulatory costs. at a conversation with one of our large regional ankers felt it for the first time in the bank's history, they are receiving calls to small

community bankers saying are you interested in by interbank because we no longer can afford the regulations. it's no longer fun to b a banker and the cost of being a small community bank now exceeds our ability to generate the revenues necessary to get a return on investment. so my question is, what we talk about treating differently community banks, the evidence for my view does not seem to be there. what are we missing? wendy's to take place? i think there's great value in the community bank that's making decisions in that issue to caveat. i'm not necessarily advocating on behalf of bankers, but i am advocating on behalf of customers, barbers, client who in states like kansas are like south dakota it is a place in which our farmers andranchers, small businessmen and women have the opportunity to ask and there's a tremendous consequence to our economy, including job creation and the failure of our banks beincomfortable in making loans. finally, in that regard,

particularly real estate loans. either cappadocian bankers tommy we no longer make real estate loans. you can come to our bank and her money to buy a house because of the regulations interfere the next examination that we have missed something that's going to think it is for not come in making the real estate loan is no longer worth it. but it's a terrible circumstance in small-town kansas -- small-town america in which the local bank is now fearful of making the real estate loans and mortgage on the house. your response? >> well, i would b a couple of things. i think you are right that there's still ove7000 community banks out there, but there is consolidation to do so is the byproduct of. that is what is happening here. we are very concerned about a future that we have a vibrant community banking site here. it's not our job to serve

community banks. it is our job to serve the blic. but they have a diversity and choice of the banking institutn. i think i've said this repeatedly throughout the crisis we many thanks a better job of funding measure institution and that's just a fact. we are very duly tried to protect community banks of the dodd-frank requirements, which are overwhelmingly targeted a large financial institutions. as indicat earlier, they change the assessment basis that reduced by 30% in aggregate and they'll be paying for deposit insurance. they are by and large exempt from the comp patient goes that we just put out. we've tried to inflate them on the securitization, as you'll see when those come out. so i think we have acted on a number of fronts to try to insulate and strengthen their competitive edition. as i said, judy to lm the best

implementation of liquidation will increase benincasa for many large institutions can provide better competitive clarity. if he is a very real one. we are very concerned will be writing a comment letter. i think the likelihood of the community banks and requiring them to increase the fees they charge for accounts is much greater than any tiny benefit retail customers make it for savings to be passed along. i think that it's just obvious. so we are very much hopeful that i don't know if this can be dealt with by congress, but what we are planning to do its work within the regulatory framework to see if there's greater discretion to provide community banks and particularly by networks. i do think this is a real issue in would have an adverse mpact in a way that is unintended by congressman. >> i put a standard for myself and the red light is on. i would like to follow u to

you, mr. shapiro about financial advisors in making perhaps advice to government. there's a noble issue changers exist creta creek area. ms. bair, i'll be in your home a week from now. [laughter] >> thank you, mr. chairman. i want to congratulate you on your chairmanship and think everybody for being here today. we appreciate your efforts in this difficult time. before i get to my question, i want to say that the issues and regulations senator murray and product with credit ions is a big one. i brought it up with members of the panel released on four different occasions. and the inconsistencies with regulation and the amount on my watch as it applies to community banks is a big turn and continues to be a big concern and i don't buy the consolidation in our financial

system is a postive thing especially for all of america. that aside what to talk about the rules and chairman bernanke, it's an issue in very good thing about. and i was wondering, is there any way to actually ensure the community banks and credit unions are exempted in this from this provision? >> i do not hesitate to give a final answer because fst of getting comment. it may not be the case. they will be a practice exams. of course one way to address if the congress wants to would be to require the networks to differentiate. >> let's talk about that for a second. with the routing provisions in this bill, first of all it's illegal to turn down?

>> i don't think so. from it i finally go? if you go into a retailer and you have a card and a look at it and say, we don't want that. we'd rather have a different one, that's okay. >> you certainly have the right to askthat different types. visa, american express, so on. >> this case is one that has a bigger fee. >> restrictions -- restrictions there are more functional requirements imposed by the visa company, for example, as opposed to legal fees. the mac is clearly two-tiered system, and the amount charged to interchange fees by the smaller banks and credit unions will be hired the most of the big banks, correct? >> correct. >> with such the retailer from

fame and you want to use that card? at the small bank. rather use a bigger one? what stops them from doing it, anything? >> n now. unless again the company, the visa requires oil cards, which in many times they do. >> in pactice, i can't imagine visa is out there checking out. they are going to make -- they are going to do there thing anyway. it would seem to me that there is going to be undue harm done to smaller banks when the retailer looks at this and says he know what, i'm going with the smallest change possible cut is going to help my bottom line. do you see it being that way? >> i think there's two reasons why the extension by number. one is exactly what you're saying. merchants might turn down in the networks may not be economical to have it in your system.

>> chairman bair, from your point of view, how do you think it's going to impact the hashish and aec provides? >> it remains to be seen whether they can be protected. i'm skeptil for other reasons chairman bernanke has ben accepted. it's forced on to the level that is going to reduce the income that they get for debit cards. afflicting thoughts to make that up somewhere probably by raising fees they have a transaction account. the costf the intended consequence of putting minutes with prepaid card and prepaid cards don't have the same level of protection for debit cards, for instance. it is important and more difficult and you have to be careful how you get insurance. so i think that would not be helpful for consumers.

hopefully to the current regulatory authority in what we're looking at right now. >> i'm not sitting on your site in the table, but you thinit would be beneficial to delay this provision, to take a look at unintended consequences? >> yeah, you know, look, there's legitimate policies on both sides that it was under the full policy ramifications. he's paying for what, who will y and his pain less was not dealt with. >> thank you for staying here. i wish we had another two or three hours. thank you, mr. chairman. >> senator warner, welcome to the committee. >> thank you, mr. chaiman. i'm delighted to be on the committee and i've enjoyed the testimony, which i've watched on television from my office. i wanted to get a few other things done, so i'm glad to be

back. thank you all for your patience and for working with us today. let me ask chairman schapiro. god frank -- dodd-frank is a familiar term. less familiar as franken wicker, but it was an amendment that offering can and i authored, which passed actually in the senate by a vote of 64, 35 wih regard to the rating agency. as you know, there are many people, including me who feel that the rating agencies were one of the principal reasons that we encounter them out town in 2008. our amendments would have required the securitize product to be signed for rating by the sec, rather than having the

companies themselves shop around for their favorite rating agency. when we got to conference, the franken worker language was dropped, but in the final version, the law does require the fcc to implement a study on cred rating agencies and gives the effort we the authority to implement franken-wicker if it is deemed to be beneficial to the public's interest. so how is the study coming and what are your comments? >> that's right, senator. we have many studies on raising the agency, but this is important one. we should be doing that shortly with a request for comments from the public on ways -- alternative ways to structure a system for the assignment as

well as having the fcc do it or some regulatory do it or another entity do it. so it has a two-year time deadline, which is why we have an gotten it out the door yet in terms of receiving public comments. but the staff has worked on the notice and hopefully will go there soon. they'll pick up the study from our perspective and then will be able, with the comment, begin to put together the different ideas. >> do you share my conclusion that effective and improper ratings for large part of the problem at 2007, 2008? >> i havspoken a lot over the last two years about the contributions to the financi crisis. and so, the fcc gav much broader response ability under todd frank about with respect to rules and examinations of credit rating agencies, including report to congress on our

findings. and we are well underway with all of those it emanations. >> under the law now, a company wishing to be rated still has completely rearrange to go out and pick the rating agency. >> whave some rules to try to discourage rating shopping, which would require disclosure that she did shop around for ratings and you ultimate select did the agency that gave you the highest rating in the preliminary reading. so with an disclosure in that regard. within another rules to limit e conflict of interest that are really inherent in this model that is the predominant model among the agencies right now. >> thank you. i hope to be attentive to this issue. chairman bernanke, i have a

