complimenting this joint rule-making between the fed and the fdic, the fdic also issued a final rule requiring any fdic insured depository institution with assets under $50 billion to develop, maintain and periodically submit plans outlining how the fdic would resolve it through the fdic's traditional resolution powers under the federal deposit insurance act. people always get confused about this. the new authority under dodd-frank for resolution really goes to the holding company and the affiliates. we've always had the authority to close the bank. we now are requiring complimentary resolution plans, one, addressing the holding company and the affiliates, the second addressing the insured institutions, so hopefully we have a comprehensive resolution plan for the consolidated entity. these two resolution plan rule makings are designed to work in tandem and compliment each other by covering the full range of business lines, legal entities and capital structure combinations within a large financial firm. both of these resolution plan requirements will improve efficiencies, risk manageme

and the fdic is forecasting significantly fewer failing banks this year than last. so the overall picture is really fairly positive. however, and this is san important point, most of the improvement and earnings over the last two years has been the result of lower loan loss provisions, the set asides that the banks make reflecting improving credit quality. but future earnings gains will have to be based to a greater extent on increased lending, consistent with sound underwriting. you can only generate earnings by reducing reserves for so long. at some point, you have to start making loans again. that's why we view the fourth quarter growth in the industry's loan portfolio, which is a third consecutive quarter of loan growth as a hopeful sign. the loan growth that's occurred so far has been led by lending to commercial borrowers. loans to medium and large commercial borrowers have increased in the last six quarters. the fdic just began collecting quarterly data on these small loans to businesses in its as a matter of fact 2011 call reports. so our history here is brie

complementing this joint rule-making between the fed and the fdic, the fdic also issued a final rule equiring any fdic insured depository institution with assets under $50 billion to develop and outlining how the fdic would resolve it through the fdic is traditional resolution powers under the federal deposit insurance act. people always get confused about this. the new authority under dodd-frank for resolution goes to the holding company and affiliates. they've always had the ready to close the bank. we now are requiring complementary resolution plans. when addressing the holding company affiliates, the second addressing the insured institutions. so hopefully we have a comprehensive resolution plan for the consolidated entity. these two resolutions are designed to work a tandem and complement each other by covering the full range of business lines, legal entities and capital structure combinations within a large financial firm. both of the resolution's requirements will improve efficiencies, risk management and contingency planning that the institutions themselves and will supplement

the fdic has been at the center of efforts to contain the financial crisis. certainly very much at the center of legislative drafting efforts with the dodd-frank act. certainly that's picked up some major new systemic risk responsibilities under dodd-frank. so we're delighted to welcome the chairman to speak to us today. i suspect he'll be telling us something about the fdic's new responsibilities under dodd-frank and how those are being implemented. he's kindly agreed to take a few questions after his prepared remarks. please join me in welcoming chairman gruenberg. [ applause ] >> all right. thank you very much for that kind introduction. art's an old friend. he served as a valued adviser to us on any number of bills that we considered on the senate banking committee while i was there. this is a bit of an old home week. i know steve harris was here earlier. gary just left. professor goldschmidt is here, all of whom played really central roles in the formulation of sarbaines-zoxly. you made reference to sheila baird who i think was really an outstanding lead

sheila told me two things before she left, one, being chairman of the fdic is a very tough job, and i can now vouch for that. the second thing, and so she was right on that point. the second thing she told me was, "everything will be okay," before she left. that she wasn't quite as right. [ laughter ] >> she didn't tell you about europe? >> and some other things as well, but if nothing else, it's been an interesting and challenging experience. and i think the role of the fdic during the course of this financial crisis really has been a very important one, and i think if i may say, i think history will look back upon the performance of the fdic over these past three or four years and i think the performance will hold up pretty well. two things i really wanted to talk with you about this afternoon. i want to take just a moment to talk about the condition of the banking industry. just earlier this week, on tuesday, the fdic released its quarterly banking profile, so i just wanted to share some of the results of that with you and then i'll spend really the remainder of the time talking ab

