[Senate Hearing 108-801]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 108-801

 
                NOMINATIONS OF: ROGER W. FERGUSON, JR.,
                    BEN S. BERNANKE, PAUL S. ATKINS,
                 APRIL H. FOLEY, AND JOSEPH MAX CLELAND

=======================================================================

                                HEARINGS

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                                   ON

                            NOMINATIONS OF:

      ROGER W. FERGUSON, OF MASSACHUSETTS, TO BE VICE CHAIRMAN OF
          THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

                               __________

           BEN S. BERNANKE, OF NEW JERSEY, TO BE A MEMBER OF
          THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

                               __________

             PAUL S. ATKINS, OF VIRGINIA, TO BE A MEMBER OF
              THE U.S. SECURITIES AND EXCHANGE COMMISSION

                               __________

       APRIL H. FOLEY, OF NEW YORK, TO BE FIRST VICE PRESIDENT OF
              THE EXPORT-IMPORT BANK OF THE UNITED STATES

                               __________

        JOSEPH MAX CLELAND, OF GEORGIA, TO BE A BOARD MEMBER OF
              THE EXPORT-IMPORT BANK OF THE UNITED STATES

                               __________

                    OCTOBER 14 AND DECEMBER 9, 2003

                               __________

  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            senate05sh.html

                                 ______

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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                  RICHARD C. SHELBY, Alabama, Chairman

ROBERT F. BENNETT, Utah              PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado               CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming             TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska                JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania          CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky                EVAN BAYH, Indiana
MIKE CRAPO, Idaho                    ZELL MILLER, Georgia
JOHN E. SUNUNU, New Hampshire        THOMAS R. CARPER, Delaware
ELIZABETH DOLE, North Carolina       DEBBIE STABENOW, Michigan
LINCOLN D. CHAFEE, Rhode Island      JON S. CORZINE, New Jersey

             Kathleen L. Casey, Staff Director and Counsel

     Steven B. Harris, Democratic Staff Director and Chief Counsel

                    Douglas R. Nappi, Chief Counsel

               Peggy R. Kuhn, Senior Financial Economist

                       Bryan N. Corbett, Counsel

             Maurice A. Perkins, Professional Staff Member

             Martin J. Gruenberg, Democratic Senior Counsel

                 Dean V. Shahinian, Democratic Counsel

   Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator

                       George E. Whittle, Editor

                                  (ii)


                            C O N T E N T S

                              ----------                              

                       TUESDAY, OCTOBER 14, 2003

                                                                   Page

Opening statement of Chairman Shelby.............................     1

Opening statements, comments, or prepared statements of:
    Senator Bunning..............................................     2
    Senator Sarbanes.............................................    11

                                NOMINEES

Roger W. Ferguson, Jr., of Massachusetts, to be Vice Chairman of 
  the Board of Governors of the Federal Reserve System...........     3
    Prepared statement...........................................    27
    Biographical sketches of nominee.............................    30
Ben S. Bernanke, of New Jersey, to be a Member of the Board of 
  Governors of the Federal Reserve System........................     6
    Biographical sketches of nominee.............................    39
Paul S. Atkins, of Virginia, to be a Member of the U.S. 
  Securities and Exchange Commission.............................     8
    Prepared statement...........................................    28
    Biographical sketches of nominee.............................    51
                              ----------                              

                       TUESDAY, DECEMBER 9, 2003

Opening statement of Chairman Shelby.............................    65

Opening statements, comments, or prepared statements of:
    Senator Sarbanes.............................................    66
    Senator Allard...............................................    68
    Senator Miller...............................................    77

                                WITNESS

Thomas A. Daschle, a U.S. Senator from the State of South Dakota.    68

                                NOMINEES

April H. Foley, of New York, to be First Vice President of the 
  Export-Import Bank of the United States........................    69
    Biographical sketches of nominee.............................    78
Joseph Max Cleland, of Georgia, a former U.S. Senator from the 
  State of Georgia, to be a Board Member of the Export-Import 
  Bank of the United States......................................    70
    Biographical sketches of nominee.............................    87

              Additional Material Supplied for the Record

Letter to Senator Paul S. Sarbanes from the Coalition for 
  Employment through Exports, Inc. dated December 8, 2003........    93

                                 (iii)


                            NOMINATIONS OF:

                ROGER W. FERGUSON, JR., OF MASSACHUSETTS

                       TO BE VICE CHAIRMAN OF AND

                     BEN S. BERNANKE, OF NEW JERSEY

                           TO BE A MEMBER OF

                        THE BOARD OF GOVERNOR OF

                       THE FEDERAL RESERVE SYSTEM

                      PAUL S. ATKINS, OF VIRGINIA

                         TO BE A MEMBER OF THE

                U.S. SECURITIES AND EXCHANGE COMMISSION

                              ----------                              


                       TUESDAY, OCTOBER 14, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 10 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

         OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    This morning we will consider the nomination of three very 
distinguished individuals. Our first nominee will be Dr. Roger 
Ferguson, nominated to be Vice Chairman of the Board of 
Governors of the Federal Reserve System. Dr. Ferguson first of 
all is no stranger to this Committee. He was originally 
appointed to the Board of Governors of the Federal Reserve in 
1997 and has served as Vice Chairman since October 1999.
    Dr. Ferguson has served with great distinction as Vice 
Chairman. He oversaw the Fed's preparations for the Year 2000 
computer challenge. I would also highlight Dr. Ferguson's 
stewardship of the Fed and our financial system through the 
troubling day of September 11 and its aftermath. During 2003, 
Dr. Ferguson became the Chairman of the Committee on the Global 
Financial System, a central bank panel that monitors and 
examines broad issues related to financial markets and systems.
    Our second nominee is Dr. Ben Bernanke, nominated to be a 
member of the Federal Reserve Board. Dr. Bernanke has served as 
a member of the Board of Governors of the Federal Reserve since 
August 2002. Before Dr. Bernanke became a member of the Board, 
he was the Chair of the Economics Department at Princeton 
University.
    Dr. Bernanke has published many articles on a wide variety 
of economic issues, including monetary policy and 
macroeconomics. He also served as the Director of the Monetary 
Economics Program of the National Bureau of Economic Research.
    Our third nominee this morning is Paul Atkins, for the 
position of Commissioner at the Securities and Exchange 
Commission. He has been serving as Commissioner at the SEC 
since July 2002. Before Mr. Atkins' appointment as 
Commissioner, he assisted financial service firms in improving 
their compliance with SEC regulations and worked with law 
enforcement agencies to investigate and rectify situations 
where investors had been harmed. Prior to that experience, 
Commissioner Atkins served on the staff of two former SEC 
Chairmen. In those positions, he assisted in efforts to improve 
regulations regarding corporate governance, enhanced 
shareholder communications, strengthened management 
accountability through proxy reform. He also organized the 
SEC's Individual Investor Program, including the first investor 
town hall meetings and other investor education programs.
    This Committee will continue to look to the Federal Reserve 
System for its steady head on monetary policy as well as the 
banking and payments system. And we will look to the SEC to 
ensure the credibility and integrity of our capital markets.
    We look forward to hearing your statements this morning and 
to an interesting discussion to follow.
    Senator Bunning.

                STATEMENT OF SENATOR JIM BUNNING

    Senator Bunning. Thank you, Mr. Chairman.
    I am a little disappointed that we are not having a markup 
today since I got up at 5 o'clock to get here for it, but I am 
very happy that we are having a hearing, especially this very, 
very important hearing, and I thank our witnesses for coming to 
testify.
    All three of our witnesses today have experience in their 
positions which they are nominated for. All are qualified, and 
all have a record of work. This is much different from our 
usual nomination hearings.
    Today, we can judge them on what they have already done in 
their jobs and what they have been nominated for. We do not 
have to guess; we have a record to look at.
    I do not think it will surprise anyone here who has 
followed this Committee, but I am going to concentrate with my 
limited time on the nominees for the Board of Governors of the 
Federal Reserve. As I am sure you both know, I did not support 
either of your nominations. I was worried and continue to be 
worried about group thinking and a cult of personality at the 
Fed surrounding the Chairman.
    To get my support this time, you will have to do a better 
job of convincing me that you will be an independent voice on 
the Board of Governors. Too many Governors, in my opinion, 
simply go along with the Chairman. I would, however, like to 
commend Vice Chairman Ferguson on another one of his duties. 
Not too long ago, the Vice Chairman gave us a very informative 
briefing on critical infrastructure in the financial industry 
and possible terrorist threats to that infrastructure. I saw 
Chairman Greenspan not too long after that briefing and told 
him what a good job you did.
    I am probably the Fed's biggest critic in the Senate, but I 
also think the Fed should be commended when they do a good job.
    When we met before your last nomination hearing, I asked if 
you disagreed with any monetary policy decisions that the 
Chairman had made. You told me that you agreed with him on 
every decision. That worries me a great deal. I do not think it 
is good for the Chairman to have Governors who will not 
challenge him.
    I would not be a very good Senator if my staff agreed with 
me in everything that I said or did. To get my support, you 
both have to show me that you will tell the Chairman when you 
think he is wrong.
    Once again, thank you, Mr. Chairman, for holding these 
hearings, and I thank all of you for testifying today.
    Chairman Shelby. I would like all three of you to stand, 
hold up your right hand, and be sworn.
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Mr. Ferguson. I do.
    Mr. Bernanke. I do.
    Mr. Atkins. I do.
    Chairman Shelby. Do you agree to appear and testify before 
any duly-constituted committee of the Senate?
    Mr. Ferguson. I do.
    Mr. Bernanke. I do.
    Mr. Atkins. I do.
    Chairman Shelby. Thank you.
    Governor Ferguson, we will start with you. First of all, 
all of your written statements will be made a part of the 
record in their entirety, and you may, briefly sum up any 
statement you want to make.

              STATEMENT OF ROGER W. FERGUSON, JR.

          OF MASSACHUSETTS, TO BE VICE CHAIRMAN OF THE

        BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Ferguson. Thank you very much, Chairman Shelby and 
Members of the Committee.
    Chairman Shelby. And Governor--and this goes for all three 
of you when your turn comes--if you would like to introduce any 
members of your family, you are certainly free to do that.
    Mr. Ferguson. Thank you for asking me to do that, because 
you have maintained peace in my house.
    I would like to introduce my wife, Annette Nazareth, who 
has come to join me here today, and she has been here a few 
other times at various hearings.
    Chairman Shelby. Absolutely.
    Mr. Ferguson. I am also pleased to appear before you today 
as President Bush's nominee to serve as Vice Chairman of the 
Board of Governors of the Federal Reserve System. I am honored 
that the President has nominated me to serve a second term in 
that capacity, and I thank you for holding this hearing.
    It has been my privilege, as you noted earlier, to serve 
our fellow citizens as a member of the Federal Reserve Board 
since 1997 and as Vice Chairman since 1999. I have given this 
role my undivided attention, and I hope to be able to continue 
in that service. The policy decisions of the Federal Reserve 
influence the economic well-being of all Americans. During my 
tenure, we have faced challenges in many of our areas of 
responsibility, and I would like to briefly review some of 
those developments and our responses to them.
    Congress has given the Federal Reserve three monetary 
policy objectives--maximum employment, stable prices, and 
moderate long-term interest rates. We have viewed those 
objectives as congruent with the goal of maximum sustainable 
growth that can occur only in the context of long-run price 
stability. Fostering financial conditions in which Americans 
can realize their full potential has presented a number of 
challenges in recent years. The impressive step-up in the 
advance of technological and organizational efficiencies and a 
rapid accumulation of physical capital in the late 1990's have 
been the key factors affecting our economy's performance in the 
past decade. These developments have made workers increasingly 
productive. But faster productivity growth, despite its long-
term benefits, has not insulated the economy from cyclical 
swings. The sharp reevaluation that occurred in equity markets 
and the retrenchment in business investment and spending that 
occurred over the past several years, together with the effects 
of terrorist attacks, wars, and corporate scandals, battered 
the confidence of households and businesses. In response, the 
Federal Reserve made substantial adjustments to its policy 
interest rate in order to cushion the effects of these 
developments on the broader economy. Other forces, particularly 
the growing interconnectedness of the global economy, have been 
important background factors in setting monetary policy. Of 
late, policymakers have been mindful of the virtual eradication 
of inflation and their need to set policy so that the economy 
remains in the zone of price stability. But all of our policy 
changes have been undertaken in pursuit of maximum sustainable 
growth and stable prices.
    Making monetary policy has been only part of the challenge. 
During my tenure at the Federal Reserve, we have also worked 
diligently to communicate to the public what we are doing and 
why. Transparency in policymaking is a key part of the 
democratic process and fosters efficient decisionmaking in the 
private sector. Becoming more transparent has been an important 
goal of the central bank in recent years, keeping in mind that 
we must balance being open and accountable with the need to 
maintain an effective process of decisionmaking by the Federal 
Open Market Committee. Transparency requires that we 
periodically review our procedures as we did in 1999 and again 
last month, to ensure that they appropriately balance these 
considerations. I do not know what future changes, if any, 
might be called for in how we communicate, but I am confident 
that the Federal Reserve will continue to look for ways to 
communicate and explain our policies clearly.
    While macroeconomic conditions are of central importance, 
the role of the Federal Reserve is broader than monetary 
policy. Financial stability is an essential precondition for 
maintaining a strong economy, and the Federal Reserve played a 
key role in maintaining financial and economic stability in the 
aftermath of the terrorist attacks of September 11, 2001. Both 
you and Senator Bunning have already alluded to my role and 
responsibilities on that day, so I will not go further into the 
role that I played at that time.
    I will point out, however, that the Federal Reserve also 
executes its important financial stability responsibilities in 
less stressful times through its role in supervising and 
regulating our Nation's banking system. The Federal Reserve and 
other regulators must foster a competitive environment that 
will benefit the users of financial services while also 
promoting safety and soundness. I believe that we should 
achieve these objectives with a minimum of regulatory burden 
and without leaving the impression that any institution is too 
big to fail. Currently, we face the challenge of meeting these 
goals by developing a new capital Accord to apply to the 
largest and most complex internationally active institutions. 
As I have testified before this Committee, the existing Accord 
no longer suffices for these institutions. Now we need to work 
with our financial institutions and other regulators to replace 
the existing Accord with a new one that is more risk-sensitive, 
builds on advances in risk measurement and management, and 
provides proper incentives. And we must do so without 
unnecessary complexity and without creating undesirable 
competitive imbalances or other unintended consequences.
    Last, our payment system is a real presence in the economic 
lives of every consumer and business. This system too has been, 
and will continue to be, changed greatly by emerging 
technologies. From its very founding, the Federal Reserve has 
had the responsibility to foster an efficient, safe, and 
accessible payment system. In a dynamic economy, markets 
appropriately play the key role in guiding the development of 
the payments infrastructure. This means that innovation and 
competition will be central to the future development of the 
payments system, as they are in other areas of the economy. 
Regulators and Congress should strive to remove barriers to 
innovation when they can do so without sacrificing important 
public policy objectives. I have been privileged to work with 
this Committee on one such initiative, the Check Truncation 
Act, or Check 21. This legislation removes a legal impediment 
and should, over time, foster greater use of electronics in the 
check-clearing process while also preserving the right of 
consumers and banks to receive paper checks. Ultimately, Check 
21 should allow depository institutions to provide new and 
beneficial services to their customers. I look forward, as I 
know you do, to its prompt enactment. And I thank the Committee 
and its staff for the strong support you have provided.
    Mr. Chairman and Members of the Committee, during my years 
on the Board of Governors, I have done my best to contribute 
positively to all aspects of the Federal Reserve's many 
responsibilities. I look forward to the opportunity to continue 
to work with you and serve the Nation as Vice Chairman of the 
Board of Governors. Thank you for your attention and for 
considering my nomination. I would be pleased to answer 
questions.
    Thank you.
    Chairman Shelby. Dr. Bernanke.