question about qualified residential mortgages. and with the unintended consequence is that the qr and and -- qrm;s enforcing or direct and housing finance for the government incentive towards the private sector. as you know the federal government now dominates housing finance in this country and i think it is the stated position of the administration is certainly my position we want private seor capital to return to the market to return taxpayer guaranteed mortgages. federal housing and mortgages are exempt from the risk retention requirement tha the 5% risk retention requirement

because they are considered by definition required by presidential mortgages. mike is cause fha mortgages to grow and drive up the dirt the first time a home buyer mortgage is and what ste might they take to ensure that the qrms rules do not push more guaranteed mortgages rather than the private one. >> i leave part of the pros so that the fha would become a smaller part of the housing market and be restrict it to the appropriate people who are qualifying for that type of mortgage. they are government guaranteed and therefore this securitization retention reirement does not necessarily relevant. i think the main purpose of the

qr and is to provide standardized rating criteria that are sufficiently strong, that the securitize there can be exempt from the retention requirement. but it is to my mind enrely consistent with the private market and securitization and the housing market with the government's role is quite limited other than through fha and other special rograms. it becomes relevant only during periods of crisis. >> well, i know we're out of time. but have you received comments or has the received comments from americans expressing the view that this rule d the exemptionf federal housing amendments greian mortgages might drive more and more

mortgage coworkers to the public rather than private archaic? >> we haven't issued a request for for comments, right? and so, we will of curse do that and we'll get comments, but we haven't got to that stage yet. thank you. last but not least, senator isakson. >> mr. chairman, thank you very much for including me. thanks to all those who have testified. we appreciate your time and i will be brief. my question would be for ms. bair, but applies to all of you because you all have the mortgage world is being writte and senator wicker's comments could not be more appropriate. in your testimony, ms. bair come you say we will continue to work to these shows forward without delay. we are determined to get them right the first time. it's to that subject i want to

speak. the qrm amendment is very specific and with the theme of the requirement shall be in terms of underwriting or a fine come, verified job, credit rating ability to amortize the mortgage. i'm down payment it did not specify an amount, but as specified in the amount of loan about 80% would have to be privately insured and carry private orphanages. i have sent a letter with t. wolpe lurches to two shen, a down payment requirement to be a qrm loan for 30%. what that would in effect to the city handful ofpeople in control of the entire mortgage market privately and for smart people into fha than arty fare. our markets from the va loans to the post world war ii until the beginning of the collapse, which is lending practices in 2000 carried mortgage insurance and 95% that performs equally as well.

41% of all purchases of first-me ome buyers who don't have 20% of them. so my request is, careful when you address this subject as you could retract what is already protected by denying liquidity in the private markets. with that said, i just hope you will follow the guidelines and parameters issued in the qrm amendment by ms. landrieu is taken hankin and myself on the down payment and private wordage as well. i hope you'll been able to do that. >> senator, i do think it's important emphasize that the qrm standards will not be standards for mortgages. they don't apply to lenders and those who love the 5% risk retention. i think the intention of the agencies is there will be multiple funding mechanisms for mortgas and portfolio lenders.

those who retain all the risk and those who offer the 5% risk retention because there is some skin in the game, there's natural economic incentive to a standards and provide more flexibility. so the security is really trying to compensate for the lack of skin in the game by the issuer. and zero, i'll have to be honest with you. i talked a lot by staff about this. we are very open and we want comments on this question, but we are unable to document that pmi was to focus. we just can't find it. if you have additional information, about to e it. we do have a lot of data that show strong correlation between lcds and loan performance. this is a framework were trying to come up with. were absolutely consistent with dodd-frank as it was written. i commend to you, but i do want to make sure everyone understands we do not anticipate the qr and standards to be standards for mortgages and

again thi is just to compensate for the lack of economic incentive is there's no portfolio lenders and knows securitize those who want to retain the 5% will have much more flexibility. >> first of all, i will give you the data. i am old enough to have sold out in 1968 when those came the tupac is an later and 72 and 95% of lung came in. there's good historical data on default think of as to what those with larger down payment is there will underwritten which is the whole attendant of qrm. as understand the 5% risk rention. but the qrm requirement is so restrictive that it takes up most of the marketplace and then you have the first all number of people controlling conventional lending to everybody else because they'll be risk retention lenders, be able to price it come controller, which will dramatilly raise the potential cost of the loan to

the borrowers, somewhat like what a, b., c. s. a printed. they began to push the right to securitize to sell at premium rate, but in fact underwrote poorly on the loans. that is a very important decision you will be makin and not get the data to you this afternoon as a matter of fact. i've been working on it. thank you very much, mr. chairman. thank you for your tim. >> senatorisakson. we have it tough but this onhe committee, but i believe we have a stronger financial and because of dodd-frank. over the next weeks, months and will continue to oversee the implementation of dodd-frank in hearing more from our colleagues and the regulatory. i'm sure we will continue to hear about numerous successes and challenges and it is important fr us to conduct

oversight. thanks again to my colleagues and panelists for being here today. this hearing is adjourned. [inaudible convrsations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations]

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[inaudible conversations]ations] [inaudible conversations] [inaudible conversations] balance of my time.

. the speaker pro tempore: for what purpose does the gentleman from texas seek recognition? mr. smith: mr. speaker, pursuant to house resolution house

resolution, i call up 495. the speaker pro tempore: the clerk will reporthe title of the bill, designate the senate amendment, and designate the motion. the clerk: h.r. 514, an act to extend expiring provisions of the u.s. patriotp imimproving and intelligence act and intelligence reform and terrorism prevention act of 2004, relating to access to business records, individual terrorists as agents of foreign powers, and roving wiretaps until december 8, 2011. senate amendment, mr. smith of texas moves that the house concur in the senate amendment. the speaker pro tempore: pursuant to house resolution 9 , the motion shall be debateable for one hour with 40 minutes equally divided and controlled by the chair and ranking minority member of the committee on judiciary and 20 minutes equally and controlled by the chair and ranking minority member of the permanent select committee on intelligence, the gentleman from texas, mr. smith, and the gentleman from virginia, mr. scott,ach will control 20 minutes. the gentleman fr michigan, mr. rogers, and the gentleman from maryland, mr. ruppersberger, will each control 10 minutes. the chair recognizes the

gentleman from texas. mr. smith: mr. speaker, i ask unanimous consent that miche -- that all members may have five legislative days to revise and extend their remarks. the speaker pro tempore: without objection, so ordered. mr. smith: mr. speaker, i yield myself such time as i may consume. the speaker pro tempore: the gentleman is recognized. mr. smith: mr. speaker, the senate amendment to h.r. 514 extends the three expiring provisions of the patriot act for only 90 days. i am disappointed that the senate refused to agree to the 10-month extension approved by the house earlier this week. repeated short-term extensions of these authorities create uncertainty for our intelligence agencies. they don't know if thetools they rely on today will be available tomorrow. that's why house -- the house sought a 10-month extensi to allow sufficient time to re-authorize the law while providing greater certainty to the intelligence community. with adoption of this amendment, the house and senate will now have to move expeditiously to approve a patriot

re-authorization bill so we can avoid the need for another short-term extension. it is important that the house approve this 90-day extension today to keep the expiring intelligence gathering provisions in place. in in a recent letter to congress, director of national intelligence admiral clapper and attorney general holder said that, quote, it is essenti that these intelligence tools be re-authorizebefore they expire. and they have been used in numerous highly sensitive intelligence collection operations, end quote. last week homeland security secretary janet napolitano warned that, quote, the terrorist threat is at its most heightened state since the 9/11 terrorist attack, end quote. just this week the f.b.i. announced that the probability that the u.s. will be attacked with a weapons of mass destruction at some point is 100%. the head of the f.b.i.'s weapons of mass destruction direct rat saidhat the type of attack that keeps m awake at night is anttack by the so-calledone

wolf. with the likelihood of a weapons of mass destruction attack at 100%, we cannot afford to leave our intelligence officials without the pools they need to keep america safe. the war on terror i not over. but the terrorist threat is constantly evolving. we must fully arm our intelligence community with the resources they need to prevent another devastating and deadly terrorist attack. mr. speaker, i urge my colleagues to support the senate amdment, and i reserve the balance of my time. the speaker pro tempore: the gentleman reserves the balance of his time. the ntleman from virgini mr. scott: thank you, mr. speaker. mr. speaker, i rise in opposition to the motion to concur with the senate amendment which will have the effect of passing the extension of the expiring provisions of the u.s.a. patriot act and intelligence reform terrorism prevention act. and i yield twominutes to the gentleman from massachusetts. the speaker pro tempore: the gentleman is recognized for two minutes. mr. frank: i thank the gentleman from virginia for giving me a chance to go earlier.

