Transcripts For CSPAN3 Key Capitol Hill Hearings 20140913

Well, i think that compensation of football coaches is very high. And each university exists in a marketplace, unfortunately. Having a cap on football coaches salaries would be an interesting national discussion. But its not one i want to participate in. Why not . You sound reluctant. Explain that. I think that the question about capping any professions salary, whether its a coach, entertaining, ceo is a more complex discussion than we could take on this morning. But we do live in a marketplace. If youre trying to attract top tier coaches at any school, youre competing with those coaches for the employment of those coaches with other schools and i think thats whats driven these salaries to a level where they are. Dr. Linder at the university of nebraska lincoln, what is the state of tenured professors . How many do you have . How does the process work . At the university of nebraska lincoln, the tenure density is around 60 . And the process at the university of nebraska lincoln is a faculty may enter a tenure track and after several years of service developed portfolio that would be assessed to determine whether the faculty would be tenured or not. There are different systems used throughout the country at our Medical Center for example, in omaha, faculty all faculty enter on whats called a Health Professions track and sometime during their career, three years or ten years, may opt for a consideration for tenure. But it isnt the classic upper out situation you see in some tenured programs. Back to calls, well go to brian in texas. Go ahead, william. Yes, i would like to ask mr. Linder how the philosophy of the mentality that would establish several in the early 100 years ago has changed, it was originally organized to support the agricultural area or the society. How has that changed and is the change in the right direction . Well, the university of nebraska was established in 1869 and i think by all measures we still function as a Land Grant Institution to provide substantial support for the agriculture efforts in nebraska. We have the institute for ag and Natural Resources that has many faculty working to develop better agricultural techniques throughout the state. And this is part of the food, fuel and Water Initiative that i mentioned earlier. The scope of a Land Grant Institution has certainly increased. So in 1902 the Medical Center joined the system. So the activities have grown as Society Needs have increased but we still focus on agriculture as one of the Core Missions at the university of nebraska lincoln and actually our agricultural programs show the second highest increase in enrollment this year. Were talking with dr. James linder, the interim president , part of cspan buss big 10 college tour. We kicked that off this week. Monthlong series of interviews with University President s. On friday the bus will be at the university of iowa and we will talk with the president there, sally mason on friday. This morning though, dr. James linder aboard the cspan bus in lincoln, nebraska. Charles in sioux city, nebraska, a parent there. Go ahead with your question or comment. Caller good morning. I have a question, i have two grandsons going to your university in the Ag Department and wondering why is it so difficult to find scholarship or any kind of money to go to school if you dont do the right research, you end up getting no none. Well at the university of nebraska lincoln, there are a wide variety of need based scholarships and in fact at unl 3,000 students attend the university with no tuition charge. There are also other academic related scholarships depending on what field the student is in. Very few student scholarships are actually focused on the potential reresearch that a student might be interested in doing. Unless of course, they are a graduate student and we have extensive support for graduate students who are pursuing masters degrees or ph. D. Degrees. Dr. Linder, schools get more money for out of state students. Do these students get preferences . In my experience out of state students do not get preferences. We enjoy bringing students to nebraska to both diversify our student body and hopefully create a student who will stay as an employee of a nebraska based company. We would appreciate if those costs are bringing students in could be lower. But that wouldnt be fair to the citizens of nebraska who are paying taxes to support the instate students. But we do try and look at students from outside nebraska to diversify our student body. This current year is probably the most diverse student body we have relative to ethnic min orts in the history of the university. How many slots are there for foreign students . In terms of slots, we really dont think that way. We evaluate students based on their academic activities and each campus at the university has a Different Number of foreign students. There are several thousand that are studying here and they come from countries around the world. We have Exchange Programs with brazil, with china, with Eastern Europe and its fascinating to walk across the campus and see students from nebraska natively interacting with a student who may have come from brazil, teaching them about our culture and learning about the culture from another country. Do they pay the full price of College Tuition . Yes, they do. They pay a nonresident rate. Charles excuse me, bill in florida. Bill, good morning, youre up next. Go ahead. Caller good morning, greta, do you have any affiliation with monsanto and with what they are doing with the foods and new techniques and all of that and how does such so the university of nebraska of lincoln has had Research Relationship with a variety of companies that are seeking to improve both crop yields and to develop crops that are resistant to pests that includes monsanto corporation. Heres a tweet from a viewer asking president linder, with respect College Sports have become big, no huge business. Why should it be treated as such . Why should it not be treat d as such . I think that the question is the use of revenue that comes from College Sports, if i understand it correctly, and at the university of nebraska thats largely to support the athletic programs. But theres also some strong benefits to the Academic Mission of the university. For example, on our east stadium of the football stadium, we have two Important Research activities, one is the nebraska laboratory, which looks at motions that athletes migts have and tries to optimize their performance. But it also ties into Research Studies done on gate disturbances and people with neurologic problems have. And as well. The center for brain biology and behavior is studying concussions that can occur in sports but looking ats developmental ab normalities in children. For the student athletes, and i emphasize students, they get valuable experiences. I had the pleasure of teaching some of the former university of nebraska Football Players when they were in medical school. And these are individuals who learned time management and learn how important it is to get tasks done and very motivated. The Columbus Dispatch reporting in june that big 10 president s and chancellors proposed four major reforms for athletics, guaranteeing fouryear scholarship regardless of whether or not an athlete is able to compete on the Playing Field and maintaining a scholarship even if he leaves College Early and consistent medical insurance for players and athlete scholarships cover the full cost of attendance as defined by the federal government. Why do you think these reforms are needed . Do you think they arec needed . I do think these reforms are needed and they reflect the deep commitment that student athletes do make to being both a student cn athlete. And they address some of the concerns that have led to the current discussion of how students are treated when they are athletes. I think they are very fair, fair to the student and help ensure their chances of success in their academic rules in life. The vast majority of student athletes are not going to compete at a professional level so we want to make sure they have the Financial Security while they are in school so they can complete their Degree Program. We have a few minutes left to discuss Higher Education issues with dr. Linder, aboard the cspan bus as part of the big 10 college tour. By the way, the Washington Times this morning with this story, americans are saving more for college. The College Savings plan network found the average College Savings, or 529 plan is now worth 20,671, almost double what these accounts were worth during the dog days of the recession. William in st. Paul, minnesota. Go ahead. Yes, i just want to kind of touch on a question and its kind of a twopart question. American citizenship versus Financial Aid. The reason im asking this, we barely make a buck, 90,000. My daughters first year didnt qualify for pel grants or scholarships. Why is it that foreign students american citizenship squall fiction, are you required to be an american citizen . Dr. Linder . I think the question was are you required to be an american citizen to receive a pell grant . And thats a question if it came across my desk i would call the director of Financial Aid and learn what the rules are. I cant give you an Accurate Answer right now. Dr. Linder, how much support and money does university of nebraska get from the federal government . Well, you would have to look at the different categories of support that the university of nebraska gets from the federal government. There is a Large Research enterprise that receive grants from the National Institutes of health and science foundation. Systemwide, that approaches over 400 million. Those moneys come into the university of nebraska and then they are spent on research that benefits both the faculty and the students who are involved in that research. Then there are Financial Aid dollars that come into the university. Counted as part of our budget but thin those are distributed directly to the students, including the loans and pell grants. Thats part of that agreg gate budget. Jim in midland texas, a parent. Good morning. Caller good morning. I have a question from dr. Linder. Ive been to nebraska, really love the state, omaha and worked in omaha and lincoln. Omaha is a beautiful city. But i felt like dr. Linder had dodged the question earlier and i would like to hear more why if youre giving an engineering agree you have to have history, which adds a lot of cost to your tuition. Thanks. If youre pursuing an engineering degree, should you take an english course or history course . I think education in the humanities, including history are essential for all citizens to have, there was an extended political discussion that occurred before i came on the air and if our citizens dont have an understanding of world history, how can they properly vote in elections and understand the issues that face their communities. I think it has to be balanced between your Degree Program and the things that round you out as a human being. But i do think those6 programs are essential. They shouldnt be duplicated, which was i think one of the which she to take it and asked again in a Different University which is why transfer of credits is important. Another issue is campus safety. Did an interview with domestic violence, the ray rice video in the nfl. He had this to say psychological support, medical support and if need be the legal support. Societal changes taking place, it takes time but i believe its taking root and we have an obligation to keep pushing it. Dr. Linder, do you agree and d what is the university of what d nebraska do on this issue of College Safety . Well, i agree with vice i ag President Biden and clearly this is an issue that is front page r on the news right now. We have a safe environment at attuniversity of nebraska lincoln. As attention to the issue has od grown, we doubled do you know on efforts to make sure that students are aware of their responsibility to treat each other in