this is a bad, ill-informed amendment. the chair: for what purpose does the gentleman from pennsylvania rise? >> move to strike the last word. the chair: the gentleman is recognized for five minutes. >> mr. speaker, i rise in opposition to the walden amendment. mr. speaker, the f.c.c.'s open internet order brings certainty and clarity to a debate that has raged on for almost a decade, allowing internet service providers, as well as edge and content providers, to fully focus on broadband investment, innovation and other pressing business matters. in fact, broadband providers like at&t, time warner and comcast have all expressed support for the rules and indicated that the f.c.c. has achieved a balance result. mr. doyle: wall street investment analysts have also concluded that the f.c.c.'s open internet order removed any regulatory overhang for telecom and cable companies and reflected a light touch version

of regulation that will not hinder growth in innovation. at the end of the day, the f.c.c.'s rules simply maintain the status quo principles that most broadband providers already embrace. the rules preserve a number of existing business models for broadband providers to pursue as well as paving the way for new innovative offerings. contrary to the claims by opponents of the f.c.c., these high-level rules of the road do not allow the agency to micromanage broadband providers. they balance clarity with flexibility. and they don't require broadband providers to seek permission from the commission before deploying a network management practice. in fact, the rules specifically recognize the unique network management challenges across different platforms and afford broadband providers the latitude they need to manage their networks efficiently. some opponents of the f.c.c. argue that we don't need any rules in this area because any

trust laws -- antitrust laws are sufficient. but antitrust remedies occur after harm occurs. these rules in contrast allow companies and innovators regular certainty, a key component that allows business to thrive. mr. speaker, the f.c.c.'s open internet rules are just these three simple promises. one, to consumers that we can visit any website we want using any service we want on any device we want. two, for innovators, that they can create new tools without getting permission from the government or the company that the consumers use to get online. and, three, that we provide a cop on beat, to make sure that both sides are doing what they're supposed to and to be a neutral arbitrator. that's all this does. i urge my colleagues to vote no on this amendment. it represents bad process and bad policy and should be

rejected. i yield back. the chair: the gentleman yields back. as a general matter, the chair must remind members that remarks must be addressed to the chair and not to others in the second person, the chair is not referring to the last comments from the gentleman from pennsylvania. . mr. terry: move to strike the last words the chair: the gentleman is recognized. mr. terry: i rise in favor of this amendment because i believe in a free and open internet. it was december 21, just less than two months ago, that the internet lost its freedom when the f.c.c. on its own initiative began or initiated an order, a rule, to start regulating the internet.

hoe believes that -- who believes that by regulating it you are creating freedom? the system where it was unregulated, where the f.c.c. couldn't micromanage the internet, was the time period where innovation and investment occurred in the internet and cyberworld. that's where we got the e-bays and hulu's and apple tv's and all the great applications that we use today. so when i go back to my district and look my constituents in the eye, i can honestly say i am the one fighting to keep the internet free and open. three points that are -- well, we need to discuss here today. first of all, the regulation of the internet by the f.c.c. is

not a congressional initiative. it was three votes on the f.c.c. while congress was away. now they think they've got the power, but that's under dispute. there's already a lawsuit saying you don't have that authority. i don't believe they have the authority. it was an incredible stretch by the f.c.c. where they took a sentence out of section 706 of the telecom act of 1996 that actually used a phrase about data and that the f.c.c. can't put up barriers that somehow they assume now that they have power from that phrase to start implementing and putting in barriers. i worry that these new rules and regulations controlling the internet will stifle investment and innovation in the long run.

let's look at what this order does that will in fact -- affect our investment. mr. speaker, the house is not in order. the chair: the committee will be in order. mr. terry: thank you, mr. speaker. on the investment side, the order, the power that the f.c.c. has to regulate says that they -- and the cyberworld there can't be discrimination. who wants discrimination? you find out that it is maybe a business model for example, you pay for what you use as a it upical business model. if you are at one megabit, that may be $14 or seven megabits of speed is a higher price. 30 megabits is going to be even a higher price. but the issue is, and some

people now say that is discrimination, unreasonable discrimination, in fact i have an email, newsletter fundraiser a company that stops virus, i'm a client or soon won't be, but listen to this, this is their interpretation of the f.c.c.'s neutrality, what net neutrality mean for you. by the way, mr. speaker, i would like unanimous consent to submit this e newsletter into the record. the chair: the gentleman's request is covered by general leave. mr. terry: here's what it is. deregulation is eliminating the regulation of the internet could mean higher internet access prices as i.s.p.'s institute a tiered model that offer speedier down loads for higher-paying customers. that is the current business model. you pay for what you use.

if the business model is struck down by the f.c.c., you won't have the investment, you won't have an expansion of the internet. i think it will stifle innovation. and frankly the creator, the godfather, the grandfather of the internet, dr. david farber, agrees with this position. he has co-written an article that basically says if you put regulators in charge of the internet instead of engineers, it will reduce innovation. make sense. because now if you are a big enough company like a google or an ebay, you just hire lawyers and lobbyists to lobby the f.c.c. instead of hiring engineers to innovate. the chair: the gentleman's time has expired. mr. terry: thank you, mr. speaker.

mr. dicks: mr. chairman. the chair: for what purpose does the gentleman from -- mr. dicks: i move to strike the requisite number of words. the gentleman has spoke twice on this issue, was that by unanimous consent? mr. terry: would the gentleman yield? mr. dicks: i want to answer my question first. the chair: the chair believes that the gentleman from nebraska spoke only once. mr. dicks: yield to me, please. mr. terry: i yield. i spoke one time right now. i don't know who you are confusing me with. mr. dicks: i thought you spoke twice, i'm sorry. the chair: the gentleman yields back. the question is on the amendment offered by the gentleman from -- for what purpose does the member from louisiana rise? >> move to strike the last word. the chair: the gentleman is recognized for five minutes. >> i rise in strong support of this amendment because i think if you look across the country,

of course we had a water shed election in november, if you listen to the voters, and so many of us who did hold town hall meetings who listen to people all throughout this country, people are tired of all of these government regulations that are killing jobs and stifling innovation. mr. scalise: in fact most people will tell you they are scared to death about the concept of the federal government regulating the internet. so this net neutrality ruling that came out by the f.c.c. in a 3-2 decision where all the democrats voted for net neutrality for this regulation and all the republicans voted against, the f.c.c. rarely ever has any kind of major ruling like this on a divided vote. i think it shows you that there's already controversy. the courts have already said that they don't necessarily have the authority to do this. that's why as my colleague from nebraska just pointed out, there's already litigation that's going on because we think the f.c.c. overstepped their boundaries. you had a bipartisan group in congress that came together and

said we don't want this kind of action going forward. this is something that should be done and solved in the halls of congress. and if there's a problem, first of all, of course our colleagues on the other side, mr. chairman, haven't even identified a problem. if you actually want to look at it, i think if you look throughout our economy with all of the troubles that we have in our economy, one of the few segments that's growing is the technology segment of our economy. because of the innovation that has been allowed to thrive primarily due to the lack of government regulation. and i think that goes to the heart of the real difference between our side and their side is, they are the party of regulation that stifles job growth, that stifles innovation, and we are the party that says, let's don't allow a college student at harvard university to have the ability to come up with an idea. he dropped out of harvard and is now a billionaire. in fact maybe the largest percentage of billionaires in this country are harvard dropouts who actually went out and came up with ideas to

innovate using the internet and are billionaires and they are creating thousands and millions of jobs, good high-paying jobs. these are american jobs. yet they through this net neutrality ruling want to stifle that innovation. so the first thing i guess we would have to ask is, was net neutrality the reason we were able to have that innovation that led to facebook? net neutrality, the reason we had such a proliferation of broadband. they are not calling saying we want the government to come regulate the internet now because there's a problem. they say just the opposite. they say, look at this innovation that's happening. we had a hearing yesterday about this issue with the f.c.c. one of the f.c.c. commissioners pointed out over the last 10 years, mr. chairman, over the last 10 years over $500 billion, billion with a b, of private investment has made to develop broadband throughout the

country. this is without any kind of taxpayer money. this is private sector money being put into the marketplace to go and create jobs, to go and create the kinds of technologies that allow you to view and use all the kind of apps available on these devices. that was done without net neutrality. they tell you you need that neutrality to have this innovation. they fail to point out that net neutrality was not in place when this innovation happened. most people will tell you that net neutrality is one of the things that's in the way of this kind of innovation. we are already starting to see a stifling of the growth, a stifling of the private investment because of these threats of new regulations coming in from the f.c.c. that's why it's so important that this amendment actually addresses this problem and says, federal government get your hands off of the internet, allow the innovation to continue because it happens. and it's continuing to happen without that kind of government

