[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                       OVERSIGHT OF THE FINANCIAL
                      STABILITY OVERSIGHT COUNCIL

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 14, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-26










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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
KENNY MARCHANT, Texas                BRAD MILLER, North Carolina
THADDEUS G. McCOTTER, Michigan       DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JOE DONNELLY, Indiana
BLAINE LUETKEMEYER, Missouri         ANDRE CARSON, Indiana
BILL HUIZENGA, Michigan              JAMES A. HIMES, Connecticut
SEAN P. DUFFY, Wisconsin             GARY C. PETERS, Michigan
NAN A. S. HAYWORTH, New York         JOHN C. CARNEY, Jr., Delaware
JAMES B. RENACCI, Ohio
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio

                   Larry C. Lavender, Chief of Staff
              Subcommittee on Oversight and Investigations

                   RANDY NEUGEBAUER, Texas, Chairman

MICHAEL G. FITZPATRICK,              MICHAEL E. CAPUANO, Massachusetts, 
    Pennsylvania, Vice Chairman          Ranking Member
PETER T. KING, New York              STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          MAXINE WATERS, California
STEVAN PEARCE, New Mexico            JOE BACA, California
BILL POSEY, Florida                  BRAD MILLER, North Carolina
NAN A. S. HAYWORTH, New York         KEITH ELLISON, Minnesota
JAMES B. RENACCI, Ohio               JAMES A. HIMES, Connecticut
MICHAEL G. GRIMM, New York           JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas














                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 14, 2011...............................................     1
Appendix:
    April 14, 2011...............................................    49

                               WITNESSES
                        Thursday, April 14, 2011

Cook, Robert W., Director, Division of Trading and Markets, U.S. 
  Securities and Exchange Commission (SEC).......................    16
Gensler, Hon. Gary, Chairman, Commodity Futures Trading 
  Commission (CFTC)..............................................    10
Goldstein, Hon. Jeffrey A., Under Secretary for Domestic Finance, 
  U.S. Department of the Treasury................................    11
Huff, Hon. John M., Director, State of Missouri Department of 
  Insurance, Financial Institutions, and Professional 
  Registration, on behalf of the National Association of 
  Insurance Commissioners (NAIC).................................    13
Liang, J. Nellie, Director, Office of Financial Stability Policy 
  and Research, Board of Governors of the Federal Reserve System 
  (Fed)..........................................................    15
Long, Timothy W., Senior Deputy Comptroller, Bank Supervision 
  Policy, and Chief National Bank Examiner, Office of the 
  Comptroller of the Currency (OCC)..............................    19
Murton, Arthur J., Director, Division of Insurance and Research, 
  Federal Deposit Insurance Corporation (FDIC)...................    18

                                APPENDIX

Prepared statements:
    Neugebauer, Hon. Randy.......................................    50
    Cook, Robert W...............................................    52
    Gensler, Hon. Gary...........................................    60
    Goldstein, Hon. Jeffrey A....................................    67
    Huff, Hon. John M............................................    72
    Liang, J. Nellie.............................................    81
    Long, Timothy W..............................................    88
    Murton, Arthur J.............................................   102

              Additional Material Submitted for the Record

Neugebauer, Hon. Randy:
    Written responses to questions submitted to Robert W. Cook...   110
    Written responses to questions submitted to Hon. Gary Gensler   116
    Written responses to questions submitted to Hon. Jeffrey A. 
      Goldstein..................................................   121
    Written responses to questions submitted to Hon. John Huff...   130
    Written responses to questions submitted to J. Nellie Liang..   132
    Written responses to questions submitted to Tim Long.........   135
    Written responses to questions submitted to Arthur J. Murton.   137
Capuano, Hon. Michael:
    Speech given by Federal Reserve Governor Daniel K. Tarullo on 
      March 31, 2011, entitled, ``Regulating Systemic Risk''.....   143
Frank, Hon. Barney:
    Various articles on British banks facing tougher standards 
      than those in the United States............................   148