i want to speak now because wh we voted the second time on the patriot act, the first time i did vote on the extension, the second time i missed the vote, my fault, but i want to make clear my opposition not to an extension of the basis of lf-defense that we have here, but passing it unchanged and a failure of the legislative process. we knew this day was coming. to extend this now and the gentleman from texas will mentiothe fact we were unable to do it indefinitely, without a chance to amend it, when the bill came up twice it was in either case a cnce to offer amendments. twice on suspension, once in a closed rule. to be prented with either or is a bad idea. there are things that can be improved. there are areas where there are excesses. we have gone through a lot of symbolic activity in the legislative process this year. the vote to repeal the health care bill. vote reaffirming that we would do oversight which we have been doing and which is our duty.

time that could have been spent in committee working on a process offering people a chance to amend so weould not for the third time be confronted by the majority with up or down and unchanged patriot act. of course we are supportive of continuing our ability to defend ourselves. but not without some refinement. not without some look and say, yes, there are ways we can do this but more respectful of the liberties of the average american but would not endanger in any way our national security. the third ti we are being denied a chance to do this and i therefore will join my colleagues in opposing this not because we don't want to see any extension at all, but because we want a chance to work on it so we can do an extension of much of this act but with some improvements. i yield back my time. the speaker pro tempore: the gentleman's time has expired. who seeks time? the gentleman from texas. mr. smith: mr. speaker, we'll reserve the balance of our time. the speaker pro tempore: the gentleman from virginia. mr. scott: thankou, mr. speaker. mr. speaker, i yield myself such

time as i may consume. the speaker pro tempore: the gentleman is recognized. mr. scott: mr. speaker, although the senate has rejected the house version of the bill with a one-year extension, and has amend the bill to provide only a 90-day extension which will provide us a me accelerated opportunity to actually deal with the issues involved, the reservations that i previously stated on the floor remain the same and still oppose any extension. i cannot support this extension when the house has done nothing to consider these provisions of possib reform, even hold a hearing or markup. in the past members have had the opportunity to receive classified briefings. we have dozens of new members, many on the judiciary committee, who have received no such briefings. the three sections scheduled to sunset are deeply troubling and i hope we'll have the opportunity to review them carefully before they come before the house again. section 215, authorizes the government to obtain, quote, any tangible thing, unquote. so long as the government

provides a statement of facts showing that there are reasonable grounds to believe that the potential things are relevant to a foreign intelligence international terrorism or espionage investigation. that would include business records, library records, tax record educational records, medical records, or anything else. before the enactment of section 215, only specific types of records were subject to fisa orders and the government had to show specific and arparticular labble facts given reason to believe that the person to whom the records pertain is a foreign power or agent of a foreign power. this dragnet approach allows the government to review personal records even when there is no reason to believe that the individual is involved or had anything to do with terroris this poses a threat to individual rights and in th most sensitive areas of our lives to little restraint on government. congress should either ensure that t this collected with

this power has a meaningful connection to suspected terrorism activity, or allow those provisions to expire. section 206 provides for a roving retire tap which permit the government to obtain intelligence surveillance orders that ideify neither the person nor the facility to be tapped. without the necessity to specify the person and the facily to be tapped, you have a situation where the tap could be on a take phone. without a specifically designating the person to be listened in to, that means anybody using that pay phone, for example, can be listened in to or roving wiretap on a person could result in any phone that that person might use being tapped, even if others use that phone, too. section 601, the intellince reform and prevention act of 2004, the so-called lone wolf provision, permits sect

intelligence of nonu.s. persons who are known to be not affiliated with any foreign government organization. provides the government the ability to use secret courts or other investigateor tools that are acceptable in a domestic criminal investigation as long as we ardealing with foreign government or entity. according to government testimony, the provision, lone wolf provision, has never been used. given the risk of this provision being used to circumvent existing protections ainst government intrusion, the government should explain why it should remain on the books. surveillan of an individual who is not working with a foreign government or foreign organization is not what we usually understand as foreign intelligence. there may be good reason for governments to keep tabs on such people, but there is no reason to suspend all of our laws under the pretext that it's a foreign intelligence operation. whilsome have argued these authorities remain necessary

tools to fight against terrorism and that they must be extended without modification, others have counseled cautious review and modification. some have even suggested to allow some of those provisions to sunset and if they are needed they can be reinstated. i believe we should not miss the opportunity to review the act in its entirety and examine how it is working, where it's been successful, where it's failed, where it's gone too far, where it may need improvement. that's the purpose of sunsets and to extend it without review undermines that purpose. there are other authorities that deserve careful review. the gentleman from new york, mr. nadler, has introduced the national security letters reform act which would make vital improvements to the current law to better protect cil liberties while ensuring those letters remain a useful tool in national security investigations. i hope we can work to strike that balance in a responsible and effective manner, but the record of the abuse of those letters and the authority of

those letters is too great for congress to ignore. it is encouraging that there were significant bipartisan opposition last week to the extension of theatriot act. it shows a healthy skepticism of unrestrained government power to spy on people in the united states. we need to rtore our traditional respect for the right of every individual to be secure from unchecked government intrusion and i hope that we'll be able after this vote to carefully examine the ways these provisions have been used or abused and to look at ways to reform the law in the light of that experience. that's the purpose of sunsets and i hope we can take advantage of that opportunity. mr. speaker, i reserve the balance of my time. the speaker pro tempore: the gentleman reserves the balance of his time. the gentleman from texas. mr. smith: we are prepared to close. i reserve the balance of my time. the speaker pro tempore: the gentleman reserves. the gentleman from virginia. mr. scott: mr. speaker, i yield three minutes to the gentlelady from texas, member of the judiciary committee, ms. jackson lee. the speaker pro tempore: the gentlelady is recognized. ms. jackson lee: i thank the gentleman. i want to thank the senate for

recognizing that we do have a problem and they recognize it by extending the time frame only for 60 days and not for one year. with that in mind, however, it's important to note that we are still with the same initiative that has not been subjected to the opportunity for members of this congress to, in fact, review closely the idea of the infringement of some of these aspects, some of these provisions as relates to the infringement they may have on the constitutional rights of our citizens. yesterday in a markup i offered an amendment to affirm that legislation that we were marking up dealing with tort reform had at least a confirmation that we wanted to respect the constitution and adhere to do

right. the due process rights. i'm glad the members, democratic members who were there and present voted yes and all the republicans voted no. i think adhering to the constitution and ensuring that constitutional privileges for provisions are respected is an important concept. in this instance we have not had the chance for full hearing. and i'm very glad to note, mr. chairman, mr. speaker, that in the hetcht -- 111th congress we did, but unfortunately even the amendments we passed in that congress, bipartisan amendments, were not in this initiative that was passed by the house. i offered amendments to ensure that any surveillance on this 215 where library records could be in question, if you read a certain book and librarians across america were appalled at that intrusion. i offered amendments to ensure that any surveillance of an american is done through established legal procedures pursuant to fisa and the fisa