intervention that they so strongly want through net neutrality. when you look -- they talk about these companies that have said this is a great thing. net neutrality is a great thing. some of the companies they listed, they failed to mention in that same letter, the company said, well, maybe we can live with it, but they also have some concerns about it. i didn't hear them mentioning that when they were talking about these companies. and you look at all of the innovation that has happened. we are talking about massive job growth. here at a time when our main focus needs to be on jobs, you've got the government coming in with yet another threat of regulation that will stifle innovation and run more jobs out of this country. to countries where they don't tell you how to operate your network, they don't tell you what to do with the billions of dollars you are investing to build broadband. maybe our friends on the other side want the federal government to be running the internet because they only want the government to be the one that can tell you what you can and can't do. in fact in our hearing yesterday with the f.c.c. chairman we pointed out that in the net

neutrality ruling it allows the federal government to pick winners and losers. that's not what we should be about. we should be about innovation. we should be about passing her amendment to allow that innovation to grow and get rid of that neutrality. thank you. i wield back. the chair: the gentleman's time has expired. for what purpose does the gentlelady from tennessee rise the chair: is recognized for five minutes. mrs. blackburn: thank you, mr. chairman. it is important that we look at what this process of net neutrality is. i rise in support of the resolution that we are bringing to block this funding at the f.c.c. from being used to implement it. bear in mind, and i think it's important we realize this and remember it, after we adjourned from the last congress and all headed home at christmas, the f.c.c. convened, and the f.c.c. decided that they were going to go where they had no authority to go.

they were going to go in and implement net neutrality rules. now, bear in mind that this body has stood in a bipartisan manner again the f.c.c. taking this action. we have had over 300 members stand and move forward with letters stating that they didn't the f.c.c. should move forward. this is an issue that should come back to congress. but christmas week they moved forward. and the gentleman from louisiana is exactly right in his comments. we heard from the f.c.c. yesterday. and we heard about how they plan to move forward in this. bear in mind they have not done any analysis that would indicate there has been a market failure. indeed, by the actions taken in this body in 1996 and the tellycome act, a -- tellcome act

-- telecom act, adopting a hands off approach to the internet and broadband, what we were able to do is see this country go from eight million to over 200 million users. 95% of the country has access. over 90%, get this, according to the f.c.c., over 90% of those that have internet access are satisfied with what they have. that has been done because we left it alone. government created the environment. they made the spectrum available much companies came in, bid on that spectrum, secured that spectrum, they spent 60 billion private sector job creating dollars every single year to build and maintain that spectrum. when we talk about the creative economy, when we talk about 21st century jobs growth, much of it

is based off of technologies that are going to be attached to, developed, or applied to broadband, the internet, and websites. it is in support of this resolution that we should all stand, we should vote yes, we should rein in some of these federal government agencies, we should stop the f.c.c. from >> the amendment eventually passed by a vote of 2442181. unds.ocks fine sunday on washington journal, a discussion about president obama's 2012 budget request. then the u.s. citizenship and

immigration services on how the government's e-verify system works. >> i asked you to come here this evening so we could hear from the secretary of state regarding negotiations that are going on in europe. >> you can look at this out of historical curiosity. or you can look at this as a forerunner of today's managed news. >> find something you did not know about the 43 men who served as president of the united states with the c-span video library. all free online.

watch what you want when you want. it is all presidents during the three day holiday weekend on "american history tv." more like programming on monday as historians, journalists, and associates of john f. kennedy talked about his place in history. throughout the weekend we will visit the national portrait gallery, show talks with jimmy carter and george bush, and and commemorate ronald reagan bawdry 100 per day. four are complete holiday schedule, the two c-span.org /history. >> next, secretary of state hillary clinton. she talks about the wikileaks release of classified documents. from george washington university, this is 50 minutes.

>> secretary clinton has been a friend of this university and a frequent visitor of our campus. she is an alumni of george washington university having received an honorary doctorate and delivering the keynote address in 1994. it is a pleasure to welcome secretary clinton back to our university or this address. this is a topic of particular interest to our faculty in the school of international affairs who had been studying it. we can all agree that the role of the internet in recent events in the middle east next the topic especially relevant this

afternoon. ladies and gentlemen, please join me in welcoming the secretary of state's of the united states, the hon. hillary rodham clinton. [applause] >> thank you. thank you all very much and good afternoon. it is a pleasure, once again, to be back on the campus of the george washington university, a place that i have spent quite a bit of time in all different settings over the last now nearly 20 years. i'd like especially to thank president knapp and provost lerman, because this is a great opportunity for me to address such a significant issue, and one which deserves the attention of citizens, governments, and i know is drawing that attention.

and perhaps today in my remarks, we can begin a much more vigorous debate that will respond to the needs that we have been watching in real time on our television sets. a few minutes after midnight on january 28, the internet went dark across egypt. during the previous four days, hundreds of thousands of egyptians had marched to demand a new government. and the world, on tvs, laptops, cell phones, and smart phones, had followed every single step. pictures and videos from egypt flooded the web. on facebook and twitter,

journalists posted on-the-spot reports. protestors coordinated their next moves. and citizens of all stripes shared their hopes and fears about this pivotal moment in the history of their country. millions worldwide answered in real time, "you are not alone and we are with you." then the government pulled the plug. cell phone service was cut off, tv satellite signals were jammed, and internet access was blocked for nearly the entire population. the government did not want the people to communicate with each other and it did not want the press to communicate with the public. it certainly did not want the world to watch. the events in egypt recalled another protest movement 18 months earlier in iran, when thousands marched after disputed elections. their protestors also used websites to organize.

a video taken by cell phone showed a young woman named neda killed by a member of the paramilitary forces, and within hours, that video was being watched by people everywhere. the iranian authorities used technology as well. the revolutionary guard stalked members of the green movement by tracking their online profiles. and like egypt, for a time, the government shut down the internet and mobile networks altogether. after the authorities raided homes, attacked university dorms, made mass arrests, tortured and fired shots into crowds, the protests ended. in egypt, however, the story ended differently. the protests continued despite the internet shutdown. people organized marches

through flyers and word of mouth and used dial-up modems and fax machines to communicate with the world. after five days, the government relented and egypt came back online. the authorities then sought to use the internet to control the protests by ordering mobile companies to send out pro- government text messages, and by arresting bloggers and those who organized the protests online. but 18 days after the protests began, the government failed and the president resigned. what happened in egypt and what happened in iran, which this week is once again using violence against protestors seeking basic freedoms, was about a great deal more than the internet. in each case, people protested because of deep frustrations with the political and economic conditions of their lives.

they stood and marched and chanted and the authorities tracked and blocked and arrested them. the internet did not do any of those things; people did. in both of these countries, the ways that citizens and the authorities used the internet reflected the power of connection technologies on the one hand as an accelerant of political, social, and economic change, and on the other hand as a means to stifle or extinguish that change. there is a debate currently underway in some circles about whether the internet is a force for liberation or repression. but i think that debate is largely beside the point. egypt isn't inspiring people because they communicated using twitter. it is inspiring because people came together and persisted in demanding a better future. iran isn't awful because the authorities used facebook to shadow and capture members of

the opposition. iran is awful because it is a government that routinely violates the rights of its people. so it is our values that cause these actions to inspire or outrage us, our sense of human dignity, the rights that flow from it, and the principles that ground it. and it is these values that ought to drive us to think about the road ahead. two billion people are now online, nearly a third of humankind. we hail from every corner of the world, live under every form of government, and subscribe to every system of beliefs. and increasingly, we are turning to the internet to conduct important aspects of our lives. the internet has become the public space of the 21st century - the world's town square, classroom, marketplace, coffeehouse, and nightclub. we all shape and are shaped by

what happens there, all 2 billion of us and counting. and that presents a challenge. to maintain an internet that delivers the greatest possible benefits to the world, we need to have a serious conversation about the principles that will guide us, what rules exist and should not exist and why, what behaviors should be encouraged or discouraged and how. the goal is not to tell people how to use the internet any more than we ought to tell people how to use any public square, whether it's tahrir square or times square. the value of these spaces derives from the variety of activities people can pursue in them, from holding a rally to selling their vegetables, to having a private conversation. these spaces provide an open platform, and so does the internet.

it does not serve any particular agenda, and it never should. but if people around the world are going come together every day online and have a safe and productive experience, we need a shared vision to guide us. one year ago, i offered a starting point for that vision by calling for a global commitment to internet freedom, to protect human rights online as we do offline. the rights of individuals to express their views freely, petition their leaders, worship according to their beliefs - these rights are universal, whether they are exercised in a public square or on an individual blog.

