Transcripts For CSPAN Treasury Secretary Steve Mnuchin Testi

Stability. I want to inform all concerned that this meeting will end at 1 00 per the request of the p. M. Secretary. I now recognize myself for four minutes to give an Opening Statement. So let me welcome back secretary mnuchen. Today, we are here to discuss the Trump Administrations actions that have undermined and not promoted our nations Financial Stability. As i have said many times before, i am very concerned about this administrations actions to eliminate important protections for consumers, investors and our economy. It appears that our banking regulators are following the deregulatory blueprint that the Treasury Department, under secretary mnuchens leadership, has mapped out point by point and rolling back many of the Critical Reforms democrats made to prevent another financial crisis. If these rollbacks continue, there will be grave consequences for Financial Stability in our economy. The 2008 financial crisis was devastating for our nation. 11 million americans lost their homes. 13 trillion in wealth was lost, and nearly 9 million americans lost their jobs. As chairwoman of this committee, i am committed to doing everything that i can to ensure that we do not repeat the mistakes of the past, as i have now seen twice how the road of deregulation leads to financial crisis. The focus of this hearing is the Financial Stability, Oversight Council or fsoc. We created fsoc as part of the dodd frank wall street reform and Consumer Protection act to eliminate regulatory gaps and to ensure the government could identify and mitigate risks to our economy. After the financial crisis, fsoc designated several large Nonbank Financial Companies for enhanced oversight, including aig, the wellknown poster child for the financial crisis. Under the Trump Administration, however, fsoc ceased supervision of all of these nonbanks and advanced an activitiesbased approach that amounts to more deregulation, willfully ignoring how catastrophic the failure of a Large Financial Institution would be for the Financial System and economy. The Trump Administration also cut fsocs budget and reduced its staff by half. It has also reduced the budget and staff of the office of Financial Research, that is ofr, which collects data and conducts research and analysis to aid fsoc in its important work. Along the way, the Trump Administration has fleeced the american taxpayers with their tax scam, which contained more big giveaways to the nations largest bank. All of these steps put wall streets bottom line first and main street back at risk. Make no mistake, the risks are growing. Climate change, cybersecurity, leverage lending, hedge funds and the rapid emergence of the big tech in the Financial System, led by facebook, are all concerns that must be taken seriously. Today, secretary mnuchen will also once again be asked to explain the horrible actions of the Trump Administration to the american public. With that i now recognize the Ranking Member of the committee, the gentleman from north carolina, mr. Mchenry, for four minutes for an Opening Statement. Well, thank you, madam chair. Secretary mnuchen, thank you for being here in your capacity as chair of the Financial Stability Oversight Council. I appreciate the work you are doing in leading the Financial Stability Oversight Council. I do also think that the timing of this hearing would have been more favorable if members had been given more time to read your report that was released yesterday, but thats a timing issue here that we have to contend with. So my colleagues on both sides of the aisle havent had ample time to review the important work that the council has in this report. So i think instead of just the political debate about regulatory changes that the administration has done, i think the oversight of the Financial Stability Oversight Council is really important. The issue of stability, Financial Stability and security are really important. Yesterday, prudential regulators testified before this committee on similar issues. During that hearing, i stated my concern with the transition from the reliance on libor or the london inner bank over offering rate or to the secured overnight financial rate. I think the issues we have and concerns that we have there are about Financial Stability and it is also magnified by recent fed actions in the repo market and that we could see more of at the end of the year. I also encouraged vice chairman quarrels to continue his review of the Regulatory Regime to ensure safety and sound lift and promoting Economic Growth are prioritized in their measures. I would like to hear your thoughts on the repo market as well. I think it is very important for us to hear from you on that. But back to this question about libor to sofo. Libors underlying Bank Reference rate for about 200 trillion in financial contracts worldwide and set to be phased out as the reference rate by 2021 and replaced with sofor. Im concerned about the subsequent liability in mortgages, auto loans and other consumer loans as a new reference rate is derived from secured overnight financing. Additionally, transferring liborbased legacy contracts to sofor will undoubtedly require Financial Institutions to renegotiate with customers. This is also an issue of Financial Stability and Economic Growth. Finally, secretary mnuchen, i wrote to you last month regarding an issue that i believe is an alarming issue of potentially enormous consequence. Thats the financial transaction tax. This is not a honey pot of money that just comes from heaven. This will be a tax based off buying or selling stocks, bonds or other financial instructions that many are talking about as a new way to derive revenue nor the federal government. The rhetoric is that it will hit only the wealthiest. The reality is that average everyday investors, especially Mutual Fund Investors and those that are saving for retirement, will be severely impacted by this nefarious tax. In fact, one study indicates a typical Mutual Fund Investor will have to save an additional 600 per year or work an additional two years to achieve the same retirement goals. I would like to hear from the Financial Stability Financial Stability Oversight Council and from ofr on this matter. I think it is important that our government have an analysis of what this would do to our markets and our investors. I look forward to your testimony. Thank you for being here before the committee. I now recognize the chair of the subcommittee on Consumer Protection and Financial Institutions, mr. Meeks, for one minute. Thank you, chairwoman waters. Mr. Secretary, welcome. I will repeat to you what i stated to governor brain ard and ofr director when they testified at a hearing i chaired in september on Financial Stability. I was serving on this committee at the depths of the financial crisis, and i never, ever want to be put in a position again where the treasury secretary comes to the floor of the house and tells us literally we have days to save the u. S. Economy from total collapse. I never again want to engage with constituents who are losing their homes and their life savings through no fault of their own, but because the regulators and the administration had completely lost track of Systemic Risks in the economy. Mapping, quantifying, containing and building contingency plans for Systemic Risk is not and should not be a partisan issue and should not be a means for scoring political points. This matters to every American Family that is saving retirement to put a child through school, and i hope that we can do this in an