a respectful manner, to avoid situations such as may as occur with binge drinking that n could lead toki unfortunate behavior. We want to make sure there are counselors available for our uno students so that this is handled in the proper manner, including Law Enforcement when necessary. A lot of the bad behavior on campuses has been targeted toward athletes who have been maybe cut a break at the Ut University o f nebraska if there are any allegations against athletes such asif have occurre on other campuses, its not handled by the athletic department, its either handled by the separate part of the university or by local law l la enforcement. We take this very seriously. Our region has past new policier in may for student and employee. Conduct. Well do our best to make sure its a safe campus. The new website for the university of nebraska lincoln that just became live in the rak last couple of weeks, its called tips, and it provides ans student, parent or citizen the r opportunity to report what they believe to be an unsafe an situation that we can address. A couple of other tweets fore you here, dr. Linder. For this one from our viewer who wants to know, across the nation theres a movement to privatize parts of state colleges. Are you on the privatize it bandwagon . And james says, have the for profit businesses affected you in any way . These are two tweets that address a very important issue in american education. If you look at the current number, which is a trillion th dollars in student loan debt, 13 of these students who have l been at for profit colleges account for a third of that debt. This iats driving a lot of the crisis in Higher Education. I think that privatization and d for profit activities have to be carefully xr carefully scrutinized and watched to make sure they benefit the students, not the os shareholders of the company. Mike, rockford, illinois, parent, go ahead. My question is, to the foreign students that are accepted to the nebraska ueso students arent expected, what h do you have to say to local students not accepted like you mentioned . You have thousandsli of foreign students and we know with the new laws we have for employmentr a lot of them are getting first chance at jobs. And for a lesser pay, lets saye engineering, of 65,000 for a Foreign National student okay, mike. Dr. Linder . So, any qualified student wht is from nebraska, is guaranteed acceptance into the university a of nebraska, in no situation would have denied a student a seat in the classroom because wl had a relationship to Bring International students to our program. Were very aware of our role to educate first and foremost our t citizens. We believe that the International Students that come here and most of them do go back to their home country, simply add to the cultural xperps that we have on campus. Dr. Linder, if theres one thing you could change about col Higher Education, what would it be . Oh, wow, thats kind of likeo the if you get a wish, what could it be . I think the awareness of both the students as they pursue entry into college, of the citizens and the United States of what the role is of a College Experience and then the experi interaction between theen employers and the students as they come out. Ers so awareness is my answer and its a broad answer. He but i firmly believe that if you achieve understanding of a problem and situation, you can really get to the optimal ation situation you want to be in. Theres a lot of there misunderstanding, misawareness that currently is surrounding s many of the discussions in Higher Education. Dr. James linder is the interim president at the university of nebraska lincoln, part of cspan buss big 10 college tour. Live sunday on American History tv, well go to baltimores fort mchenry for a ceremony commemorating the 200th anniversary of star spangled banner. It will include remarks by colin powell and raise a flag raising at the exact time signaling that the garrison survived an all night bombardment of the british navy. 8 30 a. M. Eastern here on cspan3. Bill and Hillary Clinton speak in iowa at the 37th annual and final steak fry. This is the first visit since she lost the 2008 president ial caucuses, former president bill clinton and Hillary Clinton all expected to speak. Live coverage starts at 3 30 p. M. Eastern sunday on cspan. On tuesday the Senate Banking Committee Held a hearing discussing the financial regulatory system and implementation of the dodd frank act. Witnesses testifying include Consumer Protection Richard Cordray and mary jo white. Today i welcome back the financial regulators for another one of our meeting wall street reform oversight hearings in this committee since the ena enactment of the law. You all have been busy over august as you continued to make progress and complete rule making to implement wall street reform. I thank you and your staff for your hard work. I strongly believe today as i did in 2010 that wall street reform is the appropriate response to the time to the financial crisis. We will can already see the benefits. We have in the hint system, a regulation for our banks and nonbank financial companies. We have Greater Transparency and oversight for directives and dedicated kind of a watch dog focus on better protecting consumers and we have strengthened coordination between regulators and we have new ways to monitor threats to Financial Stability. As we all know, a road to implementing wall street reform has been long and has not always been easy. This is especially true where regulators trying to Work Together to write effective rules for increasingly complex and Global Financial system. For some, this work has been done while congress has not provided Adequate Funding for rules have not always been met where open arms from congress, industry or consumer groups. However, through constant oversight, members of this committee have had the opportunity to express their views and each of you and your agencies have listened. Because of it, the finalized rules are stronger. Going forward, as we get further away, from the crisis and calls to water down wall street reform grow louder, policy makers can not forget it listens from the crisis and how costly a regulatory system can be. Our Financial System is when we have tough but fair oversight to provide a level Playing Field for all Financial Firms to better serve their clients. Today i look forward to hearing from the witnesses, their next steps to complete their remaining wall street reform makers. Because of your diligent work, our financial positions are stronger and economy is more stable and rest of the world is looking to us to see regulations this is a vast improvement from where our country was and during the financial crisis. I turn to the senator for his opening statement. Thank you, mr. Chairman. Dodd frank requires about a 400 new rules to be written and approved by the federal financial regulators. And today slightly more than 50 have been finalized and 25 are still in the proposed stage. Remaining 25 are yet to be written. With some 220 rule makings finalized we have no idea what the cumulative cost of dodd frank is or will be. The voul kerr rule will add 1 billion for services of outside professionals according to regulators on paperwork reduction act estimates and that is just for two of the 220 rules finalized. We cant pretend that these additional costs are not passed on to consumers. Without a cumulative analysis of the true cost and burdens of the rules we cannot understand the overall impact on the regulated entities and consumers and markets, for example, while doddfrank was intended to exempt small institutions from some regulations, what i hear in idaho, regulatory demands are trickling down to the Smaller Banks and entities, Community Banks of disproportionately affected because they are less able to absorb additional costs. Out of concern what new regulations may be imposed next, Financial Institutions keep money for Compliance Costs set aside rather than investing it in local communities. We can and should make common sense changes to lessen the regulatory burden. In past hearings, the regulators supported several dodd frank fixes, including the end user fix and pushout rule and giving the fed flexibility to place the capital standards it places on Insurance Company. Regarding the latter, the Senate Passed a fix so that Insurance Companies are not surprise to bank like Capital Requirements contrary to their business model. I look forward to hearing from the witnesses what specific fixes should be made so Traditional Services do not become so complicated or expensive that banks like those in idaho and other Rural Communities can no longer offer such services. I appreciate that some of your agencies have commenced the statutorily mandated review of existing regulations to identify outdated, unnecessary or unduly burdensome regulations. A similar review led to the 2006 regulatory relief law and i encourage the remaining agencies to join this effort. I urge all of you to make this rel vul a priority to set up outreach meetings and with community bafrpnks and others a provide a list to congress. Several of our witnesses have discussed eliminating a paper version of the annual privacy notice. A measure that has passed the house and has more than 70 cosponsors in the senate. The law also established the Financial Stability oversight council. At the july hearing i reiterated my concerns to secretary lew, about the designation process. Only reinforces those concerns and threatens to disrupt a carefully forged regulatory balance. For an industry that has been traditionally under the purview of state regulators. The u. S. Financial system and Capital Markets cannot remain the preferred destination for investors throughout the world if our regulators operate under a cloak of see kreltcy. Secretary lew stated that each was given detailed explanations as to why they are designationed. This information was provided only after the designations were naed. This is not how our regulatory qixi operate. I urge you to publish indicator based criteria in the federal register for comment and urge you to impose a moratorium until there are objective measures and increased transparency. Only then ke with ensure accountability. All of your agencies should recognize the benefit in having an open and transparent regulatory process. Transparency does not weaken rule makings but gives them much needed legitimacy. Mr. Chairman, the ish yus were discussing are very important especially as they relate to our smaller Financial Institutions. I know the committee will be looking at the strong issues in the future and i asn thank you that. Thank you, senator. This morning Opening Statements will be limited to the chairman and Ranking Member to allow more time for questions from the committee members. I want to remind my colleagues that the record will be open for the next seven days. Any other materials you would like to submit. Now i would like to introduce our witnesses. Daniel trujill lo, member of the board of governors of the Federal Reserve system. Martin grimberg, chairman of the federal Department Insurance corporation, tom curry, a controller of the currency. Rich cordray is director of the Consumer Financial protection bureau. Mary jo white is chair of the securities and exchange commission. Tim is chairman of the commodity features trading commission. Tim, welcome back to the committee. I thank you all for being here today. I would like to ask the witnesses to please keep your remarks to five min ulgts, your full written statements will be included in the hearing record. Governor trujill lo, you may begin your testimony. Thank you, mr. Chairman. And other members of the committee. Senator johnson, i understand that this may be the last time that this group of six appears before you and your time as chairman of the committee. I and i just want to say before i begin that i think everybody appreciates the care and even handedness with which youve approached the substance of these important issues of Financial Regulation