who is here and has helped not only device dodd-frank but also supported it. i'll 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 that's 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 company's best serving them. thank you, mr. chairman. >> senator johanns. >> thank you, mr. chairman. governor tarullo, let me get 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, we're in pretty good shape. it's even kind of rare that things would move by unanimous consent. but this did. on the house side, it hasn't 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 don't know if that's going to happen, and there you are. you're caught in this kind of limbo situation of what do you 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, we'll 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 we're already planning to assign different risk weights to those based upon our assessment of the actual risk associated with those assets. but that's -- that's where the two tracking is actually taking place. i mentioned a little while back the quantitative impact study we're 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. it's 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. that's 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 we're 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. there's so much about the insurance industry that you are telling us you want more information on. you have the quantitative impact study and there's probably some other areas where you're 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 there's 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. that's where the analysis would allow one to conclude there's systemic importance. i personally don't think that the issue of whether there's systemic importance in traditional insurance activities has really been broached, and i'm not sure we need to broach it. my strong presumption is there isn't. >> 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 we'll follow up on it. governor tarrillo, i appreciated your comments and discussion and mr. greenberg's with senator corker.ze i thought that was helpful yorb you said capital surcharges to the largest banks could be ç 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 they're 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 didn't 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 upñ5÷%tjr in all honestly, the 1% to 2.5% the basel committee conclude said, while an important step ñr 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 we're 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 dodd-frank, that the stringency of these additional prudential standards should increase as the systemic importance of the firm increases. why is that important? well, it's 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. there's 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 think we're obviously not there yet. 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 three-decade 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 can't answer precisely, but it's something we're actively engaged on now. i reached out in august to governor tarullo to invite the fed's input into that too because of their rule over bank holding companies. >> thank you. >> senator shelby. >> thank you, mr. chairman. you know, we've wrestled with this right here with most of you for years. capital. what's adequate capital? what is good capital? what is liquidity, which is -- i guess, goes to the basis of what we're 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 don't know the answer to that question. treasury, as you know, chaired the fsoc. i don't know if my colleagues know if there's a formal submission process to the >> senator, i don't know if there's a specific submission for the committee. after a final decision is ç 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 don't know there's been a specific communication to the committee apart from that. >> i know a lot of the people, participants, and ceos and board members in the insurance company are really concerned because they don't know what direction.r marilyn tavenner. nancy chockley. rayburn house. reinhardt. what is liquidity, which is i guess goes to the basis of what we're talking about. in the insurance field have you shared with the committee, the chairman of the ranking member the methodology of how you designated some of these big insurance companies like met life and prudential and others as systematically 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? >> i have to confess, senator, that i don't know the answer to that question. treasury chairs the fsoc. i don't know whether any of my colleagues know whether there's a formal submission process to the committee. >> senator, i don't know if there's a specific submission for the committee after a final decision is reached i believe there's a public document that's 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 don't know what direction -- i think i see the direction but don't know what's 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 you're concerned? you designated what, three big insurance companies? how many? systematically risky. >> there have been final determinations on two. >> two. >> senator, there's 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.m0'"tááájáh&arge f 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 you're doing here? >> not sure anybody would go as high but that's probably because those three countries don't have anybody whose currently in the so-called 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 standards >> yes. standards >> yes. that's why we adopted the >> ye. that's 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. >> that's 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 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 doesn't act to start using some of these tools that we're 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, let's, you know, speed up this process, the fact that we're 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 fix-it bills. i think it's time for a fix it bill around dodd-frank. 