the freedoms to assemble and associate also apply in cyberspace. in our time, people are as likely to come together to pursue common interests online as in a church or a labor hall. together, the freedoms of expression, assembly, and association online comprise what i've called the freedom to connect. the united states supports this freedom for people everywhere, and we have called on other nations to do the same. because we want people to have the chance to exercise this freedom. we also support expanding the number of people who have access to the internet. and because the internet must work evenly and reliably for it to have value, we support the multi-stakeholder system that governs the internet today, which has consistently kept it up and running through all manner of interruptions across networks, borders, and regions. in the year since my speech, people worldwide have continued to use the internet to solve shared problems and expose public corruption, from the people in russia who tracked wildfires online and organized

a volunteer firefighting squad, to the children in syria who used facebook to reveal abuse by their teachers, to the internet campaign in china that helps parents find their missing children. at the same time, the internet continues to be restrained in a myriad of ways. in china, the government censors content and redirects search requests to error pages. in burma, independent news sites have been taken down with distributed denial of service attacks. in cuba, the government is trying to create a national intranet, while not allowing their citizens to access the global internet. in vietnam, bloggers who criticize the government are arrested and abused. in iran, the authorities block opposition and media websites, target social media, and steal identifying information about their own people in order to hunt them down.

these actions reflect a landscape that is complex and combustible, and sure to become more so in the coming years as billions of more people connect to the internet. the choices we make today will determine what the internet looks like in the future. businesses have to choose whether and how to enter markets where internet freedom is limited. people have to choose how to act online, what information to share and with whom, which ideas to voice and how to voice them. governments have to choose to live up to their commitments to protect free expression, assembly, and association. for the united states, the choice is clear. on the spectrum of internet freedom, we place ourselves on the side of openness.

now, we recognize that an open internet comes with challenges. it calls for ground rules to protect against wrongdoing and harm. and internet freedom raises tensions, like all freedoms do. but we believe the benefits far exceed the costs. and today, i'd like to discuss several of the challenges we must confront as we seek to protect and defend a free and open internet. now, i'm the first to say that neither i nor the united states government has all the answers. we're not sure we have all the questions. but we are committed to asking the questions, to helping lead a conversation, and to defending not just universal principles but the interests of our people and our partners. the first challenge is achieving both liberty and security. liberty and security are often presented as equal and opposite; the more you have of

one, the less you have of the other. in fact, i believe they make it each other possible. without security, liberty is fragile. without liberty, security is oppressive. the challenge is finding the proper measure: enough security to enable our freedoms, but not so much or so little as to endanger them. finding this proper measure for the internet is critical because the qualities that make the internet a force for unprecedented progress - its openness, its leveling effect, its reach and speed - also enable wrongdoing on an unprecedented scale. terrorists and extremist groups use the internet to recruit members, and plot and carry out attacks. human traffickers use the internet to find and lure new victims into modern-day slavery.

child pornographers use the internet to exploit children. hackers break into financial institutions, cell phone networks, and personal email accounts. so we need successful strategies for combating these threats and more without constricting the openness that is the internet's greatest attribute. the united states is aggressively tracking and deterring criminals and terrorists online. we are investing in our nation's cyber-security, both to prevent cyber-incidents and to lessen their impact. we are cooperating with other countries to fight transnational crime in cyber- space. the united states government invests in helping other nations build their own law enforcement capacity. we have also ratified the budapest cybercrime convention, which sets out the steps countries must take to ensure that the internet is not misused by criminals and terrorists while still protecting the liberties of our own citizens.

in our vigorous effort to prevent attacks or apprehend criminals, we retain a commitment to human rights and fundamental freedoms. the united states is determined to stop terrorism and criminal activity online and offline, and in both spheres we are committed to pursuing these goals in accordance with our laws and values. now, others have taken a different approach. security is often invoked as a justification for harsh crackdowns on freedom. now, this tactic is not new to the digital age, but it has new resonance as the internet has given governments new capacities for tracking and punishing human rights advocates and political dissidents. governments that arrest bloggers, pry into the peaceful

activities of their citizens, and limit their access to the internet may claim to be seeking security. in fact, they may even mean it as they define it. but they are taking the wrong path. those who clamp down on internet freedom may be able to hold back the full expression of their people's yearnings for a while, but not forever. the second challenge is protecting both transparency and confidentiality. the internet's strong culture of transparency derives from its power to make information of all kinds available instantly. but in addition to being a public space, the internet is also a channel for private communications. and for that to continue, there must be protection for confidential communication online. think of all the ways in which people and organizations rely on confidential communications to do their jobs. businesses hold confidential conversations when they're developing new products to stay ahead of their competitors.

journalists keep the details of some sources confidential to protect them from exposure or retribution. and governments also rely on confidential communication online as well as offline. the existence of connection technologies may make it harder to maintain confidentiality, but it does not alter the need for it. now, i know that government confidentiality has been a topic of debate during the past few months because of wikileaks, but it's been a false debate in many ways. fundamentally, the wikileaks incident began with an act of theft. government documents were stolen, just the same as if they had been smuggled out in a briefcase. some have suggested that this theft was justified because governments have a responsibility to conduct all

of our work out in the open in the full view of our citizens. i respectfully disagree. the united states could neither provide for our citizens' security nor promote the cause of human rights and democracy around the world if we had to make public every step of our efforts. confidential communication gives our government the opportunity to do work that could not be done otherwise. consider our work with former soviet states to secure loose nuclear material. by keeping the details confidential, we make it less likely that terrorists or criminals will find the nuclear material and steal it for their own purposes. or consider the content of the documents that wikileaks made public. without commenting on the authenticity of any particular

documents, we can observe that many of the cables released by wikileaks relate to human rights work carried on around the world. our diplomats closely collaborate with activists, journalists, and citizens to challenge the misdeeds of oppressive governments. it is dangerous work. by publishing diplomatic cables, wikileaks exposed people to even greater risk. for operations like these, confidentiality is essential, especially in the internet age when dangerous information can be sent around the world with the click of a keystroke. but of course, governments also have a duty to be transparent. we govern with the consent of the people, and that consent must be informed to be meaningful. so we must be judicious about when we close off our work to the public, and we must review our standards frequently to make sure they are rigorous.

in the united states, we have laws designed to ensure that the government makes its work open to the people, and the obama administration has also launched an unprecedented initiative to put government data online, to encourage citizen participation, and to generally increase the openness of government. the u.s.government's ability to protect america, to secure the liberties of our people, and to support the rights and freedoms of others around the world depends on maintaining a balance between what's public and what should and must remain out of the public domain. the scale should and will always be tipped in favor of openness, but tipping the scale over completely serves no one's interests. let me be clear. i said that the wikileaks incident began with a theft, just as if it had been executed by smuggling papers in a briefcase.

the fact that wikileaks used the internet is not the reason we criticized its actions. wikileaks does not challenge our commitment to internet freedom. and one final word on this matter: there were reports in the days following these leaks that the united states government intervened to coerce private companies to deny service to wikileaks. that is not the case. now, some politicians and pundits publicly called for companies to disassociate from wikileaks, while others criticized them for doing so. public officials are part of our country's public debates, but there is a line between expressing views and coercing conduct. business decisions that private companies may have taken to

enforce their own values or policies regarding wikileaks were not at the direction of the obama administration. a third challenge is protecting free expression while fostering tolerance and civility. i don't need to tell this audience that the internet is home to every kind of speech - false, offensive, incendiary, innovative, truthful, and beautiful. the multitude of opinions and ideas that crowd the internet is both a result of its openness and a reflection of our human diversity. online, everyone has a voice. and the universal declaration of human rights protects the freedom of expression for all. but what we say has consequences. hateful or defamatory words can inflame hostilities, deepen divisions, and provoke violence. on the internet, this power is heightened. intolerant speech is often amplified and impossible to

retract. of course, the internet also provides a unique space for people to bridge their differences and build trust and understanding. some take the view that, to encourage tolerance, some hateful ideas must be silenced by governments. we believe that efforts to curb the content of speech rarely succeed and often become an excuse to violate freedom of expression. instead, as it has historically been proven time and time again, the better answer to offensive speech is more speech. people can and should speak out against intolerance and hatred. by exposing ideas to debate, those with merit tend to be strengthened, while weak and false ideas tend to fade away; perhaps not instantly, but eventually.

now, this approach does not immediately discredit every hateful idea or convince every bigot to reverse his thinking. but we have determined as a society that it is far more effective than any other alternative approach. deleting writing, blocking content, arresting speakers - these actions suppress words, but they do not touch the underlying ideas. they simply drive people with those ideas to the fringes, where their convictions can deepen, unchallenged. last summer, hannah rosenthal, the u.s. special envoy to monitor and combat anti-semitism, made a trip to dachau and auschwitz with a delegation of american imams and muslim leaders. many of them had previously denied the holocaust, and none of them had ever denounced holocaust denial.