the fdic, certainly has been at center of efforts to contain the financial crisis. certainly, very much at center of the legislative drafting efforts with the dodd-frank act. certainly picked up some major new systemic risk responsibilities under dodd-frank. sew we're delighted to welcome chairman gruenberg to speak to us today. i suspect he will be telling us something about the fdic's new responsibility under dodd-frank and how those are being implement the. very kindly agreed to take a few questions after his prepared remarks. join me in welcoming, chairman gruenberg. [applause] >> all right. thank you very much for that kind introduction. art's an old friend. he served as a valued advisor to us on any number of bills that we considered on the senate, on the senate banking committee while i was there. this is a bit of an old home week. i know steve harris was here earlier. gary gensler just left. professor goldschmidt is here, all who played central roles in the formulation of the sarbanes-oxley certainly and then, and in its implementation as well. so it's a ple

when he was leaving, he was just saying how wonderful the fdic is. so it was worth a lot more than all the paid advertising and public service messages we had done. it turned out to be a very good thing to do. >> what's your sense -- i don't know if peter schiff is still in the audience, but peter, is he here? are you here, peter? i'm going to ask a question he would have asked. larry lindsey said this is probably -- and i don't know how he figured this out -- but he felt this audience might be center of left audience. but you certainly didn't come from the center left, and yet you are a strong regulator. you believed in more regulation and however you want to coat it, you're still talking about things that are a good amount of regulation for the banking system. how do you square that with a world that is talking about less regulation for financial services? we are in a world s messed thi loosen the reigns to allow these banks to make some you need sto reagan -- i'm a republican.ubli philosophies. reagan once said the role of government is not to prot

sheila bair is the -- is now with pew, is the former fdic. very, very important voice during the housing bubble crisis. and what happened. and all i will say as i leave the two of them to have their discussion is that if ali doesn't mention this question about a bond bubble, one of you should. >> thank you, steve. i want as much participation as possible. so if somebody wants to ask that question, go ahead. i couldn't help but think when we were listening to larry lindsey and he kept referring to the sympathetic media and whether or not i was a part of that mess. i'm going to try to be very hard hitting. sheila bair, good to see you. we've had fantastic conversations today. and there have been a lot of digs, sort of people have been taking digs at the other side idealogically. but we've had no -- no knockout punches. we're hoping to get one of those from you. let's start by talking about the thing that i see newspapers all over the place. obviously everybody is ingesting this information about the bank stress tests. we -- because you were here

the fdic's ability to do that has avoided panics and bank runs since the 1930s. the idea here is that bs dsomeo it for complex firms which is much tougher, but in cooperation with the fed and with regulators from other countries where in case of multinational is underway to prepare so that should it happen that a large firm comes to the brink of insolvency and cannot be -- cannot find an answer, cannot find newr example, that the ability of the fed to intervene in 2008 has been taken away. we can't do it legally anymore. the only option is to work with fdic to safely wind down the firm tlyt.educe or we hope eliminate the too big to fail problem. there are many other aspects of the dodd frank act. another vulnerability waexic fi drifities and so on that concentrated risk.ea here is to describingtives and those tractions out of the shadows. make them able and visible to regulators and to the markets to avoid a situation like we saw during the crisis. one the is the shortcomings. here at the federal reserve did not do as good a job as it should have of protecting co

occ, and i've not heard bad things about regulators, but i've heard several horror stories about the fdic, and i'll tell you one that i heard since the last time we talked. there is a community bank that recognized a bar roar was in a deteriorating position. they asked him to put money in an account and signed a forbearance agreement, but they got a year of principle and interest in a restricted amount that consumer can't touch so they know that loan is good for a year, and the fdic came in and asked them to put all that money in principle and basically then downgrade the loan. well, they know that loan is going to be good for a year, and the gentleman's financial condition may change in that year. they've taken responsible action in the fdic and it's forced them to do things that i think are irresponsible. i would ask you to go back to regulators at the oicc and ask them please not to encourage our community banks to do things that actually hurt borrowing and hurt our economy. >> thank you. >> the gentleman from california, mr. sherman, is now recognized for five minutes. >> thank you. m