 
                       OVERSIGHT OF THE FINANCIAL
                      STABILITY OVERSIGHT COUNCIL

                              ----------                              


                        Thursday, April 14, 2011

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Randy Neugebauer 
[chairman of the subcommittee] presiding.
    Members present: Representatives Neugebauer, Fitzpatrick, 
Pearce, Posey, Hayworth, Renacci, Canseco; Capuano, Lynch, 
Waters, Miller of North Carolina, Ellison, Himes, and Carney.
    Ex officio present: Representatives Bachus and Frank.
    Also present: Representatives Biggert, Royce; Green, and 
Perlmutter.
    Chairman Neugebauer. This hearing will come to order. 
Without objection, all members' opening statements will be made 
a part of the record.
    I will start by giving my opening statement.
    Given the recent creation of and mandate of the Financial 
Stability Oversight Council (FSOC), it is important that we 
have this hearing today to better understand its roles and 
responsibilities, the impacts of its decisions on global 
competitiveness and our capital markets, and whether there is 
sufficient leadership by the Chairman of the Council to carry 
out the broad mandate called for in the Dodd-Frank Act.
    I am deeply concerned that if the problems identified in 
this hearing today are not addressed early, this entity could 
have a severe negative impact on the functionality and the 
competitiveness of our businesses and our markets.
    The Council states on its Web site that it is ``committed 
to conducting its business in an open and transparent manner.'' 
Yet, documents reviewed by my staff clearly demonstrate that 
the Council has kept hidden from public view the criteria for 
formulating ``systemically important'' designations.
    The Council also has a statutory duty to facilitate 
coordination among member agencies regarding policy development 
and rulemaking. Yet since the enactment of Dodd-Frank, there 
appear to be serious deficiencies in rulemaking coordination, 
most notably between the SEC and the CFTC.
    The Council is also required to monitor international 
financial regulatory developments and ``advise Congress and 
make recommendations in these areas that will enhance the 
competitiveness of U.S. financial markets.'' Yet, FSOC's 
initial recommendations under Dodd-Frank would place U.S. firms 
at a competitive disadvantage with its global counterparts.
    Finally, the FSOC's role to designate certain non-bank 
financial firms as ``systemically important'' is proceeding 
without any representative at the Federal level who truly 
understands all of the businesses, for example, insurance.
    I think one of the things that we are going to hear today 
is that this process is moving forward and decisions are being 
made without the voting member from the insurance agency being 
available or actually having been appointed.
    We also have Mr. Huff here as well, whom I think will 
testify that he has been trying to get some additional help and 
resources because of this immense responsibility.
    And because, I think, of the nature of FSOC, and it was 
thought by many to be one of the most important pieces of Dodd-
Frank, this hearing today is extremely important, and I think 
there will be hearings in the future to monitor how these 
criteria are put together, how the FSOC as a committee is 
functioning, but that transparency piece is, I think, an 
extremely important piece of that because decisions are being 
made, evidently, within the organization. And when we look at 
the rules coming out, they are not matching up with some of the 
internal discussions. So the importance of this FSOC to, I 
think, the financial markets moving forward is an extremely 
important piece of our responsibility, and I look forward to 
hearing from our witnesses today.
    And with that, I recognize the ranking member of the full 
committee, Mr. Frank. Thank you.
    Mr. Frank. Thank you, Mr. Chairman. The ranking member of 
the subcommittee is on his way over. We have a caucus.
    One of the big issues that has been debated since the 
passage of the financial reform bill was whether the section 
dealing with systemically significant institutions was, in 
effect, a license for those so designated to take more risks 
because people would think they could never fail or whether it 
was something that would be more restrictive to them.
    We believe very strongly that the law is very clear that 
being designated is more of a burden than a license, and we 
have had this debate. But it is now overwhelmingly clear what 
the answer is. It is seen more as a burden than as a license by 
the institutions involved.
    What the FSOC has been getting is a series of lobbying 
efforts by institutions very eager not to be named, and that is 
a direct refutation of the argument that we created a too-big-
to-fail element.
    As a matter of fact, Adair Turner, who recently did a very 
good article, and I think we should be pursuing this question 
about what the real value is of much of the financial trading 
activity, but he notes in his very comprehensive study, 
``Public debate focuses on the need to avoid any taxpayer 
support in the future. Indeed, the Dodd-Frank bill in the U.S. 
makes it legally impossible to provide such support on a bank-
specific basis.''
    So one of the things that is very clear, if there is a 
failure, then if the regulators think there needs to be 
something to alleviate the consequences, it cannot be with 
taxpayer money. And so it is very clear that there is, I 
believe, clearly no such thing as too-big-to-fail.
    Nothing can be done to deal with the consequences of such a 
problem until the institution is abolished. Again, somehow, in 
fact the institutions would like to be, they would benefit from 
being designated.
    I would ask unanimous consent to put into the record these 
articles I am about to quote from.
    From Tom Braithwaite in the Financial Times on April 3rd, 
``As Congress debated the law that became Dodd-Frank, lawmakers 
wrangled over the systemic risk designation. Some warned it 
would crystallize the too-big-to-fail funding advantage enjoyed 
by the largest groups by underlying the fact that government 
considered them crucial. Others said it would instead be a 
scarlet letter, a sign that profits would be hit by the new 
standards.
    ``Nine months after the designation became law, it looks 
like the scarlet letter brigade has won. Disclosures show a 
long list of companies and industry trade groups engaging in 
lobbying efforts. People involved in the talks say they are 
desperate to prove they do not deserve to be branded. They do 
not think that this is a great blessing and a license to be 
considered too-big-to-fail.''
    From Ian Katz, November 17th of last year, ``BlackRock 
lobbies Fed to avoid designation as systemically important 
firm.''
    From that article on November 5th, ``The Investment Company 
Institute, a Washington-based lobby group for the mutual fund 