and speaking as one who has testified before you over the years i want to thank you for the patience and courtesy that youve extended to all witnesses in your time as chair. I think its something that weve all appreciated and that people have broadly admired and we obviously will miss your presence on this committee. In appearing before this committee in february, i noted my hope and expectation that this year would be the beginning of the end of our implementation of the major provisions of the doddfrank act. Seven years later we are on track to fulfill that expectation as detailed in my written testimony. To be clear though, this is the beginning of the ends, not the end itself. The agency still has some work to do in adopting regulations specifically required by doddfrank. Moreover, the fed has additional work to do in filling out a regime of additional requirements for systemically important Financial Firms. Let me mention here two priorities. First, well be proposing capital surcharges for the eight u. S. Banks that have been identified as a global systemic importance. By increasing the three levels, the amount of common equity to be held by these firms, we look to improve the resiliency to look at the act the failure would have on the Financial System. While we will ugs the risk based capital surcharge framework as a starting point, we will strengthen that framework in two respects. First, the surcharge levels for the u. S. Institutions will extend higher than the committee range, which will mean higher applicable surcharges for most u. S. Firm, most of the eight u. S. Firms and noticeably so in some cases. Second, the surcharge formula will directly take into account each u. S. Reliance on short term whole sale funding which we believe to be an important indicator of systemic importance because of the potential for funding runs and con teenagen under stress. While some other countries have also applied higher surcharges on theirs than required by the committee, none has explicitly taken account of vulnerabilities. Second, were developing a proposal for the same eight banks to maintain a minimal amount of long term unsecured debt. Should one of these firms go into resolution or bankruptcy, this structurely sub od natured debt will be available as to conversion into loss absorbing equity. The longterm insecured debt should reduce run risks in an orderly liquid and or bankruptcy process. It should also have the benefit of improving market discipline since the holders of that debt would know they face the prospect of loss should the firm become insolvent. You will note i mentioned short term whole sale funding a couple of times in connection with the most systemically important institutions were also mindful of the risks that runable funding can pose more generally. Were working with International Counterparts in aproposal for minimal margins for transactions such as repos that extend to lending of this sort to all market actors. While theres more to be done with respect to the largest institutions and vulnerable whole sale funding markets, i would close by suggesting it may be time to consider raising some thresholds or eliminating all together the application of some doddfrank provisions to other banks. The three banking agencies before you today have all been working on ways to reduce regulatory and super advisory burdens on smaller and midsized banks and also be benefit from statutory changes. One would be to raise the current 50 billion asset threshold that determines which banks are in the systemic category. A second would be to exempt Community Banks entirely from provisions such as the rule and incentive proposition of doddfrank which are both directed at practices in larger institutions. Thank you for your attention, be pleased to answer any questions you may have. Chairman, please proceed. Thank you, chairman johnson Ranking Member and members of the committee for the opportunity to testify on the fdic implementation of the doddfrank act. I would like to begin by thanking chairman johnson for his strong personal support and encourage. To me both during my service on the staff of this committee as well as since ive been at the fdic. Im very grateful for the support of encourage. Youve given me. And will greatly miss your steadily thoughtful leadership of this committee. The recent actions by the banking agencies to adopt a supplementally leverage capital ratio, a final rule on the liquidity coverage ratio, and a proposed rule on margin requirements for derivatives address three key areas of Systemic Risk that taken together are an important step forward in addressing risk posed particularly by the largest most systemically important Financial Institutions. In april of this year. Finalized and enhanced supplementary ratio of final rule for the eight largest and most systemically Important Bank Holding Companies and their insured banks. This strengthens the Capital Requirements well beyond the levels required in the accord. The enhanced supplementary standards will achieve one of the most important objectives of capital reforms, addressing the buildup of excessive leverage that contributes to Systemic Risk. Just last week, the federal Banking Agency issued a joint interaction final rule implementing liquidity coverage ratio. During the recent financial crisis, many banks had insufficient liquid assets and could not borrow it to meet their liquidity needs, which greatly excesser baited the depth of the crisis. The liquidity coverage ratio will be the first liquidity requirement in the United States and important step towards bolstering the Liquidity Position of large internationally active banking organizations. Finally, establishing margin requirements for over the counter derivatives is one of the most important reforms of the doddfrank act. Before the crisis, some institutions entered into large otc derivative positions without the prudent exchange of collateral or margin to support those positions. The margin requirements by the proposed rule should promote Financial Stability by reducing systemic leverage in the derivatives marketplace. The fdic and the Federal Reserve have completed their reviews for the 2013 Resolution Plans submitted to the agencies by the 11 largest most complex Bank Holding Companies as required by title one of the dodd frank act. On augt 5th, the Agency Issued letters to each of these firms, detailing the specific short comings of each firms plan and the requirements for the 2015 submission. While the short comings of the plans varied across the firms, the agencies identified several common features of the plans short comings including unrealistic or inadequately supported assumptions and fa failure to make or identify the necessary changes in Firm Structure and practices to enhance the prospects for orderly resolution. The agencies will work closely with the companies to implement required improvements in the Resolution Plans, including simplifying their legal structures, amending derivative contracts to provide for a stay of early termination rights, and ensuring continuity of critical operations during bankruptcy and demonstrating operational capabilities to prue reliable information in a timely manner. The agencies are also committed to finding an appropriate balance between transparency and confidentiality pro pry tri and super advisory information in the Resolution Plans. Finally, in the role of supervisor a majority of the Community Banks in the United States, the fdic has been engaged in a sustained effort to better understand the issues related to Community Banks. Those institutions that provide traditional relationship based Banking Services in the local communities. Since the beginning of this year, fdic analysts have published new papers dealing with console dags among Community Banks and effects of population on Community Banks and efforts of minority institutions to provide essential Banking Services in the communities they serve. Focuses specifically on Community Banks and providing Technical Assistance to them, including assisting with critical cyber risks. That concludes my remarks, i would be glad to respond to your questions. Thank you. Controller curry, please proceed. Chairman johnson, Ranking Member and members of the committee. Im pleased to appear here to provide an update on the steps we have recently taken to further enhance the effectiveness of the Bank Supervision and provide status report on the completed and current projects required by the doddfrank act. Like my colleagues, i too however would like to first thank chairman johnson for his guidance and steady leadership over the years. Ive been in Public Service for a long time and learned early on that when congressman johnson or senator johnson had something to say on a financial matter, it was worth listening to. I thank you for your years of service and wisdom and wish you well in your retirement. In the four years since passage of the doddfrank act, new tools have been developed and new rules have been put in place to address regulatory gaps and create a stronger Financial System. For our part, we at the occ have kpleelted all of the doddfrank rule makings for which we have sole responsibility. For those interagency rule makers that remain to be completed, i believe we have made Good Progress to date and anticipate finalizing many of them in the near term. Since the crisis, we have seen steady improvements in the overall Financial Condition of the banking system. Despite the improving strength and health of banks, im keenly aware of the need for supervisors to remain vigilant. Last week i was pleetszed to sign a new rule that not only memorialized the heightened standards weve applied to large complex banks since 2010 but provides also an enforcement mechanism to compel compliance when necessary. Requiring higher supervisory standards for the largest and most complex banks we oversee is consistent with the dodd franks acts broad octoberive of strengthening the stability of the Financial System. The heightened standards address the need for comprehensive and y cm55u h isk management and engaged board of directors that exercises independent judgment, more robust audit function andry krutment and success planning and a Compensation Structure that does not encourage inappropriate risk taking. Consistent with the heightened standards were requiring of the largest banks, were holding ourselves accountable to super rizry improvements as well. I asked a team of International Regulators to provide a broad candid and independent assessment of our supervision of mid size and large banks. The review oitded a number of areas where we performed really well but also highlighted areas where we need to improve. The occ has em bragsed the teams findings and taken steps to execute recommendations that include transformational improvements. One key improvement includes expanding our lead Expert Program which allows us to Better Compare the operations of the institutions we regulate to identify trends, best practices and weaknesses. Another change will improve our ability to identify Systemic Risk by enhancing our risk monitoring processes and reporting. And that fits squarely with the semiannual public reports by our National Risk committee. Those reports highlight emerging Industry Trends and identify those risk areas where we will focus our resources. While the occ has taken many steps to improve our supervision of banks, we also recognize the impact of our activities on Community Banks. While we are focused on strong and effective supervision, we are always mindsful of the need to avoid unnecessary burden on Community Banks. We have responded by tailering our super advisory programs to the risks and complexity of a banks activities. Each rule making, the occ has sought and listened to the concerns of Community Banks. As an example, the lending limits rule provides a simpler option for small banks to use for measuring credit exposures and final domestic capital rules address concerns of small banks with respect to the treatment of accumulated