[Senate Hearing 108-583]
[From the U.S. Government Publishing Office]
S. Hrg. 108-583
NOMINATIONS OF: ALFRED A. PLAMANN
THOMAS W. GRANT, NOE HINJOSA, JR.
AND WILLIAM R. TIMKEN, JR.
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED EIGHTH CONGRESS
FIRST SESSION
ON
NOMINATIONS OF:
ALFRED A. PLAMANN, OF CALIFORNIA, TO BE A MEMBER OF THE BOARD OF
DIRECTORS OF THE NATIONAL CONSUMER COOPERATIVE BANK
__________
THOMAS W. GRANT, OF NEW YORK, TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
__________
NOE HINJOSA, JR., OF TEXAS, TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
__________
WILLIAM R. TIMKEN, JR., OF OHIO, TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
__________
MARCH 25, 2003
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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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
Mark F. Oesterle, Counsel
Patience R. Singleton, Democratic Counsel
Jonathan Miller, Democratic Professional Staff
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, MARCH 25, 2003
Page
Opening statement of Chairman Shelby............................. 1
Prepared statement........................................... 12
Opening statements, comments, or prepared statements of:
Senator Sarbanes............................................. 2
Senator Dole................................................. 2
Prepared statement....................................... 12
Senator Voinovich............................................ 13
NOMINEES
Alfred W. Plamann, of California, to be a Member of the Board of
Directors
of the National Consumer Cooperative Bank...................... 3
Prepared statement........................................... 13
Biographical sketch of nominee............................... 15
Responses to written questions of Senator Sarbanes........... 62
Thomas W. Grant, of New York, to be a Director of the Securities
Investor
Protection Corporation......................................... 4
Biographical sketch of nominee............................... 21
Response to written question of Senator Shelby............... 61
Noe Hinjosa, Jr., of Texas, to be a Director of the Securities
Investor
Protection Corporation......................................... 5
Biograhpical sketch of nominee............................... 28
William R. Timken, of Ohio, to be a Director of the Securities
Investor Protection Corporation................................ 6
Biographical sketch of nominee............................... 47
Response to written question of Senator Shelby............... 61
(iii)
NOMINATIONS OF:
ALFRED A. PLAMANN, OF CALIFORNIA
TO BE A MEMBER OF THE
BOARD OF DIRECTORS OF THE
NATIONAL CONSUMER COOPERATIVE BANK
AND
THOMAS W. GRANT, OF NEW YORK
NOE HINJOSA, JR., OF TEXAS
WILLIAM R. TIMKEN, JR., OF OHIO
TO BE DIRECTORS OF
THE SECURITIES INVESTOR
PROTECTION CORPORATION
----------
TUESDAY, MARCH 25, 2003
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 9:25 a.m., in room SD-538 of the
Dirksen Senate Office Building, Senator Richard C. Shelby,
(Chairman of the Committee), presiding.
OPENING STATEMENT OF CHAIRMAN RICHARD C. SHELBY
Chairman Shelby. The Committee will come to order.
Gentlemen, I want to thank you for your appearance before
the Committee today and your willingness to accommodate the
Senate's busy schedule of roll call votes this morning.
Starting at around 9:30, or so, we are facing a series of
stacked roll call votes on the budget resolution. In the light
of the efforts you all made to appear before the Committee
today, we wanted to proceed as expeditiously as possible.
Any additional questions that we are unable to ask of you
this morning we will submit in writing. We would ask that you
respond as quickly as possible to them so that we can consider
your nominations in the coming weeks.
I intend to waive my opening statement other than what I
have said and include it in the record so that we can allow you
to make your statements and respond to questions the Committee
may have.
Senator Sarbanes.
COMMENTS OF SENATOR PAUL S. SARBANES
Senator Sarbanes. Mr. Chairman, I am pleased to join you in
welcoming the nominees, one for the National Cooperative Bank
and three for the Securities Investor Protection Corporation.
Of course, the bank has a very important responsibility--to
help low-income individuals, particularly in the areas of
affordable housing and community economic development.
The President is required actually under the Act to appoint
a representative to the board who, ``has extensive experience
in the cooperative field representing low-income cooperatives
eligible to borrow from the bank and who is expected to be an
advocate on behalf of the low-income cooperatives.''
I would want to address a question or two to Mr. Plamann
about this matter when we turn to questions.
The SIPC, of course, we know of its importance. It helps
customers of failed brokers recover their cash and securities.
It has a very important responsibility not often appreciated.
These are part-time positions, but I think they are very
important to the workings of our economic system.
I will forego the balance of the statement because we know
that the nominees have traveled and I want to commend Chairman
Shelby for really doing the best he can to get you up and have
your hearing and try to clear you in face of this vote-a-rama
that we are about to have.
Chairman Shelby. Senator Dole.
COMMENTS OF SENATOR ELIZABETH DOLE
Senator Dole. Mr. Chairman, I do have an opening statement
which I will submit for the record in the interest of time.
Chairman Shelby. It will be made a part of the record,
without objection.
Senator Dole. I would like to welcome each of you this
morning. I particularly want to welcome Tim Timken, my friend.
He is a man of tremendous commitment and will bring a great
deal of expertise to the table.
I am delighted to have this opportunity to see you this
morning.
Chairman Shelby. Thank you. Gentlemen, would you stand and
be sworn. Hold up your right hand.
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. Plamann. I do.
Mr. Grant. I do.
Mr. Hinojosa. I do.
Mr. Timken. I do.
Chairman Shelby. Do you agree to appear and testify before
any duly-constituted committee of the Senate?
Mr. Timken. I do.
Mr. Hinojosa. I do.
Mr. Plamann. I do.
Mr. Grant. I do.
Chairman Shelby. Thank you. Be seated. Your written
testimony will be made part of the record. We will start with
Mr. Plamann, do you have a brief statement you would like to
make?
Mr. Plamann. Yes.
Chairman Shelby. Please make it brief, if you can.
Mr. Plamann. Good morning. Thank you very much.
Chairman Shelby. Thank you.