intellectually honest manner devoid of political or partisan influence. I yield back. Thank you. I recognize the subcommittee ranking ranking for one minute. Thank you. I appreciate you being here to testify today. Yesterday we had the prudential regulators before the committee discussing a myriad of issues to the Community Reinvestment act to future pending regulations, the Financial Services industry is facing a variety of issues as you well know. As you are the head of fsoc which serves as the body of regulators that come together to discuss the overall Financial Stability, i look forward to how theyre addressing that today. Major concerns include cybersecurity, Retail Market and libor. All of these things will have a significant effect on consumers and the economy and deserve the full attention of fsoc. I yield back the balance of my time. At this time i want to welcome to the committee our witness, steven t. Mnuchen, secretary of the treasury. He has served in his current position since 2017. Mr. Mnuchen has testified before the committee on previous occasions and i believe he does not need any further introduction. Without objection, your written testimony will be made part of the record. Secretary mnuchen, you are now recognized for five minutes to present your oral testimony. Thank you very much. Chairwoman waters, Ranking Member mchenry and members ofthe committee, thank you for inviting me today to discuss the Financial Stability Oversight Councils 2019 annual report and other priorities of the Treasury Department. The report is the product of extensive collaboration among council members, and i appreciate the hard work by the staffs of the Treasury Department and other member agencies. The report provides congress and the public with the councils analysis of financial and regulatory trends and i. T. Assessment of the potential risk to u. S. Financial stability. It also provides recommendations to enhance the integrity, efficiency, competitiveness and stability of the u. S. Financial markets. Since the publication of the councils last annual report in december 2018, the u. S. Economy has continued to perform extremely well. Wages are rising faster for hardworking families. Corporate and consumer delinquency and default rates are low and financial conditions remain stable. This years annual report discusses a number of risks we continue to monitor but i want to high lie cybersecurity as one of the most important issues for the council, regulators and the private sector. Financial firms hefavily rely on heavily rely on Information Technology which creates great efficiencies for consumers and business but also increases the risk a serious cybersecurity incident could negatively affect the economy and potentially have implication nor u. S. Financial stability. We make specific recommendations in the report on this important topic. Among other things, government and industry should Work Together to constantly update and share best practices to ensure that we are treating cybersecurity as a Vital National and Economic Security priority. The report also provides a strong message to Market Participants about the need to prepare for a transition away from libor as a reference rate. Failure to prepare adequately could cause significant disruptions across Financial Markets and to borrowers given the widespread use of libor. We recommend that Market Participants formulate and execute transition plans and any new instruments that reference libor should include fallback language to mitigate the risk if it becomes unavailable. We ask that they evaluate the effects of Financial Stability including Digital Assets and technologies. We will continue to use the councils working group on these issues to promote consistent regulatory approaches to identify and address potential risk while promoting American Leadership in Financial Services innovation. Turning to another of treasurys key priorities, we will continue to work with this committee on meaningful Housing Finance reform to foster competition for the benefit of consumers, protect taxpayers from future bailouts and facilitate a smooth transition for the governmentsponsored enterprises out of conservatorship. I am proud of the work we have done with prumtsesident trumps leadership to create a resilient, thriving and prosperous economy. Thank you and i look forward to answering your questions. Chairwoman waters thank you very much. I now recognize myself for five minutes for questions. Secretary mnuchen, i want to go straight to a discussion about hedge fund. In november 2016 when the last public update on the hedge Fund Working Groups progress was issued, fsoc outlined five Data Limitations that needed to be addressed to better understand the risk posed by hedge funds. At times in the leadups to past crises, activities and losses in the Hedge Fund Sector have proven significant leading indicators. For example, bears sterns hedge funds with sub prime exposure collapsed in the summer of 2007, signaling the impending sub prime crisis. When was the last time the Hedge Fund Working Group convened . Why has the working group not met more frequently during your tenure as fsocs chair . What is the status of the limitations identified in fsocs last public update . Does fsoc now have access to the data previously identified in 2016 so that it can assess whether hedge funds are a source of Systemic Risk to the economy . If not, why hasnt fsoc taken any steps to address this information gap over the past three years . This is very important. We have members of this committee who are trying to make some decisions about hedge funds. We have members of this committee who think there are some who are operating in good faith, but there are many who are not. We are worried about hedge funds that take over Fire Departments and hospitals and other city services. We are worried about hedge funds that take over Fire Departments and the Response Time is slowed down. We are worried about hospitals closing down. So why dont you talk to us about what you know about what is happening about the working group that was supposed to convene and help us to deal with this issue. Sec. Mnuchen thank you very much. So let me first highlight on page 94 of the report, we specifically talk about hedge funds. So this is something that the staff is monitoring. Since weve moved to an activitiesbased approach as opposed to an industry approach, we are monitoring all of the activities that hedge funds participate in as part of our risk management, and one of the areas in particular we focused on that i know the committee has highlighted is leveraged lending. I also would say fortunately the Hedge Fund Industry has deleveraged significantly, but i appreciate your concerns and we will continue to monitor carefully all of the activities of hedge funds. Chairwoman waters distinction for us between the hedge funds and the private equity funds, are they involved in the same kinds of operations and acquisitions . Sec. Mnuchen normally theyre not, madam chair, and we do specifically also on page 94 break out private equity funds. The difference is that mostly and, again, i will give you the majority of the hedge funds are in liquid markets and the majority of private equity funds are buying companies or illiquid assets. Because of that typically the private equity funds are structured as very longterm funds and the hedge fund are subject to liquidity. That does create additional risk. Chairwoman waters thank you for that clarification. When was the last time the Hedge Fund Working Group convened . Sec. Mnuchen i can check on that and get back t