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 dodd-frank. 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 can't get in front of a public session without echoing once again urging you to move on the jobs act. i sent you another letter last friday. i'm looking at what's happening or not happening around the country for that matter on equity fundraising. i still think it's 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, i've 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 we've 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. that's 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. it's underway in the fall. we're 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 can't and shouldn't be under taken snimd be very interested in continuing to work with you on that. and then finally -- my time is running out -- i'm concerned about the increased leverage ratios among the broker dealers. my understanding from our own data firms are up to 30-1 on their leverage ratios. that's getting close to where lehman and bear stearns were. i hope this is a subject of some concern. >> that's an area that's 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. we've all been sort of thinking back of some of the challenges of dodd-frank. 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. that's generally true. i would say on the point of making sure that we work together well i think that's a priority of mine. chairman white shares that feeling and we've 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 repository, rules regarding conflict of interests. you pointed out that you are prioritizing dodd-frank 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 you've pointed out. it's a very high major priority of mine to get them done as quickly as we can but also as well as we can and one of the areas that you also touched on is making sure that they are workable for this global market as well as strong and robust working not only with the chairman on these, i have the benefit of his prior rulemaking but our international counterparts but totally committed to getting them down. >> the point was made that the resources are getting pretty thin. is that the satisfaction at the -- is that the same case in the sec, madam chairman? >> it's absolutely the case. >> we can talk the talk here about how you are going to get things done, how important and critical but if we don't provide you resources you can't get it done. >> i very much appreciate that. also i think we have to be focused on once these rules are finished we have to implement them and enforce them and that takes resources. >> let me shift quickly gears because we've talked what's already on the table, you got to get done, some of my colleagues suggested other things you should be interested in. one of the issues is cyber security, madam chairwoman. you have public companies reporting significant problems which leads me to believe they are not alone and that the sec has to think seriously about routine disclosure for two reasons. one is the investing public should know very quickly that there's something amiss but also if i could state what people inspect and evaluate they tend to do more of and this is an action forcing device for companies now that either feel they are free riders or, you know, they are too small, et cetera, to really begin to think take seriously their responsibilities to their shareholders ultimately in this area. are you thinking along these lines? >> certainly in terms of the priority of cyber and the long term risk it is to not only investors but the country no, question about that. as you know, senator, we issued guidance, disclosure guidance in 2011. we also in our division finance continue to review filings of companies understand that guidance and get comments on that. i also recently formed an interdivisional cyber working group within the sec to bring all the expertise and information together and that's one of the things that we will look at among others and obviously have cyber responsibilities for our registrant systems >> you're moving fast. we all have to move faster. thank you for extraordinary work particularly with the military lending act. can you explain why it's important to finalize some of the rules that are pending and updating the rules to protect these service men and women? >> i think it's obvious on its face and congress, of course, intervened very helpfully about a year and a half ago to require a review and revision of the rules that did not implement that law as intended by congress. the statute, as you know, indicated that the cfpb was to consult with the department of defense and work closely with them, organize a larger group that included the other allegations, department of treasury took a role. my understanding is that they are now moving, i think that your efforts to prod that along have been helpful, fruitful and i believe we'll see action very quickly at this point and i'm pleased to be able to say that. >> thank you very much mr. chairman. i mentioned that to secretary of defense hagel gets it from the e5 level which he was in vietnam, and we talked again a lot about what we owe our service men and women. we certainly owe at a minimum fair dealing in the marketplace. >> thank you for that. i think this will go a long way to getting us to where we should be. >> senator mansion. >> thank you. i would like to first say that my home state of west virginia depend on community banks so i'll be talking about cyber security and need for reform. we just learned about home depot's data breach. which might be the largest retailer breach. it's on the heels of the target breach. according to one report u.s. banks had to