i did not tell bank of america's management that the federal reserve would take action against the board or management if they decided to proceed with the mack. moreover i did not instruct anyone to indicate to bank of america the federal reserve would take any action under those circumstances. i agreed with the view of others that the indication of the mack in this case involves significant risk for bank of america as well as merrill lynch in the financial system as a whole and it was this concern that i communicated to mr. lewis and his colleagues. the federal reserve also have to appropriate regarding issues of public disclosure. as i wrote in a letter to this committee neither i nor any member of the federal reserve directed come instructed board buys bank of america to withhold from public disclosure and information relating to merrill lynch including its losses, compensation packages are bonuses or any other related matter. these obligations belongs squarely with the company and the federal reserve did not interfere in the company's disclosure decisions. the federal reserve had a legi

simply because we need to create an incentive inside banks or brokers to actually try and monitor each department to try to monitor the other department and there has to be a sense of collective scrutiny. one of the banks appears to have been better at ducking is goldman sachs where there is more of a sense of one department looking over the shoulder looking over the other departments. they are not operating inside which is fierce competition with each other and actually as secretive with each other as they are with the outside world and that's largely -- or not partly because of goldman sack partnership with history which manages to imbue some of the corporate culture today. so i think -- one way to go down it. i think, unfortunately, that although people those who would disagree that i think regulators need to get much more hands on and much more involved and, you know, having a system whereby, you know, a group of financiers or banks are allowed to innovate to a degree they want with votes external oversight be it from journalists, regulators or politicians and somehowç hope that t

did the federal reserve compel bank of america to complete the deal against its will. or did bank of america's mistakes and miscalculations, more than any other single factor cause the experience corporate deal maker to be exposed to merrill lynch's predictably large losses? did the government believe that bank of america knew or should have known about those losses before its shareholders ratified the merger? did the government have an opinion about whether bank of america could be liable for securities fraud for withholding from investors material information it possessed about a significant deterioration in merrill lynch's balance sheet? did bank of america in effect negotiate an extraordinary deal for billions of additional dollars from taxpayers to continue growth as the nation's largest commercial bank? this hearing today will help to answer those questions this committee's ongoing investigation and subsequent hearings will answer the following questions among others. did the federal reserve in attempting to protect the system apply well established remedies when it

bank. if you hadn't been a ceo, been the top executive at the mid sized or small regional bank and acquired a similar size bank, do you think the federal regulator would have behaved in the same way? >> i don't think i have a favorite son from the e-mails you just read. >> if you were a smaller institution been taken over and liquid ated? >> i can't speculate on that, sir. >> we have a large financial institution that doesn't face the same consequences for management of small ones and the fed had an opinion there was considerable evidence of mismanagement. there's been a misconception here that the government put a gun to the head of bank of america when it's quite possible it was the bank of america that put a gun to the head of the fed by threatening to invoke the mac and i think that this whole idea, mr. chairman, about mr. lewis somehow being a victim here, flies in the face of the fact that you were ceo of the largest bank and that you are pretending that you didn't ask for help from the government to take the burden off your back, that you didn't ask for a letter. you're going to have

or the -- i mean the bank of america taking on this burden. you see you're going to have the burden one way or the other. safe to say it looks simpler from a management point of view to get them to take this on so you can manage this as a single piece rather than going back and forth? >> the gentleman's time has expired but if you want to put that in a question and then mr. bernanke can answer, you can have the time. >> let me finish with him. the -- you stated today if you had it all to do over again, you believe today that you would do it exactly the same. later in your testimony i am going to -- >> i'll take that as a question and answer. >> the fact you made it -- how do you explain the fact today you did add a condition and clause that you did exactly what you needed to do for what you knew at that time? does that leave you a question -- does that statement leave in the back of your mind maybe there are things you know today that you would have done differently? >> the witness may answer the question. >> i don't know of anything material t