court authority and ensure that the foreign intelligence surveiance court is indispensae and would play a meaningful role in ensuring compliance with our constitution as we voted on bipartisan amendments, last year in the 111th congress, as i indicated, they were not incded in this rendition of the bill. in those hearings multiple concerns were raised about the breadth of the patriot act and the leeway it gives toe infringe on an individual's privacy and civil liberties. i as well am very, very convinced that we do need to secure our homeland, but human intelligence is a very large part of that. intruding into the rights of americans should be done with the carefulness of that -- it deserves. in the markup i also personally introduced amendments that would allow for greater transparency in the patriot a and enhance protection against violation of individual civil liberties. none of those amendments as introduc by any of my

colleagues at that time have been included in this legislation. . none of the privacy concerns. >> mr. speaker, i yield the gentlelady an additional minute. the speaker pro tempore: the gentlelady is recognized for an additional minute. ms. jackson lee: none of the privacy concerns raised in those hearings have even been addressed. i'm deeply concerned that my colleagues on the other side of the aisle are considering overlooking the very valid concerns of the american people without so much as a hearing. therefore i would argue that this is an improvement in terms of how fast we'll have to move, but it still has the same fault. and i simply say that the fourth amendment does say that it is the right of the people to be secure in their peons, houses, papers and effects against unreasonable search and seizures with that, mr. speaker, i ask my colleague to vote against this and begin our work as quickly as he can the can, but even with this provision passing, as i expect it will, we need to move quickly to protect the american people in terms of homeland

security and their constitutional rights of privacy. i yield back. the speaker pro tempore: the gentlewoman's time has expired. the gentleman from virginia. the gentleman is recognized. mr. scott: the 90-day extension in this bill is significantly more appropriate than the 10-month extension than the house has previously passed. i look forward if the bill is passed, i look forward to working with the leadership on the judiciary committee, the judiciary committee the past has been able to work constructively on this issue. in fact, when the patriot act was originally reported out of the judiciary committee it was reported on a unanimous vote. that was very unusual. the judiciary committee is one of the more contentious committees in the entire congress. but we can work together and i look forward to working with the leadership of the committee as we deal with the possible extension of many of these provisions. and i -- hopefully oppose the extension and i yield back the balance of my time. the speaker pro tempore: the gentleman yields back the

balance of his time. the gentleman from texas. mr. smith: mr. speaker, i'll yield the balance of my time to the gentleman from wisconsin, mr. sensenbrenner, who is the chairman of the terrorism and crime subcommittee. the speaker pro tempore: the gentleman from wisconsin. mr. sensenbrenner: i thank the gentleman from texas for yielding. i will be brief today. i will just make several points but not extensively because this is the fifth debate we've had on this subject in 10 days. and i think everything has been said. first of all, i have pledged in the past and i will pledge again today on this house floor that there will be hearings on a re-authorizaon of the expiring provisions of the patriot act as well as an oversight hearing on the patriot act as a whole. the three provisions that are up for re-authorization are important provisions to keep america safe. and i wanted to spell some of the misinformation that has again been placed on the record on the floor of the house today.

first of all section 215rks which is the business records provision, has more strict standards for the issuance of a fisa warrant than the issuance of a grand jury subpoena in a criminal record. and only business records can be obtained. that means that it's not subject to the fourth amendment because it's not a search and seizure under the fourth amendment. the re-authorization in 2005, which i authored, provided procedures for recipients of section 215 warrants to seek judicial review of those orders, compelling the production of business records. so people can have their day in court, to have the warrant quashed. with respect to roving wiretaps, they're nothing new. we have had roving wiretaps for decades over criminal investigations such azrak tearing and drug pushing. a roving wiretap order can only be issued by a judge. the law enforcement agency must

minimize roving wiretaps which means that if the target isn't on the phone at the time or they're not talking about something under investigation, then the wiretap has got to be turned off. and that provides for protections and that has never been challenged for its constitutionality since it was put in the pate the yot act in 2001 -- patriot act in 2001. finally the lone woldefinition is very importantecause in order to trigger the patriot act surveillance or applications for patriot act surveillance, without the lone wolf there has to be a demonsation that the target is a member of a group like al qaeda. and the way al qaeda has kind of sprung out or people who have said they're al qaeda when ty really night be al qaeda, -- they might not be al qaeda, lone wolf becomes absolutely vital. it's important to note that the

lone wolf authority cannot be used against a u.s. citizen or a legal permanent resident. it could be used against an alien who is present in the united states on a nonpermanent basis, meaning either a visa or as a visa overstay. all of this has gone through constitutional scrutiny. it has passed muster. i will give everybody a chance to speak their piece on the patriot act. believe me, these commitments have been made both by myself and the full committee chairman, the gentleman from texas, mr. smith. we're going to do it, we're going to get it done, but we need to have the extra time that was given to us by the senate. so, the motion that has been made by the gentleman from texas, mr. smith, is a good motion and an essential motion and it should be favored and i yield back the balance of my time. the speaker pro tempore: the gentleman yields back his time.

the eaker pro tempore: for what purpose does the gentleman from michigan seek recognition? >> in the claim of our 20-minute debate, 10 minutes per side, sir. the speaker pro tempore: the gentleman is recognized. >> thank you, mr. speaker. i rise in support of the senate amendment. we've already had a lengthy debate on this legislation. there is bipartisan consensus that these important tools for our intelligence community cannot be allowed to lapse. mr. rogers: the senate amendment, which was also supported by a wide bipartisan margin in the other body, will keep these three needed

priorities in place for the next 90 days, until may 27. while i have strong concerns about the short-term extension and how that will compress the time needed to have a full and complete debate over the longer term re-authorization, i will support the senate amendment in order to make sure that these tools remain available. as i said earlier i this week in this debate, it makes very little sense to me why we would not have the tools like roving wiretap authity and authority to obtain business records in terrorism and spy cases when the same tools are readily available in criminal cases. often with fewer protections for civil liberties. mr. speaker, i have said before i think this is one of the most misrepresented and misunderstood pieces of legislation i think i've ever seen. the things that exist in the ability for an f.b.i. agent to conduct incriminal activities,

including business records, including wiretaps, are just being extended to the fisa court, the federal -- or the foreign intelligence surveillance act court, to go against terrorism and espionage. that's the only difference here. it has been an important tool to keep america safe the last 10 years. i look forward to a thoughtful debate outside of the political rhetoric about what ople believe this act to do and what it really does do to keep americans safe. and if you believe that an f.b.i. agent should be able to get a subpoena for business rerds to solve a crime, then clearly you believe that the f.b.i. -- same f.b.i. agent should go to a fisa court to get a court order which is a higher standard for business records to prevent a terrorist attack. it's the only difference in these two i think misunderstood

provisions. and with that, mr. speaker, i would reserve the balance of my time. the speaker pro tempore: the gentleman reserves the balance of his time. the gentleman from maryland. >> thank you, mr. speaker. i yield myself such time as i may consume. the speaker pro tempore: the gentleman is recognized. >> i rise to address the senate amendment to h.r. 514 which would re-authorize three expiring provisions on the patriot act for an additional 90 days. mr. speaker, my position today remains the same as it was three days ago when we passed h.r. 519. as i said then, i would like to see a three-year extension of these authorities until 2013, similar to s. 289 which is currently pending in the senate. mr. ruppersberger: the president supports a three-year extension, too. believing as i do that a three-year term would give our nation's intelligence and w enforcement agencies predictability and certainty in the conduct of their critical work. setting a three-year sun set would also take this debate out of the political realm of an plex sson which i think is the best way to approach things. this should be a matter of

what's best for america with regard to electoral politics. i know there are vareying opinions to on my side of the aisle and principled members feel strongly in both directions. that's why i support re-authorization with a sunset. so we can take a second look at the authorities in three years, to make sure they're being used properly and individual civil liberties are being protected. a critical conderation as we move forward. i believe including a sunset in the legislative -- legislation provides theroper checks and balances necessary to ensure we are doing all we can to protect americans while also protecting americans' constitutional ghts. i don't think anyone in this chamber'spy with the position we're in now. some of us wanted a three-year re-authorization, some wanted a 10-month re-authorization and some wanted no re-authorization. and now here we are with 90 days which enshowers we'll be back here having this debate -- ensures we'll be back here having this debate soon.