re-issue 8% of all debit cards and 4% of all credit cards on average. for small community banks issuing those cards cost just over $11 per debit card and $12.75 per credit card including staff production and mailing time. this is not simply a drop in the bucket for these community banks as i'm sure you all know. these hacks could prove the difference between being in the black or red to the bottom line and make them very vulnerable. even if your agency is not directly responsible which i know it's not for cyber security, what's your opinion about the need for reform and how effective it is in financial markets today? i'll start with you. at that end. >> i think, senator, you're raising a new issue that we discussed in this committee. i think we did ironically the last hearing right after the target breach, i believe. pardon me. i think, again, you just sort i think, again, you just sort of noted that even though there's work to do in the banking sector and there surely is and tom in a moment will explain some of what we've been trying to do. i do think that for all of us as bank regulators when we see the asymmetry in the requirements of nonbank companies or the absence of requirements for nonbank companies to protect information, it's frustrating particularly for the smaller banks but to be honest banks for all sizes. i think we feel to some degree we all got one hand tied behind our back. among the many other things that need to be done in this area, i think, is to get a set of expectations as to what nonfinancial companies that are not subject to the regulation of those of us sitting at this table are expected to do in protecting the very same kinds of information that our institutions hold. >> i think what i'm trying to get to is the cost that basically small banks are incurring especially in states like west virginia that depends on them basically for our banking community, if you will. and you can add anything else to that from dodd-frank that trickles down to the community bank you're just adding more harm their vulnerability. >> as the governor mentioned, this is an issue we're coordinating through the ffic in terms of making sure that community banks in particular are properly responding to cyber threats and we see this as actually a much larger issue than just the financial cost of re-issuing cards because it really goes to the trust between a customer and the security of their deposit or other banking relationship. but as the governor mentioned, it's really an issue of leveling the playing field in terms of the regulatory requirements between banks and nonbanks, in this case retailers. banks really have clearly long standing over a decade expectations in terms of maintaining the security of account information including electronic assess to it. we assess as part of our regulatory function their capabilities from an i.t. standpoint. we have clear rules on customer notification and notification to law enforcement and regulatory authorities. i think it's important similar as the governor mentioned similar requirements need to be in place for the non-bank participants in our payment system. >> okay, thank you. one more question, sir, i'm so sorry. i want to get to mrs. white. chairman white the "wall street journal" recently reported two firms are working for a bit coin +u]rllow investors work on bit w coin. i wrote a letter describing my concern that the regulators have not issued rules on bit coin. this is especially troubling since bit coin is widely speculative and especially subject to electronic theft and scams. i know your agency has taken a particularly long period of time to approve a bit coin traded fund and i would applaud your caution. however, i want to convey my concern with this virtual currency, again and hope that the other regulators will help you fill in the gap so you can protect our american consumers. can you give me a quick update. my time is running out. >> basically, this is an evolving area for all the regulators as you know. we've taken enforcement action, actually, bit coin involved in a ponzi scheme. we issued two separate investor alerts and we're also reviewing a filing very carefully that's key to bit coin. at this point there isn't a conclusion by our staff that the currency itself is a security, so there's not that kind of regulation that flows at this point but we continue to look at it very, very carefully and work with our fellow regulators on it as well. >> do you think you'll have a rule? >> i think at this stage there's not a planned rulemaking. at this stage we've not concluded that it is a security that would be subject to that kind of regulation by us but something we're still very focused on. >> thank you. >> senator. >> let me thank my good friend senator warren from massachusetts for letting me bump in line. i have to preside at noon. i have to make the point in case you guys haven't figured it out, i care about small community banks. they are the life blood, the capital life blood for the many, many people in the great state of north dakota. and i know we consistently talk about the need for reform, the need for look back, the need to have a very directed discussion about the regulatory responsibilities and how that is affecting community banks. i would like to be able to go back to my independent community banks and tell them when there is going to be regulatory relief enacted and i know there's a lot of squirrel and a lot of talk but i share senator crapo's discussion and so i'm curious about time frame, because they are making decisions today and what started out the be too big to fail has become for many of these community banks too small to succeed. they are moving out of lending in certain areas as a result of what they perceive to be massive regulatory burden and so if we're going stem the tide of dissolution of that portion of their business because of compliance burdens we need to offer a time