STATEMENT OF ALFRED PLAMANN, OF CALIFORNIA
TO BE A MEMBER OF THE BOARD OF DIRECTORS OF
THE NATIONAL CONSUMER COOPERATIVE BANK
Mr. Plamann. Chairman Shelby, Ranking Member Sarbanes, and
distinguished Members of the Committee. I am honored to appear
here today as the nominee to become a Member of the Board of
Directors of the National Consumer Cooperative Bank.
I actively sought this nomination in order to again serve
on the Board of Directors of the NCB. I served as an elected
Board Member for 6 years and as Chairman for two of those
years.
During my tenure, the Bank made over $800 million in low-
income loans, which represents a substantial increase, and the
Bank's commitment to low-income housing was improved.
I am currently President and CEO of Unified Western
Grocers, a cooperative wholesale grocery company in Los Angeles
serving six western States. I am a graduate of the University
of Colorado and a graduate of the University of Pennsylvania. I
live in Los Angeles with my wife.
If confirmed by the Senate, I will bring to the Board of
Directors of the National Consumer Cooperative Bank extensive
experience in the cooperative field in support of low-income
communities and low-income borrowers.
My low-income experience is in three areas. First, as CEO
of Unified Western Grocers. Second, as a Board Member of the
Weingart Center for the Homeless in Los Angeles. And third, as
an elected Director of the NCB for 6 years.
Fifty-five percent of Unified Western Grocers' business is
in Southern California heavily weighted to the Los Angeles
area. Within the L.A. area, our retailers have catered to the
central urban population, which is predominantly lower-income
Hispanic, approximately 42 percent and African-American,
approximately 36 percent.
As a member of the Weingart Center Board of Directors, I
serve on the finance committee. The Weingart Center, one of the
largest and most comprehensive facilities of its kind in the
country, is breaking the cycle of homelessness in Los Angeles.
They provide individual housing for 630 clients.
The Center also assists its clients by giving them basic
skills necessary to stabilize their lives, secure a stable
income, and find permanent housing within 4 months. Follow-up
shows 30 percent are still free from addictive substances and
live in their own homes with steady employment.
As a Board Member of the NCB for 6 years, two of which I
served as Chair of the Board, I strongly supported the Bank's
efforts to expand its low-income business. I was elected to the
NCB Board in 1995, during which the NCB originated $82 million
of low-income loans. During the 2 years I served as Chair of
the Board, 1997 and 1998, the NCB originated a total of $362
million.
These activities give me a strong understanding of low- and
no-income individuals and issues. I am committed to making a
difference in low-income areas, not only through monetary
assistance in my professional capacity, but also in personal
time commitment.
I would be proud to serve on the Board of Directors of the
National Consumer Cooperative Bank, and I appreciate your
consideration.
Please allow me to answer any questions that you have at
this time.
Chairman Shelby. Thank you.
Mr. Grant.
STATEMENT OF THOMAS W. GRANT, OF NEW YORK
TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Grant. Good morning, Chairman Shelby, Senator Sarbanes,
and Senator Dole.
My remarks will be very brief. I did not write a very long
statement. I will read it quickly.
It is an honor to have my nomination confirmed by the U.S.
Senate as a Director of the SIPC. Provided the Senate and the
President approve this nomination, I feel certain that I can be
a positive force in continuing the careful, watchful role the
SIPC plays in protecting investors, particularly in light of
recent corporate and market difficulties.
With more than 35 years' experience in the securities
industry, both with full-service securities firms and a small
mutual fund family, my background should assist me in
contributing to what is essentially care of the individual
investor. Aside from my professional background, I feel that
the support of a fine family with a wonderful spouse of 35
years and two great children further supports the values needed
in this position.
The SIPC, in conjunction with the existing self-regulatory
organizations, has played a significant role in making our
capital markets the strongest in the world. Throughout the past
30 years, more than 99 percent of all investors have had all of
their securities and cash returned when the firm holding their
assets failed. This security for investors must remain firmly
in place to continue the rebuilding of investor confidence.
The Committee can also be assured that I understand the
responsibility of assuring that the assets we hold are used
wisely. If needed, as time passes and conditions change, I
further realize that a director's role includes the
responsibility to see that the assets remain adequate. To date,
taxpayers have not funded the SIPC and I feel that this is a
sound policy for the future. The SIPC has also initiated an
excellent education effort to better explain the SIPC's role
and I am particularly interested to see that this effort is
continued.
In conclusion, I would like to thank the President and this
Committee for the opportunity to serve.
Chairman Shelby. Thank you.
Mr. Hinojosa.
STATEMENT OF NOE HINOJOSA, JR., OF TEXAS
TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Hinojosa. Chairman Shelby, good morning. Senator
Sarbanes, good to be here. Senator Dole, good to see you again.
Good morning. My name is Noe Hinojosa, Jr., of Dallas,
Texas, and I am honored to have been nominated by President
George W. Bush to serve as a Director of the Securities
Investor Protection Corporation.
My wife, Marcia, and my children, Mary Elizabeth and Noe
III, express their regrets for not being here. They would have
loved to have been here. But the children's commitment didn't
permit that.
I was born in Brownsville, Texas and raised just across the
border in Matamoros, Mexico. About 12 years ago, when I joined
my partner, Bob Estrada, to start a firm in 1992, we had two
employees, a pocket calculator, and a $300,000 loan. Today, we
have over 20 employees, over $1 million in capital, and the
finest technology available in the securities market. I am the
Vice Chairman and part owner of an investment banking firm that
specializes in public finance. And as a small business owner,
particularly a minority small business owner, with my name on
the door and my money on the line, I am keenly aware of the
need to conduct our business in an ethical and professional
manner.
I am also keenly aware of the important functions that
agencies, such as the SIPC, provide and as such, I can assure
this body, as I have assured the President, that if I am
confirmed, I will work hard to maintain and promote the vital
role the SIPC plays as the first line of defense for investors
when a securities firm fails or declares bankruptcy. In the
past 30 years, as you well know, more than 600,000 investors
have recovered nearly $14 billion in assets with the SIPC's
help. That safety net for investors must remain strong and be
prepared for every contingency.