          STATEMENT OF BEN S. BERNANKE, OF NEW JERSEY

                     TO BE A MEMBER OF THE

        BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

    Mr. Bernanke. Thank you, Senator.
    I am honored to have been nominated by the President to 
serve a full term as a member of the Board of Governors of the 
Federal Reserve System. If I am confirmed by the Senate, I 
pledge to continue to devote myself to the pursuit of the 
objectives set for the Federal Reserve by Congress: Maximum 
employment, stable prices, and moderate long-term interest 
rates.
    I would like to take this opportunity to talk briefly about 
the prospects for the U.S. economy. After several false starts, 
the economy is showing signs of sustained recovery. The Bureau 
of Economic Analysis estimates that real GDP grew by 3.3 
percent at an annual rate in the second quarter. Growth of real 
activity appears to have been even more rapid, perhaps 
considerably more rapid, in the third quarter. Consumer 
spending, supported by expansionary monetary and fiscal 
policies, has remained strong. Notably, new housing 
construction hit record levels this year and will likely 
continue at a high level despite some increases in mortgage 
rates this summer. Particularly encouraging, however, are signs 
of revival in capital expenditure by businesses. Investment in 
equipment and software, especially high-tech equipment, picked 
up noticeably in the second quarter and appears to be 
strengthening further. Rising sales and profits, easy financing 
conditions, and favorable tax provisions should support 
investment spending into 2004.
    Although economic forecasting is far from an exact science, 
private-sector forecasters broadly agree that the economy 
should grow at nearly a 4 percent rate in 2004. I believe that 
forecast is plausible, assuming that the revival in business 
investment remains vigorous. Although there are certainly 
downside risks to that forecast, there are also reasonable 
scenarios in which growth next year might be higher than the 4 
percent consensus, for example, if the rebuilding of inventory 
stocks is especially rapid or if economic growth among our 
trading partners begins to pick up significantly.
    Although the increased growth rate of output is 
encouraging, everyone should be concerned that so far, this 
growth has not translated into significant job creation. Until 
the job market improves, this recovery will not feel like a 
recovery to most Americans. A number of factors explain why we 
have not yet seen net new job creation. Two are particularly 
worth mentioning.
    First, we have seen truly remarkable increases in labor 
productivity, which have permitted firms to meet the increasing 
demands for their output without hiring additional workers. 
This strong performance owes in part to heavy investment in 
high-technology equipment in the latter part of the 1990's. 
Only over a period of time, apparently, have managers learned 
how to reorganize their production and distribution processes 
to take full advance of the potential of these new 
technologies. The resulting increases in productivity have 
delayed the need to add new workers, but--it is important to 
note--they also imply that American firms and workers will be 
significantly more competitive, and that will help our economy 
preserve jobs in the long-run.
    Second, the past few years have been a period of heightened 
uncertainty, reflecting the aftereffects of the terrorist 
attacks of 2001, the wars in Afghanistan and Iraq, scandals in 
corporate governance, the unsettled state of the world economy, 
and other factors. Possibly because of these geopolitical and 
economic uncertainties, it appears that employers have been 
slower than usual to make commitments to expand their plants, 
increase their staff, or add to inventories.
    Overlaying these cyclical factors is the continuing 
restructuring of the U.S. economy, one that has been going on 
for decades. Although restructuring is a persistent feature of 
our economic landscape, the displacement of workers and 
shifting employment patterns resulting from this restructuring 
are far more difficult to cope with in an environment of 
generally weak labor markets than they were in periods of rapid 
employment growth. Inevitably, in a dynamic economy like that 
of the United States, the process of restructuring will 
continue and will present an ongoing challenge to American 
workers and employers. I believe, however, that the current 
weakness of the labor market is more cyclical than structural 
in nature, implying that aggregate employment will recover and 
unemployment will decline as the economic expansion matures.
    The exact timing of the recovery in employment, however, is 
not completely clear. Modest encouragement can be taken from 
recent data on jobs creation, including increased hiring of 
temporary workers, often thought to be a leading indicator of 
more permanent hiring. Other indicators, such as the failure of 
the average workweek to expand in recent months, and the very 
slow decline in new claims for unemployment insurance, are less 
encouraging, though they do suggest at least some stabilization 
of the job market. I should note that I submitted this 
testimony before last week's decline in new unemployment 
insurance claims.
    However, in my view, the growth of productivity is likely 
to slow, at least somewhat, from its recent extraordinary 
recent pace, so it seems very unlikely that firms can continue 
to meet rapidly rising demands without adding to their capital 
stocks, as they have already begun to do, and to their 
workforces. Thus, given the rate of increase in spending and 
output that we are now witnessing, a reasonable expectation is 
that firms will need to add significant numbers of workers 
within the next several quarters.
    Where does this leave monetary policy? Inflation remains 
low, and the Federal Open Market Committee has indicated that 
the risks to inflation are to the downside. Thus, currently, 
both the price stability and maximum employment objectives of 
the Federal Reserve point us in the same direction. 
Specifically, in my view, monetary policy can afford to 
maintain its accommodative stance for a considerable period, 
certainly until a sustainable recovery in employment is under 
way and disinflationary risks have been correspondingly 
reduced. I expect that the continuing support of monetary and 
fiscal policies, together with the natural resiliency and 
strength of the U.S. economy, will in all probability lead 
ultimately to a sustained expansion without inflation, much as 
occurred after the so-called ``jobless recovery'' that followed 
the 1991 recession.
    I would be happy to take questions.
    Chairman Shelby. Mr. Atkins.