income and mortgages. My written statement prize a full report on the rule makings weve been involved in in our efforts to communicate with other regulators. With an update of our activities to shore up the industrys defenses against Cyber Threats which i regard as one of the most significant emerging issues facing the industry. Thank you again and id be happy to answer the committees questions. Thank you. Director cordray, please proceed. Chairman johnson, rafrnking member of the committee. It would surprise nobody to learn that i will join my colleagues in expressing our respect and admiration for your leadership on financial reform and body. Your obvious commitment to fair Consumer Financial markets set an example for this bureau and our work that i think is improving the lives of so many people across this state and across the country, and ill always remember your personal kindness and your family in welcoming me to south dakota and having me hear from your constituents about these issues and your personal kindness in particular in advising me if i pronounce the state capital rather than pierre, that would make me a dude. This is the first agency whose sole focus is protecting consumers in the financial marketplace, and we have made considerable progress in our rulemaking, supervisory and enforceable responsibilities. Our initial focus is directed by congress to address deep problems in the Mortgage Market that helped precipitate the mortgage crisis. We began with a series of rules that require creditors to make good faith assessments that creditors are able to repay their loans. And regulate compensation practices for Loan Originators among others. We have worked closely with industry housing counselors and other stakeholders to make sure the rules are implemented smoothly and timely. We also issued a rule to consolidate and streamline federal mortgage disclosures under various laws. The new know before you owe rules are easier to choose options and avoid costly surprises at the closing table. This summer, we also issued a rule to changes to the homeowner disclosure act. We believe this presents an opportunity to limit unwanted regulatory burdens. Were working diligently to monitor the effects of our rules and make clarifications anda justments to our rules where wanted. Right now, were pursuing further research to determine how to define the scope of statutory provisions for small creditors who operate in small or rural areas. Were also addressing pressing issues in nonMortgage Markets and a series of larger rules to supervise operations and activities in other markets, and were currently in the process of proposing rules on prepaid cards, debt collection, and payday lending. Another rule to insure compliance with federal financial loss. We have the authority to supervise not only the larger branchs but a range of nonbank Companies Including mortgage lenders, payday lenders, debt collectors and credit reporting companies. We made it a priority to coordinate the timing with the federal and state regulatory partners. Our Supervision Program is helping to drive Financial Change that places more emphasis on treating customers fairly. We have caused many large nonbank firms to implement such systems for the first time. Consistent enforcement of the laws benefits consumers, honest businesses and the economy as a whole. To date, our Enforcement Actions have resulted in 4. 7 billion in relief for 15 Million Consumers harmed by illegal practices. For example, with officials in 49 states, we took action against the nations largest nonbank Mortgage Services for misconduct at every step. With 13 state attorney generals, we obtained 92 million in debt relief for Service Members and others harmed by companys predatory lending scheme that inflated prices for electronics. We worked for the department of justice to require an automaker to pay borrowers because of discriminatory practices, the largest amount of the federal government has secured in a case. Andee took action against two of the payday lenders for various violations of the law, including the military lending act. We stand on the side of consumers and make sure theyre treated fairly in the financial marketplace. We have handled 44,000 cases and secured monetary and nonmonetary relief on their behalf. Were working on other resources for consumers to help them better understand the choices they make in the marketplace. Id like to say that my outstanding colleagues at the bureau as well as the leadersf our federal agencies represented on this panel are strongly dedicated to a shared vision of a healthy financial marketplace and were working together well to achieve this goal. Thank you and i look forward to your questions. Thank you. Chair white, please proceed. Thank you. Chairman johnson, Ranking Member crapo, and members of the committee, thank you for inviting me to testify about the s. E. R. s ongoing implementation of the doddfrank act and our efforts to reduce Systemic Risk, close regulatory gaps and better protect investors. Im a relative newcomer to this committee, but i certainly want to add my admiration for you, your professionalism, your leadership of this committee, and your support really for all of our efforts, so thank you very much. As you know, the doddfrank act gave the s. E. C. Significant new responsibilities and included some 90 provisions that require complex s. E. C. Rule making. The s. E. C. Has made quite substantial progress implementing our congressionally regulated rule making agenda as we have simeultaneously continud our broader core responsibilities of securing securities violations, important discretionary rule making, reviewing Public Company disclosures, inspecting the regulated entities and maintaining fair and efficient markets which has included a continuing review and initiatives to enhance the quality of our equity and fixed income markets. Since i became chair in april of last year, we focused on eight key areas of s. E. C. Responsibility mandated by the doddfrank act. Credit rating agencies, asset backed securities, municipal advisers, Asset Management including regulation of private fund advisers, over the counter derivatives, and executive compensation. Specifically, in furtherance of these objectives, the commission has to date created a new Regulatory Framework for municipal advisers, advanced significant new starntdz for th clearing agencies that stand at the center of our Financial System along with our fellow regulators, implementing new restrictions on Financial Institutions through the vocal rule. Finalized rules intended to strengthen the integrity of Credit Ratings, reducing conflict of interest in ratings and improving their transparency. These were adopted on august 27th and implemented 14 rule making agencies. We have adopted disclosures. And completed reforms in july to address risks of investor runs and money market funds of systemic vulnerability in the financial crisis, pushed forward new rules for previously unregulated derivative, begun implementing additional executive compensation disclosure, put in place strong new controls on brokered dealers that hold customer assets, reduce reliance on Credit Ratings and banned bad actors from private securities offerings. Since april 2013, the s. E. C. Has proposed or adopted nearly 20 doddfrank rules and thus far has proposed or adopted rules to address 90 of the provisions of the dodd frank act that man dade commissioned rule making. In the eight categories i have identified, the bulk of our work is completed or nearing completion. Our focus now is on finishing our title vii and executive compensation rules as required by doddfrank. We have also worked closely with our fellow financial regulators to insure that our financial regulatory system works overall to protect against risks, both by promoting Financial Stability and supporting a sensible and integrated Regulatory Framework that works effectively for Market Participants. The oversight counsel, established by the doddfrank act, on which i participate as a member, serves a Critical Role in that effort. While the s. E. C. Has made significant progress on both our doddfrank and jobs act rule makings, more remains to be done and we must continue our work with intensity, as we do so, we must be deliberate as we consider and prioritize our remaining mandates and deploy our broadened Regulatory Authority, supported by robust economic analysis. Progress ultimately will be measured based on whether we have implemented rules that create a strong and effective Regulatory Framework and stand the test of time under intense scrutiny and rapidly changing Financial Markets. We must be focused on fundamental and lasting reform that will protect investors in our markets and safeguard our Financial System. Thank you again for the opportunity to testify today. I would be happy to answer any questions. Thank you. Chairman arsaid, please proceed. Thank you, chairman johnson and Ranking Member crapo, members of the committee. Im pleased to testify before you today on behalf of the commission. While this is my first appearance as cftc chair, i also want to add my thanks to you, chairman johnson, particularly with respect to my prior role as treasury overseeing the t. A. R. P. Program. It was very unfortunate that we had to implement t. A. R. P. , but i appreciate your support for all of our efforts to stabilize the system. Before i begin, i would also like to note that my fellow commissioner Chris Giancarlo is here. He like me is a new member of the commission. Im pleased hes here today. I would like to review our progress in implementing the doddfrank act, congresss response to the worst financial crisis since the great depression. We must never forget that this crisis imposed terrible costs on all americans. Millions of jobs lost, homes foreclosed. Many businesses shuttered. And many retirements, College Educations deferred. And thats why implementation is so important. In doddfrank, congress enacted four basic reforms of the swap market. Increased oversight of major market players. Clearing of standardized transactions on Central Clearing houses. Transparent trading of standardized transactions on regulated platforms and regular reporting for increased market transparency. The cftc has made substantial progress in implementing these reforms. First, we put in place a framework for swap participants. Today, 204 swap performers are registered and we require them to adopt strong Risk Management standards. Second, standardized swap must be cleared with a Clearing House so risk can be better monitored and mitigated. In december 2007, only 16 of outstanding transactions measured by notional value were cleared according to industry estimates. Last month, 60 were cleared. In addition, last month, an estimatedononono 85 of index default swaps were cleared. Third, standardized swaps must also be traded on a regulated platform. There are currently 22 swap execution facilities temporarily registered and volumes are growing. And fourth, rules for data reporting are in place. All swaps, whether clears or uncleared, must be reported to swap data repositories. We have four sdrs provisionally registers and operating. And getting us where we are today, no group deserves more credit than the hard working staff of the agency. I want to publicly thank them for their extraordinary contributions. But much work remains to be done. Let me highlight a few priorities. First, as we gain experience with new regulations, we will likely make adjustments to the rules. With reforms as significant as these, this is to be expected. And in particular, we want to make sure the new rules do not place undue burdens on commercial and users that were not responsible for the crisis and depend on these markets to hedge risks. We will also be mindful of their interests as we complete the small number of remaining rules required by doddfrank. To that end, i have scheduled a Public Meeting on september 17th, where we will consider a rule governing special entities like public power companies. The