or what have you. -- fancy trips. people are feeling sorry for the banks and how much the interest rates are or could be -- as far as beingoo high, and by god, look at the fees that the banks are charging. they are certainly not giving anything to their customers. for example, the banks that i have currently, they charge and overdraft protection feet and i do not even have that type of account. i think it was overdrawn by 10¢ or something and that was because a local check was being held for 10 days, and i did not even realize there were holding local checks that long. host: "the new york times" relates a story heard yesterday which says that none of the bank's executives crowed publicly, but some of their employees celebrated tuesday night at an outdoor cafe in lower manhattan. goldman sachs employees toasted their freedom. "this one is on may seek one called out from the table -- "this one is on me." is that unusual that the banks did not amount to make statements? guest: no, this program from the start has been hatched in the midst of a terrible financial crisis. no one likes the program or says that it has been admini

they had the opportunity to sit down with 19 banks or mortgage companies or service companies. during my exit interviews, we discovered that the banks or reducing mortgage payments between $300 per month and $1,100 per month. i am trying to figure out in talking to the banking people, i was a little bit surprised that they were so anxious to make these modifications. i was shocked. i am just wondering, -- we are getting ready to do it again. is there a new approach when these things happen? have you seen anything from these mortgage lending people whereby -- when they want to modify alone, whether they are dealing with that in a different way on their books? >> this is one where we kept thinking the mortgage modifications would occur, because they made sense economically. it hurts to take the hit. you are not going to get a payment of $120,000 at 19 prison some interest over time. -- 19% interest over time. it is from the point of view from the mortgage company. you hope that it will have a lower level but a steady payments that will occur. we thought they would occur. they just

pirates did not live at sea or bank at sea. all the business of piracy is done ashore and there has to be an effort to increase the -- removal lawlessness from that part of the world so that you can squeeze the pirates from the sea and how of the rule of law address their criminal activity ashore. that is what happened in ta few years ago. a high incidence of piracy there. malaysia, singapore, and thailand came together and put in place of maritime scheme and shared information, joined in cooperative patrols but at the same time they were able to use their law -- law enforcement ashore and were able to eradicate piracy. we have to continue to work cooperatively. i would also say that three or four years ago, if you had said that china, russia, the eu, nato, malaysia, india, the u.s., australia, canada, greece, turkey, would all be working together, that is a pretty interesting mix of countries but that is what we're doing because there is a common concern that we all have and i think we are making some good progress there. it i

working under the federal reserve chairman took unauthorized illegal or improper action toward you or the bank of america during these trying times? >> i do not. i would say they strongly advised and they spoke in strong terms but i thought it was with good intention. >> if i had to characterize in a i was thinking if the titanic were going down and some of us were in the life rafts, it sounds like an argument between the captain and some in the water and refusing to get on board and he's ordering them to get on board. is that not too dissimilar to what happened here on this mid september to december period of time when all of us admittedly had our hair on fire? >> yeah and i think they saw probably with their perspective, they saw rougher seas ahead that no one institution would be able to see. >> the one thing, because my subcommittee and financial services charged with looking at the reform of regulation, is there anything that you could see that granted in extreme circumstances such as that weekend of september 15th and the failure of lehman brothers and what was happening in the collapse

now, when tarp was originally structured, the understanding was that we would buy assets in banks, or from banks, and that at some point we would get that money back as taxpayers. in fact, you would get it back with interest. and this is what's happening now. the money is coming back as these banks have restored their fiscal strength, and it's actually coming back with interest, about $4.5 billion on top of the money that we put out, is my understanding as to what would be paid back on the interest side relative to the preferred stock. so that's good news. first the financial system was stabilized during a cataclysmic period in september and october, and the investments which were made in preferred stock with taxpayers' money is now being repaid. the issue becomes, however, what are we going to do with this money that's coming back into the treasury? well, it ought to go to reduce the debt. this administration in recent days has been giving at least lip service to the fact that the budget that they put in place of a $1 trillion deficit over the next ten years on average every year, $1

add is in addition to the system at regulator the role of the functional regulators, sec and cftc or bank regulators looking at the business of the dealers in a way that we have never been able to before because the assumptions that exist under the existing law ought to make a difference in ability to understand what kind of products are being developed and marketed and the business conduct rules that try to get into how these derivative products might be marketed and sold to state and local governments are pension funds or less sophisticated institutions will give real insight into what's happening within the firms and the ability hopefully to shut down problematic practices before decor out-of-control. >> thank you, mr. chairman. >> senator crapo? >> thank you mr. chairman. each of you in your testimony indicated as i indicated in my remarks there are circumstances in which nonstandard products are very legitimate and there are legitimate reasons to engage in customized transactions and obviously the question i am interested in today how do we regulate to the extent possible in such a w