industry, told the Council in a letter that mutual funds pose 
little threat to the U.S. financial system and should remain 
beyond the Fed's reach.''
    From Tom Braithwaite again in the Financial Times, ``U.S. 
regulators divided on systematic risk list.'' He had two 
articles in the same paper, a busy day for him.
    ``Non-bank financial groups are engaged in their biggest 
lobbying effort since the passage of the financial reforms last 
year in an attempt to escape the net which they fear will hit 
profits with hundreds of millions of dollars of extra costs and 
trapped capital.''
    But then the other argument is, oh, well, this is going to 
put American banks at a disadvantage. So let me put into the 
record an article by Francesco Guerrera and Sharlene Goff in 
the Financial Times on April 11th, ``Global banking regulation 
took a step towards convergence on Monday as a UK commission 
proposed measures that will bring the country's financial rules 
closer to the U.S.''
    In fact, there was a fear that Britain was going to be 
tougher than us. What we have is the financial institutions 
have had a very nice time. The British banks have said to the 
British people, ``You are being too tough and we are going to 
America.'' The American banks said, ``If you are so tough, we 
will go to England.'' I was afraid there was going to be a 
major clash in the Atlantic Ocean as they passed each other.
    It is an illustration of a phenomenon I once discovered. It 
is my contribution to economic theory. I have been hearing for 
years about the absence of a level playing field, and it turns 
out it is a phenomenon of great interest.
    There is apparently a constantly unlevel playing field in 
which no one has ever been at the top. You wouldn't think that 
was possible, but it is an unlevel playing field in which 
everybody is at the bottom.
    Now, I think it is very clear from the behavior of the 
institutions that being designated is not a great boon. I don't 
think it will be a great negative either, because it will only 
lead to increased restrictions if people are behaving 
irresponsibly.
    But, again, this argument as to whether or not the way this 
scheme was set forward in the bill enables institutions by 
certifying that they are too-big-to-fail or in fact potentially 
subject them to greater restrictions, capital increase, 
leverage requirements and others, it is overwhelmingly clear 
what the institutions themselves say.
    For those who still say that this is somehow some great 
favor we have done the large institutions, I will quote again a 
quote from Marx that I have used before, and the Marx in 
question is Chico: ``Who are you gonna believe, me or your own 
eyes?''
    It is very clear from the evidence that what we tried to do 
last year is perceived by the institutions themselves as having 
worked the way we hoped it would.
    I yield back.
    Chairman Neugebauer. I thank the ranking member of the full 
committee.
    And now, I yield to the chairman of the full committee, Mr. 
Bachus, for 3 minutes.
    Chairman Bachus. Thank you, Mr. Chairman. And I thank the 
panelists for being here today.
    The drafters of Dodd-Frank provided FSOC with new and far-
reaching powers over the financial system, and the Council's 
use of the new powers will have a profound effect on our 
financial system and on our economy as a whole. And I think 
oversight of your activities is going to be a high priority for 
our committee.
    One of the significant responsibilities, and Ranking Member 
Frank referred to this, is determining which non-bank financial 
institutions will be determined or would be designated as 
systemically important.
    Of course, we know that all banks of over $50 billion, some 
30-odd banks, will be automatically designated as such. And 
those 30 or so banks plus any non-financial institutions will 
have heightened prudential standards and Federal Reserve 
supervision. That, in and of itself, I don't think is a bad 
thing.
    However, the moral hazard implications of these 
designations and of this power I think can't be overstated. The 
stamp of ``systemically important'' will be interpreted by many 
market participants as a designation of ``too-big-to-fail,'' 
prompting them to exercise less market discipline when dealing 
with such firms.
    Federal Reserve Governor Daniel Tarullo concedes that the 
designation could exacerbate moral hazard. In a speech on March 
31st, he stated, ``There is a reasonable concern that 
designating a small number of non-bank affiliated firms would 
increase moral hazard concern.''
    Additionally, I have questions regarding the transparency 
of the process for making the determination. Both the Council's 
advance notice for proposed rulemaking and its notice for 
proposed rule-making restated language in the Dodd-Frank 
statute. However, recent testimony from the FDIC Chairman and 
press reports indicate the Council is using additional 
standards to make its determination.
    The significance of the systemic determination process 
requires transparency, and the Council should clarify what 
metrics are being used to classify firms in addition to those 
in the statutory language.
    Congress must also ensure that the Council fulfills its 
statutory duty to coordinate the rulemaking, reporting, and 
enforcement actions of the financial regulators. I am sure, for 
instance that there has been a lot of discussion about the need 
for coordination at the CFTC and the SEC.
    I think it is imperative for the Chairman of the FSOC, who 
is our Treasury Secretary, Secretary Geithner, to direct the 
Council's coordination efforts. And he should strive to ensure 
that the rules implementing Dodd-Frank are neither duplicative 
nor conflicting.
    So far, the results on this front are not encouraging as 
regulators have not been successful at developing a coherent 
and coordinated approach on several fundamental issues with 
derivatives regulation and mortgage servicing standards. There 
appear to be conflicts and duplications.
    I do believe that a lot of that is because of the short 
timeframe. It makes it almost impossible to have a coherent, 
organized rulemaking. And for that reason, I think that more 
time is needed than the statute gives. I would like to hear 
your comments on whether you have sufficient time.
    Finally, decisions made by the Council must not undermine 
the competitiveness of U.S. financial firms or treat U.S. firms 
less favorably than their foreign competitors. The chairman of 
the subcommittee mentioned this.
    The Council should be sensitive to how its rules and 
recommendations impact the ability of American companies to 
compete globally.
    The Council should also keep in mind that in addition to 
being subject to Dodd-Frank, U.S. firms are also subject to 
Basel III capital standards, as well as rules issued by the 
Group of 20 and the Financial Stability Board. The activities 
undertaken by the Council show it may not be taking this issue 
as seriously as it needs to.