frame and so i am curious to anyone who can tell me when, when we'll actually get an answer to small community banks on regulatory relief. >> senator, from an fiic perspective where we're coordinating the federal banking agencies process that is already under way. we have put out for comment a series of rules and regulations. that comment period closed. there will to be with more. we're reviewing the regulations that are under our authority to make those judgments that you're asking us to do to recommend or to eliminate the those rules and regulations under our control. an important part of this process, as i mentioned earlier, we're going to have direct input from community bankers. we've asked them to identify those areas where the most pressing need of change and how we can go about doing that. >> that doesn't answer the question about time. >> this is a, you know, the statute requires a fairly lengthy review process but we intend to do it as quickly as possible and to have either action taken under other independent rulemaking or to make recommendations to counsel. >> i can just comment. sometimes people when they talk about regulatory burden they lump together two sets of things. one is actual legislative or regulatory requirements, called a federal register type of requirement. the second thing that senator manchin maybe senator warner several of you referred to already today, somebody called it quite aptly the trickle down effect of supervisory process. and we don't have to wait for a formal process to do something about that. i think tom met with the same group yesterday, of small bachkers. bankers.nkers. they were a good group. the reason i thought they were a pretty good group is because they came in with specifics. they came in with specifics that said look here's a way in which some articulated supervisory expectation is we think is not appropriate for us, creating a problem for us and we kind of think it's trickling down and in some cases i think they were right. it's good for our staff to there to hear it as we've done with groups of small community bankers in the past. we got a list of action items to follow up on. so although the process is formalized, i suspect the same thing is going on at the fdic, we can be in a constant process of changing currents practices and if you do it even at the request of a small number of smaller banks, the benefits of that can proliferate. i do think in the end we do have this problem, we have thousands of examiners and it's hard to get them all coordinated without bringing all the decisions to washington which none of us want to do. >> i'm running out of time. i have a couple more questions i want to summit for the record. with the agreement of the chairman. but just back to this, there is nothing like certainty. i mean there can be promises that this is how -- what's going to happen in a bank audit and don't worry about this. but they will worry about it. they will worry about compliance burdens because the cost of not being in compliance is so high that just the risk will cause those banks to retreat from the market and i don't think that's in the best interest of this country and certainly isn't in the best interest of my state and so thank you for elevating this to one of your top concerns. i understand all of the great burdens that you all have in making sure that we don't have systemic failure, but, again, what was too big to fail has become too small to succeed and we need to fix that problem. >> senator warren. >> thank you, mr. chairman. in the past year the three largest banks in this country, jpmorgan, chase, citigroup and bank of america have admitted to breaking the law and have settled with the government for a combined $35 billion. now, as the judge of the southern district of new york has noted the law on this is clear. no corporation can break the law unless an individual within that corporation broke the law. yet despite the misconduct at these banks that generated tens of billions of dollars in settlement payments by the companies, not a single senior executive at these banks has been criminally prosecuted. now, i know that your agencies can't bring prosecutions directly, but you're supposed to refer cases to the justice department when you think individuals should be prosecuted. so can you tell me how many senior executives at these three banks you have referred to the justice department for prosecution? >> well, senator, i don't know the answer to that question, but here's -- i want to pick up on something you just said because i think it's actually quite important. that although failures of the sort that have resulted in these big fines, criminal and civil, almost always result from problems in organizations because there are many ways to catch things. >> governor -- >> hold on, if i could. there are often individuals who can clearly be identified as responsible and although as you know we don't have criminal prosecutorial power. what we do have is the power to insist that firms either discharge current employees who have been implicated in this even if they haven't been criminally prosecuted which we've done in the past couple of cases or as we're doing now conducting investigations under the authorities that are already in the law that would allow us to ban these people from working for any -- >> i take it what you're saying is you don't know of any criminal prosecutions in these three banks that the fed has recommended? you have investigated enough to know that these banks are responsible, they have given -- they have admitted to wrongdoing. they have signed up for $35 billion in a settlement and no one has been referred? >> senator, we've shared all the information that the department of justice needed and i think the justice department has made its own assessment on both sets of criminal and civil proceeds. >> you say you have referred people for criminal prosecution. >> no, we've