wonder whether they get to see a doctor depending on how money their parents have in their wallet or bank account. that is not what health care ought to be in this country. we can and will do much, much better. i wanted to talk about the future lets of this country, one of which is the march of health care costs; the second in my judgment, is unbelievable vulnerability on foreign oil and energy; and the third is deficits. i'm going to talk about the following two in the coming days, as well. mr. president, i yield the floor and make a point of order that a quorum is not present. mr. cornyn: could you withhold the request? mr. dorgan: i withhold. mr. cornyn: the presiding officer would like to speak for five manipulates and i ask unanimous consent following the senator from virginia being recognized to for up to five minutes, i be recognized to speak. the presiding officer: without objection, so ordered. mr. cornyn: thank you. mr. warner: mr. president? the presiding officer: the senator from virginia. mr. warner: thank you, mr. president. i'm sure sure we're in a quorum call. the presidin

further stated that neither you nor any member of the federal reserve ever directed, instructed or advise bank of america to withhold from public disclosure any information relating to merrill lynch including the losses, the compensation package, packages or bonuses? and i can believe that and i found you to be a person of integrity and of the highest degree. retrospective lee, looking at the developments that occur with the whole saga be and a and the department of treasury and looking at the losses invested for individuals of sort, to you feel that you had some responsibility to disclose some of this information that@@@@@ @ this was the responsibility of the bank of america to disclose. we were not required to disclose the terms of the deal. >> at what point does the investor become less important than the investment? >> i thought that this system may collapse and this would be a good thing for the investors. >> and this is your responsibility >> my responsibility is to protect the financial system. >> >> at what time should you disclose the information? public? >> with respect to this parti

management, and yet you decide to give the eight away without any meaningful changes to bank of america's corporate management or compensation policies. how do you explain that, chairman? >> congressman, the process isn't a one time thing, it's an ongoing process and in the ongoing supervisory process we have made demand of the bank of america in terms of their -- >> so you give the money first and then start supervising? >> well, we have the ability to insist on these changes at any point. >> thank you mr. chairman. >> thank you. i now yield to the gentleman from indiana, mr. burton. >> is mr. lewis lobbying? >> with respect to what? >> i said is mr. lewis lobbying when he tells the committee you put pressure on him along with mr. paulson? >> all i know is i never said i would replace the board of management if he invoked mac. >> what did you say? sometimes there's an implication without a direct order. >> i expressed concerns about the effect of invoking the mac both on the financial system and on the bank of america itself. i expressed those concerns which is appropriate but always it was his decision whether

it seems to me that bear stearns, the large investment banks, all of which have disappeared, been acquired or no longer exist, should have been required to meet the same kinds of capital requirements and leverage ratios that we would impose upon a community bank or a credit union. >> senator, i have a lot of sympathy for that view. i think that again, center piece of what we need to do for the country is to make sure there are more conservative better design constraints on leverage applied across the core institutions that play a critical role in how the markets function, both in normal times and in distress. in the united states we were fortunate to have across the banking system a very simple easily enforceable crude constraint on leverage. for that reason, in many ways our financial troubles today are much less acute than there are for countries around the world where that kind of constraint did not exist. banking assets in our country today are one times gpd. two and eight times gdp across europe, in part because they did not have in place that kind of simple crude constraint on leverage.

when you go to afghanistan or iraq or the west bank, or bosnia, they cannot get the legal system working. people are now protected from being attacked, their property is not protected. contracts are not enforced properly, and this demoralizes the country's and it makes it difficult to progress. i am proud that the american legal system is something that we inherited and we built upon, this is part of the liberty and prosperity. what do the judges do? do they interpret the constitution as it is written, or can they reinterpret read this through their personal view and background and opinions? is it better to use the policy that others have enacted, or can the judiciary have new policies? and when the correct answer is difficult to understand, is the judge empowered it to remove the blindfold, the lady of justice, holding the scales? can they allow their personal feelings for other, outside the normal judicial evidence factors make field amid decision in the case? i will be addressing those questions in the weeks to come, i think that we first need to begin at the source, we must return to