    In response to a query on the international context of the 
Volcker Rule that was included in the Council's request for 
information for the Volcker study, I submitted a comment letter 
making the point that ``unilateral U.S. adoption of the Volcker 
Rule could hurt the U.S. economy and create opportunities for 
regulatory arbitrage.'' This concern has been echoed by others.
    However, the Council's final Volcker study indicated just 
one reference to concerns about U.S. global competitiveness. 
And the Council's study and recommendations on concentration 
limits for U.S. firms devoted less than a page to 
competitiveness concerns. I hope the panel will address these 
issues today.
    I yield back the balance of my time.
    Chairman Neugebauer. I thank the chairman.
    And now the ranking member of the subcommittee, Mr. 
Capuano?
    Mr. Capuano. Thank you, Mr. Chairman.
    First of all, I would like to thank you, ladies and 
gentlemen, for being here with us today, and I look forward to 
your testimony.
    I want to make it clear that I am not interested in 
relitigating or re-debating the concepts that are here. The law 
was passed. I like most of it. I don't like some of it. But we 
are here. I am most interested in moving forward in what the 
FSOC is going to do going forward.
    I will be clear. I believe that FSOC has a responsibility 
to clearly outline the criteria that you will be using for 
designating someone as a significantly important financial 
institution. I think it is only fair to the country, fair to 
the individual companies to let them know what rules will 
trigger what.
    I also think that it is probably best to start with a 
relatively small list, because you have to start somewhere, and 
if you bite off more than you can chew, I think that is a 
recipe for disaster.
    At the same time, I believe that the FSOC should be looking 
at a potentially significantly larger list of potential SIFI 
designees. Those are the people who would be just under the 
lines, whatever lines you draw, or people who might want to 
game the system.
    And there will be someone who games the system. We all know 
that. As a matter of fact, the minute you come up with a 
designation, everyone will try to game the system.
    For instance, on the list that I just got last night of the 
banks, bank holding companies that will be automatically 
designated, there are 36 banks that are currently on that list. 
At least two of them could probably move a few numbers around 
on their balance sheets and be de-designated the very next day.
    I don't really mind where you draw the initial line, but I 
think it is absolutely essential that you have a big group of 
other people that you are kind of keeping an eye on, that might 
become, for several reasons.
    Number one is that things could change. You could change 
your opinion. Number two is that they could become significant 
in a day or a week. And number three is that, again, people 
will be gaming that system.
    I do think it is probably fair to keep that list private, 
but also to let those people know that they are on that list of 
potential SIFIs so that they know they are being carefully 
scrutinized.
    I also believe that some of the concerns that have been 
raised about the lack of coordination in the regulations 
between various agencies is a fair point. It is not useful 
anywhere, ever, to duplicate or overlap regulation.
    And I actually think that is one of the main reasons for 
the existence of the Financial Stability Oversight Council. I 
believe that is one of their main responsibilities, to get 
agencies to work together and to not overly burden the system.
    I am not in favor of overregulation. However, I am also not 
in favor of under-regulation. Overregulation is clearly defined 
at least in one case where you have the same agencies requiring 
different things for the same activity. That makes no sense, 
unless there is a reason. If there is a reason, then both 
agencies should be requiring both activities.
    And I guess, finally, I would like to make it clear that as 
far as I am concerned, the activities that you are engaged in 
and that will be discussed today are a living thing. It is not 
just something that we wrote down in concrete never to be 
changed.
    The regulations will be critically important. Whatever 
regulations you come up will probably have to be amended in the 
next year or two because you will miss something, or somebody 
will game something. You will realize something has to change.
    I actually believe that the reason we had a financial 
crisis is because the regulators all stayed in their own little 
silos and didn't move beyond them when the entire financial 
services industry said, ``That is the little silo you are in? 
Fine. We are moving outside.''
    I think if the regulators had been more flexible and more 
broad in their perspective, we would not have had the financial 
meltdown that we had.
    But either way, I think that whatever you do, there will be 
mistakes. There will be things that I don't agree with, and 
there will be things that I agree with. But I hope that you all 
look at it as a living, breathing item to be amended as you go 
forward, particularly in the first couple of years.
    As far as I am concerned, we are about to engage in things 
that we have never done, which I think makes it, number one, 
important, and number two, critically, that it be flexible. And 
with that, I will end simply, again, by saying thank you, and I 
look forward to your testimony.
    Chairman Neugebauer. And I thank the ranking member.
    And now, the vice chairman of the subcommittee, Mr. 
Fitzpatrick for 1\1/2\ minutes.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    We are here today to receive some clarity on the intentions 
of FSOC. And I know we all appreciate the panel and the 
witnesses being here to hopefully provide some of that.
    Among FSOC's most important, and perhaps most impactful 
duties, is to determine which financial institutions may 
provide systemic risks to our economy.
    Considering the financial crisis we just went through, we 
want to improve our regulatory system and have procedures in 
place to monitor the financial sector. I think it is important, 
however, that we not allow our zeal to put American companies 
at a disadvantage or, more importantly, to make us set aside 
some fundamental American principles.
    Sound rules are necessary, and regulation allows us to 
enforce those rules. But we must be fair, and we have to adhere 
to established procedures.
    American companies deserve a transparent, clear and open 
process, a designation process that includes safeguards to 
ensure that the right companies are receiving proper scrutiny, 
and detailed criteria to provide a clearly defined framework 
that all the affected parties understand and are able to work 
within.
    I do not believe any member of this committee will object 
to fair and reasonable rules with a well-defined regulatory 
system to enforce them. We only seek to understand how these 