provided information -- >> you've not actually referred somebody for criminal prosecution. i want to be clear about the contrast here. after the savings-and-loan crisis in the 1970s and 1980s, the government brought over 1,000 criminal prosecutions and got over 800 convictions. the fbi opened nearly 5,500 criminal investigations because of referrals from banking investigators and regulators. if we didn't limit it to these three banks how many prosecutions have you all regulated? we have to remember here is the main reason that we punish illegal behavior is for deterrence, to make sure the next banker who is thinking about breaking the law remembers that a guy down the hall was hauled out of here in handcuffs when he did that. these civil settlements don't provide deterrence. the shareholders for the companies pay the settlement. senior management doesn't pay a dime. and, in fact, if you're like jamie dimon you might even get an $8.5 million raise for the settlement of negotiating such a great settlement when your company breaks the law. so without criminal prosecutions the message to every wall street banker is loud and clear. if you break the law, you are not going to jail, but you might end up with a much bigger paycheck. so no one should be above the law. if you steal 100 bucks on main street you probably are going to jail. if you steal a billion bucks on wall street, you darn well better go jail too. so i have another question i want to ask about and that's about living wills. that is the plans that big banks are supposed to submit now so if they start to fail they can be liquidated without bringing down the economy or needing a taxpayer bail out. last month the fdic and the fed as we talked about earlier sent letters to 11 of the country's biggest banks telling them their living wills didn't cut it. you said that if these banks failed either they would need a government bailout or they would bring down the economy. these letters confirmed quite literally that six years after the financial crisis all of our biggest banks remain too big to fail. now, in your joint statement you said, and i want to get this right, that by next july 11 banks must demonstrate quote, significant progress to identify the shortcomings identified in the letter and if the banks don't, you told senator corker earlier you have tools to for the banks to make changes and i just want to underline. that means higher capital standards, higher liquidity standards, restrict bank growth, limit bank operations. but these actions take place only if there's not significant progress on the part of the banks. so, i just would like the two of you, fdic and the fed just to speak briefly to the question because i realize i'm out of time here, mr. chairman, what constitutes significant in this case? what is it you want to see the too big to fail banks do and if they don't do it the action you're going take. chairman, maybe we can start with you? >> senator, we laid out in these letters a pretty specific set of markers for these institutions to meet that i think goes to really some of the key obstacles to orderly resolution of these firms. we directed them in the letters to simplify their legal structures so that they put their business lines in line with their legal remedies so you can sort the firm out and figure out how to manage the failure. critical issue is their derivative contracts. those contracts provide for automatic termination in the event of the beginning of insolvency proceeding, those contracts need to being changed in order to avoid the consequences we saw in 2008 from a disorderly termination of those contracts. we direct in the letters, the firms to change the contracts. the i.t. critical operations. the firm has got to be able, during the course of a resolution process to maintain the i.t., other critical operations so it doesn't fall apart. you may have an i.t. operation in a foreign jurisdiction that available as a result of the problems made by the institution. the institution has to develop back-up capabilities to sustain critical operations otherwise the public ends up having to pick up the slack. information. the institutions have to be able to produce critical, timely information that is essential to managing a resolution process. the firms right now don't have that capability. these are specific measurable actions that we have directed the firms to take. i think we are going to be looking for the firms to take specific measurable actions to address these. they have a year now. they are on notice. i think we are going to work closely with the firms so there's clarity of guidance and we are going to expect action. >> if i could underscore the last point marty made, senator, none of us wants to be in the situation where next july or august there's a situation, well, we made this progress, is this significant or not. what marty alluded to is the point i was going to make and will now underscore. we have supervisors from the fed and fdic in the institutions right now. this will be a process of what are you going to do about this and wanting to hear in tangible terms what it is they are doing. i know at the fed and fdic, the boards will be briefed on this so we will be in a position to give indications that this is what we expected or you guys are already falling short. i think what laid behind your question was the concern next july we get into whether progress is significant or not. >> we are not going to be back here a year from now having this conversation again? you are prepared to demand they take measurable steps. if they fail to do so, you are going to use your tools to take them for them, is that right? good. thank you. >> thank you, mr. chairman. >> senator, shelby? >> i want to follow up on senator warren's observations regarding the justice department and criminal activity and financial institutions or whatever. i realize that you are regulators, you are not