mary thompson. >>> an interview with the former fdic chairman, sheila bair. what she thinks the fed's stress test really said. whether she still believes the big banks should be broken up. >>> later, are natural gas prices nearing a bottom? john watson will join me for an exclusive interview back in a moment. life moves fast. we're often so busy dealing with what's in front of us that we lose sight of the big picture. that's why it's good, every now and then, to pause, take a new look at your financial plan and make sure you're headed in the right direction. for more than 140 years, pacific life has been offering integrated solutions that help to create a secure financial future. ask a financial professional about pacific life - the power to help you succeed. the two trains and a bus to the 5:00 arider.holar. the "i'll sleep when it's done" academic. for 80 years, we've been inspired by you. and we've been honored to walk with you to help you get where you want to be. ♪ because your moment is now. let nothing stand in your way. learn more at keller.edu. >>> we

if the fdic didn't insure the banks, they wouldn't have done the risky stuff. but since the government created all the moral hazard by telling depositors, put your money in any bank you want because the government is going to bail them out if they fail. that is the problem. and we made it worse. and the financial crisis is worse because of dodd/frank. we haven't prevented. we guaranteed it. >> we have one more brief comment. >> just to clarify the record, i was a member of the financial crisis commission. two great accomplishments were it began and ended. but it has nothing to do with dodd/frank. it went ahead with the legislation before we did any of our hearings, delivered any bad reports. we covered a lot of ground so i'm sure there are thoughts. as i survey the room. we have a thought walking. thank you. >> wee'll start with you, sir. >> it's jack warner. it was clear that there were like 600,000 jobs out there right now that we can't fill. and companies like boyd have to go from a seven-week training period to a 14, 16-week training period to train folks t

the fdic guaranteed those issuances so that banks could get longer term funding. so this was a collaborative effort between the fed and other u.s. agencies. we also worked closely with foreign agencies. i mentioned last time the currency swaps, which are still in existence, f gave dollars to foreign central banks in exchange for their own currencies and those foreign central ba toand on their own responsibili, under their own risk, lns to fi institutions that required dollar funding. we also, of course, continued to be in close touch with finance ministers and regulators around the world as we tried to coordinate to deal with the crisis. now, putting out the most intense phase of the fire was not reallye continuing effort to strengthen the financial system. strengthen the banking system. for example, in a quite succesul think was very constructive, the fed working with the hegencies largest u.s. banks in the spring of 2009. so this was not far after the most intense phase of the crisis, and what we did in an unprecedented way was to disclose to the markets what the

when he was leaving saying how wonderful the fdic is. it was really a very big confidence-instilling process and worth a lot more than the paid advertising and public service messages we had done. it was really, turned out to be a very good thing to do. >> what is your sense, i don't know if our friend peter schiff is still in the audience, but peter, is here? are you here, peter? i will ask a question peter would have asked mostly because he told me would have asked it. to what degree, first of all, larry lindsey pointed out this is probably, i don't know how he figured this out he felt this audience might be center left audience and he comes from the center right. but you certainly from a economic perspective didn't come from the center left and yet you are strong, you were a strong regulator. you believed in more regulation and some degree however you want to code it, you are still talking about things are a good amount of regulation for the banking system. how do you square that with a world talking about less regulation for financial

to central banks in the united states, for example, there are a number of different agencies like the fdicr the office of the control of the currency that work with the fed in supervising the financial system. so this is not unique to central banks. so i'll be downplaying this for the timebeing and focussing on the two principipal tools. now where do central banks come from? one thing people don't appreciate, i think, is that central banking is not a new development. it's been around for a very long time. the swedes set up a central bank in 1668, 3 1/2 centuries ago. the bank of england was founded in 1694 and that, of course, for many decades, if not ceur impor influential central bank in the world. and france in 1800. so central bank theory and practice, not a new thing. we have been thinking about these issues, collectively as an economics profession and in other contexts for many, many years. now i've exaggerated slightly in the sense that the bank of england wasn't set up from scratch as a full-fledged central bank. it was originally a private institution. and overtime tarks quired so