I believe my unique perspective as an owner of a securities
firm and as an individual investor adds value to the
policymaking role I shall play as a Director. My company,
Estrada Hinojosa & Company, Inc., is a member in good standing
of the Municipal Securities Rulemaking Board, the National
Association of Securities Dealers, the Securities and Exchange
Commission, and of course, the SIPC. In fact, my partner
recently served as Chairman of the MSRB.
Since 1992, our business plan limits our involvement in
securities to the municipal bond business. Our investor base is
limited to institutional investors, most commonly described as
bond funds, bank trust departments, and similar institutions.
Hence, I have a good working knowledge of the responsibilities
and obligations of securities firms and the great importance of
compliance with all the rules and regulations placed on our
industry.
In addition, I have made personal investments over the
years ensuring the future security of my immediate and extended
family. I can assure you I have the utmost interest in
protecting the integrity of our capital markets, because
without an institution such as the SIPC, the trust element of
our financial system would be lost.
The SIPC must continue to maintain sufficient resources to
handle its statutory responsibilities and to plan for every
contingency in these perilous times. The SIPC must continue its
investor education initiatives and its record of reliance on
industry assessments rather than taxpayer assistance.
I look forward to the opportunity to serve and respectfully
request your support.
Chairman Shelby. Thanks. Mr. Timken.
STATEMENT OF WILLIAM R. TIMKEN, JR., OF OHIO
TO BE A DIRECTOR OF
THE SECURITIES INVESTOR PROTECTION CORPORATION
Mr. Timken. Chairman Shelby, Senator Sarbanes, Senator
Dole, it is good to be with you.
My name is W.R. Timken, Jr., from Canton, Ohio. I am
honored to be here today as President Bush's nominee for the
position of Chairman of the Board of the Securities Investor
Protection Corporation. Thank you for your consideration.
With me today are my wonderful wife, Sue Timken, and my
sons, Kurt and Beau.
By way of background, I have for 28 years been Chairman of
the Timken Company, a New York Stock Exchange-listed company
since 1922. I received a bachelor's degree in economics and
history from Stanford University and an MBA degree from Harvard
University. I have served as the Vice Chairman and the Chairman
of the National Association of Manufacturers, a nonprofit
organization with 14,000 member-companies nationwide.
Although I have never been involved in the securities
business, in addition to the Timken Company, I have served on
the board of directors of three other public corporations and
personally have been a substantial investor in securities.
I believe effectively functioning capital markets in which
investors are willing to invest their resources are essential
to our free enterprise system, which itself is essential to our
American democracy. Investor confidence is a crucial factor.
I know that the SIPC, a nonprofit corporation, was
established by the Congress in 1970 to protect the investor for
the custody function undertaken by registered securities
brokers and dealers. Handing over hard-earned money without
immediately receiving a tangible piece of property is a leap of
faith that investors must make. They do need some protection.
The results have been outstanding as the SIPC has served
investors as their first line of defense in the event of
brokerage firm failures. No fewer than 99 percent of eligible
investors receive all of their cash and securities in a
liquidation proceeding under the Securities Investor Protection
Act. From its creation in 1970, through December 2002, the SIPC
advanced $513 million in order to make possible the recovery of
almost $14 billion in assets for an estimated 622,000
investors.
My intention as Chairman will be to work with our board and
the SIPC associates to continue to fulfill the objectives of
the Securities Investor Protection Act of 1970. I will seek
advice from Congress, the securities industry, and the SEC. And
I will see that the SIPC Fund and lines of credit are
sufficient to meet the demands of our charge.
I would appreciate your support of my nomination and I will
be happy to answer any questions and listen to any advice.
Thank you.
Chairman Shelby. Thank you all. I will try to be as brief
as I can. Mr. Timken, I will start with you and move from right
to left.
One area of concern that I have concerns the public
awareness of the Securities Investor Protection Corporation's
function. I fear that many investors believe that the role is
to indemnify investors against trading losses or market swings.
Do you agree that this may be a problem? Do you think there
is a greater need for investor education in this regard?
Mr. Timken. Senator, I agree. We have the results of the
study conducted by the GAO for Representative Dingell which
gave us some additional information on that. And the SIPC
responded with an increased awareness program. I think
advancements that Mr. Hinojosa referred to have been made.
I think we can do a better job and that would certainly be
one of the things that we would definitely attempt to
undertake.
Chairman Shelby. Mr. Hinojosa, in August 2001, the
Securities Investor Protection Corporation was faced with a
liquidation of the MJK Clearing, Inc., a Minneapolis brokerage
firm, that cleared trades from 175,000 accountholders.
By all accounts, the liquidation went smoothly. I
understand that the fund was recently deemed to be sufficiently
capitalized with a 99 percent confidence interval.
Nevertheless, are there any lessons that you feel can be
drawn from this failure, the MJK failure, to help avoid such
massive liquidations in the future?
What can be done to ensure the fund's ongoing health, which
is a concern for everybody, especially for you board people?
Mr. Hinojosa. I think in briefings that I have had with
staff, there are serious attempts for ensuring that we have the
appropriate lines of credit extended. We are working and we
intend to work as a board very diligently with staff to ensure
that the proper lines of credit care in place, that the $1.3
billion in net capital that the SIPC has is always there.
I wish that we could have 100 percent guarantee, not 99
percent. That is something we will continue to strive for. We
certainly won't be bashful about coming before you and asking
for your guidance if you feel that that needs to be enhanced
and improved.
Chairman Shelby. Mr. Grant, just following up on the MJK
failure, that was the Securities Investor Protection
Corporation's largest liquidation to date. MJK's financial
difficulties were caused in large part by its securities
lending business. Is this business particularly risky, or did
MJK mismanage its activities, if you know?
Mr. Grant. I am not 100 percent clear on it. But being in
the securities business, I do lend securities myself, I do not
think that lending is the risky part. The dimension is the
risky part.
I think lending of securities is a good function for
investors. It is a way to borrow money to buy houses and other
things. And handled correctly, that is not the core of the
problem.
