Tonewsmakers is please welcome the ceo the of the Financial Services roundtable. Thank you for being here. Let me introduce you to our two reporters who will be asking questions is weak. And ryandouglas is th tracey. Thank you. The Financial Services roundtable may not be in everyday term to folks at home. Would you explain who the members are . About a hundred of the nations Financial ServicesCompanies IncludingAsset Management, payment, finance companies and the like. Of policyn Research Issues as well as advocacy and community service. Do you directly lobby . 45 . Out we have a lobbying department. Thats part of what we do. Lets start with ryan tracey. A wanted to ask you about Cyber Security which is something you have all been involved in. It has been in the news a lot over the last several weeks. Bleed bug was disclosed and things were seen with the passwords have been exposed. One of the things you have been advocating for his legislation on this front and congress is not moving quickly these days. You abouto ask something secretary lew said before heartbleed. He said the need for the administration to do a better job of information sharing. He even spoke about granting more security clearances to people in the industry who need to know about that kind of thing. How is the government doing on that score . Somewhat better. We appreciate the attention to the matter. There are additional steps. Ug reminds usd b that we are interconnected in so many of our economy in activities are dependent upon the internet and it is exposed. And often unknown ways. This was essentially unknown until it was discovered recently. It is being patched as we speak. A grim reminder what couldve happened if it was exposed by more nefarious forces. On the Public Policy site, we need a number of things. We need companies have security clearances so as problems arise or they are able to access information and act upon it. F your ceo happens to travel, it is good to have them have a security clearance and be able eigh into the information sharing. Best to weigh in. Weigh in. The department of homeland security. The cia. And more. Ry being able to work with and without fear of legal liability is important. Frankly, the current laws of not regard need to be upgraded. Congress needs to act. They are not. Keeping on the same subject about information sharing, within the or there have been concerns raised as well as retailers about information sharing, primarily about proprietary information sharing. Happen, the marcus roundtable was good about working with him there Industry Groups and trying to find a way to bridge some of the concerns and address that. How are you doing . How are the things in the retailers responding to the need to share some of the information . We are fortunate in the Financial Service sector is more advanced than other sectors. There has been no successful largescale cyber attack in the Financial Service tour. Done this. Have we have a longstanding tradition of information standing with government and peers. Theres still more to be done. Now we need cooperation with other sect or spirit some sectors sectors. Some sectors are not as information sharing. To explore joined these issues and Work Together to get better information sharing. Target was breech. Others were breached. They had better data systems. We would not have this problem but if you have better credit cards that we could have mitigated or contained the problem. It does not make sense for people to keep pointing fingers. After your industry learns about Something Like a heart the heartbleed bug, what happens . It was disclosed early in the week that banking regulators sent a notice to bangs sing yet to Pay Attention to this. That was a few days later. How quickly did you find out about it . It sounds like alphabet soup to the viewers and their eyes glaze over your at it as an industry to government information sharing portal organization. Lnd a lot of it up unti now has been small. Expansion. Ntagion or we need to automate the threat of information and the responses. It was red and then people responded as quickly as they could. There was an exposed bees of internet infrastructure. Expose this isto a became public. Companies who did not catch it were potentially exposed. We do not want to be patting ourselves on the back. It is not seem to be a problem because of this issue. Can we talk about the capital . Earlier this week or on tuesday the fed chair said there may be more roles in place to require banks to set aside money to absorb losses. What you think this will have on some of your members . How much cushion should a bank or Financial Institution event of athe downturn they have reserves in place and they do not become insolvent so they do not have the Economic Disaster they had in 2008 . They should have adequate reserves. It is also finding the right balance. You can get really great stability by requiring everything in cash and never to any lending. That is a pile of cash. We have lending and loans for things like buying a home and starting Small Businesses and all the things people need to do. Some of that pile of cash will get distributed out into the economy. How much of that do they need to thatk . Is the debate is the debate. We may require more capital or reserved for cushion in the future if we have continuing concerns about Systematic Risk to these large organizations. She signaled they would be amped up even higher. Our members are concerned if you go too far what youre going to do is put them at a competitive disadvantage against other banks that do not have that high of a requirement. It is also going to stifle lending which is going to keep the economy moving in a positive direction, particularly when it is still fragile. With all the rules in place, do you think they are reaching a point where the concern will this . Are we reaching a point where regulators are not as fearful about that . If you look at the public s and summarize them, they say we have required much more capital. We required a living real have a plan already in place to wind it down. We have much more regulation, much more oversight. Examinations. Enforcement actions. Combined represents great progress to