            STATEMENT OF PAUL S. ATKINS, OF VIRGINIA

                     TO BE A MEMBER OF THE

            U.S. SECURITIES AND EXCHANGE COMMISSION

    Mr. Atkins. Thank you, Mr. Chairman.
    First, I would like to introduce my family; I will take you 
up on your invitation. First, my sons, Stewart, 10, Peter, 7, 
and Henry, who is 3; and my wife Sarah, who is also here.
    Chairman Shelby, Ranking Member Sarbanes, and Members of 
the Committee, it is a very great honor for me to appear for 
the second time before this Committee. I am deeply grateful for 
the confidence that President Bush has again shown in me by 
nominating me for a second time to be a Commissioner. I 
appreciate very much your courtesy in calling me before you 
today.
    I would also like to note that it has been a pleasure to 
work with Chairman Bill Donaldson and my other colleagues on 
the Commission, Cynthia Glassman, Harvey Goldschmid, and Roel 
Campos. I salute the leadership that Chairman Donaldson has 
provided us and the SEC staff. If confirmed once again by the 
Senate, I look forward to continuing to work with Chairman 
Donaldson and my fellow Commissioners to address the very 
weighty issues that are before the SEC.
    I have always regarded the Securities and Exchange 
Commission as one of the finest agencies of the U.S. 
Government. My 20-year career has centered on the financial 
markets and the SEC's oversight of them. In fact, I should note 
that I now have had the privilege of working for four SEC 
chairmen--Richard Breeden, Arthur Levitt, Harvey Pitt, and Bill 
Donaldson. I have learned much from each of these men, and I am 
happy to count them as friends and advisors.
    As the Members of this Committee well know, in the past few 
years investors have been confronted with spectacular failures 
of large and small corporations because of bad accounting 
practices and outright fraud. The instances of corporate 
managers engaging in theft and reckless mismanagement of 
corporate funds are shocking, outrageous, and completely 
unacceptable. The revelations of corporate malfeasance 
undermined our capital markets in a profound way. ``Corporate 
responsibility'' rightfully became a national issue for the 
first time in perhaps 70 years. In response to this crisis, 
this Committee and Congress acted forcefully, and the President 
signed into law the Sarbanes-Oxley Act of 2002, the most 
important piece of corporate governance and securities 
legislation in the last 70 years.
    For many Americans, the SEC, until recently, may have been 
just another Federal agency in Washington, DC, with an alphabet 
soup acronym. As Enron, MCI, and a host of other corporate 
scandals--along with the severe downturn in the marketplace--
showed, the times have radically changed. Millions of Americans 
look to the SEC more than ever as the defender of their 
financial hopes and dreams, as it should and must be. Investors 
rightfully demand a tough cop to fight those who steal their 
hard-earned savings and investments.
    These are unique and demanding times at the SEC. It would 
be a privilege for me to continue to respond to this call and 
to give my best efforts to advance the Commission's mandate on 
behalf of the investing public.
    Thank you.
    Chairman Shelby. Governor Ferguson, this past summer, we 
had a very different type of crisis with an energy blackout on 
the East Coast. Did the Federal Reserve review the performance 
of financial and payment systems in response to that crisis?
    Mr. Ferguson. Yes. We have taken what I would describe as 
an informal look at that, not through a big study, but yes, we 
have looked at it.
    Chairman Shelby. Do you know if you have learned any lesson 
from that yet? I know there is a lot of difference between that 
and September 11----
    Mr. Ferguson. There are some differences, obviously, but I 
think it has pointed out yet again the reliance of the 
financial industry on underlying infrastructure such as 
electricity, water, et cetera.
    I think we have learned a couple of things or observed some 
things on that point. First is that indeed, post-September 11, 
many financial institutions did put into place backup 
arrangements, generators, et cetera, that proved to have been 
successful in the case of individual institutions.
    Second, I think we learned again that one should think of 
this as a ``wide area'' challenge, if you will. Being focused 
on a single building, for example, is not sufficient; you must 
think about the entire network that supports that. And that 
continues to be an important issue and challenge for the 
institution. But I would say by and large, my personal view is 
that the degree of resilience that was demonstrated in the 
blackout is much higher than would have been the case a few 
years ago. I think that institutions are moving in the right 
direction, although obviously, no one can be complacent yet in 
that regard.
    Chairman Shelby. Thank you.
    Dr. Bernanke, I recently had an opportunity to discuss 
economic and financial issues with officials from the Japanese 
and Chinese Governments in Tokyo and in Beijing. How would you 
assess the conditions of the banking systems in those two 
countries?
    Mr. Bernanke. Both countries have serious, significant 
difficulties with their banking systems. The Japanese banking 
system has been in serious trouble since the collapse of the 
so-called bubble economy in 1989. There remains a very heavy 
preponderance of nonperforming loans, new credit is not being 
extended, and profitability remains low.
    However, there have been some recent signals of possible 
improvement. The Resona recapitalization is a positive step in 
the sense that beyond simply injecting capital into the Resona 
Bank, the Government of Japan has taken a much stronger hand in 
demanding reforms and profitability. They changed the 
management. They demanded more rapid reductions in 
nonperforming loans and so on.
    Also interesting is the recent order by the Financial 
Services Agency, the so-called business improvement order, 
which essentially demands that banks which have received 
capital injections improve their profits over the next few 
years.
    Under the leadership of Mr. Takenaka, who has been an 
important force for reform in Japan, what we are seeing is slow 
but steady movement toward accountability in the Japanese 
banking system. They are far from out of the woods, but I think 
they have made some useful steps. That will be assisted by some 
signs of economic recovery in Japan fostered by monetary 
policy, increase in the stock market, and so on.
    The short answer is that there have been some improvements 
like the increased accountability. We still have a long way to 
go in Japan.
    China is a rather different situation. In China, until 
economic reform took place, the Chinese banking system was 
essentially the instrument of the state's allocation of credit. 
They have not made the transition to a capitalist free market 
banking system. They remain deeply under water in terms of 
their credits, so it will be a considerable amount of time 
before that system is operative in the sense of a Western free 
market banking system.
    However, I know the Chinese are quite interested in doing 
that. I think that is an important step toward opening up their 
capital markets, allowing both more incoming financial flows, 
as well as allowing Chinese citizens to invest abroad. I think 
this is a very important priority for the Chinese Government, 
but they have a long way to go. They do not have the managerial 
skill, and it will take a while for them to get that situation 
straightened out.
    Chairman Shelby. Is reform in both Japan and China to their 
banking systems critical to the sustained health of our 
economy? Is there a connection there?
    Mr. Bernanke. Yes, there is a connection, Senator. One of 
the reasons that it has limited our domestic economic growth 
has been essentially the weak condition of most of our trading 
partners. Japan is a particular case-in-point. The Japanese 
economy is the second-largest in the world, yet it has been 
very depressed now for about 15 years. Domestic reforms, both 
structural and to the banking system, along with expansionary 
monetary policy, have the potential to bring Japanese growth, 
domestic demand, higher. That would be a very important step 
toward increasing the demand for our exports and for our 
growth.
    The Chinese case is a bit different. China is not suffering 
from lack of growth, and is growing very rapidly. But clearly, 
first of all, its integration into the world financial market 
and into the world exchange market depends on reform in the 
Chinese banking system. And second, there has certainly been 
interest in the United States in having the Chinese move 
eventually to a flexible exchange rate system. One important 
barrier to doing that immediately is the problems in the 
banking system. Free capital flows would create large 
withdrawals from their domestic banks, which would lead 
presumably to a financial crisis.
    Therefore, in order for China to move effectively to a 
flexible exchange rate system, they do need to make substantial 
reforms in their banking system, and for reasons that we 
understand, that would be useful for the United States economy 
as well.
    Chairman Shelby. Thank you.
    Mr. Atkins, mutual fund investors receive disclosure 
documents that are often confusing and do not contain adequate 
information for investors to understand the full fee structure 
of their fund. Given your experience in investor education, how 
would you recommend improving upon the transparency and 
disclosure regarding mutual funds?
    Mr. Atkins. I think that is an excellent question. As far 
as the essence of choosing between funds, it is really fee 
structure and other expenses that should most concern 
investors. That is where we can really concentrate at the SEC 
to try to bring more transparency. I believe our Investment 
Management Division is working on just such proposals.
    Chairman Shelby. It is very important, though, is it not?
    Mr. Atkins. It is vitally important.
    Chairman Shelby. Especially in view of some of the 
revelations that have come recently, dealing with some of the 
mutual fund operatives.
    Mr. Atkins. Exactly, yes, and transparency is----
    Chairman Shelby. Key to it.
    Mr. Atkins. --primary; exactly.
    Chairman Shelby. Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman. I am 
pleased to welcome the nominees before us this morning. They 
have all been here before, but we always welcome this 
opportunity.
    I want to ask a question of Mr. Ferguson and Mr. Bernanke 
first. I have discussed this issue before, and that is the 
issue of equal employment opportunities at the Federal Reserve. 
Vice Chairman Ferguson, I think you and I had a good exchange 
about this in one of your earlier hearings.
    In February of this year, a number of Members of the House, 
including a significant number of Members of the House 
Financial Services Committee--and of course, they do not 
participate in the nomination process, but they do get in touch 
with us about it from time to time--wrote to the Chairman: ``We 
are writing to request data on the current status of the equal 
employment opportunities at the Federal Reserve System.'' And 
they referenced the staff report that the Committee had done 
when it was then the House Banking, Finance, and Urban Affairs 
Committee back in December 1993, which would now be about--we 
are coming up to the 10th anniversary of that report--and asked 
a number of questions.
    In April, the Congressional Black Caucus wrote to the Fed, 
to Chairman Greenspan, to Vice Chairman Ferguson, and Governor 
Olson, who I think is in charge of the personnel policies as I 
understand it amongst the Governors of the Fed, expressing what 
the Congressional Caucus said was ``a deep concern about the 
treatment of African American professionals at the Federal 
Reserve'' and asked for an inquiry, and then they referenced 
the particular case. But I am interested in what the situation 
is at the Fed on this important issue.
    Mr. Ferguson. Senator Sarbanes, thank you for giving me an 
opportunity to address this issue. This is an issue on which 
there can be no doubt about the commitment from the top to have 
all of our employees treated purely on the basis of a 
meritocratic approach, without any extraneous factors coming 
into play, as I have said to you before in this room and in 
other locations.
    It is quite important to recognize, if you will, what the 
statistics tell us, because I do not think the Fed story has 
actually come out fully. As I look at the statistics on the 
Federal Reserve Board, for example, looking at our most senior 
people, at what we call the officer level, which is the 
equivalent of the Senior Executive Service for the civil 
service, in 1992, 20 percent of those individuals, our 
officers, were female, and about 11 percent were minorities. In 
2002, 10 years later, 31 percent were women and 16 percent were 
minorities. Compare that to the last statistics we have for the 
Senior Executive Service in the civil service, where 24 to 25 
percent were women, and 14 percent minorities.
    So at the most senior levels, I would say two things are 
reflected in those statistics. One, there clearly has been 
progress, and two, frankly, I think the Board of Governors' 
staff results have been better than what one sees in the Senior 
Executive Service, the most senior part of the Government in 
general.
    If you look at overall demographics, not just the senior 
levels, at the Board, about 51 percent of our employees as of 
year-end 2001 were women, 42 percent were minorities. In the 
Federal Government, the numbers were 45 percent and 31 percent, 
respectively. Again, I think we stack up very favorably against 
the entire U.S. Government.
    If we think about our pipeline grades, the people that are 
likely to move into leadership roles over the next few years, 
in 1992, 30 percent of that group were women and 9 percent were 
minorities; in 2002, 41 percent were women and 18 percent were 
minorities.
    I can go on with a number of other statistics on hiring and 
promotions, but the message I want to leave you with is that we 
take this issue extremely serious. There is no complacency in 
the Fed on this issue and there will not be. And if one looks 
at the trends over the last 10 years, we certainly have seen 
great progress and advancement for women and minorities, and we 
stack up very favorably, in fact, I think are better than 
comparables such as the Senior Executive Service or the 
Government overall.
    How have we done that? We have done it because there is, as 
I said, no sense of complacency at the top in the Federal 
Reserve. We have put through a number of processes and 
procedures that have enhanced the focus, if you will, with 
respect to the EEO issues that you have raised. We have an 
annual review process that we established to assess diversity 
and outreach efforts in each of our divisions. Each division 
has an annual recruiting and outreach plan to both inform 
minorities about employment at the Board and to build a diverse 
pool of candidates. We have an explicit EEO component of 
performance objectives of the officers and managers. We have 
undertaken best practice assessments, and this type of 
information we have shared with the House and have shared with 
you as well.
    I appreciate the opportunity to answer this question, 
because in fact I think the Federal Reserve Board has done very 
good work over the period before and while I have been there 
and will continue to do so. As I have said, the statistics 
stack up quite favorably against reasonable comparators here in 
Washington, DC.
    I could broaden that statement, and I will if you want me 
to spend more time on it, talk about the Federal Reserve System 
overall, but the message tends to be exactly the same if one 
looks at the statistics for the System overall. It is one of 
the improvements in all levels, I believe, at least over the 
last 10 years and a strong pool of individuals in the pipeline, 
if you will, prepared to be promoted to more senior ranks.
    I realize that there is an interest in this issue, but I 
think our responses put us in reasonably good light, and there 
is no complacency.
    Senator Sarbanes. Let me just go below the level of the 
statistics for a moment. What can you tell us about the actual 
process within the Federal Reserve to deal with employee 
grievances, whether it is harassment on the job, 
discrimination, the ability to have that looked at in a fair 
and objective way without punishment or retaliation to the 
employees bringing the allegations?
    Mr. Ferguson. We have a multitiered process for grievance 
resolution, starting first within the division, so if you have 
an evaluation--we call it a PMP--that the employee disagrees 
with, that 
individual has the right within that division to ask for a 
reconsideration. And then, through our HR, human resources, 
chain of command, those grievances can be carried higher and 
higher through the Federal Reserve Board infrastructure, 
ultimately coming to the Board of Governors.
    Obviously, there is also a parallel process for those who 
want to go into the formal Equal Employment Opportunity 
complaint process which ultimately would lead to resolution at 
the EEO Commission. Clearly, by definition, we cannot tolerate 
any retaliation that might occur for someone exercising their 
rights.
    The reality is that I, and I think all of us, are very 
interested in having a very robust process for these 
grievances, because if there is any evidence of misbehavior 
along the lines that you talk about, I as Vice Chairman want to 
know about it, and I think my colleagues on the Board want to 
know about it. A grievance process that starts within the 
division but the moves outside the division is a superb way to 
ferret out those facts. I do not think one can identify a 
better, more robust grievance process than the one that we 
currently have. It is open to all and is open without any sense 
of retaliation.
    Senator Sarbanes. Thank you, Mr. Chairman. My time is up, 
and I will yield to my colleagues, but I hope we will have 
another round.
    Chairman Shelby. We will, yes.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    These questions will be for the Vice Chairman and Governor 
Bernanke, if you will please give me your opinion on these.
    The first question is have you disagreed with any monetary 
policy decision that Chairman Greenspan has made since you have 
been on the Federal Reserve Board--each of you?
    Mr. Ferguson. Let me start, and then Governor Bernanke can 
respond.
    It is clear from my record that I have not dissented from 
any FOMC decision. The monetary policy decisions of the Federal 
Reserve are not the decisions of an individual; they are the 
decisions of a committee. I am a voting member of that 
committee, and I have to this date not dissented.
    Having said that, that does not mean that I am not 
exercising independent judgment. There are a number of ways in 
which I can have and will continue to exercise independent 
judgment. You have seen some of them in the role that I played 
with respect to September 11, where I had to take the 
responsibility independently of the Chairman, who was not 
available. I would encourage you to look at my entire record in 
terms of independence of judgment.
    If I had a strong disagreement with the direction the 
Committee was taking, I have an obligation, which I have 
exercised many times, to express myself formally and 
forcefully, in the Committee discussions to try to persuade my 