The core of the problem is the management of the company
and the ill-use of their funds.
Chairman Shelby. The health of the funds has to be
paramount.
Mr. Grant. I think, just to comment further on the first
question, we can raise more money. The amount charged of each
firm is very minimal.
Chairman Shelby. Going to the Board of the National
Consumer Cooperative Bank, as a representative from the
community development sector, what special perspectives do you
believe you bring to the service on the Board of the NCB?
Mr. Plamann. My company is very active in providing
services to the retailers who are an integral part of----
Chairman Shelby. Is that the wholesale grocery business?
Mr. Plamann. The wholesale grocery business, yes.
Chairman Shelby. Okay.
Mr. Plamann. And we provide goods and services to
independent grocers who are an integral part of many low-income
communities, particularly in South Central Los Angeles and
areas like that.
So, we try to bring those services at a price and a cost
that can keep them very competitive in those communities. We
have to link very closely with those communities.
Many times, these grocery stores are the anchor of shopping
areas that are neighborhood-oriented shopping areas. That
anchor sometimes acts as a magnet, if you will, for other
services, such as dry cleaners or shoe repair, or whatever it
is, small businesses that find themselves around those areas.
On a professional basis, I think that is my link. On a
personal basis, I commit a fair amount of time to the homeless
problem in Los Angeles, which I think is a very difficult
social problem for us.
Chairman Shelby. The NCB's primary corporate mandate is to
support cooperative efforts. What is special about the
cooperative structure here? What is it about co-ops that you
believe makes the structure particularly well suited for the
community revitalization?
Mr. Plamann. Co-ops, of course, have been around for a long
time, agricultural co-ops and buying co-ops. Our co-op has been
around for 80 years. Its mission today is the same as it was
when it was organized. That is, to allow small independent
grocers to buy products at a price that is competitive with the
larger, self-distributing channel. So, I believe that is the
strength of it. In addition, we return our profits back to the
small retailer.
Chairman Shelby. Okay.
Senator Sarbanes.
Senator Sarbanes. Thank you very much, Mr. Chairman.
Mr. Plamann, the National Consumer Cooperative Bank Act
requires that the Board of Directors use its best efforts to
ensure that at the end of each fiscal year of the bank, at
least 35 percent of its outstanding loans are either, one, the
cooperatives, at least a majority of the members of which are
low-income persons and, two, other cooperatives if the proceeds
of such loans are directly applied to finance the facility
activity or service, that the Board finds would be used
predominantly by low-income persons.
Now it is my understanding that the National Consumer Bank
has yet to reach this goal. Is that your understanding?
Mr. Plamann. That is my understanding, yes, sir.
Senator Sarbanes. In fact, it is falling fairly short of
it, is it not?
Mr. Plamann. If it is measured strictly in the percentages,
yes, sir. But several years ago, the Board decided that we
needed to add some additional incentives and we suggested that
we may use some qualitative measures with regard to putting
those assets in those communities.
I think we have been very successful in accomplishing that,
basically through the NCB Development Corporation.
Senator Sarbanes. I raise the point because you have
chaired the Board and from all reports, did it in a very
competent and efficient way. But 12 of the Members of the Board
represent cooperative endeavors. Three remaining seats are
reserved for appointment by the President.
Mr. Plamann. Yes, sir.
Senator Sarbanes. Now you are back before us as a
Presidential nominee.
Two people have been nominated by President Bush and
confirmed by us to take care of small business and the
agencies. So, you are going on as the representative of the
low-income areas.
I have to say, with all due respect to your past
activities, they are quite different from others who have gone
on the Board as a representative of the low-income areas.
So what do you see as the rationale that justifies you
being nominated to us as a representative of the low-income
area, since this is an important goal of the National
Cooperative Bank?
Mr. Plamann. I agree with you. It is a critical mission of
the Bank. The Bank's economic equation has proven to be very
successful in achieving, I would say, a significant increase in
the years that I was there.
The last long-range plan that we put into place at the Bank
set as a target approximately $600 million in low-income loans
over a 3-year period. Last year, we achieved the first such
number at $191 million, and there will be over $200 million per
year in the next 2 years.
I would like to get back on the Bank board to ensure that
that emphasis is in fact carried out.
Senator Sarbanes. That is $200 million out of, what?
Mr. Plamann. There are I think about a billion dollars'
worth of loans on the books at the moment.
Senator Sarbanes. So you are running at 20 percent, as
opposed to the 35 percent figure.
Mr. Plamann. Well, I think that, given the nature of the
balance sheet, the $200 million are the originations in 1 year.
But many of the loans are sold into the marketplace today.
I think the measure that was used when the Bank Act was set
up is a little different from the percentage you are talking
about.
Senator Sarbanes. Well, we will be following this very
closely. I do think it is a very important responsibility of
the bank.
I would like to ask the SIPC nominees about two studies
that the SIPC commissioned, one by Deloitte & Touche and one by
Fitch Risk Management, after it handled the largest failure in
history of MJK Clearing Corporation, which involved 174,000
customer accounts, over $10 billion in securities and cash.
Are you familiar with those studies?
Mr. Grant. I am, sir.
Senator Sarbanes. Is everyone, all three, familiar with
them?
They have made a number of very important recommendations.
Do you have any view on implementing the recommendations that
have been made in those studies?
Mr. Timken. Maybe I should start.
Senator Sarbanes. We are running short on time, so if you
could give me a brief answer.
Mr. Timken. Actually, the SIPC's record has been one of
excellence, I would say, in execution in getting securities to
the individuals that lose them.
To date we have done relatively little on risk management.
It is the conclusion of those two studies that the MJK
situation, with the securities lending, not only had an issue
of management of that firm, but also, it exposed the risk of
the SIPC to variations going on in the financial markets with
different types of actions.
And the suggestion derived from there was that we should
work, first of all, with the SEC and the individual agencies
like the New York Stock Exchange and the Nasdaq to improve
surveillance. But also, that the SIPC itself needed perhaps to
either, on an in-house basis or by contracting, develop a
greater skill at the risk-management function to make sure that
the Fund is protected and that we know what kind of problems
are out there.