commission will also consider at that time a proposed rule on margin for uncleared swaps, similar to the rules put forward last week by my banking regulator colleagues here today. Second, for reforms to succeed, Global Regulators must Work Together to harmonize rules as much as possible. I have been very focused on this effort since the day i took office. Third, we must make sure that Market Participants comply with the rules. Strong enforcement and compliance efforts are vital to maintaining Public Confidence and participation in our markets. And fourth, technology and Data Management are priorities. The cftc is leading an International Effort to establish consistent efforts for reporting and well make sure the Market Participants report data accurately and promptly as this is critical to effective market oversight and transparency. All of these tasks require resources. While the agency staff is excellent and we will do all we can with what we have, i believe the cftcs current Financial Resources are insufficient. I hope to work with congress to address this need. The United States has the best Financial Markets in the world, the most dynamic, innovative and transparent and they have been an engine of our Economic Growth and transparency. Its vital to maintaining the strong Financial Markets. Thank you again for inviting me today and i look forward to your questions. Thank you, all. I will now ask the clerk to put five minutes on the clock for each members questions. My first question is for each of the panelists. What role what role reform rules will be finalized before the end of the year by your agency . For example, should we expect a final Risk Retention rule on rural and Long Term Debt to facilitate a resolution . Governor, lets begin with you and go down the line. Senator, i would expect that well finalize the Financial Sector concentration rule, and with respect to Risk Retention, interested to hear what some of my colleagues say. I dont know if i would say by the end of the year, but i think were definitely in the homestretch. Mr. Chairman, i think the agencies have been working hard on the Risk Retention rule, and i think were in the end game. And i would hope without making predictions that we could complete that rule making by the end of the year. And you mentioned the Long Term Debt rule as you know the fdic has been working cooperatively with the fed on that rule and ill hopeful the fed will be able to move forward in that area as well. I, too, would hope to complete the Risk Retention rule by the end of the year. The occ is certainly committed to voting the appropriate resources to get the job done, and i hope to be able to work cooperatively with both the federal banking agencies and the housing related agencies as well. Mr. Chairman, were not directly involved in the Risk Retention rule, but we take an interest in it as it overlapped our qualified mortgage rule to some significant degree. We continue to work on the humda implementation and the mortgage implementation. Well have larger participant rules to allow us to supervise other Financial Markets before the end of the year and we continue work on a number of other issues that are not mandated by doddfrank but are important in implementing its goals. With respect to the doddfrank act, as i mentioned in my oral testimony, we expect to focus on title vii and the executive compensation rules. I dont see them finished by the end of the year, but focusing on those. I expect to work with our fellow regulators in completing the Risk Retention rule. Outside of doddfrank, expect to pursue by the end of the year regulation sci, which is systems compliance and integrity as well as other initiatives in the Market Structure area. Mr. Chairman, were not part of the Risk Retention rule, but we will, as i noted, be acting on a rule for special entities next week, which addresses some of the smaller and user concerns. Well also be acting on a reproposal of the margin rule, of course, with the Public Comment period, we may not get that finalized by the end of the year. Most of our rules are done, so again, were very focused on looking at them and making sure we have addressed some of the user concerns. Thank you. Governor, your staff has indicated that the fed has taken a twotrack approach with capital rules for Insurance Companies, including what approach the fed could use if congress and next legislation that the Senate Passed unanimously months ago to provide the fed with more flexibility to tailor rules for Insurance Companies. Is it important for congress to enact that into law soon to provide for more appropriate rules for Insurance Companies . Senator, it would be very welcome if the house would follow your lead and enact that to give us the kind of flexibility in making an assessment on the liability, vulnerabilities of Insurance Companies that are unique to Insurance Companies. Well continue with our two tracks of planning. Were going to conduct a quantitative impact study to develop more information on insurance industries, specific products, but it would be very helpful. Thank you. Chairman, in august, uannounced that the rules for the 11th largest banking organizations contain important shortcomings. You have given each of these banking organizations until july 1 of 2015 to submit a Resolution Plan that addresses the shortcomings. What will your agency be doing in the next year to monitor these banks and their efforts to address their living will shortcomings . Well, mr. Chairman, as i indicated in my opening statement, weve in effect now given each of the 11 firms a detailed road map of changes they need to make to improve the resolvability of their firms. And we anticipate, by we, i mean the fdic and the Federal Reserve, which works together jointly on these letters to give the firms direction and guidance to follow through on compliance, and implementation of the directions contained in those 11 letters. Senator crapo. Thank you, mr. Chairman. I, too, in my first question want to talk to each of the agencies. But im going to do it in segments. Im focusing in this question on the Economic Growth and regulatory paperwork reduction act. Which, as you know, has requirements in it for reviews that are statutorially mandated to evaluate existing regulations to identify outdated, unnecessary or unduly burdensome regulations. It was actually this act that we used some years back when we made some very Good Progress working with many of you to pass a significant regulatory relief act. And i understand that the Federal Reserve, the fdic, and the occ are already well into and have been going well under way and are going down the road of doing this, so my first question is to the three of you, which is, will you commit that your agencies will provide us with a list or a table of regulations that fit this category that we could evaluate for Regulatory Reform purposes and specifically with focus on Community Banks . Mr. Chairman, im currently the chairman of the ffic, which is overseeing the process, and i think our objectives are totally in tune with your objectives that you stated today. The focus of our review of unnecessary or burdensome rules is really focused on Community Banks. Good. Were also looking to make sure that we get adequate input from Community Bankers directly so we will be holding a series of outreach sessions throughout the country to take in that information. And then ultimately, we do intend to do two things. One, to make make changes that we have complete control over in terms of regulations and policy statements, but also to file a report with congress in which we would make recommendations for a appropriate statutory changes. Thank you. I think the process actually offers the agencies a nice opportunity to take an overview of the Regulatory Compliance issue. And identify opportunities both for addressing unneeded regulatory requirements as well as opportunities for any statutory change. I think this has been a focus of the attention and priority certainly for our three agencies as the controller indicated, were planning a series of public hearings around the country. I think well be participating directly in some of those hearings and we view it as a Good Opportunity to take a broad overview of this. Thank you. Governor . All right, thank you very much. Then to the other three, as i understand it, the cfpb is covered by this law also but the timing is not necessarily kicking in at the same timeframe for the cfpb, and theyre not technically under the law, but my question is regardless of that, will you pursue the same process and help to provide us with your evaluation of the kind of unnecessary or unduly regulatory burdensome regulations that we have and in particular with regard to Community Banks . Ill simply say im part of the ffiec, and were following as the comptroller indicated, as chairman of that body, his lead on reg review. We have our own statutory provision that requires a fiveyear look back on all the rules they promulgate. We have been actively engaged looking at the mortgage rules looking to see if there are tweaks that we need, and we had our streamlining initiative that led to the atm stickering issue. And we provided Technical Assistance on that, and relief on privacy notices which is coming very soon in final form. Thank you. Senator crapo, correct, i dont think the statute applies to us, but im very much committed to reviewing our rules in that fashion. We also have obviously in Constant Contact with those who our rules impact. Our rules dont generally have as much impact on Community Banks. One of the other things i have tried to do since i became chairman is review our major rules, both jobs act and doddfrank and others as they come out the door so were making changes, making them more efficient, stronger as we go. Thank you. Mr. Massad, could you be real fast . Certainly. We agree with the goal, and well be happy to work with your office on it. Thank you. I appreciate that. My next question is for the governor. Governor, in your testimony and the speech at the annual Bank Structure conference, you called for raising the trigger with a bank is systemically important for 50 million. I would like if you would, please, to expand on your thinking because i agree with you strongly on that. I hope we can make progress in this area. Senator, i think we have had the benefit now of several years of testing under both stress testing under doddfrank and also our Capital Requirements assessment process. And i think weve just concluded that given the intensity and the complexity of the work around the really good stress testing, which we believe is necessary for the largest firms, we havent felt that the additional safety and soundness benefits of that really are substantial enough to warrant the kinds of expenditures that banks above 50 but well above the largest systemically important institutions have to expand. Their Balance Sheets are pretty easily investigated by us. And their lending falls in a fairly discreet number of forms, so in thinking about it, we just thought that having some experience put us in a better position to make4 and thats why i mentioned it in the chicago speech. Thank you. I think your observation is very well taken and is one of those examples of what im talking about here today as well. Where we need to find places where we can resolve some of these unnecessarily burdens that are causing difficulty. Thank you. Senator schumer. Thank you, mr. Chairman. Thank the witnesses. Now, as we speak, the treasury secretary and secretary of transportation are holding a summit with leaders across the country to encourage grater investment in infrastructure projects, but unfortunately, the administrations efforts to promote greater investment in inf infrastructure fly in the face of rule making finalized last week by the fed, the occ, and fdic, by excluding nMunicipal Bonds to be considered as high quality assets, federal regulators have run the risk of limiting the scope of Financial Institutions willing to take on Investment Grade