going to be successful to invest in infrastructure and the trading desk inside banks certainly had time or incentive to impasse because that was also a problem and the back of the skies in the bank so you have all these reasons why you are behaving rationally, structural incentives and distortions and then you have a situation where all the banks are competing to try and grab a new market and none of them want to stop to build up their infrastructure but nor do they want to spend any money because that will have their pm el and bonuses nor do they want to lose investors. so there isn't in that situation in case with there is a rational selling mechanism to get everyone to invest collectively. it wasn't until geithner said it was try and get everyone and around a table and worked as some had a solution and began to do that. now they can do that and they did it with a degree of success but it was actually in some ways pretty late in the day, they can do that in the case of the private derivatives for the settlement problem because it was tangible and there was data and if you like there was

for example, even if a particular community bank or insurance company would not present systemic risk, the widespread failure of community banks or insurance companies could a natural or man made catastrophic event or series of events, for example, could cause more than an isolated failure of property casualty insurance company which is in turn could be systemically significant. there are two elements in particular that we recommend for your consideration at a reform proposal. mandated, internal enterprise risk through board-level risk committees and substantially enhance requirements related to risk. i must emphasize that our two recommendations are not intended to be a comprehensive solution, but instead we believe any solution should include these two essential elements. first, corporate governance reform should redwyer systemically important companies to assign responsibility for risk oversight to a committee of their board of directors with the management risk officer that reports directly to the board committee on a regular basis. travelers has for many years had a board risk co

introduced everyone understood banks with their would have to be regulated by the government since the market no longer could. unfortunately, over time this lesson was lost or forgotten. the banks over the last 30 years have used their increased lobbying and political strength to undo and eliminate most of the original legislation and to effectively regulate them. in 1999 they got last stiegel removed so they could get into the investment banking business. in 2000, they were successful in assuring that the derivatives business would remain on regulated. in 2004 they lobbied successfully to remove restrictions on how high the leverage might go and as we have seen the leverage over the last 30 years has increased from about eight to one to something like 30 or 40 to one. over the years, banks have used their size, power and political muscle to rewrite rules of the game to benefit themselves but at the same time threatened the entire financial system with collapse. did i mention these same all powerful banks also owned and controlled federal reserve system and its board. these banks are so large as to be, quote, too big to fail, and of quote, which violates th

or at least i was -- >> let me interject. you said earlier, i believe, too, i forget which member's question, you initially felt your bank and your board did not need any infusion of cash or t.a.r.p. money from the government, is that right? >> yes. >> when did you make that decision as a bank, this obviously was prior to -- >> that's the first reaction that i had to the fact that we were being offered 15 billion was that we didn't need it. the prior week we raised $10 billion in equity. and that it could be -- i'm speculating, but it could have been that that's why we were offered 15 and not 25 like some of the other big banks were. but as you mentioned, the people that were there, on the other side of the table, there were nine of us, nine bank ceos and each of the people spoke about the possibility of detear y yoration in the economy. it is a little gray but i think it was secretary paulson then began to tell each bank what amount they should take. >> were you required to sign a form at that meeting? >> yes. what we -- >> what did the form say? >> it basically was a very short form that talked about the interest rate of th

speaker, he's speaking as if high street banks didn't fail or investment banks didn't fail. both failed. both failed. the truth is that both failed and we've got to deal with that. so the solution is to have better supervision. and it's a close supervision on a global level as well and bringing those companies that have been outside the scope of supervision and regulation. that is what the g20 was about. bringing all the regulatory and supervisory net. i think he supports what we're doing but can't bear to say it. >> mr. speaker, is my right honorable friend -- is my right honorable friend aware that despite -- despite all the promises the lloyd's group of banks is planning to decimate jobs in yorkshire and take them down south. could he talk to management of the lloyds group urgently and point out that we are major shareholders in that bank and expect better standards than this? >> well, i'm very happy to talk about lloyds and we'll look at that in the context. any jobs to be lost is to be regretted and we'll do everything we can. >> the prime minister will have satisfied v