but by visiting the concentration camps, they displayed a willingness to consider a different view. and the trip had a real impact. they prayed together, and they signed messages of peace, and many of those messages in the visitors books were written in arabic. at the end of the trip, they read a statement that they wrote and signed together condemning without reservation holocaust denial and all other forms of anti-semitism. the marketplace of ideas worked. now, these leaders had not been arrested for their previous stance or ordered to remain silent. their mosques were not shut down. the state did not compel them with force.

others appealed to them with facts. and their speech was dealt with through the speech of others. the united states does restrict certain kinds of speech in accordance with the rule of law and our international obligations. we have rules about libel and slander, defamation, and speech that incites imminent violence. but we enforce these rules transparently, and citizens have the right to appeal how they are applied. and we don't restrict speech even if the majority of people find it offensive. history, after all, is full of examples of ideas that were banned for reasons that we now see as wrong. people were punished for denying the divine right of kings, or suggesting that people should be treated equally regardless of race, gender, or religion. these restrictions might have reflected the dominant view at the time, and variations on these restrictions are still in

force in places around the world. but when it comes to online speech, the united states has chosen not to depart from our time-tested principles. we urge our people to speak with civility, to recognize the power and reach that their words can have online. we've seen in our own country tragic examples of how online bullying can have terrible consequences. those of us in government should lead by example, in the tone we set and the ideas we champion. but leadership also means empowering people to make their own choices, rather than intervening and taking those choices away. we protect free speech with the force of law, and we appeal to the force of reason to win out over hate.

now, these three large principles are not always easy to advance at once. they raise tensions, and they pose challenges. but we do not have to choose among them. liberty and security, transparency and confidentiality, freedom of expression and tolerance - these all make up the foundation of a free, open, and secure society as well as a free, open, and secure internet where universal human rights are respected, and which provides a space for greater progress and prosperity over the long run. now, some countries are trying a different approach, abridging rights online and working to erect permanent walls between different activities - economic exchanges, political discussions, religious expressions, and social interactions. they want to keep what they like and suppress what they don't. but this is no easy task.

search engines connect businesses to new customers, and they also attract users because they deliver and organize news and information. social networking sites aren't only places where friends share photos; they also share political views and build support for social causes or reach out to professional contacts to collaborate on new business opportunities. walls that divide the internet, that block political content, or ban broad categories of expression, or allow certain forms of peaceful assembly but prohibit others, or intimidate people from expressing their ideas are far easier to erect than to maintain. not just because people using human ingenuity find ways around them and through them but because there isn't an economic internet and a social internet and a political internet; there's just the internet. and maintaining barriers that attempt to change this reality

entails a variety of costs - moral, political, and economic. countries may be able to absorb these costs for a time, but we believe they are unsustainable in the long run. there are opportunity costs for trying to be open for business but closed for free expression - costs to a nation's education system, its political stability, its social mobility, and its economic potential. when countries curtail internet freedom, they place limits on their economic future. their young people don't have full access to the conversations and debates happening in the world or exposure to the kind of free inquiry that spurs people to question old ways of doing and invent new ones. and barring criticism of officials makes governments more susceptible to corruption,

which create economic distortions with long-term effects. freedom of thought and the level playing field made possible by the rule of law are part of what fuels innovation economies. so it's not surprising that the european-american business council, a group of more than 70 companies, made a strong public support statement last week for internet freedom. if you invest in countries with aggressive censorship and surveillance policies, your website could be shut down without warning, your servers hacked by the government, your designs stolen, or your staff threatened with arrest or expulsion for failing to comply with a politically motivated order. the risks to your bottom line and to your integrity will at some point outweigh the potential rewards, especially if there are market opportunities elsewhere.

now, some have pointed to a few countries, particularly china, that appears to stand out as an exception, a place where internet censorship is high and economic growth is strong. clearly, many businesses are willing to endure restrictive internet policies to gain access to those markets, and in the short term, even perhaps in the medium term, those governments may succeed in maintaining a segmented internet. but those restrictions will have long-term costs that threaten one day to become a noose that restrains growth and development. there are political costs as well. consider tunisia, where online economic activity was an important part of the country's ties with europe while online censorship was on par with china and iran, the effort to divide the economic internet from the "everything else" internet in tunisia could not be sustained.

people, especially young people, found ways to use connection technologies to organize and share grievances, which, as we know, helped fuel a movement that led to revolutionary change. in syria, too, the government is trying to negotiate a non- negotiable contradiction. just last week, it lifted a ban on facebook and youtube for the first time in three years, and yesterday they convicted a teenage girl of espionage and sentenced her to five years in prison for the political opinions she expressed on her blog. this, too, is unsustainable. the demand for access to platforms of expression cannot be satisfied when using them lands you in prison. we believe that governments who have erected barriers to internet freedom, whether they're technical filters or censorship regimes or attacks on those who exercise their rights to expression and

assembly online, will eventually find themselves boxed in. they will face a dictator's dilemma and will have to choose between letting the walls fall or paying the price to keep them standing, which means both doubling down on a losing hand by resorting to greater oppression and enduring the escalating opportunity cost of missing out on the ideas that have been blocked and people who have been disappeared. i urge countries everywhere instead to join us in the bet we have made, a bet that an open internet will lead to stronger, more prosperous countries. at its core, it's an extension of the bet that the united states has been making for more than 200 years, that open

societies give rise to the most lasting progress, that the rule of law is the firmest foundation for justice and peace, and that innovation thrives where ideas of all kinds are aired and explored. this is not a bet on computers or mobile phones. it's a bet on people. we're confident that together with those partners in government and people around the world who are making the same bet by hewing to universal rights that underpin open societies, we'll preserve the internet as an open space for all. and that will pay long-term gains for our shared progress and prosperity. the united states will continue to promote an internet where people's rights are protected and that it is open to innovation, interoperable all over the world, secure enough to hold people's trust, and reliable enough to support their work. in the past year, we have welcomed the emergence of a

global coalition of countries, businesses, civil society groups, and digital activists seeking to advance these goals. we have found strong partners in several governments worldwide, and we've been encouraged by the work of the global network initiative, which brings together companies, academics, and ngos to work together to solve the challenges we are facing, like how to handle government requests for censorship or how to decide whether to sell technologies that could be used to violate rights or how to handle privacy issues in the context of cloud computing. we need strong corporate partners that have made principled, meaningful commitments to internet freedom as we work together to advance this common cause. we realize that in order to be meaningful, online freedoms must carry over into real-world activism. that's why we are working through our civil society 2.0

initiative to connect ngos and advocates with technology and training that will magnify their impact. we are also committed to continuing our conversation with people everywhere around the world. last week, you may have heard, we launched twitter feeds in arabic and farsi, adding to the ones we already have in french and spanish. we'll start similar ones in chinese, russian, and hindi. this is enabling us to have real-time, two-way conversations with people wherever there is a connection that governments do not block. our commitment to internet freedom is a commitment to the rights of people, and we are matching that with our actions. monitoring and responding to threats to internet freedom has become part of the daily work of our diplomats and development experts. they are working to advance internet freedom on the ground at our embassies and missions around the world. the united states continues to help people in oppressive internet environments get

around filters, stay one step ahead of the censors, the hackers, and the thugs who beat them up or imprison them for what they say online. while the rights we seek to protect and support are clear, the various ways that these rights are violated are increasingly complex. i know some have criticized us for not pouring funding into a single technology, but we believe there is no silver bullet in the struggle against internet repression. there's no app for that. [laughter] start working, those of you out there. [laughter]

naudible conversations] [inaudible conversations [inaudible conversations]

[inaudible conversations] >> 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 website today. this morning, we hold the first in ray series of -- in 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 law are being implemented 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. th 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 intended consequences that

could impair economic growth or 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 refor act

as the chairman has mentioned. the president and majority proclaimed the act a his tore click accomplishment. at the signing ceremony, the presidenteclared 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 now setting in. unemployment rate still stands at record levels. while the political forces that drove the passing of this, the huge cost of the act are now becoming clier. the dodd-frank party, i believe, is over. unfortunately, our economy is now preparing to pay t tab. our financial regulators have begun to implement dodd-frank and the decisions they make over the next 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, lawyers, dodd-frank is a gold mine. for the rest of us, however, it means more red tape, more government, fewer choices, and high 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 process. in the rush to comply with the unrealistic deadline set in dodd-frank, the regulators had to focus on speed rather than

deliration. 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 providethorough 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 the 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 proposed 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-fnk, 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 wk, 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 atleast as much attention on the cost as it does the rules

over the next few months. thank you, mr. chairman. >> the committee will now turn to executive session. the committee 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, the 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 the subcommittees except to commend my colleagues for their interest and willingness to take

on subcoittee assignments. i intend in this congress to encourage robust subcommittee participation. i think it enhances the work of the committee 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 commt 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 proceed. 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 subcomttee and senator brom on subcommittees will replace him. i ask consent to make these modifications to the membership list before you. without objection, it iso 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 democrat, republican, democrat, republican or have other mechanisms to decrease the isolation of the parties. the u.s. senators enormously is split, and split in ways that are aggravated of the developments othe last two decades, specifically, senators used to live here with their families, they were here for sweekds, hadinner together,