i hope we can ar from all sides on how we can improvthe patriot act and i hope we can all decide to put the sunsets in the future to minimize the impact eastern. our guest includes transportation senator ray lahood. a couple of live events to tell you about today. on c-span 3, a conversation on medicare spending and policy. we'll hear from the former republican chairman to have house ways and means committee, bill thomas. live coverage from the american enterprise institute at 9:15 a.m. eastern. and a look at afghanistan strategies for peace.

live coverage from the u.s. institute of peace starts at 10:00 a.m. eastern. >> c-span's book "abraham lincoln, great american historianings on our 16th. " from his early years as a springfield lawyer to his presidency during one of our nation's missouri troubled times and his relevance today and while supplies last, the hard cover edition for the special prives $5 plus shipping and handling. go to c-span.org/books. be sure to use the promo code lincoln at checkout. >> it is a three-day president's weekend on book tv. her 1956 interview law firmed the career of veteran journalist carol simpson. this weekend, her story of

climbing the ranks in a profession dominated by while males. stephanie looks at the femme minute mystique and the by the of the women's movement 378 we'll email our schedule for you. sign up for booktv alert. >> next homeland security secretary janet napolitano on her budget request for the next year, $57 billion. this is a little less than two hours. [captions copyright national cable satellite corp. 2011] [captioning performed by national captioning institute] e.

>> it is our committee's annual hearing on homeland security's budget request for fiscal year 2012. before we begin, as you know, madam secretary, the department of homeland security emerged as a legislative proposal from this committee, we feel close to the department and to everybody who works for the department and in the department, in that sense, we have felt the loss this week of immigrations and custom agent afternoon is aime zapata. an a a mexican highway in his colleague also shot remains hospitalized. maybe, perhaps you could give us a report but he's in our prayers and i gather he's doing better.

this savage attack and coincidentally a suicide bombing that killed a retired cbp officer in afghanistan last week reminds us of the risk assumed every day on our behalf by the men and women who work at the department of homeland security. and so, i wanted to just at the beginning to express our thanks to all of them. each of them for their commitment through you, their leader, and tell them how much we honor and appreciate their service. these attacks, also, remind us of the variety of threats our nation faces and, therefore, the department's equally varied set of responsibilities and missions to protect us from those threats. clearly, one of the most important missions dhs has is to prevent terrorism against our homeland. it was the motivating event for

the creation of the department. as you noted today the threat of terrorism may be at the most heightened state since the attacks of 9/11. i'd like to talk to you during the question and answer period about that but to get to the bottom line here, the president's budget request for fiscal year 2012 asks for $43.2 billion in net discretionary funding. that's an increase of 1.5% from the current level of funding and it is a decrease of 0.8% from the department's request for fiscal year 2011. given the enormous deficits s national debt we're struggling with today, it seems to me generally speaking that the president's budget requests for the department of homeland security is responsible and it is fair. it doesn't include everything i would have wanted and in the best of times but appreciate

we're not living in the best of times economically. and that the president and you have had to make some tough decisions in putting the budget together. i do want to say i was pleased that the budget request does put additional resources into critical mission areas such as terrorist, travel, security and cyber security and i think those are the right priorities. i also want to express my appreciation for the fact that the budget funds these increases and a few other program increases by cutting administrative costs by $800 million, including a significant and from my perspective welcomed reduction in personal services contracts. that's just about the best way to fund some of the critical needs for extra support in the budget which is to say by finding economies within your own budget. and you've also identified

selected program decreases across the department as you must in tough times. there are some reductions which i'm sure trouble other members of the committee as they do me and we'll undoubtedly talk about them with you. fema takes a hit in the operationing budget. there's some cuts in the program of federal grants for local fire departments which have a lot of support here in congress. but overall, i repeat what i said at the beginning. in a tough time for our federal government, with the probably major focus that all of us as you can see from the day-to-day developments around here is how to bring federal spending back into balance with revenues. i think this is a fair and responsible budget. i almost say and fair balanced but i got worried it would be confused with other activities in washington so i look forward to your testimony. and of course, to continuing to

work with you in this session of congress as we did very productively in the last one to ensure that the department of homeland security has the resources and the authority it needs to carry out its critical mission on our behalf. senator collins? >> thank you, mr. chairman. mr. chairman, in the interest of time, i'm just going to make a few comments and i would ask that my full statement be inserted in the record. >> without objection. >> first, mr. chairman, let me associate myself with your comments about the two i.c.e. agents, one of whom was killed. the other wounded. it does remind us of the tremendous risk that law enforcement officials at every level of government, particularly since we're here today on the department of homeland security, we want to

recognize those efforts. but law enforcement at every level make on our behalf each and every day. when the congress and the administration form late the budget for the country, we are in essence establishing our national priorities. controlling spending, reducing our ruinous level of debt and funding programs to protect our nation are among those priorities. many of us are disappointed in the president's budget. we believe that it does far too little to rein in spending to bring the federal debt under control. it spends and borrows too much. it will lead to a record $1.6 trillion deficit in the next fiscal year. it will double the publicly-held debt by the year 2013. and triple it by 2020.

that simply not sustainable and puts our nation on a ruinous fiscal course. today, we're gathered to review one component of that budget, the proposal for the department of homeland security. protecting our nation and our citizens is not just the line item, it has to be a top priority. in fact, i think most people would agree that the number one responsibility of a government is the protection of its citizens. with tight budgets, we must work together to eliminate wasteful and unproductive programs and to increase the effectiveness and efficiency of government operations. the criteria used by the administration in making these decisions for the department of homeland security, however, seem

to be opaque because some very important programs appear to have been cut while others remain unscathed. for example, the homeland security grants that help our local first responders improve their effectiveness and serve as a force multiplier for federal resources have been reduced. that could undermine our state and local partners who are first on the scene whenever disasters strikes, whether it's a natural disaster or a terrorist attack. in testimony before the house last week, secretary napolitano stated that in some ways the terrorist threat facing us is at its most heightened state since 9/11. and that's why we have to take a close look at the funding levels. i'm also disappointed that the administration again has

proposed to limit operation stone garden to just the southwest border. this effective program which relies on partnerships with state and local law enforcement should be used to help secure both our northern and southern borders. senator lieberman and i recently released a goa report that found shockingly that the border patrol has effective control of only 32 miles of the 4,000-mile northern border and has situational awareness of only about a quarter of that border. and while the northern border does not have as many problems as southern border, it is vulnerable nonetheless to illegal crossers including individuals seeking to illegally come to this country, criminals

trafficking in humans and drugs, and potentially terrorists. i mentioned before that the smuggling of methamphetamine is one example of the growing problem along our northern border and it's a particular pan the state of maine. the stone garden funds have been extremely successful in my state. in allowing local and county and state law enforcement to work with our border patrol and other federal officials. the chairman has mentioned the fire grant program. a program that works with a minimum of bureaucracy to ensure that fire departments have the support they need. let me just finally mention one area of great concern to me and that is the budget for the coast guard. the coast guard's fleet is among

the oldest in the world. yet the men and women of the coast guard continue to perform ever-expanding missions with a high degree of success. they deserve a fleet worthy of theirests. but the president's budget proposes a 22% reduction in the coast guard's deep water program. that's a cust $59 million. much of this cut is due to the fact that no funding is proposed for the sixth national security cutter that will push completion and final cutter back to 2018. and as we know, the high-endurance cutters of which there are 12 are aging rapidly and causing a great deal of problems -- number of problems for the coast guard. i am like the chairman, pleased to see the increases in the cybersecurity budget. i think this is an emerging

threat that is getting worse with each passing day. finally, i will be pursuing my questions that i remain disturbed that peopfema has don little to recoup the improper payments that occurred in the wake of hurricane katrina. investigation that we did showed that those improper payments approached $1 billion. and the i.g. has identified more than 160,000 applicants that have received improper payments, totaling more than $643 million that have yet to be recouped. again, i look forward to discussing these issues with the secretary. i do want to acknowledge that i appreciate the efficiencies and business practices that the secretaries work very hard to achieve. thank you. >> thanks, senator collins.