simply because we need to create an incentive inside banks or brokers tex would try monitor each departmentto monitor the of the department and the needs to be a sense of collective screen may. i think it is interesting one of the banks appears to be better at ducking the bullet is goldman sachs. whether it is more of a sense of one department looking over the shoulder, they are not all operating in fierce competition with each other and as secretive with each other is that are the outside world. i think that is partly because of goldman sachs's partnership with history which it managed to npo some of the corporate culture even today. i think partnerships are one way to go. unfortunately, all the people would disagree, i think regulators need to get much more hands on a much more involved, and having a system, whereby a group of financiers, a group of bankers are essentially free to develop innovative assess if they want to whatever degree they want with very little extra oversight, be it from journalists, from regulators or politicians, and some of hope that they will, through sheer good a

state, federal or state laws governing banking activities. the controller invoked this regulation to gain a federal court injunction against the new york attorney general when that officer attempted to investigate national bank's lending practices for violations of state and federal antidiscrimination laws the second circuit affirmed the injunction in principal part, holding that controller's regulations reasonably interpreted the ambiguous term visitorial powers. finally and foremost in importance, riciv. destefano -- not to certify the racially skewed results of a promotional exam for firefighters. ricci and his fellow -- fellow plaintiffs, mostly white, performed well on the exam. most african-americans and hispanic test takers scored low. the city asserted that if it certified the test results, it would be vulnerable to a title vii disparate impact suit. disappointed minority firefighters would target the examination's failure to identify and accurately test for the skills most relevant to leadership posts. ricci, on the other hand, sees

risk-taking partnerships would be a good idea simply because you need to create incentives inside banks or brokers to actually try to monitor each department to monitor the other department with this sense of collective scrutiny and i think it is interesting but the banks appears to be better at docking of the bullet is goldman sachs where there is actually more sense of one department looking over the shoulder of the other departments, they are not all operating as silos and fierce competition with each other and actually secretive with each other as they are with the outside world and i think that is largely because or partly because goldman sachs partnership history still managed to view some of the corporate culture even today's wedding the partnership is one way to go down. i think unfortunately though that although people would disagree i think regulators need to get much more hands-on and involved and, you know, having a system whereby eckert finance years, bankers are essentially free to develop and innovate as fast as they want to whatever degree they want with very little extra o

a systemic regulator can be effective if we are going to have banks the size of bank of america, citigroup, jpmorgan, or if we are going to permit operations that should be making largest in doing initial public offerings like goldman sachs. getting in bought in trading securities that threaten the fundamentals of the banking system. we do not need to go back to classical -- glass stiegel. with the banking sector being such an important contributor to the democratic party and political candidates requiring all of these $5,000 contributions from individuals, the only place you can harvest the contributions you need are on wall street, silicon valley, and hollywood, which gives those sectors of the economy extraordinary influence on washington. host: we have michael on the line from mobile, alabama on the independent line. --caller: certain aspects of the budget had been hidden. i understand that this particular budget that we have is much more in the open and visible. what aspects of the budget is above board that makes this budget a $1.40 trillion budget? guest: it is more like a $4 trillion budget. we

. >> i know just about every service company i call on the telephone now, bank or whatever is going to say this call may be audited for quality purposes and you can't improve which you don't measure. i think to assume that one time training scheme is going to monitor potential problems over the lifetime of a pilot is like assuming the same thing for an airplane so i'm a little concern that you consider that a band-aid. you consider getting the records keeping records of pilots over their career in? is that a band-aid? >> again are we going to compare apples with apples? which training school they come out of? if you don't want to create a system where, joe, go to xyz training school because they don't flaunt anybody, you don't have anything on your record or do you want them to go to the heart of school out there where they push you to your limits, pushy to a failure not of a check ride but all these are maneuvers that we must be trained in over and over whether emergencies or back to basic flying skills. so you don't want to create a system that actually finds a way of getting around

banks but i don't think that we had knowledge of the size of the losses either. i'm quite sure we did not. >> all right. mr. chairman, i'm going to try to make another statement or questions and if the time runs out, i would ask mr. bernanke to give me his answers in writing. in an e-mail on december 20, the president of the federal reserve bank of richmond, jeffrey lacher described a telephone conversation with you where you expressed the belief that the m.a.c. threat is irrelevant because it's not credible, and that you plan to make it even more clear that if they play that card, and then need assistance, management is gone. so do you remember the phone call with mr. lacher that the e-mail was referring to and do you believe that mr. lewis' claim that he would invoking the m.a.c. in back of his deal were credible and had the bank of america decided not to complete the merger would the fed have pursued the removal of their management and board and had the fed ever taken action to remove the management of a private entity before? do your best and -- >> i was concerned initially about whether this was a serious proposal to invoking the m.a.c. because i did believ