those connections 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, and the hope thats is not necessary to sit side by side in order to work

side by side. that said, i appreciate your thoughtfulnessn 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 budg 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

cooperation, and now we can return to the hearing phase of our meeting 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 reserve system 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 serng as professor of economics at princeton university. sheila bair chair of the deposit insurance corporation, before that, she was in the policy of the management at the university of massachusetts. she was also 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 was appointed 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 fm 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 commission which oversees the options markets in the u.s.. chairman gensler previously served in the treasury department under secretary of

domestic, finance, and assistance secretary of financial markets. in addition, he served as tenre 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 testimony. >> thank you. members of the cmmittee, 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 well as a number of studies and reports. we've been assigned formal responsibilities to collaborate with other committees on a span number of rules and studies. so that we meet the obligations on time, we draw on epertise and resources across the system in banking supervision, economic research, financial markets, consumer 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 coordite 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 childre 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. 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 invested or 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 the act's edit risk retention requirements on securitization market as well as an advanced notice on credit ratings in the regulations of federal banking agency. in addition, inecember,ed board and other agencies requested comment on a proposed rule to implement the rules required by the cullens amendmen in december, we requested comment on proposed rules for 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 relating to the transfer of the supervisory authority of the ots for thrifts 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 delop 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 are consulting with the fcc on a variety of rules to enhance the efficiency of the 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 consumer protection responsibilities specified in the act to the new bureau consumer protection is well underway. a team at the board headed by governor duke is working closely with the staffnd 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 staff 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 requirements. 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 been working for some time with other regulatory agencies and central banks around the world to desig and implement a stronger set of prudential requirements for acting banking firms. these efforts resulted 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 busine models. it also requires supervisors to chicken macroprovincial approach that is the federal reserve and other financial regulatory agencies are expected to supervise financl institutions and critical the infrastructure's with an eye towards multi the safety and soundness of each individual firm but also taking into account risks to the overall financial stability we believe a successful macroprovincial approach to the provision requiresoth the multidisciplinary perspective. our experience in 2009 with the supervisor decapolis as the program properly 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 a

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 oordinate 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. accordingly we are disclosing our public website of all communications with members of the public including banks, trade associations, consumer groups and academics regarding matters subject to a proposed future rulemakings under the act. we also implemented measures within the act to enhance the deral reserve transparency. in december we released detailed information regarding 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 manner that best protect the stability of our financial system and our economy. thank you. >> thank you, chairman bernanke. ms. bear, members ofthe committee, think for the opportunity to testify today on the fdic's progress in implementing the dodd-frank act. first a quick to congratulate senar johnson on becomi chairman and it's an honor to be called to testify for the hearing. we appreciate your effos in the past on issues like deposit insurance reform and we look forward to your leadership as we

address future challenges 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 severe 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 failure. the act requires or authorizes the fdic to implement some of 44 regulations including 18 dependent and 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 financial institutions. our goal is the market expectations and financial stitution credit raings should over time fully reflect this reality. consistent with the dodd-frank mandate our recent rule requires creditors and shareholders, 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 monitor the entities and conduct advanced planning to wind them down without disruptin 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 thentities are unable to demonstrate they are resolvable, we should be repaired to require

structural changes so they can be run down and they can't make the structural changes we should require the faster. the fdic is working coser with of the counterparts to develop the criteria for designating systemically important resolutions the will be subject to enhced supervision and the need to maintain the plans. the fdic board haslso 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 usethe deposit insurance assessments and removedeliance and credit ratings while mking 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 forward we believe the standards must conclude incentives to appropriately serve as securitized loans. research and recent experience shows the importance of service and to market performance and risk but most securitizations cuently don't provide the proper resources or incentives for services to effectively engage in lost litigation. as the implementation moves forward, the industry should understand dodd-frank torian no way intended to impede the ability of small and mid-sized institutions to compete in the marketplace. instead, they should do much to restore the competitive 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 regulatory guidelines. many americans have lost their jobs, their homes or both. even as some any of our largest financial 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, ranking member shall be and members of the committee, thank you for the oprtunity 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 commts, 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 market participants and obligations with the data repositories, seek to mitigate the potential conflict of the clring agencies and established 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 forsupervising market utilities that are designated as systemically important. in addition to the derivatives, 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 proposed 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 assetrepurchase equests 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 witha perspective the disclosures are accurate. the dodd-frank also includes provisions related to the executive compensation and further these provisions last month the commission adopted rules requiring the companies to allow shareholders to cast an advisory say on page vote at least once every three years and requiring a separate advisory vote on the frequency of the say on page zero of at est 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 cle the whistle-blowers' play a critical role in protecting investors. at the same time, it is desned 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 publish the stuff for the potential purchase for congress to consider to increase exinations of an investment adviser and second, we issued a staff study looking at the dierent standards of conduct required of investment advisers and brker-dealers. most important, that study recommended that the commission implement a uniform fiduciary standards of conduc for the broker dealers and investment

advisers when they are providing personalized investment advice about the securities to 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 o this committee and congratulations on assuming te chair congratulations to the fight in the rest of the committee as well. i guess i'm a little partial having 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 at the cftc in fulfilling their such permission. i'm also pleased to specify alongside the fellow regulators you today. in 2008 the financialsystem 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 lost 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 oth 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 publ and had hundreds of meetings whichwe 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 are also under the act to propose rules along with the other regulators here with regard to margin requirements and the congress recognized there are different 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 entiti 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 the 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 the 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 ot 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 t 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 any jobs. we would have to go the other way and have to unfortunately let people go. i don't think that is what the american people need us o do at this time after the crisis of

2008. the cftc fundamentally is a good investment and to promote transparency, open and competitive markets so end users and investors can get the benefit the market's 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 undertaken to 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-frank act. progress in a number of areas is discussed in my written statement. the sing 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 would be essentials for the effective supervision of federal savings associations and forward and we are fostering an environment will maximize the career opportunities while ensuring they enjoy the full protections afforded the employees by the dodd-ank 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 asciations. 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 t corporateand 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 berohibitively 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 the ball so free capital from work. and we urge congress to modify this prohibition. a more general 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 liquidity 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. the federal banking agencies have concluded examinations of foreclosure processing of the 14 rgest 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 deficiencies, 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 ocdeveloped a framework of standards that we share with other agencies and we are now participating in an interagency process with established nationwide requirements 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 signifant reform in the mortgage servicing 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 any other 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 coress this week we feel yet to appropriate the funds authorized by dodd-frank, please describe how you are addressing the funding constraints in your perspective agencies as you continueto implement the dodd-frank act. >> i'm happy to go first with at, 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 in many instances and we feel the presure of the budget continuing resolution with respect to that. in order to operationalize any of the rules we are 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 uder the legislation and the new entities that are part of the over-the-counter flop market. 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 selectively hiring very special positions. we've cut travel and to me most importantly we have delayed very gnificant technology programs that would help bring the sec's technology of into at least the centuryif not this year, and that is having an impact on our ability i believe to achieve the core mission as effectively as we cou come and quite frankly

at the level 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 havingbeen 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 the 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 yer. 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 of 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. e 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 dnting to ask for more money for this agency at this time, but i really do think that this is good investment for the american public to avoid the crises like in 2008. >> chairman bernanke and comptroller walsh, community banks and credit unions are the backbone of our economy, which is why we work hard to protect liability in drafting the dodd-frank act. as the regulators institutions

hold under $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 ensurthat 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

only at smaller banks and tries to ensure rules 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 with 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 focused 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 minimize 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 the banks, smaller banks which of course we would put in the rule. i think this is something are trying to better understand for the comments for the outreach we are not sure howhat 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 different 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 entiti 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 realize community banks were not a problem, they were trying to correct. 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 the effectiveness of the interchange and the positions to truly protect the community banks particularly if the networ 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 reviewing what the legal authorities might be from the 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 withther 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 division devoted to the community banking and examiners are around the country to war attended to their concerns to be weakening quite a bit of oreach 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 weght of

regulations hat 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 detentions 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 secretary's comments interesting given his strong support of dodd-frank. if it is impossible to know what

firms are systemic until the crisisccurs, the financial stability oversight council will have a very difficult 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 creatg some type of arbitrary process? >> senator, it is a difficult problem. as you say, you have different types of firms respond to different types of shocks. it's also true that an individual industry with small firm might be subject to the broad shot as we saw with the money market 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 te task doing the best we can to try to identify the firms which most likely pose the risk. >> what does do the best we can mean? >> we don't wan 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 to do is provide the but if we clear guidelines about the criteria that we will use to try to ientify firms that are potentially systemic. admittedly those will not be exact numerical guidelines for example, but i do think it's important that the fa that each institution, each agency of the table has aspecific set of institutions for which it is

responsible, that we don't allow that facto ceate 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 nuber of factors that are identified for me is interconnectedness more than ything. if you fail, what else happens?