>> well, that, and even more importantly, or equally importantly, since the fdic came into existence at approximately a similar time where the government was guaranteeing deposits so that people didn't lose if a bank got into trouble -- people didn't lose their lifetime savings. my father lost his lifetime savings during the depression. and it was quite a family event. and if he had ever known i worked in a bank he would have died yet again. but not only did they want to keep the banks from the business for reasons of not risking the money. they didn't want them to use the guarantee that the government provided for those deposits to leverage their position. because, you know, if you have a deposit base that's guaranteed by the government, it sure puts you at a great advantage in terms of going into the market and playing around. >> the government's going to pick up your losses, right? >> yeah. and you don't have a funding problem. >> that was what the fdi-- >> because you have guaranteed deposits. >> that was federal deposit insurance corporation was designed to protect my -- >> that'

that's why we have deposit insurance, the fdic. but it would have been a big lesson to the speculators that you're not going to be propped up and bailed out, you're not going to have the fed as your friend. you're not going to have the treasury with a lifeline. you're going to have to answer to the marketplace. and until we get that discipline back into our financial system, the banks are just going to continue to grow, continue to speculate and find new ways to make easy money at the expense of the system. >> president bush, he was still in office then. >> yes. >> he said, "i have to suspend the rules of the free market in order to save the free market." >> you can't save free enterprise by suspending the rules just at the hour they're needed. the rules are needed when it comes time to take losses. gains are easy for people to realize. they're easy for people to capture. it's the rules of the game are most necessary when the losses have to occur because mistakes have been made, errors have been made, speculation has gone too far. t

the actions taken by treasury secretary hank pahlsson, the federal reserve, the fdic authorized by the congress earlier that fall were essential to stemming the worst of the financial panic, but the economy was deteriorating at an alarming pace. you'll remember that our banks and financial markets were still in a state of shake sucking more oxygen out of the economy, helping push the u.s. and the world into the worst crisis since the great depression. businesses were failing at an alarming rate. those able to survive were laying off hundreds of thousands of workers each month. house prices were falling rapidly and remember in early 2009 they were projected to fall another 30%. so as the president prepared to take office in january 2009, it was clear that the situation was very grave. and the president understood that additional actions were urgently needed. he did not sit around hoping the crisis was burn itself out. he was not paralyzed by the complexity of the choices or the terrible politics of the potential solutions. he decided to act early and forcefully and his strategy to stabi

in addition to yourself one of the major contributor is president bur who admired sheila bear of the fdic. i note the portrait of hank paulson went up in which a write-up that was with his approval at least noted initiated many of the reforms that wound up in the financial reform bill. so mr. paulson was also there. i do want to go back again to the deficit, because the chairman said to me yes, he agrees it should be the military. he talks about the entitlements. when you talk about the level of reduction we need, if you get it all out of social security and medicare and gnt elsewhere, you do danger. i believe you start with overseas military expenditures that are excessive. from the economic standpoint, given the point of a longer term policy to reduce deficit of the purely economic standpoint, but from the purely macro economic standpoint, is it different those came from reducing the cost of living increases or restricting medicare or from some change at the tax code at the upper levels of income. is there any macro economic difference? >> from a macroeconomic perspective, the main thin

he was saying how wonderful the fdic is. [laughter] it was a very big confidence process and with a lot more than all the paid advertising a public service messages that we have done. it was really, it turned out to be a very good thing. >> i don't know if our friend is still in the audience, but peter, is he here? i'm going to ask a question peter would've as. mostly because he told me he was going to ask it. to what degree, first of all, larry pointed out. he said this is probably, i do how we fear this out but he said he felt the saudis might be centerleft audience and that he comes from the center-right. but you certainly from an economic perspective didn't come from the centerleft. and yet you are strong, you are a strong regular. you believe in more regulation and to some degree however you want to code it yourself talking about things that are a good amount of regulation for the banking system. how do you square that with a world that is talk about less regulation for financial services, even though the public is a nec

the fdic ask them to put all that money towards principle and write the loan down and downgrade the loan. they know the loan is going to be good for a year. the man's financial condition may change in the year. the fdic has forced them to do things that were irresponsible. my time has expired. i would ask you to go back and ask them not to encourage our community banks to do things that hurt borrowing and our economy. thank you. >> the gentleman from california is now recognized for five minutes. >> i want to commend you on everything you have done to keep short and long interest rates as low as possible. we face a difficult circumstance. the fed is doing more than any other agency of government to try to get us out of it. i will have a question for the record for you on the volcker rule and applying it to international situations. my first question is about the society for worldwide interbank financial telecommunications, swift. i am on a bill to expel iran from swift. do you think that we can exclude a all iranian banks from swift instead of just those under eu sanction. >> on swift i