Committee colleagues to see the economic forecast, the economic 
outlook, and the risks to that outlook and the consequent 
policy implications the way that I see them.
    Senator Bunning. But in the long-run, you voted with the 
Committee.
    Mr. Ferguson. Well, but in the long-run, that means that 
the Committee and I all reached a broad consensus that I could 
feel comfortable with.
    If there were to be a point going forward when I felt 
strongly that the Committee was reaching a consensus that I 
could not be a part of, then, by definition, I would exercise 
my right to dissent.
    Senator Bunning. How long have you been on the Committee?
    Mr. Ferguson. I have been on the Committee since November 
1997.
    Senator Bunning. Since 1997.
    Mr. Ferguson. The fact that I have not yet dissented means 
that I have managed to get the Committee to vote----
    Senator Bunning. All the Committee to the position you 
wanted?
    Mr. Ferguson. The Committee and I ended up, obviously, in 
the same position, yes, so that I could comfortably support and 
be part of the consensus.
    Senator Bunning. The final decision.
    Mr. Ferguson. Sometimes that required my moving, sometimes 
it required their moving.
    Senator Bunning. Thank you.
    Mr. Bernanke.
    Mr. Bernanke. I have not dissented in my year on the 
Federal Open Market Committee because I basically agreed with 
the direction of policy, which has been to ease in order to try 
to revive the U.S. economy and improve employment while 
maintaining price stability.
    However, I have been an independent voice both within and 
outside the Federal Reserve System through a series of speeches 
and other public discussions. Among those topics on which I 
have been prominent in providing leadership include the 
discussion of alternative monetary policy tools which might be 
used in the event of a deflation or the zero lower bound 
binding on nominal interest rates; I have made strong arguments 
against the intervention of monetary policy into the stock 
market and other financial markets, and I have also taken 
leadership in arguing that the Federal Reserve can maintain a 
competitive monetary policy for a longer period than usual 
because of the slack in the system created by weak labor 
markets.
    There is an area where in fact I have disagreed quite 
publicly with the Chairman, and that is in the area of how best 
to achieve Federal Reserve transparency. As I discussed in my 
initial confirmation hearing a little over a year ago, I am a 
proponent of what is called ``inflation targeting.'' Despite 
the name, the approach is not in any way inconsistent with 
strong commitment to the dual mandate of the Federal Reserve. 
What it does is attempt to provide more information and more 
transparency about the Federal Reserve's objectives and long 
run goals. In particular, I have argued that the Federal 
Reserve should provide information to the public about what it 
thinks the long-run inflation or average inflation rate over 
the business cycle should be, and I have also argued for other 
measures for increased transparency such as moving up release 
of the minutes and providing more frequent forecasts by the 
Federal Open Market Committee.
    Certainly in the area of inflation targeting, Chairman 
Greenspan quite clearly disagrees with that position, and our 
disagreement has been public, it has been cordial, it has been 
based on intellectual arguments. Nevertheless, I clearly have 
staked out an independent position on that very important area 
of monetary policy.
    Senator Bunning. Thank you.
    I want to talk to you about regulations on national banks. 
I have a lot of small businessmen in my State, and they are 
complaining vigorously about the banks not being free and 
afraid to make loans because of the regulations that the 
Federal Reserve has in monitoring loans. I could give you 
chapter and verse if you like, but I am not going to do that 
for fear the Fed will come down on the head of some poor banker 
down in Louisville, Kentucky. But the fact of the matter is I 
have some very small businessmen who cannot get any money out 
of the banks. No matter how good or how well they seem to be 
doing, the banks are reluctant because of regulatory burdens on 
specific loans to get any capital influx from an ordinary 
lender.
    Can you give me any reason that that would be? In other 
words, if you come in and regulate one of the major regional 
banks in, say, Louisville, and your regulators go in and take a 
look at what kinds of loans have been made, and they check and 
say ``This is not permissible,'' and all of a sudden, the poor 
bank gets in trouble.
    Mr. Ferguson. Senator, I have appeared before this 
Committee many times, and there have been times when I am not 
sure I know the answer to your question. This is, I must admit, 
one of those times.
    The reason is that I cannot think of any regulation that 
the Federal Reserve has promulgated that is targeted in any way 
at limiting legitimate loans to any segment of the population.
    Senator Bunning. Can I bring the people before you at the 
Federal Reserve?
    Mr. Ferguson. Absolutely.
    Senator Bunning. The people who want to borrow the money 
and who want to lend and are frightened to death to do it.
    Mr. Ferguson. What would help me--I am not a very 
frightening person--what would help me a great deal----
    Senator Bunning. No--but the Federal Reserve is a 
frightening body.
    Mr. Ferguson. We will take care of it. What would help me a 
great deal is to know which regulations they think might be 
impinging on private credit decisions that can legitimately be 
made. By definition, there are behaviors that one does not want 
to see in terms of inappropriate evaluations, but I would be 
interested in the regulation that they think is standing in the 
way of an appropriate, legitimate, independent credit 
evaluation being made by the banks.
    Senator Bunning. Okay. We will bring you chapter and verse.
    Mr. Ferguson. That is absolutely fair.
    Senator Bunning. All right. I want to ask one question 
about mutual funds, and then I will get to the rest of them on 
the second round.
    I was in the business for 25 years. The mutual fund 
industry at that time was the most transparent of all of the 
vehicles that you could invest in. They wrote everything down 
in a prospectus--not everybody understood what was in the 
prospectus--and they wrote down their fees, they wrote down 
everything. The fact that some mutual funds and some brokers 
hedged and did what is illegal should not come down on the 
heads of the mutual funds but on the people who regularly 
violated the law. There is a law against buying after the close 
at certain mutual funds and then selling on the opening and 
have the market open stronger. That is what some hedge funds 
did, and some brokers violated that trust.
    Now, that has nothing to do with the mutual fund industry 
except in those individual cases. I have never seen a more 
honest and regulated group of people than the people who 
generally run mutual funds.
    Tell me if you see it differently.
    Mr. Atkins. No, sir, I do not. What we were, I think, 
trying to address before as far as disclosure goes is that over 
the years, as our rule book has expanded, so have the 
prospectuses and the statements of additional information that 
mutual funds put out. This has made it very difficult, I think, 
for investors to grasp the essentials because of all of our 
mandated disclosures. So, I think that is one of the things 
that we want to focus on and try to alleviate.
    And certainly, I think most people in the mutual fund 
industry are honest and forthright and trying to do the right 
thing for their mutual fund shareholders; obviously, there are 
some bad eggs, as in every group.
    Senator Bunning. We found that out. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Shelby. Thank you.
    Dr. Bernanke--Governor Bernanke--you are both--if economic 
growth develops as is currently forecast in the third and 
fourth quarters, do you believe that labor markets will show 
significant improvements?
    Mr. Bernanke. As I discussed, Senator, in my statement, I 
do believe we will see some significant improvements within the 
next few quarters. The basic reason for that is that the 
productivity gains we are seeing now--6.8 percent in the second 
quarter, probably higher than that in the third quarter--are 
simply not sustainable. Firms, as they respond to higher 
demands for their products, simply must increase their capital 
and labor inputs. So, I am confident that with the rate of 
growth of output that we expect to see in the next few quarters 
and into next year, that employment will pick up.
    We have begun to see very early signs of that in the labor 
market, admittedly very early, in terms of some change in the 
direction of payroll growth and decline in unemployment claims. 
Those are very preliminary. I do not want to overstate the 
importance of those, but they are consistent with the view that 
we will soon be seeing more significant growth in employment.
    Chairman Shelby. Do you feel overall pretty good about the 
economy as to where we are today and where we are going?
    Mr. Bernanke. I am distressed by the slow recovery at the 
labor market. I recognize that creates a lot of hardship for 
many Americans and many communities. I do feel, though, that as 
the economy recovers and as employment recovers, we will have 
in fact a very strong, productive, noninflationary economy in 
the years to come. I do feel good in the longer term, but I 
believe that at the moment, we have a lot of work to do still.
    Chairman Shelby. Thank you.
    Mr. Atkins, the intermarket trading system--you have made 
some interesting statements regarding the trade-through rule 
requirements of the intermarket trading system. The trade-
through rule and the ITS as a whole have been the subject of a 
lot of criticism. What do you see as the future of ITS, and do 
we still need the trade-through rule? I know we are talking 
about technical stuff, but you are a Commissioner.
    Mr. Atkins. Yes. It is something that I think we really 
need to look at; it is long overdue. The trade-through rule and 
the ITS system were put into effect back in the mid-1970's, and 
obviously, with today's improved technology, there are a lot of 
people out there who are interested in various aspects of the 
system as far as pricing and trading go.
    I think as part of our overall reassessment of market 
structure, which I know the Chairman is going to be talking to 
the Committee about later this week, we need to look at this 
again.
    Chairman Shelby. Can we assure customer protection with 
greater focus on what you call the ``best execution'' 
obligations of brokers? That goes to the heart of it, doesn't 
it?
    Mr. Atkins. Yes, sir. That is the heart of our whole system 
and the broker's relationship with his customer--to give best 
execution. And, it is all based on the national best bid and 
offer, and I think that concept is crucial.
    Chairman Shelby. Given the trading technology--you alluded 
to it--that we have today, is it not possible to accomplish the 
important customer protection goals that led to the trade-
through rule without the rule's impediment on trading speed?
    Mr. Atkins. I think that is exactly part of our 
reassessment. Now that we have moved away from fractional 
trading to trading in pennies and even in sub-pennies, I think 
a lot of people are interested more in speed of execution 
rather than necessarily having a better price by a fraction of 
a cent.
    Chairman Shelby. Transparency and speed; right?
    Mr. Atkins. Yes, sir.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Mr. Atkins, at your first confirmation 
hearing back in July of last year, I indicated a concern about 
the pay and benefits parity issue at the Commission with 
respect to the employees. Congress, of course, had passed 
legislation that said the SEC shall seek to maintain 
comparability with such banking agencies regarding compensation 
and benefits. It is my understanding that we still have not 
fully achieved that.
    Could you tell me where we are on that issue and your own 
view toward it?
    Mr. Atkins. Yes, sir. From my understanding, the Chairman 
is working hard on this issue and has been working with the 
National Treasury Employees Union to try to get this into 
place. From my understanding, progress has been made. He now 
has a person in his office specifically designated to deal with 
management and employee issues, and I think that person has 
been doing a very good job in trying to review the overall 
situation at the SEC. It seems that morale is up among the 
employees, and I think our retention and recruitment are 
better.
    I believe that these things will get phased in, and where 
they stand exactly, it is really in the Chairman's bailiwick. 
That is my understanding at this point.
    Senator Sarbanes. Are the Commissioners available to the 
union representatives to discuss issues affecting the employees 
at the SEC?
    Mr. Atkins. Yes and, in fact, I have met with both union 
and nonunion employees. Since I was a former staff member 10 
years ago, I also have an obvious deep affinity to what goes on 
with the staff, and I believe the management issue is a 
critical one at the SEC to make sure we can best perform our 
functions.
    Senator Sarbanes. Would you say that you have what one 
might describe as an open door policy toward such meetings by 
union or nonunion representatives of SEC employees to meet with 
you and discuss matters that are on their agenda?
    Mr. Atkins. Oh, absolutely, and I have been doing that, as 
I have said, in the last year. Without an open door and without 
reaching out also--more than just having an open door, reaching 
out and trying to find out what people's concerns are--I do not 
think it can be a very effectively managed place.
    Senator Sarbanes. The Congress provided significant 
additional funds to the Commission, and we are now on track to 
further up the amounts in the coming year's budget. How is the 
Commission using these extra funds?
    Mr. Atkins. As you know, we have hired something like 300 
new people already. We did not use the entire allocated amount 
from last fiscal year, mainly because it was appropriated late 
in the year, and then also, we were waiting for the new 
authorization as to accountants and other nonlawyers to be able 
to hire them on an expedited track.
    I think that you will see in this fiscal year things, from 
my understanding, really start to come into place.
    Senator Sarbanes. When we provided the extra money, we set 
out three areas in which it was to be used, in which we thought 
a response was necessary on the part of the Commission and for 
which these resources were being provided. One is what you just 
mentioned--the addition of further personnel. And as you point 
out, we also enacted legislation to make that process easier 
for the Commission in terms of taking those people on.
    Second was the pay and benefits parity issue, which as I 
understand from your response and from what Chairman Donaldson 
said at an earlier hearing not very long ago, has not yet fully 
been worked out, although everyone keeps assuring me that it is 
going to be worked out, and it seems to me a matter of some 
importance as far as your staff morale and retention issues are 
concerned.
    Third was a significant upgrade in the technology at the 
Commission. What has happened in that regard?
    Mr. Atkins. From what I understand, we have been working to 
upgrade our technology capabilities, especially in our 
Enforcement Division, where people there are always undermanned 
and basically going up against people who have huge resources. 
That is a critical area, and from what I understand, the 
Chairman has been focusing on that.
    You will probably have to ask the Chairman as to precisely 
where it all stands now, but again, I know that we have been 
focusing on----
    Senator Sarbanes. All of these items, of course, affect the 
ability of the SEC to function and the level at which it 
functions, and I have been listening carefully to your answers. 
Let me ask you this question. The other four commissioners 
other than the Chairman--to what extent are you involved or 
cognizant or do you review or become engaged with this whole 
question of the functioning of the Commission--the treatment of 
the employees, the technology, et cetera--or do you all say, 
``Well, that is the Chairman's job; we do not have anything to 
do with that?''
    Mr. Atkins. I can only speak for myself, not necessarily my 
colleagues, but as I said, I am very concerned about it.
    Senator Sarbanes. Let me just interject. I think at the 
Fed, you assign out some of these various functions, do you 
not, amongst the Members of the Board of Governors?
    Mr. Ferguson. Yes. The Fed operates in many of its day-to-
day activities through a committee structure. Each committee 
includes three Governors, one of whom is the chairman of the 
committee and then there are two other members. The Board has 
committees for a number of these internal activities and other 
things that we are responsible for.
    Senator Sarbanes. On these various issues involving, in 
effect, its internal operations.
    Mr. Ferguson. Yes. We have one committee for internal 
operations, a committee for regulation, and a committee on 
payment systems, and other things.
    Senator Sarbanes. I am sorry. Please go ahead.
    Mr. Atkins. I guess we are under a little bit of a 
different statutory framework, because back in the 1950's, 
Congress passed what was called ``Reorganization Plan Number 
10''--I do not know how they came up with that name--but 
basically, it assigns at the SEC staffing and budgetary matters 
to the Chairman's office. So, as far as the Chairman's 
prerogatives go, I know, at least looking at past Chairmen, 
those prerogatives tend to be husbanded carefully, especially 
vis-a-vis the other Commissioners.
    So, I think there is a deference to the Chairman to allow 
him to manage the agency, because obviously, Congress thought 
that things would run more efficiently if done that way. Back 
in the old days, if you look especially at Joel Seligman's book 
on ``The Transformation of Wall Street,'' basically, all five 
Commissioners met to approve the hiring of every employee.
    Senator Sarbanes. I am not trying to get you to that stage, 
but it does seem to me that you have a Chairman who has 
indicated he is, as I understand it, quite collegial; is that 
correct--Chairman Donaldson----
    Mr. Atkins. Yes, sir.
    Senator Sarbanes. --which seems to me is a desirable trait 
when you are dealing with a multimember commission, and it 
would seem to me that an expression of interest and some 
involvement by the other Commissioners on some of these issues, 
which after all, properly resolved, would enhance the ability 
of the Securities and Exchange Commission to do its job, and it 
seems to me that is called for.
    I will cease, Mr. Chairman.
    Chairman Shelby. Thank you.
    Senator Bunning.
    Senator Bunning. Thank you, Mr. Chairman.
    I want to go back to something that Governor Bernanke said 
about China and the banking system in China. There are quite a 
few of us--12, to be exact--in the U.S. Senate who strongly 
disagree with your assessment on the Chinese banking system and 
the ability of the Chinese banking system to tie its currency, 
the yuan, to a fixed rate of exchange with the U.S. dollar, 
building in about a 28 percent advantage for the Chinese in all 
trade with the United States of America.