who else gets hurt? it may be it is a two-step process based on some simple 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 ay 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

failure 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 bear 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 implement 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 butit will still be some time before we have completely implemented not 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 many large institutions are cross borders so we need to work together with other institutions. we have nototten to the point where this set of too 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 fro the crisis. >> what have yu 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, fred 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 acouple hundred

small banks, but the great majority of the money has been paid back before and in the end -- >> the ones that hadn't paid back, is a dangerous signal for you because the economy picked up a little bit 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-sizebanks 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 nt down last year bout 22 billion. so the losses were down significantly last year. the banks that are feeling a 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. economists as the appropriate 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 se, but i want to 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 he phd economist and the univrsity 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 you don'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 lawers, law enforcement, that is important, but we also need and have been very successful in recruiting current market experience, new skill set, new types of 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 than 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 institutios 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, the 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 cards 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 practe? >> 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 consumers 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 o the questions the ranking member was asking about the fsoc. asking it in a different 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 ta a little bit about what the priority setting looks like. how would you decide what the agenda is quinby for the council and over what period of time? is it something the treasury secretary coordinates? how do you detect here you ought to be looking versus where 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 addition, we want to remain flexible so that any ongoing problems say to take an example the development in europe for example and the implications for the u.s. banks or money markets, in the developing event or situation can 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 edback about what they would like to hear from other discussions. >> are they under strict instructions 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 falls 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] >> senat corker, we have a vote coming upat ten until 12 and i encourage you to the five minute rule. >> i got it, thank you. [laughter] welcome, all of you and thank you for your service and we miss you. after dodd-frank, we haven't heard from you, nd the phone has quit ringing and are glad to have you here today, and i you appreciate the work each of you are doing. that is a sincere statement. there's a lot of talk about the budget issue and there is no question tha is going t probably get 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 d and i'm hearing some of you are not being able to invest in technology and there are some positions that were open in other areas and that kind of thing. would it make any sense? i now that you all have been really pushing of rules and regulations and i know people have been 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 mission. 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 andhow 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 doother things, but i think the crunch comes after the rules are in place and we have to operationalize them and we lack he 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 or 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 setor the larger institutions it is not going to impact the small institutions as it relates to interchange rules. i mean, it doesn't sm to me to be a possibility. d i know again you didn't ask for this, it was an amendment that 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 attention 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 to me to be incredibly an error we're also going to be forcing ople 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 the 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 mentioned fore 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 dpended on a stiff competition in that part of the market the media passing the savings on to the consumers, so there 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 queston 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 that your respoe to the question of the funding of your

ability to pursue the converse tasked with the american people 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 partilarly 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 c on the beach without an bullets >> it is a concern that i have because if we are going to promote gulations puuant 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 were going to do so that they would never face

the risks again o collectively assuming 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'tbe 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 the cybersecurity and the tax that had taken place against nasdaq and what not. i hope can give us some sense because obviously the market integrity ismportant and one of the ways is that we are sure that we are not having the market's being affected by those who are attacking it, and i hope

that you could give us some sense of where you are headed in that regard. let me gt my third question out and you can answer it to both of them. that is to oth you, chairwoman shapiro and mr. gensler with reference to the title seven that all swaps with their squier were not are required to the swap data repository. i'd like to know what you're agencies are doing tensure that the information being reported to the multiple suppositories is not so fragmented and ultimately allows anccurate 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 ware doing on cybersecurity.

>> certainly. i don't want to comment specifically on the nasdaq 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 financl and institutions broadly exchange and are having to face cybersecurity threats. we work very closely with the changes and have the automated review program, which are examiners that evaluate with the exchanges, the quality of their information serity that is in place and what the vulnerabilities they might hae. we recently asked all of the exchanges to provide an audit of their information security licies, practices and systems so we can have a baselin 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 xchanges 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 state, 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 reson 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 electronics. >> senator johanns. >> mr. chairman, thank you. chairman bernanke, let me start with you and i went to visit with you a little bit about the interchange rules that sheput

out. when you start out with an observation. i think you folks send everybody. i think he stunned the retaers, the bangs. i don't think anyone ever expect to something this dratic, 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 this siteo of the economy, impacting the biggest players really in the world on this side of the equation. >> senator, let me a first either comment about kryptonian. we find it hard to follow the language of this, which is 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 theraction 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 partof the objective. the mac that is the problem with price technique. we can't guarantee that, can we we can't guarantee thata 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 know, do we? >> know, senator. there is no guarantee certainly.

>> now i might just gourther 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 poducts because the input costs are 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 priceof 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 howdo we define 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 th end-users or are they financial and dictations that should be regulated here? >> the statute says that they are financial 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 regulated that way. the questi of the end-users is whether they are brought into clearing, with it tey bnefit

in congress did give us authori 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 onlyor 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 therimary regulator of the large servicers. the way i envision it is all agencies of an hoping for some type of global settlement that would include robust enforcement actions as well as more appropriate media measures, and putting perhaps 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. >> ithis an issue -- what is holding up his helmet? attorney general miller was here months ago talking about how they are working. can you elaborate briefly aquatic >>ell, 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 anddevelop 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. soe 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 penalty phase. and again, some of -- from following these revelations in the news paper, it seems like there was some intentional activity andalso just -- in fact, it can get their green to the penalty phase, son negligence. and so, are you measuring 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 lease prior to detection the operation? >> althougone is amazed at what the l. street journal finds out, in this case we have not made decisions about the level of penalties. that is the next phase to come. we will be discussing that with federal reservand 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 terms to

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 responsibities? >> well, the administration has noyet 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 toorking with you on the subcommittee. chairman bernanke, i'm an admirer of yours that just finished the lords of finance, which is a human story of what central bankers go through. a quick questio on dodd-frank titles one and seven, which creates the oversight council and talks about systemic risk, regulatory gap ad the key phrase, regardless of legal charm. so they brought authority authority to examine risk here if you have now established this financial security look at any potential dangers 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 getisks that might emerge and doesn't have

any for example. the risks arising for states within the municipal 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, "the wall street journal" two days ago reported that our largest creditor, china, had sold $11.2 billion in treasuries in november and another 4 billion in december. $15.2 billion unwinding is about a 1.1% reduction in their total holdings, now down to 892 billion. do you see this movement by america's largest creditor abroad as a source of systemic risk? >> the international balance and reserve accumulation is included in principle t 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 incomplete 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 pretty 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 chairman. 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 d 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 extraorinary

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. i think one of the things e 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 advisers and found there was significant confusion and our current study references much of the work that was done by the rand corporation. 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 only provide suitable recommendations, understanding the investment goals and so forth of the investor. so it is a suitability standard poker dealers, a fiduciary duty

to put that under the investment research regime. we thought it wasn't fair to his customers to guess which standard of care they were receiving when they were dealing with the financial professional. it is not something that is transparent to investors. and so the stafftudy 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. re effect is entirely disclosures can greatly improve investor financial decision-makg. what is the commission's plan to implement a specific provision and to promote more responsible investor behavior in general? >> well,his is an area of longtime interest to me, that investors get decision useful,

acceible information at the right omits in the process of making a decision about whether or not to invest. what we oftn see is to get information after they've made the decision to invest. so it would be my hope that we could -- 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 commissi can do something to help investors get really useful information, not pages and pages and get it at a time that will help them make the 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 my first 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 lotsf 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, cedit 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 differently, 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 bank 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 i suppose it was maltings. what i've noticed in our economy is affecting by consolidation. there are perhaps economic reasons consolidation shou occur, but it i question if it is recurring because of the regulatory costs. at a conversation with one of our large regional bankers 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 be 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 and ranchers, 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 being comfortable 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? >>ell, i would e a couple of things. i think you are right that there's still over 7000 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 public. but they have a diversity and choice of the banking institutio. 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 indicated earlier, they change the assessment basis that reduced by 30% in aggregate and they'll be paying for depot 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 editio as i said, judy tofilm 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 ncrease 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 veryuch 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 think this is a real issue in would have an adverse impact 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 up to you, mr. shapiro about financial advisors n 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 dficult time. before i get to my question, i want to say that the issues and regulations senator murray and product with cret unions is a big one. i brought it up with members of the panel released on four different ocasions. and the inconsistenes 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 positive 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 first 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,hat's okay. >> you certainly have the right to ask that 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? the small bank. rather use a bigger one? what stops them from doing it, anything? >> not now. unless again the company, the visa requires oil cards, which in many times they do. >> in practice, 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 skeptical for other reasons chairman bernanke has been 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 cost of the intended consequence of putting minutes with prpaid 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 urrent regulatory authority in what we're looking at right now. >> i'm not sitting on your site in the table, but you ink it 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 pay 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 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 meask 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 64,5 with 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 requiret 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 credit 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 have spoken a lot over the last two years about the contributions to the financial crisis. and so, the fcc gave much broader response ability under todd frank about with respect to