i actually discussed this point in a speech i gave a couple weeks ago at the fdic, and i made essentially the same point, which is the net interest margin has two parts, the difference between deposit rates and safe rates, but also the difference between safe rates and loan rates. the ability to make profitable loans depends on having a healthy economy, so the short run cost of low rates should be worth it if we can get the economy moving again. >> chairman, if i may, a bit broader question or perhaps more of a 30,000-foot question. you have many, many times, including here today, pointed out how important it is to have federal policy that reflects the impending crisis that we face in terms of managing the debt and how that weighs on economic growth. do you ever feel as though you're talking past your administration and congress, that, you know, we're talking past each other and somehow how can we make your message resonate? people like me are very sympathetic to it, obviously. >> well, these criticisms are easy for me to make. i don't have to deal with the politics, and i know they're ve

the first was in 1934, the establishment of deposit insurance and the fdic. now if you were a ordinary depositor in a bank and the bank failed, you still got your money back. therefore, there was no incentive to run on the banks. and in fact, once the deposit insurance was established, there were essentially -- we went from literally thousands of bank failures to zero. it was incredibly effective policy. the other thing that fdr did, although it drew a lot of smoke while he was doing it, basically he abandoned the gold standard. by abandoned the gold standard, he allowed monetary policy to be released and allowed expansion of the money supply, which ended the deflation and led to a powerful short-term rebound in '33 and '34. so the two most successful things that roosevelt did were essentially offsetting the problems that the fed created or at least exacerbated by not fulfilling its responsibilities. so what are the policy lessons? it was a global depression, had many causes. the whole story requires you to look at the whole international system. but policies

including allegations of questionable loans that were made to convicted political fund-raiser tony rezko the fdic regulators are trying to recover $104 million in losses by this time next week rod blagojevich will be in a prison cell but before the convicted ex governor leaves chicago he plans to make a public statement the spokesman would not say when blagojevich will make a statement or what it may contain only that it will happen before next thursday his attorney said blagojevich wants to enter prison and a dignified way without any media frenzy the pastor with dreams of turning an abandoned motel into a community center launched a new phase to make that reality pastor corey brooks has already raised nearly $5,000oo000 after camping out on top of that motel for 94 days the motel is located near 66th and came across from his new beginnings church that money will purchase the property and pay for its demolition but now the pastor needs funds to build a community center that will cost $15 million priestess' criticizing organizers of sunday's south side irish st. patrick's day parade for beginning

. >> i hadn't heard that quote before, and i found it curious because the fdic in fact has reorganized their own staff to separate consumer protection staff from other staff so that they can make sure that they have a more direct focus on these same issues. so they've kind of mirrored dodd-frank. >> but remember, the quote here is a separate organization. >> yes, sir. >> and that's your point. >> yes. i actually think that the two issues go hand in hand. i don't think that you can have a safe and sound financial institution that is not treating its customers in a sustainable basis for the long-term. if they're eating their customer base by exploiting them in the short-run, which is the kind of things that raise consumer protection concerns, they will not be a safe and sound institution in the long run. i think there is much more harmony between these concepts than people have recognized. i also think, though, and i would agree with you, that it behooves us to collaborate closely with our fellow regulators to make sure that we aren't inadvertently -- we certainly don't intend underminin

i told them exactly where to get a copy and from the fdic went to the department of defense and went and got a copy. and do you know what the department of defense told them? we can't give you a copy because there's a copyright on this report. now, aide contract with the government that said i retained all of the rights to it except for any governmental purpose. and they could use it for any governmental purpose and i assumed that the fdic was a legitimate governmental purpose. so they came to me and said we can't get it, i said, what? go back and get it. so they went back and asked again, they said again it has a copyright and i got an email that documents all this. finally, they came back a third time and said, you know, we can subpoena it 'cause we have subpoena power and how would the secretary of defense would like to testify as to the report and they said -- they called me up and said, can you take the copyright off the report so we can give it? yes. yes. here, here's a copy. i emailed them a copy in a matter of hours. i was on a plane when they called so it took a couple hours