    We are trying our best to get legislation to enact that 
will allow the yuan to float. You have just stated in your 
testimony that you think that would be a catastrophe or a 
disaster or whatever word you used, that it would be not in the 
best interest of the United States or China. I would like to 
explore that a little more.
    Do you think that the Chinese should be able to tell our 
Secretary of the Treasury to take off--``We do not want to hear 
from you about this problem''--when he goes there to talk 
specifically about trade and about the disadvantage that the 
United States has with trade in the yuan being tied to a fixed 
rate of exchange with the dollar?
    Mr. Bernanke. My comment was a technical one, Senator. I do 
think that a purely floating exchange rate would provide some 
dangers in the current financial system in China. In 
particular, one risk which one might face is that if there were 
significant capital outflows as Chinese citizens tried to make 
investments abroad, the yuan might actually depreciate and 
worsen the competitive situation.
    I do not disagree that there are serious issues that you 
have properly identified in terms of the trade relationship 
that we have with China. I would think an alternative approach 
would be two-pronged. One would be to discuss and consider the 
possibility of revaluation, which means to keep the exchange 
rate fixed but at a different parity, that is, at a different 
value; and the other strategy which I would suggest is to the 
extent that it is believed that the Chinese are improperly 
blocking their markets, for example, or in other ways not 
living up to their WTO commitments would be to proceed through 
the World Trade Organization and launch complaints that could 
then be adjudicated.
    So, I am not claiming that there is nothing that can be 
done, and I am not claiming that it is not a problem. I am 
simply pointing out that the immediate flotation of the yuan 
might raise some technical difficulties that other strategies 
might not have.
    Senator Bunning. But do you agree that there is a built-in 
advantage by the fixed rate of exchange that is now in 
existence with the yuan and the dollar?
    I believe it is an 8-to-1 ratio right now.
    Mr. Bernanke. To the extent that that value is artificially 
low, that would provide an advantage to trade to the Chinese. 
There are some offsetting factors to the extent that the 
Chinese Government accumulates reserves, and that expands the 
money supply, there will be more inflation in China, which will 
partly offset that effect. But clearly that is an issue that 
should be--can be--discussed between the Chinese and the 
Secretary.
    Senator Bunning. My biggest problem is that they did not 
pay any attention to the Secretary when he went over there. 
They just kind of sloughed him off and said, ``We are going to 
do it our way or the highway.'' We think that is not in the 
best interest of the United States of America, and we do not 
think that is a very good way to treat the Secretary of the 
Treasury.
    Mr. Bernanke. I have no inside information about those 
negotiations, Senator, and I do not want to create any problems 
in the exchange markets by making untoward comments, but the 
President is visiting Japan, I understand, and I assume there 
will be continued discussion of these matters as we go forward.
    Senator Bunning. Vice Chairman Ferguson, Mr. Bernanke gave 
us his current perspective on the economy and job creation. Do 
you have a different opinion than he does about the economy and 
job creation? Are we headed down the right path?
    Mr. Ferguson. I think we are headed down the right path. I 
think the issue is the time frame in which we can start to see 
more job creation. Certainly we have seen in some of the more 
recent data what I would describe as early indicators that the 
labor market is at least stabilizing. I think as we get an 
economy that continues to grow above its potential what we will 
find indeed is that this pool of underutilized resources will 
gradually be closed and that will create more jobs.
    Having said that, I expect that the unemployment rate will 
come down only gradually over the next year or so, but I do 
expect to see a pickup in job creation as the economy grows 
above potential, and there are some early signs that the labor 
market is starting to stabilize.
    Senator Bunning. I do not mean to go over, but when 
productivity of the American worker outstrips the growth in the 
gross domestic product, we have a heck of a time adding jobs. 
In other words, if the productivity of the American worker 
increases by 5 percent, and we are growing at 4 percent, where 
is the need to add new jobs? So we have to get our GDP growing 
faster than the productivity increase in our American workers.
    Mr. Ferguson. Right; that is correct.
    Senator Bunning. And I think we are starting to see that 
dual line kind of cross.
    Mr. Ferguson. I agree with that. You have the analysis 
about right. Productivity in the long-run is a very positive 
thing, and there should be no mistake about it. You and I agree 
on that. As you point out, in the short-run, if you have an 
economy whose potential output is growing relatively rapidly, 
then you obviously need to have demand growing even more 
rapidly--you and I are using the same physical symbol with the 
hands crossing--and we are starting, I think, to see some of 
that occur. As that occurs, then in fact you will find that 
more jobs are being created and that will gradually eat into 
the pool of individuals who are currently underutilized.
    Senator Bunning. Thank you very much.
    Chairman Shelby. Senator Sarbanes, you have another 
question.
    Senator Sarbanes. Yes. I wanted to ask a question to the 
two nominees for the Board of Governors at the Fed.
    Over 2 million of the unemployed workers today are 
categorized as long-term unemployed--unemployed for more than 
26 weeks. Twenty-three-point-two percent of all unemployed 
workers are long-term unemployed currently. This figure has 
been above 21 percent for 8 consecutive months now. That is the 
first time that has happened in 20 years, since 1983, that we 
have had such a high percentage of the unemployed long-term 
unemployed over this period of time.
    The Center on Budget and Policy Priorities estimates that 
over one million American workers have been unemployed for more 
than 39 weeks and therefore have exhausted even their extended 
unemployment insurance benefits but are still unable to find 
work.
    We have actually had a rather long bipartisan history of 
extending unemployment insurance benefits during periods of 
prolonged weakness in the labor market. We have extended 
benefits following every recession since World War II, and in a 
number of instances for a longer period--a longer period and 
greater benefits than is the case today.
    Given the current economic situation, shouldn't we again 
ease these restraints on the unemployment insurance system and 
provide a further extension of benefits in order to meet this 
problem?
    Mr. Bernanke. Senator, I think in a situation as we have 
now, with very long-term unemployment and very slow job 
creation, extending unemployment insurance benefits is a 
reasonable policy.
    I would make the additional suggestion that we take, I 
guess I would call it, a caseworker approach to the extent that 
individuals have exhausted 39 weeks of benefits. We should do 
more than send them a check; we should try to do what we can to 
assist them in finding new work.
    I think there are some very successful programs involving, 
for example, helping workers learn how to write resumes and do 
other things that can get them back into the job market. One 
might do further things like considering vouchers for 
retraining or assistance in relocating.
    I agree that under the current circumstances, it is not the 
workers' fault that they are unemployed for a long period of 
time, but I think that assistance could take the form not only 
of a check but also perhaps of other more direct counseling or 
training.
    Mr. Ferguson. I would agree with the latter points Governor 
Bernanke was making. I think one of the things that is 
interesting about this slowdown--and we saw it in the earlier 
1991-1992 experience--is that we are getting both a cyclical 
impact here just from an economy that is growing below 
potential. There has also been some research that has shown 
that we are getting a longer-term effect as well, that some of 
the state and nature of the unemployment in this particular 
slowdown reflects productivity as we have discussed already, 
but it also reflects the fact that we are at a period of great 
business restructuring where businesses, in an effort to 
increase productivity, also are finding ways to do more with 
fewer workers, and we find that jobs that existed in one 
industry no longer exist, et cetera.
    So, I would argue that one of the issues that one has to 
focus on is how to help the transition of labor from jobs that 
no longer exist and may not come back--some certainly will come 
back, obviously, but some will not--into jobs that are likely 
to be created, perhaps in new locations, perhaps in different 
industries. So that some of the issues that Governor Bernanke 
has touched on, I think I would also commend to you, in 
particular a recognition that some of what we are dealing with 
is a long-term secular pattern that also has to be responded to 
in addition to trying to make sure the economy returns to 
sustainable growth and indeed has a period where it is growing 
above trend to start to close some of this gap of resource 
utilization.
    I think society is being confronted with some of these 
secular trends as well as the cyclical ups and downs of the 
economy that we have talked about.
    Senator Sarbanes. Well, I appreciate those comments, but of 
course, the people who are unemployed and have run out of their 
benefit checks and cannot find a job face an immediate crisis. 
I think it was Harry Hopkins who said, ``People do not eat in 
the long-run, they eat in the short-run,'' and that is staring 
them right in the face.
    Furthermore, as an economic matter, the loss of purchasing 
power by no longer providing unemployment benefits to workers 
out of work is going to have a macroeconomic impact as well, 
would it not? Wouldn't it make it more difficult to move back 
out of the economic downturn?
    Mr. Ferguson. Well, Senator, it is certainly true that the 
forecasts--and they are just that--of growth going through not 
just the third quarter but the fourth quarter of this year and 
in 2004 build in a number of assumptions, and one of them is an 
increase in wage and salary income, which is to say more people 
going back to work. So without a doubt, your economic analysis 
of the interaction between wages and salaries on the one hand 
and macroeconomic impacts on the other is true. That analysis 
is part of what is built into the blue chip forecast and almost 
every other forecast that includes an increase or expectation 
of an increase in real disposable income, an expectation of an 
increase in personal consumption expenditures, much of that 
predicated on some increases in wages and salaries. Obviously, 
your economic analysis is consistent with that of the economics 
profession broadly.
    Senator Sarbanes. Long-term interest rates dropped by more 
than half a point between the FOMC meetings in early May and in 
late June. This gave a sizeable boost to mortgage activity, 
both for new homes and refinancing old mortgages. Then, long-
term interest rates rose by more than a percentage point in the 
weeks following the late June meeting, which of course caused 
refinancing to fall by more than 80 percent.
    What is your analysis of why we had these swings in long-
term interest rates in May, June, and July, and have statements 
by the FOMC and by Fed officials contributed in any way to 
these swings?
    Mr. Ferguson. I will start, and Governor Bernanke will, I 
am sure, give his views on this.
    Senator Sarbanes. There are some analysts, I understand, 
who think that the bond market participants felt that somehow 
they had been misled by the Fed and that this contributed to 
these swings. I would like you to address that criticism.
    Mr. Ferguson. I would be happy to address it. I think the 
movements that we saw during this period in long-term interest 
rates reflect a number of factors. I would say some of it has 
to do with an understanding of the real economy and its likely 
trajectory; some, I will admit, has to do with issues of 
understanding or misunderstanding of Federal Reserve 
intentions.
    During that period, there was quite a bit of focus on an 
economy that was growing very slowly, growing below potential. 
There was quite a bit of focus on disinflationary pressures, 
and there was some concern at that time that those 
disinflationary pressures might start to accumulate and mount 
and become more severe.
    During that period, certainly, there were also some 
speeches and statements by the Federal Reserve that reflected 
that those risks existed, but it was clear that those risks 
were, in the minds of the individuals speaking and in the mind 
of the Federal Open Market Committee, I think, quite remote.
    I think there may have been perhaps some misperceptions in 
the market that the statement that these risks were remote, and 
that indeed there were things that we could do to offset those 
risks should they increase, were perceived by some people in 
the market as perhaps more a statement of imminent action on 
our part to take nontraditional measures with respect to 
monetary policy than in fact was true.
    The other things that happened were not just that there was 
a greater clarification about the Federal Reserve's intentions 
as time passed, but also the data came in, and there was 
greater evidence that the economy appeared to be getting its 
footing, shall we say, and there was some evidence that things 
were starting to turn.
    You have a couple of things going on--economic data that 
started to show that the worst outcome seemed less and less 
likely, and there was a greater understanding that the 
statement that a disinflationary or a deflationary environment 
was remote but that we could use nontraditional methodologies 
to counteract it turned out in fact to be true. Those forces 
were indeed remote, and there was no need to use any of these 
nontraditional or unconventional methodologies.
    I would say it was certainly a period of time in which 
there were a number of different factors that came into play, 
and I would not say that there was a miscommunication on the 
part of the Federal Reserve so much as perhaps some individuals 
in the markets overinterpreted the fact that a number of people 
said something was remote and assumed that that meant it was 
less remote. In fact, it was just simply a restatement that 
these outcomes seemed very remote and that there were tools 
that could be used, but the condition precedent of a remote 
outcome becoming probable never emerged.
    Mr. Bernanke. I agree with most of what Vice Chairman 
Ferguson said.
    At the May meeting, the statement was the first to break up 
the risks to output and inflation and made the explicit 
statement that we considered the risk to inflation to be 
downward. This was a new situation. The Fed has always been 
fighting inflation rather than worrying about inflation going 
too low.
    The purpose of signaling that inflation had a downward risk 
was in a way to try to convey the idea that the Fed would 
remain accommodative in order to make sure that disinflation 
did not proceed and at the same time support the recovery in 
the economy.
    It would have been appropriate in fact for bond rates to 
fall, reflecting the view that the Fed was going to keep 
interest rates low for a period of time.
    It does appear to be the case that some bond market 
participants overinterpreted that statement to say that the Fed 
was involved or planning to take much more dramatic actions 
such as purchasing long-term Treasury bonds in an attempt to 
bring down long-term yields directly.
    Again, we did try to emphasize throughout the process that 
we were doing our fiduciary duty in preparing and thinking 
about such contingencies but that we felt that those 
contingencies were quite remote, and therefore, I think that 
interpretation was not really a fair one.
    The fluctuations that we have seen in bond yields, besides 
responding to genuine news in the economy, have been 
exaggerated to some extent by mortgage hedging activity, 
including by the Government Sponsored Enterprises, which tend 
to create an unstable dynamic. As interest rates rise, there is 
a tendency for mortgage hedgers to sell bonds, which then 
causes interest rates to rise further. That clearly added to 
the volatility during this period as interest rates were moving 
up and down.
    In short, I think that we tried to convey to the bond 
markets that we did intend to keep policy easy, and that should 
have lowered interest rates. There was an overreaction to that. 
The lesson we have learned from that is that we need to be even 
better and more clear in our communication. As I mentioned 
earlier, one of my particular interests and concerns about 
monetary policy is how we should improve the transparency of 
the Fed and make it more clear to markets and to the public 
exactly what we are trying to do and what our objectives are.
    That episode, I hope, will not create any significant 
problems with the ongoing recovery, but it does teach us some 
valuable lessons about communication.
    Senator Sarbanes. So that kind of volatility is an 
undesirable factor, is it not?
    Mr. Bernanke. It is indeed.
    Mr. Ferguson. Actually, we have to be careful. One expects 
interest rates to move based on changing expectations of 
monetary policy, and based on incoming information about the 
economy. Extreme volatility by definition, one has to be wary 
of, but on the other hand, you do expect long-term interest 
rates to reflect a variety of forces and, by definition, move.
    I think the question that has to be asked is whether or not 
both that sudden, relatively dramatic drop in long-term 
interest rates, and then the reversal is likely to have a 
detrimental long-term impact on the recovery of the U.S. 
economy. My judgment is that, although it is a very interesting 
period and one that we can learn from--all of us--it is not 
inconsistent with the kind of turnaround that we expect to see 
and that is built into the forecast.
    So, I agree with you. One wants to be careful about having 
too much volatility in markets; on the other hand, the opposite 
of that is interest rates that do not reflect incoming data, 
and you do want to see that, for sure.
    Senator Sarbanes. Yes, but these interest rates, wouldn't 
you say the swing was beyond what the incoming data would 
reasonably have justified?
    Mr.  Ferguson. Yes, I think it was, for reasons that we 
pointed out. One was a misunderstanding on their part of what 
interest rate policy and the use of these unconventional tools 
might have been, and the second is the so-called convexity 
hedging issue.
    Chairman Shelby. Do you have any other questions?
    Senator Sarbanes. No, Mr. Chairman.
    Chairman Shelby. Gentlemen, we thank all of you for your 
appearance today, and we will try to move your nominations as 
soon as possible so you can continue to do the work that you 
are doing.
    Thank you. The hearing is adjourned.
    [Whereupon, at 11:28 a.m., the hearing was adjourned.]
    [Prepared statements and biographical sketches of the 
nominees supplied for the record follow:]