rules and examinations of credit rating agencies, including report to cogress on our findings. and we are well underway with all of those it emanations. >>nder the law now, a company wishing to be rated still has completely rearrange to go out and pick t rating agency. >> we have some rules to try to discourage rating shopping, which would require disclosure that she did shop around for ratings and you ultimately 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 the 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 sector capital to return to the market to return taxpayer guaranteed mortgages. federal housing and mortgages are exempt from the risk

retention requirement that 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 a what steps 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 requirement 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 entirely consistent with the private market and secuitization and the housing market with the government's role is quite limited other than through fha and other special programs. 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 and the

exemption of federal housing amendments grecian mortgages might drive more and more mortgage coworkers to the public rather than private archaic? >> we haven't issued a request for for commen, right? and so, we will of course 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. myuestion would be for ms. bair, but applies to all of you because you all have the mortgage world is being written and senator wicker's comments could not be more appropriate. in your testimony, ms. bair come you say we will continue to work

to thse 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 requiremenshall be in terms of underwriting or a fine income, verified job, credit rating abity 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 of people in control of thentire 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-time home 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 st hope you will follow the guidelines and parameters issued n 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 to 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 mortgages 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 see 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 this is just to compensate for the lack of economic incentive is there's no portfoo 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 ut 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 we 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 retention. but the qrm requirement is so restrictive that it takes up mostf 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 dramatically 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 making 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 time. >> senator isakson. we have it tough but this on the coittee, 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 for us to conduct versight. thanks again to my colleagues and panelists for being here day. this hearing is adjourned. [inaudible conversations] [inaudible conversations] [inaible conversations] [inaudible conversations] [inaudible conversations]

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[inaudible conversations] [inaudible conversations]ations] [inaudible conversations] [inaudible conversations] >> next, timothy geithner caused president obama's proposed 2012 budget the first step in addressing the deficit problem. then at 7:00, washington journal. after that on news makers, ohio

congressman jim jordan on the growing strength of the republican subcommittee. donald rumsfeld was the youngest and oldest person to serve as u.s. defense secretary. >> you automatically have an obligation to tell the truth. it is people that do not have proximity to simply do not want to do it. >> he will discuss his philosophy of presidential staff leadership, the process of writing his memoirs, and address some of the book's reviews. that is on c-span's "q&a". visit the public and private spaces of america pottery most recognizable home, the white house. our original documentary provides a rarely seen look at the presidential residence and takes you to be mentioned, the

west wing, oval office, and lincoln bedroom. bearing in high-definition and newly updated with interviews with president obama and the first lady and comments from georgia and laura bush, the white house, inside america's most famous home. monday at 6:00 p.m. eastern on c-span. >> secretary of the treasury timothy geithner cause president obama's 2012 budget the first step in addressing the deficit problem. these the to the house ways and means committee. this portion runs 1.5 hours.

>> we recently received a letter from prominent economist which stated that the affordable care act contains is essentially every cost- containment provision that policy analysts have considered effective in reducing the rate of medical spending. could you comment on how you feel the affordable care act will relate in restraining health care costs? >> thank you for asking that question. what these reforms do over time is changed the incentives for how americans use health care and is set in motion what we believe are the most powerful

sets of ideas out there for reducing the rate of growth in health care costs over time. as i said earlier, we rely on the cbo to make these judgments for us. in their judgment, these reforms over time will reduce our long-term deficit by reducing the rate of growth in costs. as the president made clear, we want to build on those reforms. ultimately we will have to do more. we welcome the chance to work with people on both sides of the aisle to strengthen those reforms said they can deliver more savings in the future. many if not most of the ideas out there to reduce costs are in there. >> mr. secretary, you every once in a while blog.

you did one talking about in the absence of health care reform. i wonder if you could take back on your facebook someplace and send us a copy of that for the record. >> i do not use that term or use facebook, but i would be happy to give you an analysis of what the reforms would do for the country. it is important to recognize that this is what they care most about. they care about the burden because put on them. yet to make sure the reforms take hold and can work overtime. >> mr. davis is recognized. >> thank you, mr. chairman. thank you for joining us today, mr. secretary. i would like to switch subject

to a different area and that is to talk about unemployment insurance. could you tell us who pays unemployment insurance taxes? >> as you bet, businesses pay the unemployment insurance taxes. >> as an economist, you can get a more complex answer than that. >> ultimately comes out of someone's pocket. >> some people would say -- >> have you ever been an employer and pay these taxes? i have. i have written the checks every quarter. >> i have been in the public sector all my life. but i have helped manage substantial organizations of people.

the administration's budget page 184 describes your unemployment proposal offering relief through 2013. tax hikes to only $67 billion over the next decade. if you were an employer, as i was, paying those checks and was looking at long-term capital investment forecast try to decide whether to hire or not hire, would you think that getting $9,000 in relief now in exchange for $67,000 tax tab in the future through increased unemployment insurance taxes is a good deal? >> our job is to figure out what makes sense for the country. as many people on your side of the aisle has said, we have to realize we have a long-term deficit. we have to do things that will be painful. we want to make those choices in

a way that are careful and sensitive. this is just a proposal. congress has to reflect on this and consider it. we are completely open to suggestions. what it does is mary's some short-term relief for states and employee years -- employers. there may be different ways to do this. we are open to suggestions. >> i appreciate that perspective. i think 2014 may be the ultimate year for filling that prophesy with all the taxes hitting the business world. the concern i have is that we have so many issues that are hitting if there are not reforms to the reform of health care dealing with things like this. i hear constantly from employers back in my district that there is a lot of fear that small

business and mid-sized business levels of about hiring. i guess my final question would be this -- if he were an employer and you are trying to make decisions with cash longer- term, would you think that with this limit tax hike that you would take on new liabilities to hire people? >> look what businesses across the country are doing today. if you look at what has happened to the recovery of the last 18 months, businesses are extending investment at a decelerating rate. we have created more than 1 billion private sector jobs in the last three quarters, much more quickly than the last two recessions. they were much milder recession. we have a long way to go, but we are making progress. i look at the overall index up proposals in the president's budget. it is my view if you look at the

overall, they are very strong and very powerful. they will help improve incentives for investments in this country. it will help improve innovation. it is good for growth long term. you have to look at the overall package. not just the specific tax cuts for businesses, but the over all as a whole. >> if i was facing an increase of 44% compared with things like this, it may create a disincentive. with that, i yield back. >> mr. reichardt is recognized. >> thank you, mr. chairman. mr. secretary, welcome. i remember two years ago your first visit to this committee. my question was on trade, you may recall. i was a little concerned that there was only one sentence attached to the no-cost

stimulus that has been referred to. i am happy to say that i am encouraged with the president's position and latest action on his export initiative. also his recent developments in negotiating trade agreements. i am excited about the job possibilities, the doubling of the exports, and the engine and will provide to our economy. congratulations on that. it shows you how much can change in a couple of years. one of the things i am concerned about, i will remind you of a letter that 118 members of congress signed along with myself and eric cantor policing our objection to the tax simplification program that you

considered last congress. it was a proposal that would have the irs prepare your taxes for you and the mail you a bill. this is, in my opinion, hardly tax simplification. it is like the fox guarding the henhouse. i want to assure you we are still where of that. i wanted you to be aware of my opposition and know that there might be some change in your thoughts. i want to move on. i want to make it back to the small business thing. some of the figures have been tossed about. as you have said, and i think most people recognize it, much of the burden is going to fall on the past through businesses, the s corporations, and sole

proprietors peers and tom is on the owner's individual tax returns. the committee on taxation found last year that roughly 50% of all small business and, would be subject to this tax hike. i am concerned about its impact of the millions of small businesses located in the state of washington and across the country. this is 50% of our income. the you believe that higher taxes on hundreds of thousands of small businesses is really a way to create jobs? >> thank you for what she said about the export side. it is very encouraging what we are seeing now. export growth is very strong. it is a leading recovery. it is across the board from agriculture to high-tech. it shows how fundamentally

strong in the country is. the question for us for the future is making sure that continues. for that to happen, you want to make short you see more investment in the united states by u.s. companies and foreign companies. that will lead to higher export growth. the way i would think about it is this -- this is the fairest way to do it -- those proposals are a very small fraction of small businesses, only 2% to 3% -- the epoch this fall's on businesses that make more than $1 million a year. >> had you address the fact it is 50% of our income? >> that is concentrated on business that are not small. they are actually quite large. overwhelmingly those businesses

are structured like a mall firm. they are like communities of individuals that aren't a lot of money because they are very productive. >> is this really the way to encourage economic growth? >> i think it is. future economic growth depends on two things -- better incentives for investment in this country and confidence that we will reduce our long-term deficit. we have to do both. if the business leaders are not confident we will reduce those long-term deficits, the future will be weaker. those are the rates that prevailed during the nineties. it was the best record for productivity growth and income growth that we have seen in more than 30 years. we think that is a prudent

response at a time when we do not have limited resources. >> we will agree to disagree on that one. >> mr. mcdermott is recognized. >> the republican plan sent one message into the middle class -- we do not care about you. they want to cut spending to repair highways and bridges. but what to cut social security so that social security offices closed for a month next year.