>> yes, i actually discussed this point in a speech i gave a couple of weeks ago at the fdic. i made essentially the same point, that the net interest margin has two parts, the difference being between deposit rates and saif rates, but also with the saif rates and loan rates. the difference depends on a healthy economy. in the short run, the cost should be worth if we can get the economy moving again. >> chairman, if i may, a bit broader question, or perhaps, more of a 30,000 ft question. you have many, many times, including here today, pointed out how important it is to have federal policy that reflects the impending crisis that we face in terms of managing the debt, and how that weighs on economic growth. do you ever feel as though you are talking past your administration and congress, that we are talking past each other? how can we make your message resonate? people like me are very sympathetic to it, obviously. >> these criticisms are easy for me to make. i do not have to deal with the politics. i know they are very difficult. it is always hard to explain to people why you

you can put a ton of money, millions in one bank and then, they shop it out to other banks so that the fdicules will ensurer money to almost any amount. and so if that is your question, that is one way to do it. ask about this program. sharon lee lu tweeted this question. what income limit requires reporting from a hobby? i have a blog that earns $150 per year in ads. do hob yeez need to be reported? yes. here is the deal. if they declare a hobby then you're not allowed to take write offs, however, if you declare a hobby to make money have you to tell them about the money and pay taxes. and there are ways to track this down. if you make money doing anything, have you to tell irs about it. okay. let's go back over to you guys. >> thank you. >> and perhaps you remember the film "the russians are coming". you weren't even born then. you don't remember it. russians are here in silicon valley seeking venture capitol for high-tech start ups. >> there is david louie joins us live you must remember that movie. north san jose has buildings like one behind me. start ups worked to expand and develop.

the actions taken by treasury secretary henry paulson, the federal reserve, the fdic authorized by the congress earlier that fall were essential to stemming the worst of the financial panic but the economy was deteriorating at an alarming pace. you will remember that our banks and financial markets were in a state of financial shock, something more oxygen out of the economy and pushing the world into the worst crisis since the great depression. businesses were failing at an alarming rate, those able to survive or living of -- laying off hundreds of thousands of workers in house prices were falling rapidly and in the early 2009, there were projected to fall another 30%. as the president prepared to take office in january of 2009, it was clear that the situation was very grave. the president understood that additional actions were urgently needed. he did not sit around hoping the crisis would burn itself out. he was not paralyzed by the complexity of the choices or the terrible politics of the potential solutions. he decided to act early and forcefully and his strategy to stabilize the f

we'll get reaction to the results of the fed's latest stress test with noted analyst meredith whitney. former fdic chairman will give her reaction to the tests and banking sector. unless the next hour, we'll talk about the future of oil and gas prices when i sit down with john watson. big show ahead. >> a lot to get to. yields and ten-year, and 30-year at their highest levels since october. so how far will this momentum take those yields to this point. that's our "closing bell" exchange today. we have bob pisani here at the new york stock exchange, of course, and rick santelli is standing by at ecb headquarters. rick, i'm struck by the fact that the yields are at levels that we last saw, the last time the stock market had a meaningful bottom. any significance to that? do you see yields going much higher here? >> i think i'd be very nervous to fade momentum on a market, the treasury market especially long, bill. that's been in a very tight 20, 30-basis range in four months. now that we've broken out of that mid-november range, whether it's testing at 240 yield in the tens or testing 350 in the 30s,

first was in 1934 the establishment of deposit insurance, the fdic. now if you were an ordinary depositor and the bank failed you still got your money back and therefore there was no incentive to run on the bank. in fact once deposited insurance was established we went from literally thousands of bank failures to zero. it was an incredibly effective policy. the other thing fdr did although to a lot of smoke when doing it was he abandoned the gold standard and by abandoning the gold standard he allowed monetary policy to be released and allowed expansion of the money supply which ended the deflationary and lead to a powerful short-term rebound in 33-34. the two most successful things roosevelt did were essentially offsetting the problems that the fed created or at least exacerbated by not fulfilling its responsibilities. so what are the policy lessons? it was a global depression, had many causes. the whole story requires you to look at the whole international system. but policy areas in the united states as well as abroad played an important role. in pa