Financial Securities which we know are the life blood of development in the country. My city and state, new york city and state, rely on this financing to build roads, bridges and Start Construction in schools, but its not just new york. Any city or state that have made tough decisions to protect their Credit Ratings, chicago, philadelphia, california, are susceptible to the impact of this rule. Investment grade Municipal Bonds not only serve as a mechanism through which were able to create jobs and finance Critical Infrastructure but the assets that adequately cover liquidity outflows in periods of stress. I support regulatory efforts to make sure the banking section is able to absorb shocks in time of financial and economic stress as well as enhanced liquidity, but i have not yet heard a convincing argument why for instance corporate debt can be considered a high quality assett, but Investment Grade municipal securities cannot. Investment grade Municipal Bonds have comparable if not better trade volume and price volatility and they performed well through the financial crisis. In fact, in 2008 and 2009, price declined on aaa Corporate Bonds were greater than the price declines on both aa murpal general bonds and Revenue Bonds and this dustant even touch on the fact the new rule permits foreign sovereign debt to be qualified while these Municipal Bonds are not. And the liquidity coverage for Banking Institutions has the potential for states and municipalities to both increase the cost of Interest Payments and decrease investment by the largest Banking Institutions in infrastructure. Now, more than ever, we should be wary of blunt policies that have the potential to negativity impact the Municipal Bonds market and ultimately jobs. The debt issuances from certain states in local municipalities are considered high quality liquid assets by markets and should be treated as such under the rule. Developing criteria to assess liquidity and performance of various Municipal Bond offerings is a more narrowly tailored approach that was absent from the rule finalized last wednesday. I hope all three agencies will reassess the finalized rule and issue supplemental rules that appropriately account for these instruments. Here are my questions. First, governor, i know this rule is something you have looked at closely. I was particularly struck by your comments last week in which you acknowledged that, quote, staff analysis suggests that the liquidity of some state and Municipal Bonds is comparable to that of the very liquidity of Corporate Bonds that can qualify as hqla and indicated the staff has been working on some ideas. Determining criteria for such bonds which might be considered for inclusion. Would you mind discussing what type of ideas you believe are appropriate . And specifically, whether these ideas would allow for greater flexibility so that certain Investment Grade Municipal Bonds could be considered high quality liquid assets. And then after you opine, i would like to ask the chairman and controller if they think a rule that provides greater flexibility in this area would be something that is important to look into. Thank you, senator. As you noted, we, the board, asked the staff to prepare a proposal that would allow for recognition as high quality liquid assets those state Municipal Bonds which are in the same league with very liquid corporates. And what we have asked the staff to do is an analysis of the liquidity characteristics of state and munis, taking into account daily trading volumes. There are some differences in those markets, but our analysis during the course of the Comment Period suggested that there ought to be a way of identifying the more liquid state and munis because if they are really liquid, we really do want banks to be able to take that into account in thinking about their maturity length. You want some comparability here and you dont want to lump all Municipal Bonds in one pot . Thats correct, senator. Okay. Chairman gruenberg . Senator the question to you is would you consider revising this rule if the Analysis Shows that the liquidity levels are similar . Short answer is yes, senator, and i indicated my remarks at our Board Meeting we would monitor carefully the impact on the market and if there was reason to make adjustments we would consider adjustments. We have loads of our mayors and financial directors as well as governors are howling about this. So they really think it will impact their markets and theyre experienced to know. How about controller curry . Senator, were certainly looking forward to discussing with the fed any Additional Research or thoughts they may have in this area. If theres a possibility to calibrate a standard that differentiates certain municipal securities from the broader characteristics, we would be looking forward to talking to the fed about it. Would you be open to changing, to modifying the rule, as mr. Greenberg and mr. Tarullo said they would be . Certainly, based on research or thoughts from the fed. What does that mean . Would you be open to revising the rule . Were open, but we need to talk with our colleagues. Okay. Thank you, mr. Chairman. I thank you. If all three of you are open to it and two of you seemed pretty favorable to it, i hope you will go ahead and do it because its really important. Senator corker. Thank you, mr. Chairman. I appreciate it. I appreciate all of you being here and the job you do. Back when doddfrank was being created, each of us were assigned certain areas to work on. Our friend mark warner and i worked on title i and ii. And amy friend changed it a little bit, but its still pretty good. And i want to focus on those two areas. Actually think it was some of the strongest pieces of the doddfrank bill. And i notice that the fdic and the fed had a joint letter relative to the living wills. I will say in fairness senator warner was far more focused on the living wills and i appreciate his efforts in that regard. But i notice that you had a joint statement and then what happened after that is the fed backed away from that. And wrote something separate from the joint letter that really watered down, if you will, your concern about living wills. Which created a concern for me, but i know theres a process that gets put in place if both of you agree that theyre inadequate and therefore by stepping away, that has been watered down to a big degree, and im just curious as to why that took place and both of you might want to respond to that. Senator, i didnt see any watering down of the impact of the letters that we agreed on and jointly sent out. What we jointly agreed on were the measures that we actually want the banks to take in order to become more resolvable, which i think is the object of this entire exercise. And so far as i could determine, there was substantial convergence, certainly at the staff and principal levels on those areas where we expect to see progress. There was a question as to whether i think the difference was the difference was the fdic made a determination of noncredibility of the letters that had been submitted already. The feeling at the board was that there are obviously shortcomings. Thats why we wanted to get the specifics out, but we also thought it was important to go through another stage of the iterative process that had been laid out in our reg. And i think its contemplated by the statute because that, after all, is the object here, to get us to the point where the firms are resolvable in bankruptcy as well as under a title ii, as you will note in our statement, the feds statement and also in the letters, if the firms are not able to take the steps that we have jointly indicated they need to take, by next july, the agencies will be prepared to take action under doddfrank in order to enforce those provisions. And so i think by doing that, by being as specific as we were, we have been i think we should put to rest any complaints that there wasnt enough guidance from the agencies along the way. I think the guidance is out there now, and its quite explicit. But it does have the effect, does it not, of really slowing down and putting off the institutions taking the steps they need to take to simplify there is an iterative process, as you mentioned, and i think by doing what the fed did, you added a step to that, did you not . Well, i think actually, i think what we did is we focused on what we actually want them to change. We made it pretty clear, we want a change in the next year. So i hope theres no slowdown here. Were certainly not expecting a slowdown. On the contrary, were expecting acceleration in their planning and them to do it with more realistic assumptions than they did in their prior submissions. One of the things that i think there have been concerns about is, you know, you have been fsoc has been given tremendous powers to deal with these entities. If you feel like there in fact is any possibility that because of their size or complexity they could create a risk to the system, and i just want to ask the two of you, i know we have asked in letter form, several of us. We have gotten back, as we might expect, somewhat nebulous responses, but is it a fact or is it not, will you use the powers that are given to you if these firms if you find themselves after this year process not in place to be resolved appropriately through bankruptcy, will you take the measures that you have, many people are trying to pass legislation, but you already have powers within the organizations to take steps and force them to be less complex. Will you do nat . Sure, senator, thats the object of the process, to get them to the point of resolvability. As we indicated, we are prepared to use the powers granted in doddfrank if in fact they dont get there. I might also add that the things i mentioned this morning, the higher level of surcharges for the most systemically important institutions, the attention to the shortterm wholesale funding capabilities and the subdebt that can be convertible are all measures intended in the same direction, which is tinsure the resiliency and resolvability of these institutions. Senator, if i could just add, i think the answer to your question is yes. I think we will be prepared to use the authorities of the statute. I think we have laid down a clear marker. The fed and the fdic, for these firms, in terms of the kinds of changes that need to be made. And if i may, i would underscore the agreement between the two agencies on the substance of the letters. Which i think was really very solid and meaningful. And i think the firms are clearly on notice that theres an expectation of compliance with the directions and the letters and i think theres a joint commitment by the two agencies to follow through on that. Thank you. And mr. Chairman, i appreciate the time. I will say a big part of the concerns that were expressed during that time and the passage of the bill was about the extraordinary actions that we and the American People had to take during that time, and unless you, especially the two of you, are willing to take the steps that are necessary to insure that these organizations are not too complex to be resolved through bankruptcy, then all is for naught. I hope you will. I thank you for your work, and i appreciate the time, mr. Chairman. By the way, thank you for creating a bipartisan atmosphere on the committee, too, sinceably is apparently thinking youre going to be chairman of the universe after this. Senator menendez. Thank you, mr. Chairman. Madam chair, you and i have on previous occasions discussed the ceo pay ratio provision i oped in the wall street reform law which requires companies to disclose the ratio of compensation of the chief executive to the pay of medium workers. This measure focuses investors attention on the relative value a ceo creates in order to provide better checks and balances. And while ceos can undoubtedly create value for companies, so can ordinary workers across an organization. So when a ceo asks for a raise while giving other employees a pay cut, investors should have this information