these will not put americans back to work. it will not grow the economy. republicans want to cut $758 million from the women's, infant, and children program. that provides funding to low- income mothers and soon-to-be mothers. the program was signed into law by none other than the great icons, president reagan, which all republicans operate every day as their patron saint. these are just a few examples of the disastrous because the republicans are proposing. they do not cut defense and even that the secretary of defense is desperately calling on us to stop buying weapons. they do not think the wealthy have any responsibility to this country. it also seems republicans do not understand the idea of

[unintelligible] paul krugman has called these spending cuts [unintelligible] you can tell when a child is on its way down when they eat their seat club. they cut things that do not have an immediate benefit, but they take a hit in the long term. as they eat our seed corn, they are doing it at the expense of the middle class and the poor. the president has tried to balance the budget and bring manufacturing back to the united states. i would like you to talk about the build american bonds and other investments and contrast that with what is in the republican budget. we understand there is a $2 trillion sitting in private hands and they will not invest it. we have no alternative but to do it from the government level because the public sector is not

doing it. i would like to hear you talk about the president of the investment. >> i cannot a improve on what you just described. the choices we face -- what we are trying to lay out is a more confident vision of what it will take for us to grow. we face a lot of competitive challenges. i will highlight some of the proposals in the budget. we propose to make permanent the expanded credit for research and development, zero capital gains for small businesses, and expansion of a very valuable tax cut to help families afford college for their children, low taxes on dividends and capital gains so we are not hurting investments, investments in education so we improve the quality of education, investments in the quality of the infrastructure. if you are a business in the united states and have to deal

with our infrastructure, it is like a tax fund. those are things we think are critical. companies around the world are getting very good at the things we used to be good at. as we think about the budget, we have to think about a better strategy for growth and do that in a way that is fair to the overall majority of the american people. we are coming out of a financial crisis that caused devastating damage across america. you see that in the high unemployment rates, millions of americans still on food stamps, needs of americans still at risk for losing their homes. we have to find a way to make these fiscal choices and to restore balance and gravity to our fiscal position, but not at the expense of our ability to grow and compete in the future and not at the expense of some basic principles of fairness for a country that is still

suffering deeply because of the recession. >> the republicans are going to have the chance when they put together their budget resolution to lay out a 10-year plan like the president does that explains how the republican leadership and the house believe they can bring the deficit down. that would give us a chance to have a good debate. we will not agree on everything, but we will agree on some things. the strength of the economy depends on these choices. >> thank you. mr. nunez is recognized. >> just entering your thought there, mr. secretary, this is president obama's third budget. i find it peculiar that you would state just now that you are waiting for us to lead. >> i did not mean to imply that.

obviously the president has the responsibility for laying out to the country and the world every year a budget that lays out a 10 year path to reduce the deficit. >> the one for us to come up with our -- >> we have to take the lead. you are going to disagree about some of those choices. what i meant is i know you are debating about current spending for this fiscal year. as important as that debate is for you to lay out an alternative vision -- your focus is out to demonstrate to the american people we can bring some restraint. >> i in your report on page 52, you state -- i should say the

president's budget, not your budget -- an aging population will pose serious long-term budget problems. medicare, medicaid, and social security will absorb a larger share of federal resources, limiting what the government can do in other areas. high debt to gdp risk in sustainability without further policy changes. you kind of plot on entitlement reform and other subjects in your budget. >> i listen to your colleagues say that, but i would say the following in response. we have an unsustainable deficit that we have to deal with. we have to bring it down. after that decade, we see unsustainable deficits primarily driven by health care costs. the affordable care act brings about cost savings that will reduce those costs. we recognize we need to build on

this. the president made a few suggestions on how to go beyond the affordable care act. >> i am glad you brought medicare. when you look in the fine print, we get to the appendix on page 282 of the medical trusties report which you are using for york bridge get savings and you solve the medicare crisis over time -- in the back, the chief actuary says this, "for these reasons, the financial projections show in this report do not represent a reasonable expectation for actual program operations in either the short- range or the long-range." i am ascent that is because we sgr.ot build an do you agree or disagree with

the chief actuary of the medical report? >> pc deal is the judge of what is saved. the actuary was making a prediction about what future congresses may or may not do. that is your decision. if congress does not and that these reforms or repeals them or modify them, they will save less money over time. that is a prediction about what congress will do, not a prediction about what the law would do if congress is to stick with it. >> you say if we stick with the president's current budget without any policy changes to entitlements that we are going to be ok? >> i would say this, if you and that the president's budget, which is unlikely because you would want to change it, then you'll stabilize our debt and that the economy on an acceptable level. if you leave in place the affordable care at, you have

made a substantial contribution to those long-term deficits that will start to accelerate in the decades ahead. >> i have heard you say almost exactly the same thing, just worded differently. every year the budget problem gets worse over time. >> in some ways it is getting better because the economy is doing a little better than we expected. the way our constitution works, the president proposes, congress has to legislate. you will now share with us the privilege of how to make decisions without these long- term cost. what is important for us to do is locked in a multi-year savings over time. if you try to do it in one year, you'll kill the economy. you need to get the business community and families a chance to adjust to the change. that is something we will have to do together. we cannot do that on our own.

>> secretary geithner, it is good to see you again before the committee. at a time when every american is concerned about our ability to compete, whether here or abroad, it is apparent to many of us that the administration has launched a full-scale assault on american energy security. there have been denials by the administration that a moratorium on drilling exist. the permits are not being granted. just this past weekend, the second-largest shallow water drilling company in the united states filed chapter 11. 1000 jobs at stake. this is solely due to the administration budget policy, it is not because of the economy. it is not because of some foreign event. it is because of policy made in the white house. we have gone back and forth on

energy policy. in a letter you sent to me a while back, there was one line that really bothered me. it says, "to the extent the credits encourage overproduction of oil, it is detrimental to long term energy security." this is referring to the eight different provisions in the budget that will be repealed for tax purposes. they had been in existence for a long time. it is a very simple starting question -- is there an overproduction in oil in the united states today? >> congressmen, i would come at that question this way. when you allow individual industries in the united states to pay much lower tax rates than other businesses pay, that makes the country as a whole less competitive. >> do we really have an

overproduction of oil in the united states today? it is really a yes or no question. >> i do not feel equipped to answer that question. i do not control energy policy. at a time when we have unsustainable deficits, we have to figure out ways to clean out the tax code out of special benefits that go to a limited number of industries that mean that the rest of americans pay higher taxes. >> the you believe that oil is a very necessary part of our energy economy to date? >> i am sure it will be an immediate part of energy for a long time. we think it is good policy for the country to not provide very generous incentives and encourage dependence on very

carbon intensive forms of energy. >> if you compare equivalent energy metrics with wind and solar, the subsidies for those are much higher on a per unit basis of energy than they are oil and gas. >> again, the overall return on those investments are higher. >> that has not been proven. >> you any may disagree on that. i know this will be painful for parts of the energy industry -- >> it will be painful for every american, sir. >> i do not think so. >> if we tax our current energy production then obviously prices will go up whether it is electricity or you ought to pump. >> -- or the fuel at the pop.

>> they will not effect -- affect the price of energy for the american people. >> i do not agree with that. that is not what i am getting from economists. >> economist can disagree with almost anything. we have to make these judgments. when you look at these industry specific tax benefits i think it is important to recognize that they only exist because other businesses pay higher taxes. if you care about overall competitiveness, you care about scaling this back. >> there is also dual capacity companies. this will affect u.s. companies drilling overseas, making them less competitive. i have to question, why should u.s. tax law favor chinese enterprises, the venezuelan state-owned enterprises over u.s. companies? >> i understand the concerns

about the impact of these changes on specific companies. i would be happy to have my colleagues work with you. >> mr. neel is recognized. i know now that i can count on mr. this dawning -- bastani. i will give you a chance to speak on this, mr. secretary. can you tell us where we are with tart and the goal of tarp? you can sense that the bermuda and swiss companies that receive a subsidy to compete with american companies are taking note of what you propose. the department of labor is proposing some new rules on fiduciaries