rules are being made and how America's financial regulators are 
going to ensure that American companies will continue to 
succeed and continue to be able to provide American jobs.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. Thank you.
    And now, the gentlewoman from New York, Ms. Hayworth?
    Dr. Hayworth. Thank you, Mr. Chairman.
    And I am honored to be participating with all of you in 
this hearing because we are pursuing, as we must, a key 
oversight function. Dodd-Frank represented, in the minds of 
many of us, an enormous overreach and one that is, in fact, 
putting our economy and job growth in jeopardy.
    The FSOC is a very important part of Dodd-Frank. It has the 
authority to measure systemic risk, to identify institutions 
that pose that risk. And, of course, FSOC also has to establish 
enhanced regulations for those institutions.
    So we are asking you as regulators to act in agreement as a 
Council as you exercise this extraordinary level of authority. 
And I trust you to be executing that responsibility to the 
utmost of your ability. There is no question.
    But I want to make sure that, indeed, FSOC is acting as 
intended, to identify systemic risk in a way that doesn't 
increase--and to define systemic risk in a way that doesn't 
increase moral hazard of too-big-to-fail, that doesn't create 
market distortion because of the perception that the Federal 
Government is going to guarantee certain aspects of market 
activity.
    This, of course, was at the root of the 2008 crisis in the 
minds of many of us, and certainly including me. So today, in 
our oversight function, we seek your help in decreasing 
ambiguity, decreasing uncertainty, and decreasing unintended 
consequences which is a theme, as you know, among us this year, 
for so many reasons.
    So I thank you in advance for your candid and thorough 
answers as we all work through the challenges that are posed to 
FSOC and also are posed by FSOC.
    And with that, I yield back, Mr. Chairman.
    Chairman Neugebauer. And now to the gentlewoman from 
California, Ms. Waters?
    Ms. Waters. Thank you. Thank you, Mr. Chairman.
    In 2008, the financial markets of the United States melted 
down and today, nearly 3 years later, our Nation is still 
struggling to get out of the economic quagmire that meltdown 
caused.
    The meltdown, which was caused by the greed and 
irresponsibility of several banks on Wall Street but had 
systemic implications for the entire market, had real negative 
impacts on everyday Americans. These costs included the loss of 
over $10 trillion in household wealth and the loss of 10 
million jobs. Since the meltdown, incomes have declined, with 
households losing an average of $3,250.
    All of this is to say that Democrats realized that we had 
to act to protect our financial markets and to prevent 
institutions from becoming too-big-to-fail and the result of 
Democrats' action was the Dodd-Frank Wall Street Reform and 
Consumer Protection Act.
    Dodd-Frank ends too-big-to-fail by providing a mechanism 
for the orderly liquidation of failing companies that 
guarantees the company dies while protecting the rest of the 
financial system.
    Now, what did my friends on the opposite side of the aisle 
propose to help prevent another crisis? I heard the argument 
that the only way to end bailouts is to put firms through the 
bankruptcy process. But that doesn't end too-big-to-fail, and 
it certainly won't prevent another crisis because bankruptcy 
itself can create systemic problems when used to unwind large, 
interconnected financial companies.
    If my friends had their way, we would now have a system 
that would exacerbate, not solve those problems. In fact, I 
believe that if we had implemented a bankruptcy strategy as 
suggested by my friends on the opposite side of the aisle, the 
markets would have no confidence that another crisis would not 
occur and our hard-fought economic recovery would never have 
been achieved.
    Therefore, Mr. Chairman, I strongly support the work 
Democrats undertook to save this Nation from another financial 
and economic collapse. The Dodd-Frank Act and the Financial 
Stability Oversight Council are critical to the continued 
stability of not just our financial markets, but also our 
economy.
    I thank you, and I yield back the balance of my time.
    Chairman Neugebauer. I thank the gentlewoman.
    And now the gentleman from Texas, Mr. Canseco, for 1 
minute.
    Mr. Canseco. Thank you, Mr. Chairman.
    And I would like to thank the witnesses for appearing here 
today and offering your testimony.
    For the first time in history, Federal regulators have been 
asked to identify systemic risk in our financial markets. While 
it is a noble goal to root out systemic risk before it brings 
down a financial system, this new regulatory responsibility 
carries significant implications for our country and our 
economy.
    The Financial Stability Oversight Council, FSOC, will have 
to make some of the most consequential decisions in the coming 
years about our financial institutions, financial markets, and 
our economy.
    The Council needs to be certain that it does not legitimize 
the most damning accusations being made about its existence, 
that its function will be to identify firms that are too-big-
to-fail and put taxpayers at risk yet again.
    Recently, there have been some worrisome developments about 
the Council's operations. Proposed rules from the Council are 
extremely vague, and representatives from agencies that make up 
the Council have made conflicting statements about the 
Council's intent. I hope today's hearing serves to clarify what 
the Council's intentions are and what steps they are taking to 
protect our economy and our consumers.
    Thank you very much, Mr. Chairman, and I look forward to 
hearing the testimony.
    Chairman Neugebauer. I thank the gentleman, and remind 
members that without objection, all members' statements will be 
made a part of the record.
    I would now like to introduce our panel today: the 
Honorable Gary Gensler, Chairman of the Commodity Futures 
Trading Commission; the Honorable Jeffrey Goldstein, Under 
Secretary of Domestic Finance in the Department of the 
Treasury; the Honorable John Huff, Director of the Missouri 
Department of Insurance, Financial Institutions and 
Professional Registration; Ms. Nellie Liang, Director of the 
Office of Financial Stability Policy and Research, Federal 
Reserve; Robert Cook, Director of the Division of Trading and 
Markets at the Securities and Exchange Commission; Mr. Arthur 
Murton, Director, Division of Insurance and Research, Federal 
Deposit Insurance Corporation; and Mr. Tim Long, Chief National 
Bank Examiner and Senior Deputy Comptroller for Regulatory 
Policy, Office of the Comptroller of the Currency.
    I would remind all of you that without objection, all of 
your written statements will be made a part of the record. We 
ask you to limit your testimony to 5 minutes.
    And with that, I recognize Chairman Gensler.