so they can ask whether this is a Value Creation or simply Value Capture by insiders. Especially in an environment in have grown by more than 86 over the last 20 years while incomes for everyone else has grown by less than 7 . As you know from my letters of support, i was pleased to see the s. E. C. s proposed rule last year to implement this provision which in my view accurately reflects the legislative intent that i and others intended. Can you please give us an update on the status of this rule making and when does the s. E. C. Expect to finalize it . Essentially, as i think i said in my oral testimony, we are focused, the balance of this year in terms of our doddfrank mandated rule makings on title vii and executive compensation, pay ratio is one of those that has been proposed but not adopted. It is certainly a priority to complete it this year. So its your expectation that you would complete it this year . Its my hope and expectation to complete it this year. The staff is still going through the comments, which were extensive, and finalizing a formal recommendation, but that is my expectation. I hope there will be more expectation and less hope. Let me turn to chairman white. This summer, the s. E. C. Received its record 1 millionth Public Comment supporting a rule to require public Issuer Companies to disclose their Political Campaign spending to investors. Supporters include leading academics in the field of corporate governance, van guard founder, Investment Managers and advisers and the investing public. Without disclosure, corporate insiders may be spending Company Funds to support candidates or causes that are adverse to sharehold shareholders interests without shareholders having any knowledge of it. The amounts being spent may be small or large, but shareholders have no way of knowing. Even where the amounts of small relative to the overall size of the company, the impact on an election and therefore on shareholders can be large. If corporate spending is material to investors as the leading experts in the field in over 1 million members of the investing public believe it is, why isnt the s. E. C. Requiring public Issuer Companies to disclose this information . Do you have any plans to engage in a rule making on this issue anytime soon . The as you know, we have two petitions actually still pending before the s. E. C. To require such disclosure. If in fact in a particular company there political spending is material under the law, that would under the law be required to be disclosed now. The petition is broader than that. Again, as i believe the senator and others are aware, were very focused on our mandating rule makings under doddfrank and the jobs act. And we dont the staff is currently not working on a proposal in that area. I do note that a number of companies have voluntarily made those disclosures. And that subject can also be, and often is, a subject of a proxy proposal. Well, i appreciate where you said your focus is, but when one million, i think its very rare that you get one million Public Comments in support of a proposal. And even if you look at Justice Kennedys majority opinion in Citizens United which opened the floodgates for corporate election spending and presumed that shareholders should have it was presumed in his opinion that shareholders would have transparency in order to enforce accountability over executives. So how is it that investors have control . Have that transparency, if they cant even get basic information about what is being spent . I appreciate the intense interest of investors and others in this issue. I mean, clearly, the comment letters, there have been many. They have been on both sides, and it is an area that im quite sensitive to that it is of high interest, but as i said earlier, at this point in time, it is not part of our current regulatory agenda. Were focused on the mandating rule makings. I appreciate that as someone who is here and has helped not only device doddfrank but also supported it. Ill just close on this comment. You know, i would hope that this is true across the spectrum, that all of you realize that while you may ultimately deal with significant corporations in this country, that at the end of the day, it is the public who we collectively seek to serve, and that is best served by transparency and openness and an opportunity to understand what companies are doing. Whether thats ceo pay to worker pay or whether that is using potentially millions of dollars of corporate funds to maybe the disadvantage of the very investors who are investing in that company. So i hope that the hallmark of what we can expect from all of you but certainly in this case where you have some particular unique jurisdiction, is a push towards Greater Transparency so that investors really understand what choices they are making and whether the companys best serving them. Thank you, mr. Chairman. Senator johanns. Thank you, mr. Chairman. Governor terre tarullo, let me back to the question the chairman asked you about capital standards relative to Insurance Companies. And i fear we have kind of left you folks in a difficult position. This bill, as you know, has moved through the senate by unanimous consent tonight. Thank my colleague senator brown for his help on this bill. So i think on the senate side, were in pretty good shape. Its even kind of rare that things would move by unanimous consent. But this did. On the house side, it hasnt happened yet. We hope it will. In fact, my sincere desire is that that will happen very quickly, certainly by the end of the year. But we dont know if thats going to happen, and there you are. Youre caught in this kind of limbo situation of what do you do here . So let me ask you, how are you folks handling this . Is there a track for this law passing and a separate track for this law not passing, and you having to cobble something together that hopefully complies with doddfrank . How are you dealing with this in this interim period of time . I think, senator, youre inituted correctly. Were trying to think about it under both alternatives. Under one alternative, we would be able to take account of the different liability structure of core insurance kind of activities. And that would allow us to shape Capital Requirements at the consolidated Holding Company level in a way that fully took account of those differences in business models. In the absence of the legislation, well still be able to do some things because there are Insurance Products that do not resemble existing bank products, so in some cases, we can and were already planning to assign different risk weights to those based upon our assessment of the actual risk associated with those assets. But thats thats where the two tracking is actually taking place. I mentioned a little while back the quantitative impact study were doing. By getting more information, i think, from the Insurance Companies, we hope to actually find a few other areas where consistent with existing statutory requirements we could still make some adjustments. But i think in the end, senator, it does all come down to core insurance activities and the different kind of liability risks that are associated with them. The assets are often the same. Its really on that liability side of the Balance Sheet that you feel a difference in what a property and casualty insurer does as opposed to what a bank does. Thats what we would like to be able to take into account. Your comments lead me to another kind of whole other area of inquiry that were not going to be able to get too far into with the limited time, but let me just throw out a question, and this probably impacts other panel members, too. Theres so much about the Insurance Industry that you are telling us you want more information on. You have the quantitative impact study and theres probably some other areas where youre seeking additional information. And yet we have three Insurance Companies, metlife, aig, prudential, who have been designated systemically risky or whatever. How do you do that . How do you get so far down the road and identify these folks as being that when by your own testimony, you acknowledge that there are things about the Insurance Industry that you want more information on . Senator, i guess i draw a distinction between the creation of capital standards for traditional core insurance activities on the one hand and an assessment of Systemic Risk on the other. My own reading of the fsoc process with respect to pru and aig is theres not a lot of concern about the core insurance activities of those companies. The concerns were with respect to nontraditional activity nontraditional insurance activities where runability is more of a concern, and also respect to things that are not insurance activities of any sort. Thats where the analysis would allow one to conclude theres systemic importance. I personally dont think that the issue of whether theres systemic importance in traditional insurance activities has really been brooched, and im not sure we need to broach it. My strong presumption is there isnt. Thank you, mr. Chairman. Senator brown. Thank you, mr. Chairman. Chair white, i sent you a letter in the s. E. C. s labor policies. I appreciated your response. We received it yesterday and well follow up on it. Governor tarrillo, i appreciated your comments and discussion and mr. Greenbergs with senator corker. I thought that was helpful yorb you said capital surcharges to the largest banks could be higher than the 2. 5 basel rule. They said they could be as high as 4. 5 . Not surprisingly, the industry tells us that those additional those additional requirements would be costly, would put them at a competitive disadvantage. Tell the committee why theyre important for Financial Stability. Senator, i would say several things. First, i think that as some of you may recall a few years ago when we were beginning this exercise on capital surcharges, we did quite a bit of analysis. While we didnt think we could come up with a point estimate of exactly precisely what was an appropriate surcharge given the additional risks to the system in the failure of one of these firms, we did come up with a range. In all honestly, the 1 to 2. 5 the Basel Committee conclude said, while an important step forward, was at the low end of that range. I think we will feel more comfortable to be somewhat closer to the middle end of the range of estimates of the kind of additional resiliency that is needed. Second point i would make is that a few other countries have already come to similar conclusions. Switzerland has on its own applied higher surcharges than the basel approach calls for for its two large globally active institutions. Sweden and the netherlands for their globally, each has one globally systemically important institution. They have done the same, and i think at least one of two other countries are thinking of it. I think were all trying to come to grips with what we really need in order to provide more assurance that these firms do not threaten the Financial System. And the third point i would make, which i alluded to in the written testimony, is the whole idea of these being increasingly strict surcharges, higher surcharges, as the systemic importance of the entity increases is grounded in i think the very sound principal embodies in doddfrank, that the stringency of these additional prudential standards should increase as the systemic importance of the firm increases. Why is that important . Well, its important because of the potential harm to society if the firm gets in trouble. But it also provides the firm with a kind of tradeoff. If the firm really thinks that the activities that it has to be this big and this complicated to engage in a certain set of activities or to have a certain sized Balance Sheet, then it can do so, but it has to have very high levels of capital. If on the other hand those highest levels of capital appear to not be worth it, then it has the option of changing what people have called its systemic footprint. I think for all of those reasons this is a really quite