My current understanding is that the Board is considering
that. The decision required is whether to move forward with an
internal capability, which would require some more assets
expended, or to contract it out. But it is a new phase of the
SIPC's career, I think.
Mr. Hinojosa. I think from my experience with the report, I
think what we need to do is try to enhance or attempt to
anticipate the problem issues in regards to broker-dealers
getting into trouble.
I think that the report very specifically makes a
recommendation in regards to enhancing surveillance. I think we
need to work very closely with the SEC in regards to that
because in the whole scheme of things, I think the SIPC did a
tremendous job in coming to the rescue of investors. But,
certainly, many instances like this would be a concern for us.
Chairman Shelby. Mr. Grant.
Mr. Grant. I agree with both of my colleagues that the SIPC
can obviously strengthen their role and become tighter in their
controls as to what they see.
But the first line of defense on the regulatory side is
still up to the SRO's like the New York Stock Exchange, Nasdaq,
and the SEC. And if a firm is going to be fraudulent, the
records they file are false to begin with. We still always have
to trust in that first line.
Senator Sarbanes. But the Deloitte & Touche study had some
very specific recommendations, all of which seemed to me to
make a lot of good sense.
You are going to be three additions to this Board now. And
so, you have an opportunity to go in there and really
strengthen the system of investor protection, which is under
assault for lots of reasons right now and it is a matter of
real concern, and I commend that to you.
There are other studies. The GAO has recommended a robust
investor education program that the SIPC undertake. I presume
that you all would be in favor of encouraging an active
investor education program with respect to what the SIPC
provides for investors.
Am I correct in that assumption?
Mr. Hinojosa. You are very correct.
Mr. Grant. Very correct. I agree completely. And they have
made a much greater effort in recent years because investors
are somewhat confused as to what they are protected for. And I
think we will, as I said in my opening remarks, we will try to
strengthen that greatly.
Senator Sarbanes. And finally, very quickly, the SIPC Fund
has about $1.26 billion reserves. SIPC broker-dealers hold $3
trillion of investor securities.
The broker-dealers are paying about $150 a year assessment
into the Fund. And the question is, is this fund adequately
capitalized?
Now, presumably, the broker-dealers think it is.
[Laughter.]
But to some extent, I think your decision on this question,
if you decide that it is adequately capitalized, goes back to
implementing the recommendations of Deloitte & Touche and of
the Fitch Risk Management review.
I think the system has to be tightened up. I think there
are a lot of stresses on investors right now in the current
economic circumstance and it needs to be tightened up.
We do not want you coming in here after the fact, when we
really had a bad event and we weren't really able to handle it
very well and we had an impact on the economy.
And so, that is the message that I want to leave with you
this morning.
Mr. Chairman, thank you very much.
Mr. Timken. We hear that and understand that, and we will
certainly take that into account as we proceed forward.
As you know, the SIPC does not have regulatory powers, so
our work will be very much with the SEC and the SRO's, to make
sure that the investor is protected.
Senator Sarbanes. Thank you.
Chairman Shelby. Thank you.
Thank you, Senator Sarbanes.
I want to thank all of you for your testimony today. We
know we have been in a rush and in a hurry.
We hope to move your nominations quickly. Members of this
Committee may wish to submit questions for the record, and if
they do submit questions for the record, I hope you will
respond as quickly as possible, and that will enable us to
expedite your nominations.
The hearing is adjourned.
[Whereupon, at 9:57 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of the
nominees, and response to written questions supplied for the
record follow:]
PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY
Good morning. I am pleased to welcome the four of you before the
Senate Banking Committee. One of the most important responsibilities of
the Committee is the examination and confirmation of the
Administration's nominations that fall underneath our jurisdiction.
Three of you are here today as nominees to serve on the Board of
Directors of the Securities Investor Protection Corporation. Mr.
Plamann has been nominated by the President to serve as a Member of the
Board of Directors of the National Consumer Cooperative Bank. Both
organizations play an important role in our economy.
The SIPC was chartered by Congress to secure and return the assets
of investors in bankrupt or failing firms. While not designed to be a
blanket insurance fund for investor fraud or losses, the SIPC has a
specific focus that is very meaningful--restoring investors with assets
in the hands of bankrupt or otherwise financially troubled brokerage
firms. Without the SIPC, investors at these firms might never recover
their securities or money or face lengthy delays while their assets are
tied up in our judicial system. From its creation by Congress in 1970
through December 2001, the SIPC advanced $513 million in order to make
possible the recovery of $13.9 billion in assets for an estimated
622,000 investors.
The National Consumer Cooperative Bank was chartered by Congress to
assist consumer and small business cooperatives. The NCB provides the
resources necessary for cooperative endeavors to achieve growth and
success. It serves its members through its lending and financing
arrangements and by providing financial and other technical assistance.
The NCB subsidiaries assist cooperatives and small businesses by
providing organizational and technical assistance, banking services,
advocacy, informational services, financial advice as well as
information on capital sources. To date, the NCB has provided more than
$6 billion in financing--creating thousands of homeownership
opportunities and providing other critical services to our Nation's
communities.
Both the SIPC and the NCB provide an invaluable service to
individuals, communities and the economy. As leaders at these two
organizations, you will be expected to address the current issues
facing SIPC and the NCB and to adjust to challenges which lay ahead. As
future public servants, I commend your willingness to step forward to
embrace this responsibility. I look forward to hearing the testimony of
each of the nominees present here today.
----------
PREPARED STATEMENT OF SENATOR ELIZABETH DOLE
I would like to express my appreciation to you and to Ranking
Member Sarbanes for agreeing to hold this hearing on the President's
nominations to the Board of the National Consumer Cooperative Bank and
to the Board of the Securities Investor Protection Corporation, known
as the SIPC. The President has indeed nominated fine individuals with
diverse backgrounds.
The National Consumer Cooperative Bank plays an important role by
serving as a key source of financing to cooperative endeavors which
serve both the interests of the consumer and society very well. The
SIPC serves a critical need in our Nation by providing certain
protections against losses to customers from the failure of a
securities firm. This function gives a floor of protection to our
securities markets and assures investors and pension holders won't be
wiped out due to the failure of a securities firm.