secretary nap pal tan know, it's been a pleasure to with you. >> thank you members of the committee for the opportunity to discuss president obama's fiscal year 2012 budget for the department of homeland security. the demands on dhs have never been greater. this is especially true as we remember those at the department who have given their lives and service to our mission of securing america. including, as you have noted, most recently, border patrol agent brian terry. i.c.e. special agent jamie zapata and our retired cdp agent in kandahar this past week. now, mexico is leading the criminal investigation into the death of agent zapata. and we are supporting them

through a joint doj-dhs task force that the attorney general announced yesterday. i can speak for the entire administration when i say we are not only saddened by the loss of an agent, but we are outraged by this act of violence against an officer of the united states. and make no mistake, justice will be brought to those involved. we know nothing less than to the memory of agent of those of mexico. we remain relentless in efforts to keep our border secure and to assist mexico in breaking up the cartels that are plaguing that country. the loss of these brave agents are a stark reminder of the sacrifices made of the men and women by the department of homeland security every day. it also strengthens our resolve to do everything we can in our power, to protect against,

mitigate and to respond to threats and make our nation for resilient for years to come. it's also a reminder of the solemn duty of the congress and this committee to support and oversee the department. i want to thank you, mr. chairman and members of the committee for the support you have shown of the men and women who carry out our many missions. today's threat picture features adversaries who evolve quickly and determined to strike us here at home from the aviation and global supply change to surface transportation, critical infrastructure and cybernetworks. we are leading the administration's unprecedented effort to strengthen southwest border patrol security. coupled with the approach to enforce immigration laws in the interior of our country. and we continue to prepare for, respond to and recover from disasters of all types. president obama's fy-2012 budget

for the department allows us to meet the evolving threats and challenges by prioritizing the especially operations requirements. while reflects an unprecedented fiscal attitude of every dollar we receive. reflecting the current fiscal environment, in building the fy-2012 budget, all dhs components identified savings associated with the department's 33 efficiency review initiatives. and we cut administration and overhead, including my own office's budget by over $800 million. savings were realized through efficiencies in acquisition, asset and property management. as well as employee vetting and credentialing, firing and onboarding of personnel and information technology. and we cut professional services contract, travel and nonmission critical training.

we also delayed construction of fema at the new dhs headquarters at st. elizabeth's. and deferred numerous office co-locations, as well as building maintenance and enhancements that would have furthered our mission. my statement includes a comprehensive list of operational priorities in the budget request. today, i'd like to high light a few of them here. as you mentioned, mr. chairman, our first priority is enhancing security. this, the founding mission of our department, remains the top priority of the day. budget safe guards, transportation modes through a layered detection system, including deployment of additional transportation security officers, behavorial detection officers, canine teams and advanced teams at airports while expanding tireless vetting, and screening of international travelers before

they border u.s.-bound flights through the immigration advisory program. the budget also strengthens service transportation security by supporting 12 new multimodal viper teams. stands for visible, intermodal protection and response for central and terrorist activity. the request also provides funding for secure's the city's program, to protect our highe - highest-risk cities. and may goes a significant investment in advanced diagnostic capables to protect our animals from emerging animal diseases. an advance for support for the national network of state and local fusion centers. to enhance baseline capabilities and provide local law enforcement with the tools to address threats in our own

communities. our second mission is to secure and manage our borders. the historic border security efforts by supporting 21,370 border patrol agents. 21,186 u.s. border patrol officers. the budget includes $242 million for the continued deployment of proven effective surveillance technology along the highest-trafficked areas along the southwest border to better meet the operational requirements of our agents on the front lines. for the northern border, the budget request supports investments in technology, tailored to the maritime and cold weather inenvironment. including proven, stand-alone technology to provided me benefits. for the nation's maritime borders, this budget includes funding to continue the national

security cutter program and makes historic investments to recapitalize the coast guard's aging assets including six past cutters, 40 response boats, as far as an investment in restoration of facilities. we look forward to talking about that part of the budget with you, senator collins. the budget request also continues the department's focus on smart and effective enforcement of our country's immigration laws, while streamlining the legal immigration process. building on the record over the past two years, the department will continue to prioritize the identification and removal of the criminal aliens who pose a threat to public safety and we will target employers who knowingly and repeatedly break the law. this request enables u.s. customs and immigration enforcement, i.c.e., to fund 33,400 detention beds. remove over 200,000 criminal

aliens and deploy secure communities to 96% of all jurisdictions nationally in fy-2012. while promoting compliance with work-sited related laws through criminal prosecution of egregious employers, i-9 inspections and continued inspection and enhancement of e-verify. the report also has immigration efforts like programs with language and citizen information programs and continues the reform efforts currently under way. to to safe guard and secure cyberspace, the budget has sources to identify and reduce vulnerabilities in our nation's key cybernetworks. the request has significant investments to expedite the deployment of einstein 3. to increase federal network security of large and small agencies and to continue to

develop a robust cybersecurity workforce to protect against and respond to cybersecurity threats. the budget also focuses on combatting cybercrime and preventing attacks against our critical infrastructure. to ensure resilience to disasters, our next mission area, the budget request focuses on moving resources out of washington, d.c. and into the hands of state and local responders who are often best positioned to detect and respond to terrorism. natural disasters and other threats by sustaining federal funding for state and local preparedness grants providing over $3.8 billion in fy-2012. the funding includes $670 million for assistance to firefighter grants, including $420 million to rehire an estimated 2,300 laid off firefighters and retained veteran first responders.

and to lead and support a central national and economic security efforts, the budget expands the coast guard's operational capacity by funding 50,682 military and civilian positions and establishing the coast guard's first incident management assistance team which will be deployed rapidly to support incidents of national significance. the request also continues to support i.c.e. and cdp's enforcement and investigative efforts to protect united states' intellectual property rights, as well as the secret services' state of the art forensics for the national center for missing and exploited children. this budget a culmination of first of its kind of the department. to align our resources with a comprehensive strategy to ensure a safe, secure and resilient

homeland while making an unprecedented commitment to fiscal discipline. i would be remiss, however, if i did not knot that all of this progress is at rick risk in the house. it's somewhat of a target. but the current cuts investments on the southwest and northern borders, aviation security measures, including new technology. funding to sustain a progress that's been made in enforcing our sbim gratilaws. and coast guard funding to support efforts abroad and grants to support counterterrorism and response at the local level. i'd be happy to answer some of those questions as well. chairman lieberman, senator collins, members of the committee, thank you for his opportunity to testify. i ask that my full statement be

included in your record. and i'm happy to answer your questions. >> thank you, madam secretary. and of course, we will include the full statement in the record without objection. let me ask you to begin by focusing on -- in the sense, the catalyzing mission in the department after 9/11 which the is terrorist threat. and in the statement you made last week that terrorist threat might be at its most heightened state since the attacks nearly ten years ago. talk a little bit, if you would, about why you said that. what you had in mind. >> i said that because, in addition to core al qaeda, we now have a spinoff groups of al qaeda, including i think importantly aqap who had demonstrated their intent to attack the west and to attack the united states. they continue to focus on transportation nodes, particularly aviation security.