make sure we do not have institutions that theyll. If they do they should be allowed to fail. No one institution should be to load too big to fail. We should make sure that when they do there is an orderly wind down so there is not collateral damage. Sureare saying we are not we have gone far enough in that regard as it relates to the big institutions. We may do more. Lets let the dust settle and then we will decide whether more is needed. Our companies are saying we understand that but do not go so far it you tie them or prohibit us do the things to the economy. To what extent have you seen banks give up a certain type of business lending because of these requirements . We have seen some of that. Some large banks say we may be making markets and commodities but we are not going to hold for the physical anymore. Es theyre getting out of some of the business lines. The regulations are getting so difficult to comply with. Theill live this to unregulated space. Crediblegulate certain mainstream institutions out of certain business lines and the push it back into the shadows i thinkgulated space, they will get treated less well and be more exploited in those areas. Say ifink the fed would the bank decides to give up a commodity maybe we do not mind that. More complex. Be what advice would you give to regulators to balance the need for some simplification to control what might happen in the shadows outside the system . It is a balance. You can really push hard on a particular line of business and either prohibit it or overly regulated that you gave businesses to shut it down or abandon the business line. To do this, and may be consequences. You may maintain physical commodities and push it into more hedge funds. Size and complexity is equivalent to what would have been a Traditional Bank but now they are unregulated. No examinations around connectivity. What have you accomplished . Move is interesting to you the ideas of places that are unregulated. To make theed attempt of identifying institutions that are systemically important. The largest of the large. The designation of some industries or some companies is going to have a larger impact on the entire industry, be it insurance or any other industry. A really timely and important issue. The tradition is to focus on banks. Center culture. The regulators have to think about Insurance Companies or Asset Managers at systematically risky institutions. We will treat them like banks. We will up by reserve requirements. Industry is saying before you think about that make sure you understand that a new wants level the differences between Insurance Companies and Asset Management companies. Longterm bonds. Corporate bonds. Is insuranceigher companies. These are longterm investments. If there is a crisis, Insurance Companies usually do not fail over a weekend. The wind down is much more slow. If you came in and says we do not think you should be hoping holding all the corporate you may make the Insurance Company less stable by holding a more episodic investment. Yet Asset Management firms. They comprised of funds that are led by fund managers. The assets are held by custodians. Where asset firm at systematically risky. It is not the firm. They do not do the investing. The firm does. People who have the interest in the funded do. There may be funds worth looking at. We do nothing the firms are in that category. We do not think it should just be size. You could have a really large mutual fund. It could be huge. It is not necessarily risky. The risk andook at activity, not just the firm. Are you at all comforted by council hast the welcomed more folks with insurance backgrounds to start trying to figure out how best to regulate the space if they are going to identify people like metlife into systematically important . Important. They operate differently. They have different asset models, different capital requirements. Bringing in those kind of backgrounds is really important. Also being aware of what is happening globally. If the United States approaches out of sync with the global approach, it puts companies at a disadvantage. Were talking about the difference between regulating funds and managers. As you look at the risk still in the system five years after this crisis, do you think there ought to be some more regulation on level . D not necessarily. The group does research on these issues. They issued a report recently on the considerations. Flawed. Ythologically it gets to the point of when you look at it, dont you say the firm, look at the activities underneath the label of the firm to see if they are really risky . Anding the nuance of that getting it properly and focus before they make any decisions is really important. Thatu have a designation, is a very significant development. If you owe money in mutual funds or a largecap funds, you own that equity piece. It is held by a custodian. If you do not like it you can hire the funds manager and transferred to some other firm. The idea of what is going on is not affects the fund necessarily accurate. One of the most active areas in our Financial Services space is housing finance. What are we going to do about fannie and freddie . You said you thought there were some good things in there. To be a complete endorsement. Not that you have had more time to read it, could you support what chairman johnson has put out there . The status quo is terrible. You have fannie and freddie. Guaranteeing nearly all the mortgages have access to government money without congress needing to access. There is a hick up the world economy. Guess who is on the hook . The taxpayers. Quo is awful. Were five years removed and it has not been fundamentally addressed. They are making some money. Much to toppleke them into a problem zone. That needs to change. We do not like every aspect of the bill. We think something needs to happen to change and get rid of fannie and freddie and move it toward a more private market model. Are the aspects you do not like dill breakers . X the eyes would glaze over. There are arguments around if you do not go through the new guarantor of mortgages, who should be allowed to do that . . An you play multiple roles how do you accommodate all their interest . Not