The protections afforded by the SIPC carry greater importance when
the market drops and the economy struggles especially when the
fundamentals of the market are under such scrutiny. While the SIPC does
not cover market losses, it does cover investors when a securities firm
fails, especially if there were unauthorized trades made before the
firm failed or if a Ponzi scheme was involved in the failure. However,
many investors may be confused as to what protections the SIPC affords
and what conditions must be met to access them.
According to a May 2001 General Accounting Office (GAO) report,
investors may confuse the SIPC with other financial guarantee programs,
and opportunities exist to improve the disclosure of the SIPC's
policies. In addition, some investors who have gone through the process
to receive compensation from SPIC have questioned what the SIPC
appointed trustee's priorities are: The protection of investors or the
protection of the SIPC Fund. These are important issues, and I look
forward to discussing some of them with the nominees.
Our nominees are to be thanked for their commitment to our Nation
in devoting some of their time to these positions. The President is to
be congratulated for seeking such qualified individuals with such
diverse backgrounds. Their different experiences should bring a great
deal to the table when reviewing the policies they will oversee. I
especially want to welcome my friend William Robert Timken, known as
Tim to his friends. He is a gentleman of honor and distinction. The
SIPC and investors will greatly benefit from his expertise and
dedication.
Thank you.
----------
PREPARE STATEMENT OF SENATOR GEORGE V. VOINOVICH
I am pleased to introduce W.R. ``Tim'' Timken Jr., who has been
nominated by the President to serve as Chairman of the Board of the
Securities Investor Protection Corporation.
I have had the privilege of knowing Tim for many years and consider
him to be a valuable leader and close friend. He serves as a role model
for what a corporate executive can and should be. He has truly made a
difference in the quality of life in his community, state and country.
The Timken Company headquartered in Canton, Ohio, manufactures
highly engineered bearings and alloy steels. They are also becoming a
leader in providing related components and services such as bearing
refurbishment for the aerospace, medical, industrial, and railroad
industries. The company's mission is to continually increase
shareholder value by strengthening its leadership position in their
chosen markets. More than fifty plants and 100 sales design and
distribution centers around the world provide unmatched product quality
and customer service.
Since becoming Chairman of the Board in 1975, Tim has led his
family business, the Timken Company, to become a leading international
manufacturer with operations in twenty-four countries employing
approximately 28,000 people worldwide.
A former Chairman of the National Association of Manufacturers, Tim
has always impressed me with his consistent sense of civic
responsibility and has remained a leader in many facets of his
community. He has been the backbone for many initiatives in the State
of Ohio. Tim's relentless dedication to his neighbors and our
Nation's leaders has proven his patriotism and compassion. He has a
genuine appreciation for all that America stands for and is a
tremendous civic leader not only for Canton, Ohio but also for the
United States.
One thing that has remained constant, both in his professional and
political endeavors, that will prove to be a valuable asset to the
Securities Investor Protection Corporation, is his insistence on
ethical behavior. Tim Timken is a man of unique character and
integrity. His considerable accomplishments over the years have been
made possible, in part, by the reputation that he has built for himself
as an extraordinarily honest and forthright individual.
I believe that Tim's professional experience has prepared him well
to serve in the position for which he has been nominated. In this era
of uncertainty about the future, Tim would be a strong advocate for
fairness and common sense and will serve with the vigilance and
dedication that this Board requires.
I urge the Committee to quickly report the nomination of W.R.
Timken, Jr. so that the Senate may soon vote on his confirmation.
Thank you, Mr. Chairman.
----------
PREPARED STATEMENT OF ALFRED A. PLAMANN
Member-Designate, the National Consumer Cooperative Bank
March 25, 2003
Chairman Shelby, Ranking Member Sarbanes, and distinguished Members
of the Committee, I am honored to appear here today as a nominee to
become a Member of the Board of Directors of the National Consumer
Cooperative Bank.
I actively sought this nomination in order to again serve on the
Board of Directors of the NCB. I served as an elected Board Member for
6 years and as Chairman for two of those years. During my tenure, the
Bank made over $800 million in low-income loans, which represents a
substantial increase, and the Bank's commitment to low-income housing
was improved.
I am President and CEO of Unified Western Grocers, a cooperative
wholesale grocery company in Los Angeles serving six western States. My
background is financial, and I have worked in diverse companies such as
Unified, ARCO, and U.S.
Financial. I am a graduate of the University of Colorado where I earned
my B.S. in accounting and I received by MBA from University of
Pennsylvania (Wharton) with an emphasis in finance.
As you may know, the National Consumer Cooperative Bank was
established in 1978 to address the unmet financial needs of an
underserved market--those people who join together cooperatively to
achieve their personal, social, and business goals. And in 1982, the
NCB was privatized as a member-owned financial institution. Today, the
Bank provides a broad array of financial services to cooperatives
across the country. These businesses are large and small, and they
serve both rural and urban communities.
The NCB--in partnership with its nonprofit affiliate, NCB
Development Corporation--plays a vital role meeting the underserved
financial needs of America's communities. Over the course of its 20-
plus year history, the NCB has loaned or invested more than one billion
in the areas of education, affordable housing, health care, small
business ventures, affordable assisted living, worker ownership, and
economic and community development ventures.
The cumulative impact is considerable. NCB loans and investments
have created approximately:
25,000 units of affordable housing;
10,000 jobs for low-income individuals;
School facilities for more than 4,500 students;
Nearly 1 million square feet of community health center space
serving 100,000 patients annually; and
More than 1,000 units of affordable assisted living.
In 2002 alone, the NCB provided or arranged more than $191 million
in financing for low-income and at-risk communities, and over the past
6 years it has originated over $1 billion of critically needed
financing. It is obvious that the National Consumer Cooperative Bank
has accomplished much. And I know it has the potential to do even more,
not only as a lender and valued financial resource, but also as an
exceptional example of the type of collaborative and innovative venture
we need to respond to today's challenging problems and changing times.