which is why the aviation part of this budget is so important. but combined with that, we are now seeing the rise in the so-called homegrown terrorism, which is, i think, accelerated by connection with the internet. so we're dealing with more d dissipated sources a broad, but within the country. that means we have to be working with both things at the same time. that's why the fusion centers are so important here in the country, in our effort to push information intelligence analysis out to states and to cities. but it's also why we're so focused on aviation execute at domestic airports and internationally. as well as adding support to surface and other transportation, as we know from the azazi case. with the most recent one to

attack transportation. >> let me ask you about the threat of homegrown radicalization. i'm sure you note, senator collins and i recently released a bipartisan staff investigation into the murders at ft. hood in november 2009. and in addition to specific recommendationings to the department of defense, fbi, et cetera, we recommended that there be a review done, preferably in the auspices of the white house, preferably, mr. brennan, which would include dhs. to determine what we can do to better, with a whole of government approach, counter homegrown radicalization. we had a hearing on our report this week. and with a group of excellent

witnesses, one of them, phil marred who was with the cia for a long time. almostky dhs, was with the fbi. he said this was a needle in the haystack. and quoted exactly since 9/11, '01 to 2009 there were something like 46 or 48 homegrown radicalization issues. obviously, 46 or 48 over a nine-year period is a very, very small percentage of the muslim-american population. so the question, though, an individual that we saw with hasan at ft. hood can do terrible damage. 13 people killed, 32 people injured, some seriously. do you have any ideas about what the department can do along with other federal agencies to better

identify, counter and prevent the existence or, certainly, the spread of homegrown radicalization of muslim-americans into islamist terrorists? >> well, first of all, i read your report, even though it was about d.o.d., fbi and the hassan matter. i thought it was a very important report to review. so thank you for having that review done. it was very well written, well done. i don't know if they -- the actual scripter or -- you wrote it yourselves, okay. i thought you did a very nice job. >> thank you, thank you. >> where we have been focused. we looked at this and we had the homeland security advisory committee which is chaired by william webster, former head of the fbi, especially look at this whole issue of homegrown and how

could you counter violent extremism. and we decided that the most effective way from the homeland security perspective was to focus on local police departments and techniques that have been shown to work in the past where neighborhood and community policing, where you have police who are specially trained but who really are located in a particular area, all the time. they get to know the people. the people get to know them. you begin to build trust. that's how information can flow. so just this past week, at flexi, we test drove a training curriculum on this kind of homegrown violent extremism. and we had representatives there from a number of different police and sheriffs' organizations to give us their comments so that we can rule that out. but this homeland security architecture that we are building, i think one of the things we have to recognize that

the federal government alone is not going to be the only player here. the folks who are really front lines are state and local police, sheriffs. medical personnel. you know, you know, the people who are in the detention facilities, who work as guards in our jails and our prisons. these are all people who need to be woven into what we're doing. and we also met this past week with the fbi and joined efforts with them on the detention populations. >> right. >> and their potential when they're released from radicalization. so there are a whole number of efforts under way there. but our key focus, mr. chairman, is what we can do to support state and local law enforcement from the community oriented policing strategy to identify tactics and techniques and

behaviors that could be a real tip-off to a terrorist. >> i think that's a very significant conclusion. it makes a lot of sense to me. we know in a couple of cases as in the nypd, they're operating something like that quite effectively. we also know just from years of local law enforcement experience that the cop on the beat programs, in previous years, dealing with crime, have a very positive effect. so i'm actually heartened to hear that. and i guess the final question, bottom line, is are there resources in this budget that will allow to you begin to move forward on assisting local police departments that don't have that kind of program going now. >> mr. chairman, a few things. one is, there are resources in this budget for the fusion centers. and we have been, first of all, upgrading the quality of the fusion centers.

they're a naisent kind of development. we looked at all 72 of them this year. decided which one have baseline standards which ones need to come up. making sure they all have access to classified information networks. and we're moving intel analysts from d.c. to the fusion centers in the country, not only to help with intel analysis, but to train state and local officials on intel analysis. so there's money in the budget to train on fusion centers. there's money in the budget to support grant programs that can be used by state and local police and first responders. and when i get to senator collins, i think we can have a colloquy, perhaps, about how the grant money is actually budgeted in the president's budget. the third part of this, however, is the cops program. >> right. >> that, of course is not in our budget. that's in d.o.j.'s. and so that part, i don't have.

>> okay. that's great. and i take you to say you're going to be driving training at least of local police departments in a counter-homegrown radicalization program? >> that's true. >> senator collins. >> thank you, mr. chairman. before i get to the coast guard and the grant money, there are two other issues that i want to bring up with you. first is the improper payment problem at fema. hurricane katrina was back in 2005. and the american people were very generous in responding, as i know senator land drew would attest. but they're also very frustrated when they see improper payments. it was disheartening to see the latest i.g. report which indicates, and here we are, six years after hurricane katrina.

that there is still outstanding, at least $643 million in improper payments related to hurricanes katrina and rita. now, i know there were some court developments which slow the recoupment process. but the fact is, according to the i.g., fema has yet to implement a new process to recoup those payments. we just can't afford to have $643 million in improper payments at a time when the budget is under such pressure. we can't afford it at anytime. it's unacceptable. why aren't we recouping that money or prosecuting the cases of fraud that exist within those

160,000 cases? >> well senator collins, this is an area that i think we need to work with the congress on. and you and i may have a respectful difference of opinion here. but first of all, one of the problems is, an i.g. report that comes out so many years after the fact. and there are some, i must say, some disagreements with their conclusions on some of the payments. secondly, it's not as if one, two, three or four entities receive that money. it's spread over literally thousands and thousands of beneficiaries, most of whom are spread across the country now. and i'm informed by fema that the average overpayment, even accepting the i.g.'s conclusions wok have been $2,500. it's not like big -- it's a lot of money when you add it all together. believe me, i respect the value of declare. but this is now going back years

and years, after the fact, to try to find people to recoup relatively small amounts of money. we may want to look at this whole recruitment process as it affects katrina, rita. it was such an unusual disaster. such unusual requirements that i don't think it should be the pattern. so i really would like to meet and talk with you about that as we move along in this budget process. >> i'd be glad to, but let me suggest that i've talked to the i.g. just within the past week about this. and he's told me that the discouraging part of his report is that the same problems and lack of internal controls that allowed these improper payments to occur have been evident for decades. literally.

they've just never been remedied. and i think to most people who are struggling right now, $2,500 is a lot of money. >> it is a lot of money. >> and in the aggregate, it's a huge amount of money. >> agreed. >> i would be glad to work with you, but fema needs to actually start recovering some this money and making sure that the controls are in place so that when the next disaster strikes, and inevitably, it will, the same thing doesn't happen again. in talking to inspector general skynyrd, he said he could go back to 1993 and show me the same kinds of problems. i held hearings prior to hurricane katrina that showed improper payments with florida hurricanes. so this seems to be a systemic problem in fema. and it's one that we need to do

correct once and for all. >> and it may be. and again, i don't -- it merits a more substantial conversation, particularly with the katrina/rita victims/survivors are concerned. there's a real attention getting money out to people and the controls on that, going after the fact and saying well it should have been this much, not that much. that sort of thing. that's different from actual cases of fraud. fraud should be prosecuted. >> of which will there were many. i remember we discovered prisoners who applied for housing after hurricane katrina and received checks in mail for housing assistance. there really were blatant,

fraudulent schemes. let me switch to another issue. i was surprised to see at that president's budget begins to be imposing a $5.50 fee on travelers entering the united states by air or sea. from canada. now, as you know, canada is our biggest trading partner. there is $1.5 billion in commerce transacted between the two nations on a daily basis. people are flying, arriving by ferry back and forth all the time. what is the rationale for this fee? my concern, for example, is that will discourage cruise ships from coming to the state of maine from canada. that is a popular route right now. but if there's going to be this