              PREPARED STATEMENT OF ROGER W. FERGUSON, JR.
                        Vice Chairman-Designate
            Board of Governors of the Federal Reserve System
                            October 14, 2003

    Chairman Shelby, Senator Sarbanes, and Members of the Committee, I 
am pleased to appear before you today as President Bush's nominee to 
serve as Vice Chairman of the Board of Governors of the Federal Reserve 
System. I am honored that the President has nominated me to serve a 
second term in that capacity. I thank you for holding this hearing.
    It has been my privilege to serve our fellow citizens as a Member 
of the Federal Reserve Board since 1997 and as Vice Chairman since 
1999. I have given this role my undivided attention, and I hope to be 
able to continue in that service. The policy decisions of the Federal 
Reserve influence the economic well-being of all Americans. During my 
tenure, we have faced challenges in many of our areas of 
responsibility, and I would like to review briefly some of those 
developments and our responses to them.
    Congress has given the Federal Reserve three monetary policy 
objectives: Maximum employment, stable prices,and moderate long-term 
interest rates. We have viewed these objectives as congruent with a 
goal of maximum sustainable growth that can occur only in the context 
of long-run price stability. Fostering financial conditions in which 
Americans can realize their full potential has presented a number of 
challenges in recent years. The impressive step-up in the advance of 
technological and organizational efficiencies and a rapid accumulation 
of physical capital in the late 1990's have been the key factors 
affecting our economy's performance in the past decade. These 
developments have made workers increasingly productive. But faster 
productivity growth, despite its long-term benefits, has not insulated 
the economy from cyclical swings. The sharp reevaluation that occurred 
in equity markets and the retrenchment in business investment and 
spending that occurred over the past several years--together with the 
effects of terrorist attacks, wars, and corporate scandals--battered 
the confidence of households and businesses. In response, the Federal 
Reserve made substantial adjustments to its policy interest rate in 
order to cushion the effects of these developments on the broader 
economy. Other forces--particularly the growing interconnectedness of 
the global economy--have been important background factors in setting 
monetary policy. Of late, policymakers have been mindful of the virtual 
eradication of inflation and their need to set policy so that the 
economy remains in the zone of price stability. But all of our policy 
changes have been undertaken in pursuit of maximum sustainable growth 
and stable prices.
    Making monetary policy has been only part of the challenge. During 
my tenure at the Federal Reserve, we have also worked diligently to 
communicate to the public what we are doing and why. Transparency in 
policymaking is a key part of the democratic process and fosters 
efficient decisionmaking in the private sector. Becoming more 
transparent has been an important goal of the central bank in recent 
years, keeping in mind that we must balance being open and accountable 
with the need to maintain an effective process of decisionmaking by the 
Federal Open Market Committee. Transparency requires that we 
periodically review our procedures, as we did in 1999 and again last 
month, to ensure that they appropriately balance these considerations. 
I do not know what future changes, if any, might be called for in how 
we communicate, but I am confident that the Federal Reserve will 
continue to look for ways to communicate and explain our policies 
clearly.
    While macroeconomic conditions are of central importance, the role 
of the Federal Reserve is broader than monetary policy. Financial 
stability is an essential precondition for maintaining a strong 
economy, and the Federal Reserve played a key role in maintaining 
financial and economic stability in the aftermath of the terrorist 
attacks on September 11, 2001. As the only Board member in Washington, 
DC, on that day, I had responsibility for overseeing the Federal 
Reserve System's response to the terrorist attacks. Working with many 
able colleagues in the System, the U.S. Government, and the private 
sector, we at the Federal Reserve responded effectively to the attacks. 
By providing ample liquidity and reassuring the public and the banking 
community, we helped our financial markets and the supporting 
infrastructure recover very quickly. Since that terrible day, I have 
done all in my power to enhance the resilience of the financial system 
of the United States, and I pledge to continue to work on these issues 
in the years ahead.
    The Federal Reserve executes its important financial stability 
responsibilities in less stressful times through its role in 
supervising and regulating our Nation's banking system. The Federal 
Reserve and other regulators must foster a competitive environment that 
will benefit the users of financial services, while also promoting 
safety and soundness. I believe that we should achieve these objectives 
with a minimum of regulatory burden and without leaving the impression 
that any institution is too big to fail. Currently, we face the 
challenge of meeting these goals by developing a new capital accord to 
apply to the largest, most complex internationally active institutions. 
As I have testified before this Committee, the existing accord no 
longer suffices for these institutions. Now we need to work with our 
financial institutions and other regulators to replace the existing 
accord with a new one that is more risk-sensitive, builds on advances 
in risk measurement and management, and provides proper incentives. And 
we must do so without unnecessary complexity and without creating 
undesirable competitive imbalances or other unintended consequences.
    Technology and deregulation have encouraged consolidation in the 
financial sector. With central bank and treasury officials from twelve 
other major industrial economies, I have reviewed the likely effects of 
the global trend toward consolidation and its implications for central 
banks and regulators. Because financial systems will continue to 
consolidate, the regulatory community needs to monitor developments 
closely. But our study also found that existing policies appear 
adequate to allow regulators to maintain safe and sound financial 
industries now and in the intermediate term. This is true both for 
financial stability and for the maintenance of markets through which 
monetary policy can continue to work using the same mechanisms as in 
the past.
    Last, our payment system is a real presence in the economic lives 
of every consumer and business. This system too has been, and will 
continue to be, changed greatly by emerging technologies. From its very 
founding, the Federal Reserve has had the responsibility to foster an 
efficient, safe, and accessible payment system. In a dynamic economy, 
markets appropriately play the key role in guiding the development of 
the payments infrastructure. This means that innovation and competition 
will be central to the future development of the payment system--as 
they are in other areas of the economy. Regulators and Congress should 
strive to remove barriers to innovation when we can do so without 
sacrificing important public policy objectives. I have been privileged 
to work with this Committee on one such initiative, the Check 
Truncation Act, or Check 21. This legislation removes a legal 
impediment and should, over time, foster greater use of electronics in 
the check-clearing process while also preserving the right of consumers 
and banks to receive paper checks. Ultimately, Check 21 should allow 
depository institutions to provide new and beneficial services to their 
customers. I look forward, as I know you do, to its prompt enactment. 
And I thank the Committee and its staff for the strong support you have 
provided.
    Mr. Chairman and Members of the Committee, during my years on the 
Board of Governors, I have done my best to contribute positively to all 
aspects of the Federal Reserve's many responsibilities. I look forward 
to the opportunity to continue to work with you and serve the Nation as 
Vice Chairman of the Board of Governors. Thank you for your attention 
and for considering my nomination. I would be pleased to answer any 
questions.
                               ----------
                  PREPARED STATEMENT OF PAUL S. ATKINS

       Member-Designate, U.S. Securities and Exchange Commission
                            October 14, 2003

    Chairman Shelby, Ranking Member Sarbanes, and Members of the 
Committee, it is a very great honor for me to appear for the second 
time before this Committee. I am deeply grateful for the confidence 
that President Bush has again shown in me by nominating me for a second 
time to be a Commissioner. I appreciate your courtesy in calling me 
before you today.
    I would also like to note that it has been a pleasure to work with 
Chairman Bill Donaldson and my other colleagues on the Commission, 
Cynthia Glassman, Harvey Goldschmid, and Roel Campos. I salute the 
leadership that Chairman Donaldson has provided us and the SEC staff. 
If confirmed once again by the Senate, I look forward to continuing to 
work with Chairman Donaldson and my fellow Commissioners to address the 
very weighty issues that are before the SEC.
    I have always regarded the Securities and Exchange Commission as 
one of the finest agencies of the U.S. Government. My 20-year career 
has centered on the financial markets and the SEC's oversight of them. 
In fact, I should note that I now have had the privilege of working 
closely with four SEC Chairmen: Richard Breeden, Arthur Levitt, Harvey 
Pitt, and Bill Donaldson. I have learned much from each of these men 
and am happy to count them as friends and advisors.
    As the Members of this Committee well know, in the past few years 
investors have been confronted with spectacular failures of large and 
small corporations because of bad accounting practices and outright 
fraud. The instances of corporate managers engaging in theft and 
reckless mismanagement of corporate funds are shocking, outrageous, and 
completely unacceptable. The revelations of corporate malfeasance 
undermined our capital markets in a profound way. ``Corporate 
Responsibility'' rightfully became a national issue for the first time 
in perhaps 70 years. In response to this crisis, this Committee and the 
Congress acted forcefully and the President signed into law the 
Sarbanes-Oxley Act of 2002, the most important piece of corporate 
governance and securities legislation in the last 70 years.
    For many Americans, the SEC until the last couple of years may have 
been just another Federal agency in Washington, DC, with an alphabet-
soup acronym. As Enron, MCI, and a host of other corporate scandals--
along with the severe downturn in the marketplace--showed, the times 
have radically changed. Millions of Americans look to the SEC more than 
ever as the defender of their financial hopes and dreams, as it should 
and must be. Investors rightfully demand a tough cop to fight those who 
steal their hard-earned savings and investment.
    These are unique and demanding times at the SEC. It would be a 
privilege for me to continue to respond to this call and to give my 
best efforts to advance the Commission's mandate on behalf of the 
investing public.
    In my relatively short tenure as an SEC Commissioner, I have had 
the privilege of serving at the agency as we attempted to fulfill the 
high expectations of Congress in implementing the Sarbanes-Oxley 
legislation. As the Commission considered this important legislation, I 
tried to be mindful that investors need to have confidence that 
corporate officers are honest and have the best interests of their 
companies and stockholders in mind, not just what is good for their own 
wallets. Investors need to know that auditors of public companies are 
unconflicted, ethical, and acting in the best interests of investors. 
They need to know that their representatives on corporate boards are 
actively guarding their interests. And, last, but certainly not least, 
investors must be able to rely on the financial reports issued by 
public companies to present a clear and accurate picture of the 
financial health of those companies. If confirmed, I will continue to 
make decisions based on these bedrock principles.
    We at the SEC have heard the calls from the investing public, and 
we are working hard to be more vigilant, more aggressive, and more 
faithful defenders of the public trust. We have, I believe, made 
significant steps to restore confidence in our financial system. If 
confirmed, I will continue to work toward achieving these critical 
objectives.
    As I said the last time that I was before you, the SEC is a vital 
line of defense in protecting investors and the integrity of our 
financial markets. If confirmed, I will continue to dedicate my energy, 
experience, integrity, and independent judgment to achieving that goal. 
I look forward to the opportunity to return to my position at the SEC 
to serve with Chairman Donaldson and my fellow Commissioners.
    Thank you very much and I would be happy to answer any questions 
that you might have.





                            NOMINATIONS OF:

                      APRIL H. FOLEY, OF NEW YORK

                     TO BE FIRST VICE PRESIDENT OF

                                  AND

                     JOSEPH MAX CLELAND, OF GEORGIA

                        TO BE A BOARD MEMBER OF

              THE EXPORT-IMPORT BANK OF THE UNITED STATES

                              ----------                              


                       TUESDAY, DECEMBER 9, 2003

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.

    The Committee met at 9:30 a.m., in room SD-538, Dirksen 
Senate Office Building, Senator Richard C. Shelby (Chairman of 
the Committee) presiding.

        OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY

    Chairman Shelby. The hearing will come to order.
    The purpose of this hearing is to review the nomination of 
April Foley to be First Vice President of the Export-Import 
Bank of the United States--Ms. Foley already serves as a member 
of the Bank's Board of Directors--and the nomination of Max 
Cleland to the Board of Directors of the same institution.
    The Export-Import Bank is the principal U.S. Government 
entity for financing the export of U.S. goods and services. As 
the United States becomes more economically interdependent with 
a growing number of trade partners, the Bank's role in leveling 
the playing field for American companies seeking to market 
their goods and services overseas continues to grow. In fact, 
an agency that just a few short years ago was the target of 
serious efforts aimed at its dissolution has not only survived 
but has also seen its mission expand. Especially with the 
increase in emphasis over the past decade on the Bank's loan 
guarantee and risk insurance programs, the opening of new 
markets in developing countries will almost certainly tax its 
energy and resources more than ever before.
    It is for this reason that the importance of the role of 
the Export-Import Bank's Board of Directors should not be 
underestimated. The positions for which these two highly 
respected individuals have been nominated oversee an 
organization with an annual budget of $600 million and which 
supports billions of dollars in U.S. exports every year. Ms. 
Foley, of course, is an incumbent member of the Bank's Board. 
Our former colleague and friend Max Cleland, however, will be 
new to the Bank, and I firmly believe will make an admirable 
addition.
    Prior to assuming her position as a member of the Ex-Im's 
Board of Directors, April Foley was a member of the Board of 
Directors and President of the United Way of Northern 
Westchester, New York. She has been Director of Business 
Planning for Corporate Strategy for PepsiCo and served as 
Director of Strategy for Reader's Digest Association. She 
carries with her the battle scars from having cast the deciding 
vote against Ex-Im Bank support for the natural gas extraction, 
pipeline, and processing facilities the Government of Peru 
intends to build in sensitive rainforest and marine preserves. 
Given the stakes involved in that project for U.S. companies, 
Ms. Foley has already demonstrated her independence and her 
integrity.
    The second nominee, of course, is Max Cleland, a former 
U.S. Senator from Georgia. Senator Cleland is currently a 
member of the National Commission on Terrorist Attacks Upon the 
United States. Prior to his election to the Senate, he served 
in the Administration of President Carter as Secretary of 
Veterans Affairs, and has also served in the Georgia State 
Senate and as that State's Secretary of State. I am pleased 
that he is here with us today.
    Senator Sarbanes.