If confirmed by the Senate, I will bring to the Board of Directors
of the National Consumer Cooperative Bank extensive experience in the
cooperative field in support of low-income communities and low-income
borrowers. My low-income experience is in three areas: As the CEO of
Unified Western Grocers, as a Board Member of the Weingart Center for
the Homeless in Los Angles, and as an elected Director of the NCB for 6
years.
Fifty-five percent of Unified Western Grocers' business is in
Southern California heavily weighted to the Los Angeles area. Within
the LA area, our retailers have catered to the central urban
population, which is predominately lower-income Hispanic (41.7 percent)
and African-American (36.08 percent), with a per capita income of
$10,800. In that base, our retailer members control an estimated 87
percent market share.
Most of the members in that market have been financed from
inception by the corporation through working capital or facility loans.
As CEO (and former CFO), I am intimately involved with the approval
process and details of the unique issues involved in financing
retailers. Many, if not most, of these loans are sold to the NCB or are
completed in participation with the NCB.
One example is a company named KV Mart doing business as Top Valu
and Valu Plus, headquartered in Carson, California, a leading
independent grocery chain serving inner-city communities across
Southern California. Over the past 24 years, KV Mart has developed a
unique business model designed to cater to the needs of different
ethnicities residing in inner-city neighborhoods by offering a wide
range of culturally specific products and services. The company's
approach to serving inner-city communities has been successful
partially as a result of its hiring practices that center on employing
residents from each of the local areas in which the company operates
stores.
In 1992, KV Mart had nine stores with sales volume totaling
$81,000,000 and 590 employees. Today the company operates twenty-two
stores with sales volume totaling $250,000,000 and employs 1,400
individuals. Under my direction as CFO, and subsequently as CEO,
Unified Western Grocers (UWG) and its subsidiary, Grocers Capital
Company (GCC), have been instrumental in providing financial assistance
to help KV Mart achieve this level of growth. Over the past 10 years,
GCC has provided KV Mart with over $18,000,000 in long-term loans for
store purchases, store remodels, and capital stock investments. UWG has
also provided numerous short-term inventory loans to support new
stores, and GCC has supplied guarantees in support of $8,000,000 in
loans from the National Consumer Cooperative Bank. Finally, UWG has
provided lease guarantees/sublease arrangements in support of four of
KV Mart's locations.
During the Los Angles riots, thirty-six of our members' stores were
destroyed, twenty experienced delayed openings, and twenty were
subjected to looting. With our assistance, sixteen stores were totally
rebuilt in these lower-income communities. The corporation helps people
who want to get started and have staying power so low-income people
have continuing service.
Unified Western Grocers, under my leadership, actively supports
low-income communities. In fact, our bakery and dairy divisions are
located in low-income areas in south LA where we provide employment for
109 in the bakery and 148 in the dairy. As a member of the Weingart
Center Board of Directors, I serve on the finance committee. The
Weingart Center, one of the largest and most comprehensive facilities
of its kind in the country, is breaking the cycle of homelessness in
Los Angeles. They provide individual housing for 630 clients.
The Center also assists its clients by giving them the basic skills
necessary to stabilize their lives, secure a stable income, and find
permanent housing within 4 months. Follow-up shows 30 percent are still
free from addictive substances 6 months after completing the program
and reside in their own homes with steady employment. Additionally,
Weingart presents service referrals for 6,000 people a year and offers
high school and English classes to 200 students per day. As a member of
the finance committee, which meets monthly, I assist with allocating a
$10,000,000 budget, requests for grants, and other significant funding
activities.
As a Board Member of the NCB for 6 years, two of which I served as
Chair of the Board, I strongly supported the Bank's efforts to expand
its low-income business. I was elected to the NCB board in 1995, during
which the NCB originated $82.3 million of low-income loans. During the
2 years I served as Chair of the Board, 1997 and 1998, the NCB
originated a total of $361.8 million of low-income loans. The
significant growth of the NCB's low-income business speaks volumes
about the efforts of the Board and staff to serve low-income
communities and to carry out the public policy mission of the bank.
These activities give me a strong understanding of low- and no-
income individuals and issues. I am committed to making a difference in
low-income areas, not only through monetary assistance in my
professional capacity, but also in personal time commitment.
I would be proud to serve on the Board of Directors of the National
Consumer Cooperative Bank, and I appreciate your consideration.
Allow me to answer any questions you may have at this time.
RESPONSE TO WRITTEN QUESTION OF SENATOR SHELBY
FROM THOMAS W. GRANT
Q.1. I understand that a number of exchange rule changes are
pending before the SEC that would permit the implementation of
a pilot program for portfolio margining in the account of a
customer with an account equity of at least $5 million for
positions in broad-based index options and futures. This pilot
program, which was developed nearly 4 years ago, is integral to
the consideration of risk-sensitive portfolio margining for
securities customers. SEC Chairman Bill Donaldson recently
pledged his assistance in working to finalize these rules so
that the pilot program can finally be implemented.
The SIPC has bean asked to use its existing rulemaking and
rule interpretation authority to determine whether the SIPA
will apply to the securities accounts in the portfolio
margining pilot. Will you work with the SIPC staff to resolve
this issue as soon as possible?
A.1. I have spoken with the SIPC staff concerning the subject
of margining an account which contains both securities and
futures. The issues which are raised by such a ``cross-
margined'' account are new and complex. The complexity arises
from the historical separation of the regulatory regimes for
securities, on the one hand, and futures, on the other. Thus,
for example, the Securities Investor Protection Act protects
securities left with a stock brokerage firm for safekeeping,
but the definition of the term ``security'' in that statute
specifically excludes, ``any commodity or related contract or
futures contract, or any warrant or right to subscribe to or
purchase or sell any of the foregoing.'' The SIPC staff informs
me that periodic discussions of the cross-margining of
securities and futures among the SIPC, the Securities and
Exchange Commission, the Options Clearing Corporation, and the
Chicago Board Options Exchange have taken place over the last
one and a half years.