 STATEMENT OF THE HONORABLE GARY GENSLER, CHAIRMAN, COMMODITY 
               FUTURES TRADING COMMISSION (CFTC)

    Mr. Gensler. Good afternoon. Thank you, Chairman 
Neugebauer, Ranking Member Capuano, Ranking Member Frank, and 
all the members of the subcommittee. I thank you for inviting 
me here to speak at this hearing about FSOC. I am pleased to 
testify along with our fellow regulators here and to hear your 
thoughts.
    I think that the FSOC provides an opportunity for 
regulators now and in the future to ensure that our financial 
system works better for all Americans. The financial system 
should be a place where investors and savers can get a return 
on their money. It should provide transparent and efficient 
markets where borrowers and people with good ideas and business 
plans can raise needed capital.
    One of the challenges for the Council and for the American 
public is that, like so many other industries, the financial 
industry has gotten very concentrated around a small number of 
very large firms. And as it is unlikely that we could ever 
ensure that financial institutions will not fail, because 
surely some will fail in the future, we must do our utmost to 
ensure that when those challenges arise, the taxpayers are not 
forced to stand behind those institutions, and yes, that these 
institutions are free to fail.
    There are important decisions that the Council will make, 
such as determinations about systemically important non-bank 
companies or SIFIs as you mentioned. There are other things 
about clearinghouses and completing studies and so forth.
    More specifically, the Council is suggesting a 
clearinghouse. This is something that the CFTC gets very 
involved in, but some clearinghouses will be so large that they 
are systemically important. The CFTC has proposed comprehensive 
and robust rules to oversee the clearinghouses, including those 
that may be systemically important.
    And I look forward to the Council's work moving forward. 
There will be some proposals on how that designation process 
should come forward. I think they should be detailed and the 
criteria should be explicit.
    Further, the FSOC put forward a Volcker Rule study. This 
was very important for the CFTC because we, along with other 
Federal regulators, have to complete some proposals on the 
Volcker Rule.
    It is our hope to put out a proposal sometime this summer 
along with other Federal regulators. And importantly, the study 
included derivatives as well as cash products to assure that 
there is not a regulatory arbitrage.
    Though these specific issues are important, to me, it is 
essential the Council make sure that the American public 
doesn't bear the risk of the financial system and that the 
system works for the American public and investors and small 
business, retirees and homeowners.
    To accomplish this, the regulators must coordinate closely 
on their mission and work together regularly to assess the 
health of the financial system and to make recommendations and 
annually report this to the Congress.
    The CFTC is consulting heavily with the other agencies of 
the FSOC to implement all of this, but we are only one agency. 
And with regard to consultation, we put out all of our proposed 
rules, our term sheets, our memos to the seven other member 
agencies. We have been enormously benefited by the other 
agencies' direction and advice on this.
    We are at a bit of a pause right now. We have about 45 
rules outstanding. We have about four to go, maybe five. Before 
we move to any final rules, we are going to, again, get input 
from all of the seven member agencies. Most of that is from the 
Securities and Exchange Commission and the Federal Reserve 
because that is where most of the input is.
    With that, I thank you, and I look forward to any of your 
questions.
    [The prepared statement of Chairman Gensler can be found on 
page 60 of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Gensler.
    Mr Goldstein?