you will find that the biggest thing, the biggest building in the small town is either a church or a bank. the biggest thing, the biggest building now and every american small town is the school. it's bigger and bigger and bigger and bigger. the elementary school, junior high school, the high school. it's the biggest, most robust, most of our tax money in the community goes to schools, you know. and do you think, bigger schools and so forth, you know, are going to educate our children better? the bigger the schools, the more ignorant our children are in many, many ways. not everywhere but in many, many ways. so we have to, you see, parents have to simply abandon this idea that we invest our children in schools, and that will take care of education of the child. that is not the problem, and that is not the problem especially even, even with catholic education. as you know, catholic education in some ways, especially in the middle schools, it's better than it was and in some ways not better than it was. a shocking fact, statistics, you know, i'm not collecting statistics but i read this now

it's important we think about the reasons why a company might want to use credits the fall swaps or a bank for that matter. for example i could be in the supply chain of an industry and worry the company to whom i supply goods or services may not actually perform and might go into default. the ability to buy credit-default swaps against that company makes it much more economically attractive for me to enter into a long-term sal agreement to provide goods and services to that company. i don't own the bonds but i do have a position over time as being a creditor of the company as a supplier to them. another ex sable, and this one strikes home because we lend money to a variety of companies around a world in the united states, companies to the biggest fortune 500. there is often no market for credit to default swaps for midsized companies. if i want to be a significant lender to a portion of the economy where i observed a substantial amount of industry risk for the airlines let's say i want to lend money to a regional carrier, i can't buy a credit default swap on the regional carrier blight ca

accounting changes have helped these banks to appear more healthy. the government stress tests or not that stressful. some of these banks, you are starting to see them turnaround largely because of government aid. it will still face -- if you accepted tarp you will face host: restrictions are there banks out there that are still in perilous conditions? guest: government policy is not to let them be. it is impossible to say because we have allowed them to account for insolvent assets. our policy issues to not allow them to fail or be perilous. host: your the reporter for dow jones. here's a tax question. what is the current limit of the deductibility of executive pay? guest: that is one thing that lawmakers want to address. it is one way to may be addressed executive pay. you have seen some people on the ways and means committee talk about that. if we're letting these folks have a low tax rate when they gain billions of dollars or hundreds of millions in bonuses -- some make billions with the big hedge funds -- that is another way. lawmakers could eventually look to recoup some of

opinion was that it would be bad for bankamerica in itself and if invoking mac had cost bank of america to feel or to become, have to be saved on the emergency basis that clearly wouldn't have been good for the shareholders of bank of america. of course in the end he had to make the judgment what to do but that in my opinion it was not obvious at all invoking the mac was a good thing to do the cutting for bank of america shareholders. >> and you think he made the decision on his own without undue influence from the government in any way? >> i believe he did. >> thank you, mr. chairman. >> thank you. mr. chairman, i know that we have agreement we finish up one. would it be possible for you to say 1:10? will that create a problem? i understand the agreement. thank you very much. >> let me say to the members but we will do is decide ten minutes on each side and of course why don't we yield five minutes to the chairman, the ranking member on the committee? >> thank you mr. chairman i will be brief. i just want to go through a couple of quick questions. first of all, it appears as though much of the me

$20,000 a year, that is almost minimum wage for any kind of a job, whether it is a janitor or otherwise, bank teller. we have to look at these in real time. at the previous hearing that we held on aviation safety, one of the questions that i raised was how many times does an inability to pass a test be allowed before it is three strikes, or whatever the number is, and you are out? would anyone here want to go into major surgery, hart, head, whatever, and have a physician there who flaunt his test five times -- who flunked his test before they squeezed him through the operation and put life in his hands? i think there is a point in time were you have to stop and say hey, if you cannot master this in two or three times, then find something else to do. people love to fly. i know a lot of pilots. flying is a glamorous job. i do not know how it is as a commercial operation when you are sitting in seats to fly back home or otherwise away from home, etc. i think there is a point in time that you say hey, the simulators have -- regulate -- replicate emergency situations. >> very much so. you can real