additional inspection fee on the house to of people who may be on a cruise ship, that may discourage cruise ship from even stopping here. and i'm also concerned about the impact on tourism and families going back and forth in general. what's the rationale, and did the department look and assess what the impact would be on commerce and tourism? >> yes. the rationale is fairness. we charge that fee for travelers from every other country except canada, mexico, the caribbean. it has always, in my understanding, be the intent to implement that fee. it's not for land. it's just for the air and sea. we thought and looked at potential impacts but to give you an example, if you have a traveler coming from london to the united states. they fly direct. they pay that fee. but if they're plane stops in

canada, so they're coming from canada, they don't pay the fee. so you have some real discrepancies in the system. in terms of effects on tourism and travel, i think we can look at the esta fee which went into effect. these are things that get added to the ticket price so that the travelers from other parts of the world are not essentially underwriting travelers who are from canada or mexico. >> thank you, mr. chairman. >> senator collins, in the order of both arrival and in seated seniority at the gavel, senator land drew, senator mccain, senator johnson and senator tester. >> i asked about that and i was reminded that when the gavel falls it goes by whoever is here by seniority on the committee. it's the armed services rule. >> i thank senator mccain who

actually was here right before. i appreciate going now. madam secretary, i appreciate going here today and i'll look forward to you having you before our subcommittee for appropriations very soon. i think on march 2nd, as of taking the chairmanship of that subcommittee. i have to say i want to commend you. this has been a very tough year for the department. you've had the coast guard that's fought to contain the largest oil spill in american history. our agents have responded to terrorist attack s at ft. hood and times square. fema has responded to 106 separate instances -- incidents this year. so i want to say i appreciate your leadership of this department. i also appreciate your willingness to cut, reduce and

modify, based on the challenges before us. but i do want to say that we've got to be very careful about how we go about that exercise so that we can continue to provide the security that our nation needs and has come to depend on, under your leadership and with this department. my first question has to do, however, with something that is related to disaster relief, that's concerning. because it's a big number. the senator from maine was just referring to a number associated with failure to recover in large measure, $2,000 payments equaling about $640 million. that's a lot of money. and i want to comment on that in a minute. but there's an issue that's $1.6 billion that is affecting this year's budget. and i think you're aware that both in the house resolution,

the house concurrent resolution that's being debated and in the president's proposal, they're both recommending that we basically fund disaster response out of the base budget of homeland security which in my mind is a radical departure from the past. and will absolutely, if left unchecked, undermine your department's ability to respond all the things that i just said and have been pointed out. cow comment and what is your position on that? and are you prepared to, you know, work with us and the president, to see if we can get that -- not designated as an emergency. it san emergency, funds as an emergency. >> thank you, senator. and i do look forward to appearing before you at the appropriate subcommittee hearing. yeah, what's going on, this is the durf.

and the way we budget is take a five-year rolling average of what's basically emergency response cost. but added to that then, you have so-called catastrophic disasters. and those are disasters that are over $500 million. and, you know, it is difficult to predict when you are going to have those or how many you will have in a given year, if you will have any. and so historically, what the congress has done is approve the five-year rolling average. and then buy a supplemental when we know we're looking at, then they appropriate the rest. by not proceeding in that fashion, you have two challenges. one is it requires us to have really, really good crystal balls. perfect crystal balls, as to how many disasters of the catastrophic type we'll have in a given year and our crystal

balls are not that color. secondly, we have to pay for disaster response. it's really non-negotiable. so what that means is that if we don't have a mechanicism to fund it, it's a hidden cut to fema and a substantial one, as you well know. >> i just want to bring to the committee's attention, of course, as the appropriations committee i'll be focusing on it. but i really want the members to fully appreciate the numbers here. it's $1.65 billion in fy-11 that is not being funded appropriately. but the next year for fy-12, fema's estimating $6.7 billion. those are outlying bills from katrina, rita, gustav, ike, and rhode island and tennessee and the 106 subsequent disasters since katrina and rita. that's not in any budget. and it most certainly cannot

come out of homeland security budget or we won't have a border patrol. senator mccain? we won't have any border patrol. we have to use that as the emergency that it is, so that this department can do its other responsibilities which are border control and coast guard, et cetera. so i just really wanted to bring that up. and my final question in my final minute, the national disaster recovery framework, not response framework, but recovery framework, is a difference, is very important, madam secretary. and i understand that it is not yet fully operational. and it gets a little bit back to what senator collins was saying about we know katrina was an exception. it was not blanket fraud. it was just mismanagement of distribution of monies of $2,000, approximately, to families. we didn't have the computers for the addresses. we double paid some families.

it's going to be difficult. but we can find a better way or more accurate way to make sure we're giving out those payments. but for the national recovery framework, i understand that it's still not in place. so do you know what the status of that initiative is? does this budget include sufficient funding to complete it? because it's very important that we get it completed before we have an earthquake in memphis. >> yes, senator. but it's also -- it crosses many lines and many agencies and it also crosses state and local. so there has been, as you might imagine, a lot of consultation that has gone into drafting recovery framework responses. the immediate stuff you do right away. recovery is how you restore communities, housing, small businesses and the like. we -- in terms of the departments that are impacted, we have made a strong recommendation to the white

house about how this should appear and be organized. we're waiting now for the white house to agree, concur, amend, disagree. and my understanding is, at that point, we may need to make some adjustments. but under the current practice is what we have now, the budget request is adequate. >> thank you. excuse me, thanks senator land drew. senator mccain. thank you, mr. chairman. madam secretary, thank you for being here. thank you for your hard work. thank you for the frank and very candid conversations we have concerning the issue of border security. and i also want to appreciate the time and effort you take to keep me and other members of the

border states informed as to the efforts you're making on border security. and i think it's important that we continue the conversation. and i appreciate you briefing that you gave me just the other day. as you know, there's a february 15th gao report that is -- contains some very interesting information. and among that -- in that report, it says, as of february 2011, cdp did not have an estimate of the time and efforts that are needed to secure the southwest border, as it transitions to a new methodology from measuring border security. i think this is part of our problem in our dialogue, because you, i think, very appropriately point out that there's been an increase in assets and increase in apprehensions. certainly increases in

efficiencies. and yet, at the same time, if you look at the same situation from another viewpoint, wee seen the violence in mexico go up dramatically, as i predicted to you. an american was just killed and another one injured. and i am convinced tragically that if the status quo remains, that violence will continue to spill over on to our side of the border. everyone knows that these drug cartels have become more aggressive, better armed. better equipped. more efficient. and the level of violence in mexico continues to go up dramatically. some 30,000 mexican citizens as you know, or more, have been killed during president calderon's presidency. so you can look at it from one viewpoint that we have made some significant improvements and investments. but i also find, when i go to

the southern part of my state as you have on numerous occasions, one, they don't feel safe. two, they are still subject to home invasions. three, in the tucson sector, it was 91,000 illegal aliens were apprehended on federal lands. and the estimates are by almost every objective observer that three times as many get through. well, if you do the math on that, you still got over 200,000 people crossing the tucson border, or tucson sector, illegally. and not being apprehended. i don't think that that is acceptable. and then last week, i have a hearing -- a meeting, i'm sorry, with the office of friends of yours, in fact, the great u.s. attorney who was a former assistant of yours was there. and they said that there's anywhere from 100 to 200 spotters positioned in mountain

ranges of arizona, using two-way radios to communicate with marijuana load drivers or human smugglers. now, it doesn't give my constituents a feeling of confidence if there's 200 spotters in arizona living on mountain tops, directly drug smugglers. and they maintain that arizona has become the funnel from know gallas into pinera county and all over the country. because of the sinaloa, cartel, a major distribution of these drugs. again, i've had the privilege of visiting with your people, knowing them, they're outstanding, dedicated. those working on the forward operating bases on our border, that's a hardship duty. obviously, we see case where is