             STATEMENT OF SENATOR PAUL S. SARBANES

    Senator Sarbanes. Thank you very much, Mr. Chairman.
    I am pleased to welcome before the Committee on Banking, 
Housing, and Urban Affairs former Senator Max Cleland, who has 
been nominated to be a member of the Board of Directors of the 
Export-Import Bank, and Ms. April Foley, who has been nominated 
to be the First Vice President of the Export-Import Bank.
    I would like to begin by thanking Chairman Shelby for 
holding this confirmation hearing today. Both of these 
nominations were received by the Senate on November 24, so 
there was no opportunity to hold a hearing on them before the 
Senate recessed on November 25. I should also note that Senator 
Miller was unable to be here this morning but asked that his 
statement of strong support for Senator Cleland's nomination be 
inserted in the record of the hearing.
    Senator Cleland has given extraordinary service to our 
country for nearly 40 years. I am very pleased that he will be 
able to continue that career of public service as a member of 
the Board of the Export-Import Bank.
    Senator Cleland received his undergraduate degree from 
Stetson University in 1964 and a master's degree from Emory 
University in 1968. He served in the United States Army from 
1965 to 1969, at which time he retired with the rank of 
captain. During his service, he received the Soldiers' Medal 
for Heroism, the Bronze Star for Meritorious Service, and the 
Silver Star for Gallantry in Action. Senator Cleland served as 
a Senator in the Georgia legislature from 1971 to 1975 and as a 
staff member of the U.S. Senate Veterans' Affairs Committee 
from 1975 to 1977.
    President Carter appointed Senator Cleland to be 
Administrator of the Veterans Administration in 1977, a 
position he held until 1981. From 1983 to 1996, Senator Cleland 
served as Secretary of State of Georgia. From 1997 to 2003, he 
served as U.S. Senator from Georgia. He is currently a member 
of the Independent 
Commission on Terrorist Attacks on the United States and 
Distinguished Adjunct Professor and Member of the Center for 
Presidential and Congressional Studies at American University.
    April Foley received her undergraduate degree from Smith 
College in 1969 and an MBA from Harvard Business School in 
1975. She worked in senior management positions for Wilson 
Sporting Goods from 1976 to 1981. From 1981 to 1993, she served 
as Director of Business Planning for PepsiCo Company. From 1994 
to 1995, she was Director of Strategy for Reader's Digest.
    I should note that Ms. Foley had been previously nominated 
to be a member of the Ex-Im Bank Board on April 11. However, 
she received a recess appointment on May 14 and has been 
serving on the Board since then. Her nomination to be a member 
of the Ex-Im Bank Board was withdrawn by the White House on 
November 21, prior to the submission of her nomination to be 
First Vice President of the Ex-Im Bank.
    I believe that both of these nominees are well-qualified 
for these positions, and I intend to support their nominations. 
Senator Cleland, of course, will bring a perhaps unprecedented 
dimension of stature and weight to the Board of the Ex-Im Bank. 
I think it is fair to say that calls from him on behalf of the 
Ex-Im Bank to U.S. exporters and commercial banks, foreign 
companies and governments, and indeed, Members of Congress and 
other executive branch agencies, will be returned with greater 
haste than your average Ex-Im Bank Board member.
    I also know that he brings a passionate commitment to the 
promotion of U.S. exports and the creation of American jobs, 
the principal mission of the Export-Import Bank. His service on 
the Senate Commerce and Small Business Committees as well as 
the assistance he provided to exporters from Georgia provide 
him with substantial background for his new position.
    By all reports, Ms. Foley has performed with great 
distinction during her brief service on the Board of the 
Export-Import Bank. Her significant background in senior 
management positions in the private sector will serve her well. 
The Charter of the Ex-Im Bank provides that the First Vice 
President shall serve as Vice Chairman of the Board of the 
Export-Import Bank.
    Mr. Chairman, I want to enter in the record a letter sent 
to us from the Coalition for Employment Through Exports, a 
business-labor group which has been very interested in the 
export issue and has been a source of good advice, I think, to 
the Committee, signed by its president, Edmund B. Rice, and I 
am going to take a moment just to quote from it.

    In the 8 months since she was appointed to the Bank's 
Board, April Foley has quickly distinguished herself as a hard-
working, dedicated director. She has demonstrated a keen 
understanding of the fierce competition that U.S. exporters 
confront in global markets and the key role that the Bank plays 
to help level the playing field against foreign companies that 
have the active financial support of their governments in 
financing transactions and projects.
    This sharp focus on increasing U.S. exports and export-
related jobs is complemented by her prior private sector 
management experience, which makes her an excellent choice to 
be First Vice President of the Bank with that position's added 
responsibilities.

    And with respect to Senator Cleland, Mr. Rice says: 
``Former Senator Cleland's distinguished public service in the 
military and in the Senate needs no further elaboration. He 
would bring to the Bank's Board a well-honed ability to 
determine public policy in a wide range of areas, and we are 
confident that he would add an important dimension to the 
Board's governance of the Bank.''
    Mr. Chairman, I would close by just saying that I believe 
that both of these nominees are very well-qualified for these 
positions. I intend to support their nominations.
    Chairman Shelby. Senator Allard.

                COMMENTS OF SENATOR WAYNE ALLARD

    Senator Allard. Mr. Chairman, thank you.
    I wanted to be here this morning specifically so that I 
could welcome my good friend Senator Cleland to the Committee.
    Senator Cleland and I worked together on the Armed Services 
Committee and worked on some pretty sensitive issues, and I 
think at the time we were working together, a lot of the 
export-import issues as far as defense products were concerned 
were something that received a lot of discussion. And 
obviously, his experience on the Small Business Committee is 
something I have appreciated. Being a small businessman myself, 
I put a lot of importance on small business, and I think if 
there is an area where we need to have emphasis and help, it is 
in the small business area and working on the exports and 
imports of this country. It seems like larger corporations have 
the personnel to do it, but those that probably need assistance 
at least to get started are in the small business community and 
helping out small business entrepreneurs.
    And he has had experience on Commerce, Science, and 
Transportation Committee--that covers most bases. I think he 
will do a great job on the Board of Directors of the Export-
Import Bank, and I wanted to be here just to specifically say 
hello to him and wish him well, and I plan on supporting him 
for this position.
    I would also like to welcome April Foley to the Committee. 
Her extensive experience in financial planning and strategy 
development will make her a valuable asset on the Board of the 
Export-Import Bank, and further, her previous employment 
experiences 
allowed her to interact with many different people on many 
different levels, and I think that is important. This will be 
key as she works to create relationships internationally, 
working to keep the U.S. economy strong and growing.
    So, Mr. Chairman, thank you for giving me the time to 
welcome these nominees, and I suppose Senator Daschle has a 
word or two that he wants to say, too, so I will yield over the 
rest of my time.
    Thank you.
    Chairman Shelby. I will call on Senator Daschle, our former 
Majority Leader, the Democratic leader, a friend and colleague 
of all of us, for any remarks he wishes to make.

                 COMMENTS OF THOMAS A. DASCHLE

         A U.S. SENATOR FROM THE STATE OF SOUTH DAKOTA

    Senator Daschle. Mr. Chairman, I would begin by thanking 
you, the Members of the Committee, and your staff for 
rearranging your schedules to hold this hearing. It means a 
great deal to many of us, and this would not have happened were 
it not for your willingness to do so. So I am grateful to you 
for that.
    You have spoken so eloquently and articulately about the 
qualifications of each of our candidates. I congratulate our 
nominees, and I simply wanted to come before the Committee this 
morning to say just a word about our dear friend Max Cleland.
    Max went to Vietnam at six-foot-four and came back having 
sustained injuries that most of us could never have tolerated 
or endured. But I think he stands even taller than that today 
in this country and in the Senate in large measure because of 
the man he is. With his integrity, his willingness to work 
hard, his sense of fairness and bipartisanship, he has become 
an inspiration to us all.
    Max has written two books--``Going for the Max'' and 
``Strong at the Broken Places.'' This man is strong in broken 
places, and he serves as an inspiration, not only to those who 
have also endured tragedy and hardship, but also to those of us 
who have had the good fortune to work with him. He is a 
dedicated public servant. You have articulated well his 
qualifications, as well as his experience, so I could do no 
more than to commend him to the Committee, thank him for his 
willingness to continue in public service today, and wish him 
well as he begins a new chapter in his life.
    I thank the Committee.
    Chairman Shelby. Senator Daschle, thank you for your 
remarks.
    Chairman Shelby. Will both of you raise your right hand, or 
raise your hand and affirm?
    Do you swear or affirm that the testimony that you are 
about to give is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Ms. Foley. I do.
    Senator Cleland. I do.
    Chairman Shelby. Do you agree to appear and testify before 
any duly-constituted committee of the Senate?
    Ms. Foley. I do.
    Senator Cleland. I do.
    Chairman Shelby. Welcome, Ms. Foley and Senator Cleland.
    I understand you might want to introduce any family members 
that you have here, and Ms. Foley, we will start with you.

            STATEMENT OF APRIL H. FOLEY, OF NEW YORK

                 TO BE FIRST VICE PRESIDENT OF

          THE EXPORT-IMPORT BANK OF THE UNITED STATES

    Ms. Foley. Mr. Chairman, Senator Sarbanes, esteemed Members 
of the Committee, I am honored to come before you as you 
consider my nomination to be First Vice President and Vice 
Chair of the Export-Import Bank of the United States.
    Many thanks to you and your fine staffs for scheduling this 
hearing. I also want to say happy birthday to Senator Daschle.
    Senator Sarbanes. He left the room. We forgot to do that.
    Ms. Foley. I did not get that in soon enough.
    I am deeply appreciative of President Bush for the faith 
and trust he has placed in me. His nomination provides me with 
an exceptional opportunity to serve my country. We are all 
proud citizens of the finest country in the world. It is a rare 
gift to have the chance to serve it in such a significant way.
    I would like to recognize a family member who is here 
today. Ellen James, who is the sister of my late husband, 
Gifford Foley.
    I would also like to recognize my colleagues here who have 
been enormously supportive of me.
    I fully endorse the mission of the Ex-Im Bank, and I will 
strive to successfully fulfill it. If confirmed, I will work 
diligently to support U.S. exports, create jobs for deserving 
Americans, and level the playing field with foreign 
competitors. I will act to protect the fiduciary interests of 
the American taxpayer. I will actively seek creative 
enhancements to Ex-Im's products and programs to better respond 
to the changing needs of the marketplace. I will work with the 
organization to identify new approaches tailored specifically 
to the requirements of small business. I will back Ex-Im's 
efforts to be a relentless competitor. I will strive to foster 
a positive working environment of honesty, openness, personal 
recognition, and respect. I will commit myself to serving this 
country with integrity, balance, and vigor.
    It would be a great honor and privilege to serve under the 
extraordinary leadership of Chairman Philip Merrill, and with 
such accomplished colleagues as Director Joe Grandmaison and 
Senator Max Cleland.
    Mr. Chairman, Senator Sarbanes, Members of the Committee, I 
respectfully ask for your favorable consideration of my 
nomination. I am pleased to respond to your questions.
    Chairman Shelby. Thank you, Ms. Foley.
    Senator Cleland.