    STATEMENT OF THE HONORABLE JEFFREY A. GOLDSTEIN, UNDER 
SECRETARY FOR DOMESTIC FINANCE, U.S. DEPARTMENT OF THE TREASURY

    Mr. Goldstein. Mr. Chairman, Ranking Member Capuano, and 
members of the subcommittee, thank you for the opportunity to 
testify here today.
    In July 2010, the Dodd-Frank Wall Street Reform and 
Consumer Protection Act created the Financial Stability 
Oversight Council to monitor and address risks to financial 
stability. In conjunction with my duties as Under Secretary of 
the Treasury, I serve as the Chair of the Council's Deputies 
Committee, as well as its Systemic Risk Committee. And I am 
working with my Council colleagues to build and execute the 
mandate of this new organization.
    In the short time since the Dodd-Frank Act was signed into 
law, the Council has built its organizational framework, 
initiated monitoring for potential risks to financial 
stability, laid the groundwork for the designation of non-bank 
financial companies and financial market utilities, completed 
statutorily required studies, including a study on the 
effective implementation of the Volcker Rule, and served as a 
forum for discussion and coordination among the agencies 
implementing Dodd-Frank.
    We have built the structure for the Council that is 
designed to promote accountability and action. The Council's 
work monitoring systemic risk has focused on significant market 
developments that could affect the financial system.
    The remainder of the Council's agenda over the 8 months has 
been driven by specific statutory responsibilities. For 
example, in January the Council released studies on the Volcker 
Rule which prohibits proprietary trading by banking entities 
and on the Dodd-Frank Act's limits on concentration of large 
financial companies.
    In addition, as Chair of the Council, the Treasury 
Secretary is required to coordinate several major rulemakings, 
including joint rulemakings on credit risk retention and the 
Volcker Rule.
    We are also developing an analytic framework for, and have 
engaged in a public rulemaking related to, two of the Council's 
most important authorities, its authority to designate non-bank 
financial companies for consolidated supervision and financial 
market utilities for heightened standards.
    Through its designation authority, the Council will help 
ensure that large interconnected financial companies whose 
material financial stress could pose a threat to U.S. financial 
stability will not be permitted to avoid adequate supervision 
based on their corporate form.
    Similarly, the Council's work will help ensure that 
financial market utilities, which facilitate clearing 
settlements and payments, do not put the broader financial 
system at risk.
    We expect to publish a final rule on the process and 
criteria for non-bank designations that will take into account 
the comments we have received and incorporate the qualitative 
and quantitative considerations mandated by the statute.
    In that work, we are guided by a desire to ensure 
transparency and to obtain input from all interested parties. 
We are also committed to establishing a process that will 
endure changes in firms, markets and risks over time.
    Our commitment to a robust designation process goes beyond 
transparency during rulemaking. Every designation decision will 
be firm-specific and subject to judicial review. Even before 
the Council votes on proposed designations, the company under 
consideration will have an opportunity to submit written 
materials to the Council concerning its designation.
    If challenged, the designation will be subject to review 
through a formal hearing process and a two-thirds final vote, 
after which the Council must then provide to Congress a report 
detailing its final decision.
    As we continue to work to implement the Wall Street reform 
legislation, our overarching goal will remain the same--to 
establish new rules of the road to fix what failed and 
contributed to the financial crisis. And the Council plays a 
critical role in achieving that goal.
    Let me end by thanking the members for the opportunity to 
be here today, and I look forward to taking your questions.
    [The prepared statement of Under Secretary Goldstein can be 
found on page 67 of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Goldstein.
    Mr. Huff?