important step forward, globally, for everybody to do surcharges, but i think for us and some other countries to recognize that we need to go a little further than the minimums that have been provided in basel. Thank you. And i would note that under these estimates, it could take the largest banks to 14 requirement. Theres a great deal of support in this committee and i think throughout the house and senate on stronger capital standards like that. Controller curry, thank you for your occ finalizing rules for heightened expectations just because of lack of time, i want to ask you a question, but thank you for that. I think you have taken major steps towards changing the culture in boardrooms. I know you think that, too, changing the culture in terms of Risk Management and elevating Risk Management to a particularly important part of large banks and Holding Companies Decision Making process. Thank you. For my final question, chairman white, i asked you about industry guide three, the s. E. C. s disclosure for Holding Companies. You agreed a few of the rules which the staff said has not been updated since 1986. The review was warranted. When can we expect the s. E. C. To update its guide three disclosures to help make the largest banks that have increased measurably and dramatically in size and complexity in this threedecade time period, when can we expect you to come forward to make them more transparent . As part of our disclosure effectiveness review, the industry guide 3 is under review for the staff. The staff is in the process of actually preparing recommendations to update guide three, including whether to bring the requirements as they ultimately end up, into regulation sk, if we change our disclosure requirements, they would also be put out for notice and comment. We opened a window in connection with this initiative where we have been receiving some Public Comments on that, so it is moving along in terms of the when question, i cant answer precisely, but its something were actively engaged on now. I reached out in august to governor tarullo to invite the feds input into that too because of their rule over Bank Holding Companies. Thank you. Senator shelby. Thank you, mr. Chairman. You know, weve wrestled with this right here with most of you for years. Capital. Whats adequate capital . What is good capital . What is liquidity, which is i guess, goes to the basis of what were talking about. In the insurance field, have you shared with the committee, the chairman or the Ranking Member, the methodology of how you designated some of these big Insurance Companies like metlife and prudential and others, as systemically risky . Do you furnish any of the information to the committee or would you be willing to do that . Because this is a topic of more than passing interest right now. Governor tarullo. I have to confess, senator, that i dont know the answer to that question. Treasury, as you know, chaired the fsoc. I dont know if my colleagues know if theres a formal submission process to the committee. Senator, i dont know if theres a specific submission for the committee. After a final decision is reached, i believe there is a Public Document that is released laying out the basis for the action in some detail, not disclosing proprietary information, but i dont know theres been for the committee after a final decision is reached i believe theres a Public Document thats released laying out the basis for the action in some detail, not disclose proprietary information. I know a lot of the people, participants and ceos and Board Members in the Insurance Company are really concerned because they dont know what direction i think i see the direction but dont know whats happening next, you know, in their field. Is there any way you can give them some certainty there, or is it just work in progress as far as youre concerned . You designated what, three big Insurance Companies . How many . Systematically risky. There have been final determinations on two. Two. Senator, theres been a news report on a third. News. But that is not a complete administrative determination yet. The third already designated as ge capital which is not insurance. Senator yes, sir. The fsoc has adopted procedures, to outline how we approach our determinations. I do believe to answer your question that we probably do a better job in explaining and informing affected institutions and how that process works and making sure that we get the most relevant information possible to make our decision. Let me get into the surcharge a minute. Some of our large foreign banks that do business here, will they be subject to the surcharge too, 3 or whatever, 2. 5 , 3 above basel 3 . Governor . Senator, that is not our current intention although as i mention ad moment ago a number of other countries, home authorities of countries have already at a consolidated level imposed higher than basel levels on their own institutions. What youre doing here . Not sure anybody would go as high but thats probably because those three countries dont have anybody whose currently in the socalled top buckets. Okay. But do you basically believe as a matter of Public Policy that large foreign banks doing business in the u. S. Should be subject to our Regulatory Authority and also capital standards yes. Thats why we adopted the intermediate Holding Company regulatory requirement and made sure all the operations of the big foreign banks are brought under one umbrella and they are subject to capital standards, liquidity standards and if need be resolution standards here in the u. S. Chairman, you agree with that . I do, senator. Yes, senator. Thats all, thank you. Senator warner. Thank you. I want to make a couple of editorial comments before i get to the question. First i want to follow up on what senator corker said. We did struggle through on title i and ii in the living wills concept, funeral plans. It was a new idea. There were others, senator brown and others who had more clearly defined cap on too big to fail. A fair debate took place. I think that debate continues to be revisited. I would simply say or urge again i understand this process but we really need to keep a fire lit underneath this, and if at some point the fsoc doesnt act to start using some of these tools that were given, then i really do question whether we as well intentioned as we were whether we got it right in title i and title ii in terms of ending the too big to fail. So my editorial comment would be, lets, you know, speed up this process, the fact that were now going into many, many years of getting these plans right, we got to get it right but i would also like to see it come to a conclusion, and i think some evidence that some of these tools that were broad and grant would actually be used. Secondly, governor i was pleased to hear your comments at the outset. I would like to follow up with you both one looking at the asset capsize of 50 billion may not be the right number. I think we need to acknowledge again Congress Never gets it 100 right, you have to come back and do fixit bills. I think its time for a fix it bill around doddfrank. Also what senator crapo emphasized that we tried to put in restrictions on smaller enterprise, Community Banks. One thing senator crapo brought in was the regulatory creep. We tried to be explicit on Community Banks not falling into the, some of the more burdensome regulatory requirements of doddfrank. My fear is when we put that in as a legislative exclusion of i believe under 10 billion cap that best practices creep has kind of come in to that and i find repeatedly from smaller institutions enormous additional marginal costs added. So i hope you come back with some specific suggestions there on how we might look at that. Chairman white, i cant get in front of a Public Session without echoing once again urging you to move on the jobs act. Im looking at whats happening or not happening around the country for that matter on equity fundraising. I still think its a tool. We may not get it 100 right but we need to use that tool. Sooner the better. I would like to get to a question. You know, ive been spending some time looking at the excess complexity and equity trading, and i think sometimes allows entrenched firms advantage over smaller firms. For example direct edge is one example has 100 different ways a share stock can be billed. They have 12 different tiers, seven of which pay customers to trade. And certain select customers the repay per share fee is greater than the take fee. So, i know weve talked about make or taker in some of these areas. This is a level of complexity further down. Do you have any specific influenza address complexity in the marketplace specifically with the sec support ensuring transparency for Market Participants by providing them the authority to audit fees or rebates or banning some of these practices. How far down trail are you looking at this issue . We have a number of initiatives. I discussed this in june with respect to enhancing the transparency, the equity markets and particularly on the fees. Also initiatives on the conflicts of interest in terms of complexity of order types. Thats a concern on a number of fronts. One of the things that i mentioned in that speech actually and then followed up on is to have the exchanges basically do an audit of all of those and then report back to the sec. I expect that to be completed. Its underway in the fall. Were also looking at just really across the boards at a number of other near term initiatives and then a broader review of the structural issues as well. Our markets, you know, are very strong and very reliable but that does not mean enhancements and more level Playing Field initiatives cant and shouldnt be under taken snimd be very interested in continuing to work with you on that. And then finally my time is running out im concerned about the increased leverage ratios among the broker dealers. My understanding from our own data firms are up to 301 on their leverage ratios. Thats getting close to where lehman and bear stearns were. I hope this is a subject of some concern. Thats an area thats monitored by us. We can talk about what our net capital is as well as some initiatives to enhance some of our financial responsibility oversight of broker deals including a possible rulemaking on leverage. Thank you, mr. Chairman. Senator reed. Thank you, mr. Chairman. Thank you for your testimony. Weve all been sort of thinking back of some of the challenges of doddfrank. One of the challenges when derivatives was to have a regime which would be able to be affected given there were two different agencies that had jurisdiction over derivatives. Dictated more by history than logic. And my understanding and what we did is we insisted upon some joint rulemaking in critical areas and i understand this joint rulemaking has been completed. Is that the case, chairman white . Yes. Thats generally true. I would say on the point of making sure that we Work Together well i think thats a priority of mine. Chairman white shares that feeling and weve been in touch on a number of issues already and our staffs are working together. Let me commend you on that. As we understood, you know, trying to sort out the lines, create different agencies, do different things, what we tried to do is basically take the existing structure and make it, cooperate and work more congruently for want of a better term. Let me change shift to the sec, throughout the course of the testimony, you pointed out the huge issues that you still have to face. Michael can you allocation is roughly 18 rules left that the sec has to complete with respect to security base swap, execution facilities, rules governing security base swap repocy together, rules regarding conflict of interests. You pointed out that you are prioritizing doddfrank rules. Can you give us the assurance that these derivative rules are at the very top of your list to get done very quickly . I can assure you of that. We have a number to complete, as youve pointed out. Its a very high major priority of mine to get them done as