          STATEMENT OF JOSEPH MAX CLELAND, OF GEORGIA

        A FORMER U.S. SENATOR FROM THE STATE OF GEORGIA

                    TO BE A BOARD MEMBER OF

          THE EXPORT-IMPORT BANK OF THE UNITED STATES

    Senator Cleland. Thank you very much, Mr. Chairman. It is 
an honor to be here with my potential colleague, Ms. Foley, and 
I would like to say a special word of thanks to all of you for 
the wonderful words of welcome and the wonderful words of 
praise that I have heard today. I have them on tape and will 
play them late at the midnight hour.
    [Laughter.]
    I would like to recognize some people who have meant a lot 
to me and do mean a lot to me--Ms. Nancy Ross, the woman I am 
in love with and my fiancee; Bob Vaughn--we served together in 
Vietnam; Gamin Michael, we served together in the Veterans 
Administration; Lynn Kimmerly, who was on my staff here in the 
Senate; Andy Van Landingham, who was also on my staff here; 
Mashio Cameron, a distinguished member of my former staff; and 
two people who have made it possible for me to survive here 
this year in Washington and whom I hope to bring to the Bank 
with me--Elaine Iler and Adil Durrani. Also, I would like to 
thank Mr. Peter Cohen and Jeri Thompson for their wonderful 
support.
    May I just say, Mr. Chairman, Senator Sarbanes, and 
distinguished Members of the Committee, it is good to be back 
home in the U.S. Senate. Senator Byrd used to say that people 
come to the Senate to make an impact on it and find out that 
the Senate makes an impact on them. So for the last 6 years of 
my life, it has made an impact on me, a positive impact, and I 
have enjoyed serving the people of Georgia and the United 
States.
    I wanted to have this new opportunity, if this Committee so 
decides, to have a new home at the Export-Import Bank. I would 
like to thank the Minority Leader, Senator Tom Daschle, for his 
unstinting support and his wonderful words today, and President 
Bush for the opportunity to continue my service in public life. 
As a former Chairman of the Ex-Im Bank, Mr. John Robson once 
declared before this Committee: ``I relish this new challenge 
because I have never found a canvas as big to paint on as 
public service offers.'' Those are my feelings exactly, Mr. 
Chairman.
    But what kind of picture shall we, working together, paint? 
The picture I would like to paint over the course of my tenure 
on Ex-Im Bank's Board is of an expanding economy that creates 
jobs. One way to maximize the jobs created in this country is 
by an expansion of our exports. Ex-Im Bank is needed now more 
than ever to create jobs here in this country. Since its 
creation by President Franklin Roosevelt almost 70 years ago, 
this marvelous agency is one of the tremendous tools we have at 
our disposal to reverse the downturn in the job market.
    In 2003, Ex-Im Bank created and sustained thousands of jobs 
in America through supporting $14 billion in our Nation's 
exports. In my home State of Georgia over the last few years, 
the Bank has supported over $600 million in exports for 126 
different companies in 45 separate communities. That is quite 
an impact just in my State alone. This is a picture of job 
creation and support for our exports that I would like to paint 
for my whole country were I to be confirmed by the U.S. Senate.
    Last, I think my service in this body--as Senator Allard 
has pointed out, as the Chairman has pointed out, and Senator 
Sarbanes has pointed out--my experience on the Senate Commerce 
Committee and on the Senate Small Business Committee for 6 
years, especially gives me a chance to be a spokesperson for 
small business, which is one of the things I would like to do 
at the Bank.
    Thank you for your time, Mr. Chairman. Thank you for this 
hearing. Senator Sarbanes, Senator Allard, thank you for 
coming. I would like to especially thank Ms. Foley and Mr. Joe 
Grandmaison for helping me prepare for today's hearing and the 
wonderful staff at Ex-Im Bank, and certainly want to thank 
Chairman Phil Merrill. It is just great to have the opportunity 
to potentially serve with them.
    Thank you again, Mr. Chairman, and I would just like to ask 
you and the Members of the Committee for your support as a 
Director of the Ex-Im Bank.
    Chairman Shelby. Thank you, Senator.
    Iraq is estimated to be in debt to foreign lenders to the 
tune of $116 billion. Alongside that debt load is an estimated 
cost to rebuild Iraq of about $200 billion. As Iraq struggles 
to rebuild and come to grips with the implications, including 
the state of the nation's dilapidated infrastructure, with a 
history of autocratic rule and war, it is clear that at least 
in the short-term, its only real hope for generating meaningful 
revenue is its oil, the industry's oil reserves.
    There have been a number of proposals for how to exploit 
Iraq's future oil revenues to facilitate economic 
reconstruction. The Export-Import Bank itself had floated a 
proposal to issue bonds against Iraq's oil revenue. Now it 
would obviously be unfair to place too much of the burden for 
Iraq's reconstruction on an agency like the Export-Import Bank.
    The scope of the Bank's mission and its limited resources 
mean it can only do so much, as we know. To the extent, though, 
that the Bank has a seat at the table of the U.S. and foreign 
lending agencies that make the decisions on how best to aid 
Iraq's reconstruction, I would appreciate hearing from both of 
you your assessments of how Iraq's future oil reserves factor 
into the Bank's calculations of what can be achieved here.
    I know this is very complicated, what I am asking you. I 
would also like to hear from you about your views of the 
approach the Bank would take to calculate the risk with regard 
to a country with such an enormous debt load relative to the 
current state of its economy and the estimated cost of 
rebuilding. Ms. Foley.
    I hate to hit you all with this, but this is very 
important.
    Ms. Foley. No. I think it is an excellent question, and I 
want to first compliment Chairman Philip Merrill for taking a 
leadership role in the area of Iraqi reconstruction and also 
compliment Peter Saba, who is part of the Bank, who has worked 
very diligently with the team there to get some financing 
products on the table.
    At Ex-Im Bank, I think a top priority for us is to make a 
contribution to Iraq reconstruction.
    Chairman Shelby. And you will be at the table.
    Ms. Foley. Definitely, we will be at the table--and in 
fact, we have just come forward with a $500 million line of 
credit to finance short-term transactions with the CPA which is 
guaranteed by the Development Fund of Iraq, which is basically 
where the oil revenues are collected.
    This is a short-term facility. We took the leadership role 
in establishing this facility, and then we worked with 15 other 
countries to have similar facilities so that now, instead of 
$500 million on the table, there is $2 billion on the table.
    We will be moving forward to put a medium-term product on 
the table, and I am planning to go to Iraq in 2004 and try to 
move the ball forward and see what more we can contribute.
    Chairman Shelby. You are very familiar with the fact that 
President Bush has enlisted the help of former Secretary of 
State James Baker to try to bring that debt load down.
    Ms. Foley. Yes, he has, and we are fully supportive and 
feel that it is a top priority because medium-term and long-
term financing really cannot occur before that debt is 
rescheduled or forgiven.
    Chairman Shelby. Max, do you have any comment?
    Senator Cleland. Yes, sir. Mr. Chairman, I have always 
thought that this nation, Iraq, which has the second-largest 
oil reserves in the world, has a tremendous natural asset that 
it can leverage and that we can leverage in assisting it to 
rebuild.
    I think the Bank has taken a very forward step already. 
They have evaluated the risk, and I think they have approached 
it properly by in effect taking it one step at a time. Ms. 
Foley talked about short-term debt, less than 180 days. I think 
that that is the proper way to do it and that the Bank has 
backed some $500 million in exports for U.S. companies who want 
to export there. This support has now increased to 15 other 
nations and involves some $2 billion in assets to back exports 
for Iraq reconstruction.
    So, I would support the continued evaluation of Iraq and 
leveraging the oil that they have. We will take it one step at 
a time, and I think the Bank has already taken a good first 
step.
    Chairman Shelby. What about Russia? I will start with you, 
Ms. Foley, since you are on the Board now. How do we secure the 
environment for U.S. investment in Russia, considering the 
history and considering what is going on there? There is a lot 
of potential and a lot of danger, is not there?
    Ms. Foley. There is. There is both. I think some of the 
messages that Senator Evans--excuse me--Secretary Evans and the 
Commerce Department----
    Senator Sarbanes. I am sure the Secretary does not mind 
being promoted.
    [Laughter.]
    Ms. Foley. --good point--Secretary Evans is trying to get 
the message of the importance of good corporate governance, 
ethical conduct, and the rule of law. I think a lot of progress 
is being made on all of those fronts in Russia. Even so, Ex-Im 
Bank has to be cautious in how it approaches each transaction. 
We have a well-developed risk assessment program for every 
country which evaluates a complex array of economic, political, 
and credit factors. We feel these evaluations provide us with 
adequate protection for the risks that we take.
    Chairman Shelby. Senator Sarbanes.
    Senator Sarbanes. Thank you very much, Mr. Chairman.
    Mr. Chairman, I am going to forego questions, particularly 
in view of the very strong statements of both Ms. Foley and 
Senator Cleland. I thought they were an exceedingly strong, 
concise statement of their responsibilities on the Export-
Import Bank Board.
    I just want to mention a couple of points for their 
consideration. First of all, as you indicate, I think this 
issue of Iraq reconstruction is very complex. The Board needs 
to work through it very carefully. Obviously, that challenge 
could consume all of the resources of the Board that are 
available to us, leaving it with very little or nothing to do 
elsewhere.
    There is a matter of balance that has to be taken into 
account. I do not quarrel with there being a role to play, but 
I think it needs to be thought through very carefully so the 
Bank's fundamental role of helping exports and jobs all over 
the world is not markedly circumscribed.
    Second, Senator Allard took the lead in the Committee last 
year with the support of many of us to increase the percentage 
of Ex-Im Bank financing that must go to small business. It has 
been increased from 15 to 20 percent. I think that does pose a 
challenge to the Ex-Im Bank to move up to that level, and I was 
heartened by the commitment on the part of both of you here 
this morning to the small business challenge and particularly 
the experience that Senator Cleland brings to that issue.
    Finally, this Committee put the Tied Aid Credit War Chest 
into the law, and we have been strongly supportive of it. I 
think it is essential. We are trying to get agreements at OECD 
not to underwrite exports, so the competition is simply on the 
basis of price and quality. But if other countries are not 
going to play by that rule and are going to significantly 
underwrite their exporters, for us to fail to provide support 
for our own exporters means they will not be competing on a 
level playing field, and I think that needs to constantly be 
borne in mind.
    But again, Mr. Chairman, I am excited by these two 
nominees. I think they will add to the quality of the Ex-Im 
Bank with Chairman Merrill and Director Grandmaison and give us 
a very strong team at the Ex-Im Bank.
    I know the President has one further appointment to make, 
which I understand is in the works, so we will have a full 
complement there, but I have always felt that Ex-Im has a very 
important role to play in terms of the workings of our economy, 
and I wish you both well.
    Thank you, Mr. Chairman.
    Chairman Shelby. Senator Allard.
    Senator Allard. Thank you, Mr. Chairman.
    I would like to follow up a little bit on Senator Sarbanes' 
small business comments. As he mentioned, we had provisionally 
put in the authorization bill to increase the role of small 
business in exports and imports, and as Senator Sarbanes 
pointed out, it is not an easy issue to deal with. I was 
wondering--this is to both of you--if you have any thoughts on 
what initiatives you might put forward and might talk about 
that would meet the goals that were laid out in that 
legislation.
    Senator Cleland. Let me take that if I can, Senator. About 
98 percent of the jobs in America are created by small 
businesses, basically defined as 200 employees or less. As a 
matter of fact, during the 1980's and 1990's, a massive growth 
period, most of the new jobs created in America were by 
businesses with 19 employees or less.
    So, I think the whole evolution of small business in 
America is a challenge to us all. One of the things I would 
like to specialize in, given my interest in small business, is 
how the Bank can leverage its power and its financial support 
for exports for small business companies. I think that is a 
tremendous payoff there if we can find good ways to do it. I 
appreciate your particular interest in this, and it is 
something that I would like to personally tackle. I do not have 
any great ideas right now, but it is something that I would 
like to put right on the front burner when and if I am 
confirmed by the Senate.
    Ms. Foley. It is a good question, and it is a difficult 
question. First of all, the Bank fully supports the 20 percent 
hurdle, and we are trying to not only meet it but also exceed 
it. But because of the limited resources that we have at the 
Bank, it really takes a different type of approach than we use 
for our normal large business transactions. Increasingly what 
we are seeing is that to be effective with small business, we 
have to have products designed for use by financial 
institutions that work through their vast branch networks. They 
can provide access to a greater number of small businesses. So 
therefore, the financial institution acts as a multiplier for 
our business.
    So right now we are in the process of evaluating our 
product and program lineup for financial institutions to make 
sure that our products are tailored properly to meet the needs 
of small businesses. In cases where they are not, we are trying 
to adjust the product line so that we have faster turnaround 
time, we have less paperwork, we have an electronic application 
process, et cetera, et cetera. Local currency is also an 
important small business-type feature to have.
    We are looking at all of these, and I think that when we 
get these programs into place, we will be much more effective 
in working through our multipliers to get the small business 
volume that we want to pump through Ex-Im Bank.
    Senator Allard. I think both of you have given good 
responses. I might add that I think part of the problem with 
small business is the communication problem and how you are 
going to get the message out to them and help them. I think you 
need to seek out those organizations that have a certain appeal 
to small business--it might be the local chamber, it might be 
the NFIB, or any other group of small business people--and let 
them know it is available. And even that is a relatively small 
percentage of all the small businesses that we have out there. 
I think that is one of the challenges considering some of the 
limited resources you might have dedicated, so you want to 
think of ways, while you get that message out there, that you 
can help small businesses. The banks, as you suggested, could 
be a good avenue, as well. Frequently, when small businesses 
are expanding, they go to a bank and ask for a loan, and I 
think this is a good opportunity for banks to help out a little 
bit in that area.
    The other question I have is a little more pointed, and I 
do not mean it to reflect at all on what I think is happening 
now at the Export-Import Bank, but I do think it is really 
important that we have an inspector general there that is 
functioning. We put that language in the Export-Import 
authorization bill, and I have noticed that in this last year, 
it was not requested, and I hope that--in fact, I am going to 
ask for a commitment from each one of you that you work as 
members of that Board to get in the President's budget a 
request for money for an inspector general. The inspector is 
the eyes and ears--you can understand this, Senator Cleland; we 
rely on them--they are the eyes and ears of the Members of the 
Congress, and I think it adds to the credibility of the Export-
Import Bank to have it there. I think it makes those of us who 
have some oversight of the Bank feel more comfortable about 
what is happening. And I hope, again, and I ask that each one 
of you will work to fund the IG position in the next budget.
    Senator Cleland. May I take that one first?
    Senator Allard. Yes.
    Senator Cleland. Thank you for mentioning that. It is a 
little-known part of credible, honest, straightforward, 
accountable government, but the inspector general is a valuable 
tool for that to happen in any agency.
    When I was head of the Veterans Administration in the late 
1970's, I created the Office of Inspector General in the VA, 
and it is still there today. The VA is right across the street, 
so I bring the same passion across the street now to Ex-Im 
Bank's Board to create an Office of Inspector General.
    Senator Allard. I appreciate your commitment to that.
    Ms. Foley.
    Ms. Foley. My understanding is that it was requested in 
fact in the President's budget but did not get through.
    Senator Allard. At what level?
    Ms. Foley. I do not know.
    Senator Allard. Okay. But the Board actually made the 
request from the Export-Import Bank, and when it went up for 
review, it got taken out. Is that what happened?
    Ms. Foley. That is my understanding.
    Senator Allard. Okay. That is interesting. Well, continue 
your efforts if you would, please----
    Ms. Foley. Okay.
    Senator Allard. --to track that down. Maybe we need an 
amendment in the Senate.
    Ms. Foley. Let me assure you in the meantime, as chair of 
the Audit Committee, that we have a very rigorous audit and 
control function at the Bank.
    Senator Allard. Thank you.
    Chairman Shelby. I just want to tell both of you that I 
believe both of you are exemplary nominees. Ms. Foley is 
already on there, and we know Senator Cleland well; he is 
highly respected. We are going to push both of these 
nominations as quickly and expeditiously as we can under the 
circumstances that we find ourselves in. We are going to be 
working with the leadership on both sides, Senator Daschle and 
Senator Frist, because these are important positions; you know 
it.
    So we thank you both, and we look forward to moving you as 
soon as possible. You will have widespread support in the 
Senate. Thank you.
    Senator Cleland. Thank you, Mr. Chairman.
    Ms. Foley. Thank you.
    Chairman Shelby. The hearing is adjourned.
    [Whereupon, at 10:11 a.m., the hearing was adjourned.]
    [Prepared statements, biographical sketches of the 
witnesses, and additional material supplied for the record 
follow:]

               PREPARED STATEMENT OF SENATOR ZELL MILLER

    Mr. Chairman, Members of the Committee, in all of my years in 
politics, I know of no other person who has embodied leadership, 
service and sacrifice more than Max Cleland.
    On and off the battlefield Max's story should serve as a continual 
inspiration to us all.
    When his Nation called in 1966, Max Cleland did not hesitate. He 
answered the call to arms and went to battle. His answer was, ``Count 
me in.''
    He volunteered for service, and he volunteered for Vietnam when he 
could have stayed stateside and been safe and sound.
    During his service in uniform, Max received the Silver Star Medal, 
one of the highest awards that can be given for gallantry in action. 
Listen to this citation:

        Captain Cleland distinguished himself by exceptionally valorous 
        action on 4 April 1968 . . . during an enemy attack near Khe 
        Sanh. When the battalion command post came under a heavy enemy 
        rocket and mortar attack, Captain Cleland, disregarding his own 
        safety, exposed himself to the rocket barrage as he left his 
        covered position to administer first aid to his wounded 
        comrades. He then assisted in moving the injured personnel to 
        covered positions. Continuing to expose himself, Captain 
        Cleland organized his men into a work party to repair the 
        battalion communications equipment, which had been damaged by 
        enemy fire. His gallant action is in keeping with the highest 
        traditions of the military service, and reflects great credit 
        upon himself, his unit and the United States Army.

    Those are not my words. That is Uncle Sam talking.
    And 4 days after that incident that earned him the Silver Star came 
the grenade explosion that so grievously wounded him. His would be a 
great story if you stopped there. But Max Cleland did not stop there.
    He continued to lead by courageously overcoming this tragedy and 
serving in the Georgia state Senate. And he followed that up by 
distinguished tours of duty as head of the Veterans Administration and 
as an esteemed member of this body.
    I have known and respected and loved Max Cleland for over 30 years. 
His is an American story; one of inspiration for us all. Mr. Chairman, 
I have no doubt that the Export-Import Bank and the Nation will benefit 
by his appointment and service on this board.
    Thank you, Mr. Chairman.

    
    
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