so i'm sure the fed and fdic are going to carefully evaluate those comments, and i am very confident they have the ability to address those concerns within the way the law is drafted. >> thank you. then one last question. china stands as one of the few major markets to impose substantial barriers to entry for american business, including financial services firm. and though you have stated publicly the the u.s. needs to level the playing field with china, they continue to have the most restrictive market. for financial services in the g-20. and the the newly released development research center, the state council, world bank, newly called china 2030 reported greece and calls on significant changes to the chinese domestic financial system, as they become more active internationally. as the chinese financial services firm expand to the u.s., what steps are you taking to ensure that u.s. financial firms have the same access to china. >> very important point to us. thank you for highlighting the world bank report, because it's a very sweeping constructive set of suggestions for reform in c

when certain regulators tried, like the fdic, when they tried to raise capital requirements or put inlace things that might protect the taxpayer from these problems, they were brought back and battled back by other regulators. it was very difficult. so i do not have a lot of confidence coming out of this mess that the regulatory framework in washington is able to really take on these very powerful institutions. if anything after this mess with dodd-frank, the law proposed to protect us from this episode, if anything, it seems to me the institutions have become more powerful. the banks are larger for the most part. they are still too big to fail which means they will be bailed out if there are problems. so i just feel like we'd have to have a complete re-thinking of our financial system. a first move would be to cut these banks down to a more manageable size. very few people are willing to talk about that in washington. host: let's go to a tweet. jim at the lake asks about the concern on the gift to the banks, askingg -- guest: that is the problem with any kind of printable write-down

all right, we welcome back an old friend to the show, former fdic chairman bill isaac is now chairmanh passed the fed's stress test. great to see you again. just quickly, i got other stuff on bernanke. but just tell me as a former fdic chair. where the stress tests meaningful? and is the banking system in as good as shape as the results might suggest? >> i think the stress tests were meaningful. i hate the way they do them. i think it can be very harmful to the economy. when you run these scenarios that they basically gave them a depression-era scenario with about a 4% chance of probability and they're requiring the banks to capitalize for that. what they're missing here is when you require the banks to capitalize, it's going to be awfully hard to get this economy moving. the banks have two ways to come into compliance on capital ratios. one is to raise capital which is very difficult and very expensive, the other is to slow their growth or shrink their balance sheets with a lot of banks are doing and doing it in europe. >> they have excess. most people think the banks have excess cap

the actions taken by treasury secretary hank paulson the federal reserve in the fdic authorized by thepanic, but the economy was deteriorating at an alarming pace. you will remember that our banks and financial markets were still in a state of shock, more oxygen out of the economy, helping push the u.s. and the world into the worst crisis of the great depression. businesses were failing at an alarming rate. those able to survive were laying off hundreds of thousands of workers each month. house prices were falling rapidly and remember in early 2009, they were projected to fall another 30%. so as the president prepared to take office in january 2000 it was clear that the situation was very grave and the president understood that additional actions were urgently needed. he did not sit around hoping the crisis with her in itself out. he was not paralyzed by the complexity of the choices or the terrible politics of the potential solutions. he decided to act early and forcefully and his strategy was to stabilize the financial system, combined with $800 billion of tax cuts and emergency spen

i discussed this in a speech i gave a couple weeks ago at the fdic. mment that the interest margin has two parts. the difference between say for it in low rates. the ability to make profitable loans depends on having a healthy economy. in the short run, the costs of low rates should be worth it if we can get the economy moving. >> chairman, if i may, a bit broader question or perhaps more of a 30,000 to a question. -- trick question. if you have pointed out how important it is to have federal policy that reflects the impending crisis we face in terms of banishing the dead and how that weighs on economic growth. -- vanishing that debt and how that ways and economic growth. do you feel you are talking pastor administration and congress -- we are talking past each other and how can we make your message resonate? people like me are sympathetic to it. >> these criticisms are easy for me to make because i do not have to do with politics and i know they are difficult. it is are to explain to people why you have to tighten your belt. on the one hand, i think t