things that we would say we do not want to support . We think you can make some amendments and move it. Our members do have some remaining concern. Gramm called this a bill that is dangerous to the economy exploding families seeking prime loans. I am not sure what their concerns are. If you look at the current state, i would ask them their idea. Quo,e answer is the status that is a potential disaster. If you look at what other bills can pass this congress or the next one, theres going to have to be some compromises. Compared to what . Does it bring us any closer to a resolution of a market that is more supported . We think the bill should also be applauded for trying to move the debate and get it to the net level next level. When of the big differences between house and Senate Version is the senate has a government backstop. Many experts would say if you do not have that there would not be a 30 year mortgage anymore. If you do not have that you will cut out a lot of modest income people from been able to have a home in the future. That is one of the big differences. There are some other differences too. We think both efforts should be applauded. They try to move the need forward. We hope that they will do something this year. Frankly it looks like it will be challenging. There will be a Committee Hearing in the senate. It is unclear if they will process the bill. I want to take you back to your time as a politician. Look at the race this year, how good do you think the republicans are taking the senate . What do you think they need to do to get there . Nate silver who is widely regarded a good on the numbers person said there is a 60 chance that republicans would senate. R the anything could happen. I think part of that depends on whether the republican primary process yields electable candidates or whether it yields folks who maybe had too much baggage. That is still unknown. At the moment, most people would say there is least a 50 chance that republicans take the senate with a lot of turning in the water. Anything could happen. Woman one more thing about to fail . We talked about the higher capital cushion that the regulators are looking at. What can your members do to solve this problem of people going after the big guys . Anger hashe populace not completely gone away yet . How are you approaching it . We need all sized Financial Institutions. We celebrate and encourage community banks, midsized banks, regional banks. We need some big banks. If youre going to compete on the global stage in europe and elsewhere, you need folks who have the ability to have a global scale and global reach. That is really important. I do not think we want to see that Economic Opportunity to other parts of the world. Is like it or not, doctoring says too big to fail is over. Were going to have these institutions fail and if they do this is how they will. There will be no more bailouts. The critics say i see that. I do not believe it. We need to do something more. Something different. That is the lingering debate that is going on now. They say lets finish the regulations. Lets finish the implementation of. Frank and then we will assess where we stand. Quick me close with two questions. When the target breach came out, there are security measures available for customers a credit card in europe, other kind of Identity Theft prevention measures. Are we behind the curve here in this country . Approach. A different we need to change. The technology is evolving rapidly. This could be one thing. There is a lot of other work being done in payments as it relates to phones or things like facial recognition technology. This is a space that will dramatically change over the next 10 years. The networks have said by october 2015 were going to expect retailers who are part of shouldwork to have breeders. If you do not, the liability will shift from the banks to the retailer. A bige going to see change in the space over the next 12 months starting with that watershed moment. There have been a number of hearings recently on bitcoin. What are the concerns about bitcoin . Everyone is trying to figure out the claim. I think a lot of them are skeptical about it. It is a novelty. Is it real . Is it stable . Unregulated. Ally what does it really represent in terms of a predictor poll, reliable thing . By a givenluctuates amount in a day. I doubt you are taking your 401 k and expressing it and bitcoins. We appreciate your time. Enqueue. With ryan treacy of the wall street journal. We covered a lot of ground with governor plenty. We are now live years past the financial crisis. How stands the relationship the between washington . Regulatory those, these guys have to deal with regulators all the time. They know they need to maintain those relationships. Cannot go on the attack to strongly and publicly criticize them. There is a lot of frustration about this onslaught of rules we have seen since the crisis. In terms of the relationship would be crazy to really let that deteriorate. Legislative, there is still the sentiment in congress that these guys got bailed out and we have not fixed this problem, they were too big. Wall street is not very popular right now on capitol hill. Theheard him talk about story that they want to tell you to turn that tide. Battle. Uphill what about from the consumers perspective . How has this made structurally more sound . There is still a lot of populace thinks against the big tanks. Tension still a lot of between the regulators and the banks they regulate. We see that a lot in some of the settlements that have come down. It has made consumers even more frosty weather it is mortgage settlements or credit card products. Inc. Of america settled for nearly 8 million on deceptive practices. While they are still thinking with these guys, they are very skeptical about what kind of coverage they could have. We saw Credit Unions taking advantage of al. We do not cause the crisis. This is working toward their vintage. As most consumers are going to stay with the Financial Institutions that they have been with a do not know if it is out of loyalty as much as the convenience of not having to change over all of your accounts. Earning season for the banks. We have seen a number