prosecutors, but if there's $35 billion more or less in fines and settlements because of criminal conduct and there's no justice, justice is important for the big and the well-being and also small. something is wrong with the justice department. people shouldn't be able -- whoever they are, not just financial institutions, should be able to buy their way out of culpability, especially when it's so strong it defies rationality. i agree with her on that. i think senator warren goes to the justice department. i'm not defending our regulators because i call them at task at time. they can make recommendations and send things over. ultimately, it seems like the justice department seems bent on money rather than justice. you know? that's a mistake. the american people pick up on that. having said that, governor, i want to get back on the insurance regulation, if i could. have you or others, have you consulted with any of the state regulators in making the designations for the insurers? and if you have, what did they say? for years, we all know this, the states have regulated insurance. we know the story of aig. we hashed it out here many times. aig was not running the insurance company. they had visions but they got out of their basic stuff and it caused them great harm, as we all know and caused headaches here in this committee and with you guys. but, as metlife and prudential, to my knowledge they haven't been involved in credit default swaps other than managing their own risks. i don't know. you might have a better feel for this. have you consulted or dealt or had dialogue with the state regulators before you make the designations? if you have, what did they say? if you haven't, why haven't you? >> first, senator, i'm sure you know that on the f stock, there is a slot reserved for a representative of the insurance commissioners and there's also, by statute, an independent insurance person who also brings to bear expertise and they have been fully involved. i would be reluctant to speak for them here, but they are fully involved and other commissioners in the naic have been as well. >> is this, you know, the states regulated these insurance companies for years. this is new for the federal government and for you. is this the beginning of a preemption of the federal or the state in the regulation of insurance? some people would argue that. >> certainly not from the feds point of view. there are two ways to get supervision of entities, their own buyer included insurance firms. one, they own a depository institution or two, if they are designated by the fsoc. when they are designated by fsoc, it's because of their importance and our supervision and oversight regulation of those institutions is directed toward containment of systemic risks, not their insurance business. as i said earlier, i don't think, i at least, don't regard generally traditional insurance activities as posing systemic risks. it's non-traditional, the new things where we see similarities that are more toward rentable assets and the like. the sort of thing we are regulating in the banking arena. we don't want to be in the business of regulating insurance companies the way state insurance commissioners do which is trying to preserve the franchise for the benefit of the policyholders. our purpose is a different one, ensuring the safety and soundness of a large financial institution. >> sir, let me ask you a question of -- if i could. >> one more question. >> i have to ask a long question. would a big insurance company, we'll use metlife or prudential or anybody that was managing their own risks through derivatives, would they be considered, for the most part, an end user? >> generally, our consideration of end users applies to companies that aren't primarily financial in nature. >> like steel and all this? >> exactly. large insurance companies who have a lot of swap activity we would not consider. >> okay. thank you. thank you, mr. chairman. >> i want to thank today's witnesses, again, for their testimony. this hearing is adjourned. own saturday, iowa voters get a look at candidates for governor. here's a look at some of the ad is running up until that debate. >> four years ago, 114,000 eye iowians were out of work. unemployment was the highest in 29 years. and the state's budget was $29 million in debt. today we have a budget surplus. 140,000 new jobs. unemployment's been reduced nearly 30%. and the governor is just getting started. iowa's back. terry branstad is building iowa's future. >> he's honest, compassionate. visionary. he's always looking forward. where we can go next to do better, bring great jobs and grow the economy and we're seeing that. the jobs are there. unemployment is low. seventh lowest in the nation. we see young people moving back. with more iowans working hardest in our state's history, i'm really optimistic about the future. he definitely has a passion for this state. it's really fun working with him. i'm really blessed. >> after 20 years, iowans are tired of terry branstad. there's the 110 million bad deal. taxpayer money given to an egyptian billionaire. economists call it the dumbest economic decisions made in iowa. branstad even tried to abolish preschool funding and give tax breaks to wealthy. it is time for a fresh start. hatch for governor. >> there are two men running for governor. terry branstad who gives tax breaks for undeserving corporations and hatch who works for middle class families. branstad gave money to a wealthy egyptian company. hatch was rebuilding neighborhoods and putting iowans to work. there is only one thing they have in common. for jack, that's one thing too many. >> i'm jack hatch, and like you, i'm ready for a fresh start. >> recent poll shows governor branstad with a wide lead over state senator hatch. watch coverage from burlington, eye iowa as their debate gets u way saturday night at 8:00 eastern.

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