the institution. but i imagine a situation before there is any deposit insurance. no fdic. bank makes loans to businesses. if finances itself by taking the positives from the public and deposits hours. it means that anybody can pull up any time they want. people use deposits for ordinary activities like shopping. imagine what would happen if for some reason a rumor goes around that this bank has made some bad loans and is losing money. if i in the last person in line, and may end up with nothing. what are you going to do? you're going to the bank in say i'm not survive this is a true rumor or not. i am going to pull my money out. they line up. the pull of the cash. no bank cold cash equal to the deposits. the only way they can pay off the depositors want to get stirred the minimal cash reserves is to sell the loans. depositors are at your door and saying where is my money? it can leave the bank to close. the bank will fail. there have to sell up the assets. -- they will have to sell off the assets. a bank panic is a problem which is faced by any institution where they have

when certain regulators tried, like the fdic, when they tried to raise capital requirements or put in place things that might protect the taxpayer from these problems, they were brought back and battled back by other regulators. it was very difficult. so i do not have a lot of confidence coming out of this mess that the regulatory framework in washington is able to really take on these very powerful institutions. if anything after this mess with dodd-frank, the law proposed to protect us from this episode, if anything, it seems to me the institutions have become more powerful. the banks are larger for the most part. they are still too big to fail which means they will be bailed out if there are problems. so i just feel like we'd have to have a complete re-thinking of our financial system. a first move would be to cut these banks down to a more manageable size. very few people are willing to talk about that in washington. host: let's go to a tweet. jim at the lake asks about the concern on the gift to the banks, asking -- guest: that is the problem with any kind of printable write- dow

dodd-frank was now we have these resolution procedures that banks, when they get sick in theory, the fed, treasury and fdic can agree and put them down in a more orderly manner. no one has shut down a major bank trading operation cleanly. at some point you have to stop the music if you will resolve it and shut down the trading positions and value them and no one wants to be exposed to that. if you are a big hedge fund or trader, you do not want your positions frozen. so the notion that you can have a bank that is -- that people think is in trouble and say, we will have dodd-frank resolution and not have all the trading counter parties run, it's -- i am very concerned that it's -- we are not there. >> so the short answer is no. >> no. >> no. >> sorry, but this is the whole frustration, you have to get into the weeds to understand this. >> no, no, i was not being fecicios at all. and you have a book coming out, from financial crisis to prosperity, 20% off as well. that might foreshadow what you'll say, do you agree with eve and the atlantic that it would not have prevented it and that the hero is ben better

so, we have a three-pronged approach to going after the scams that the fdic. first and foremost of course we want to stop them and called on the boiler rooms. we work very closely with the canadian authorities, the jamaican authorities and others to try to find these guys and stop them. we also are trying to go after what we think is the pivotal point. at some point the elderly person needs to send money to the scam artist, and that is the point we can go after them wholesale, not retail, as we have money gramm which is the second largest money transfer company underwater. we have western union agreeing to abide by essentially the terms we have in our money gramm order. one of the things we have done and is starting to yield results is we've insisted on relieve clear consumer ads. so if you walk into many wal-mart today hopefully within a year if you walk into any wal-mart, the money gramm principal outlet on the stores are under our order. you will see facing you as a consumer a miranda warning. if you think that you have won the lottery, guess again. if you a

. >> you are advising the fdic, we're supposed so see the big bank stress test, the results of thoseimportant are those? >> i think that's very, very important. and i'll tell you why. in 2009, when the fed executed the stress tests and then came out and told people what the results were, it gave the market an enormous amount of confidence and the banks were able to raise hundreds of billions of dollars of equity which was really pretty amazing because that happened shortly after the bottom in march of '09. so, it's supposed to be next week when the stress tests are coming out and i think there are a number of different parts of that that are interesting. number one is how transparent will they be? many of the banks don't want transparency, i think the fed is inclined to exercise transparency, i think that's one thing. and then the other question really is how permissive will they be to the strong banks to pay dividends and buy back stocks? >> right. is there a big loser in this? >> i think some of the stressed banks if they are required, one is that there's a lot of transparency, and