I will work with the SIPC staff to determine the best
approach to resolve promptly the issues raised by the proposed
pilot program for portfolio margining.
RESPONSE TO WRITTEN QUESTION OF SENATOR SHELBY
FROM WILLIAM R. TIMKEN, JR.
Q.1. I understand that a number of exchange rule changes are
pending before the SEC that would permit the implementation of
a pilot program for portfolio margining in the account of a
customer with an account equity of at least $5 million for
positions in broad-based index options and futures. This pilot
program, which was developed nearly 4 years ago, is integral to
the consideration of risk-sensitive portfolio margining for
securities customers. SEC Chairman Bill Donaldson recently
pledged his assistance in working to finalize these rules so
that the pilot program can finally be implemented.
The SIPC has been asked to use its existing rulemaking and
rule interpretation authority to determine whether the SIPA
will apply to the securities accounts in the portfolio
margining pilot. Will you work with the SIPC staff to resolve
this issue as soon as possible?
A.1. I have spoken with the SIPC staff concerning the subject
of margining an account which contains both securities and
futures. The issues which are raised by such a ``cross-
margined'' account are new and complex. The complexity arises
from the historical separation of the regulatory regimes for
securities, on the one hand, and futures, on the other. Thus,
for example, the Securities Investor Protection Act protects
securities left with a stock brokerage firm for safekeeping,
but the definition of the term ``security'' in that statute
specifically excludes ``any commodity or related contract or
futures contract, or any warrant or right to subscribe to or
purchase or sell any of the foregoing.'' The SIPC staff informs
me that periodic discussions ofthe cross-margining of
securities and futures among the SIPC, the Securities and
Exchange Commission, the Options Clearing Corporation, and the
Chicago Board Options Exchange have taken place over the last
one and a half years.
I will work with the SIPC staff to determine the best
approach to resolve promptly the issues raised by the proposed
pilot program for portfolio margining.
RESPONSES WRITTEN QUESIOTNS OF SENATOR SARBANES
FROM ALFRED A. PLAMANN
The National Consumer Cooperative Bank Act requires that
the Board of Directors, ``use its best efforts to ensure that
at the end of the each fiscal year of the Bank at least 35 per
centum of its outstanding loans are to: (1) cooperatives at
least a majority of the members of which are low-income persons
and (2) other cooperatives, if the proceeds of such loans are
directly applied to finance a facility, activity, or service
that the Board finds will be used predominantly by low-income
persons.'' It is my understanding that the NCB has yet to reach
that goal.
Q.1.a. As the low-income representative on the Board, how will
you ensure that 35 percent of the Bank's loans are made to low-
income cooperatives and cooperatives that directly service the
needs of low-income persons?
A.1.a. During my past tenure an the Board there was a dual
effort to spur and support low-income, cooperative development
both through the use of the NCB loan portfolio and through the
use of the NCB's other resources. I will continue to be an
advocate on the Board for low-income cooperatives by setting
higher and higher standards and expectations for increasing
low-income loans and measuring best efforts based on out
willingness and ability to invest increasing resources to
deliver capital and technical assistance to low-income
cooperatives.
My focus, however, and what I hope to achieve on the Board,
goes well beyond the resources we have available through the
NCB loan portfolio and balance sheet. The NCB is a relatively
small organization and the needs of low-income cooperatives are
substantial and growing. I would hope to leverage the expertise
of the NCB and its balance sheet to access other capital that
can be directed to low-income cooperatives, For example, in
2002, the NCB used its resources to arrange over $100 million
of low-income transactions, which involved other sources of
private and public investment. As a low-income representative I
will advocate raising the bar for deploying these critical
resources to low-income cooperatives. I would also advocate for
capacity building and technical assistance programs for low-
income cooperatives. For example, the NCB's affiliate, NCB
Development Corporation, is operating a program in 10 States
directed at revolutionizing the use of Medicaid resources for
affordable assisted living recipients. I would push to increase
the resources that the NCB is directing to these kinds of
programs.
Q.1.b. It is my understanding that the NCB staff bonus
structure provides an incentive for staff to originate low-
income loans. Do you support the bonus provisions for employees
that takes into account the Board's efforts to reach the 35
percent annual goals?
A.1.b. When I was Board Chair, we increased the weight of low-
income activities in the incentive plans. The plans provide for
an increased reward for achieving the low-income goals, but the
plans also have a penalty that substantially reduces the
overall award if the low-income goal is not achieved. I feel
that these plans provide an appropriate incentive for
management to reach even higher to achieve the mission of the
Bank.
Q.2. How do you plan to use your board seat to represent low-
income consumers at the NCB and assure that the Bank continues
to help finance consumer-owned cooperatives that serve poor
people? Would you advise the Bank to do anything differently?
A.2. My job will be to promote the needs of low-income
cooperatives, even in circumstances where these needs may
appear to be in conflict with the NCB's requirements to operate
a viable, financial services organization, I understand the
bottom-line requirements of running a business, and once I
think those requirements can be met, I will be pressing to use
as many resources as we can to serve low-income cooperatives.
Q.3. What are your plans to work with the various national and
regional advocacy groups that represent underserved populations
to ensure that their views are represented on the NCB Board?
A.3. The NCB, and its affiliate, NCB Development Corporation,
are involved in a number of partnerships and programs with
national and regional advocacy groups. As I understand it,
there are also a number of advisory groups in various sectors
like community health care, education, and housing that have
been convened to assist the NCB to determine how best to deploy
its resources in these areas. I expect to be personally
involved in these discussions to learn fast hand what the views
of low-income constituents are.
Q.4. Congress specifically directed the NCB to, among other
things, ``encourage the development of new and existing
cooperatives eligible for its assistance by providing
specialized credit and technical assistance.'' As the low-
income representative Board Member, how would you encourage the
creation of now cooperatives owned by low-income individuals?
A.4. Vital to the creation of new, low-income cooperatives are
programs that are focused on providing higher risk,
nontraditional
financing and that are directed at building the capacity of
low-income residents to form and operate their own enterprises.
I intend to use my Board role to continue to advocate for and
expand the resources that the NCB directs to these areas.