  STATEMENT OF THE HONORABLE JOHN M. HUFF, DIRECTOR, STATE OF 
 MISSOURI DEPARTMENT OF INSURANCE, FINANCIAL INSTITUTIONS, AND 
     PROFESSIONAL REGISTRATION, ON BEHALF OF THE NATIONAL 
         ASSOCIATION OF INSURANCE COMMISSIONERS (NAIC)

    Mr. Huff. Thank you, Mr. Chairman, Ranking Member Capuano, 
and members of the subcommittee. Thank you for the opportunity 
to testify today.
    My name is John Huff. I am Director of the Department of 
Insurance, Financial Institutions and Professional Registration 
for the State of Missouri. I serve as a non-voting member of 
FSOC.
    I am also a member of the National Association of Insurance 
Commissioners, NAIC, and I am testifying on behalf of that 
organization today. Specifically, I am here to discuss the 
experiences of our Nation's 56 insurance regulators and working 
through NAIC with FSOC.
    There are three matters I wish to address in my testimony 
today. First, insurance is a unique product, fundamentally 
different from banking and securities products. Second, in 
passing Dodd-Frank, we believe that Congress intended that 
insurance regulators have thorough representation on FSOC.
    And finally, despite the NAIC's best efforts, there is 
inadequate insurance expertise on FSOC today, a problem that 
will continue for the foreseeable future.
    Insurance is a unique product, and insurance policies 
involve upfront payments in exchange for a legal promise is to 
pay benefits in the event of a future loss. Contrasting bank 
products involving money deposited by customers subject to 
withdrawal on demand at any time, insurance products are not.
    U.S. insurance companies are also subject to stringent 
capital requirements, limits on the nature and extent of their 
investments, and quarterly analysis and periodic examination. 
These regulatory reviews enabled the insurance sector to 
weather the recent financial crisis better than other sectors.
    For these reasons, it is the view of the NAIC that 
traditional insurance products and activities do not typically 
create systemic risk. However, connections with other financial 
activities and non-insurance affiliates may indeed expose some 
insurers to the impact of systemic risk, and certain products 
may provide a conduit for systemic risk.
    Beyond our participation on FSOC, the NAIC is taking steps 
to mitigate systemic risk and address the areas of concern that 
were raised during the recent financial crisis.
    Through the NAIC, regulators consult with each other, share 
information, and develop effective policies. In the past year 
alone, we have made important changes to the Model Insurance 
Holding Company System Regulatory Act and Regulation to provide 
a clearer view of the operations of financial groups and their 
impact on any insurers within those groups.
    We have enhanced securities lending disclosures requiring 
additional transparency in an area that received attention 
during the crisis. We have also reduced regulatory reliance on 
credit ratings by changing how commercial and residential 
mortgage-backed securities are valued for determining risk-
based capital.
    In addition, NAIC is a founding member of the International 
Association of Insurance Supervisors, IAIS, which represents 
140 countries of insurance regulators.
    It is at the IAIS Financial Stability Committee that 
approaches are being developed now to evaluate insurers and 
determine whether such entities will be considered Globally 
Systemically Important Financial Institutions, or G-SIFIs.
    Congress recognized that insurance is regulated primarily 
at the State level, and for that reason the Act mandates that 
an insurance regulator be appointed to FSOC through a process 
determined by all of the insurance regulators.
    We also believe Congress intended for my position to 
represent the interests of the entire insurance regulatory 
system. The important role that Congress intended for State 
insurance regulators to play is further supported by Section 
111(b) of the Act, which provides specifically for FSOC to 
appoint special advisory committees of State regulators to 
assist it in carrying out its mission.
    While FSOC engages in work that could impact insurers, two 
of our three insurance representatives, the Director of the 
Federal Insurance Office and a presidential appointee with 
insurance experience, are absent from the table. And I have 
been prohibited from utilizing available State regulatory 
resources, including engaging other State regulators.
    Clearly, today there is inadequate insurance expertise on 
FSOC. Our regulatory system requires regulators to work 
collaboratively and share information with one another in 
confidential settings. Yet to date, I have been restricted with 
consulting with my fellow insurance regulators.
    Quite simply, FSOC should want and the U.S. taxpayers 
should demand the resources and expertise that their regulators 
can provide to FSOC's work in protecting the U.S. financial 
system.
    From the beginning, the State regulators and the NAIC have 
been and continue to be willing to contribute to FSOC's work 
relating to insurance. While we have made some limited progress 
with the U.S. Treasury Department on this issue, I am 
frustrated that it has taken so long for our concerns to be 
addressed.
    And while I appreciate the accommodations made to date, 
they are simply not sufficient in light of the very important 
work facing FSOC. I am concerned that if progress on this front 
continues to be made at a similarly slow pace moving forward, 
decisions impacting insurance companies, insurance consumers, 
and our country's financial stability will be made without the 
benefit of nearly 140 years of proven insurance regulatory 
experience.
    Thank you again for the opportunity to testify before you, 
and I look forward to answering your questions.
    [The prepared statement of Mr. Huff can be found on page 72 
of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Huff.
    Ms. Liang?

  STATEMENT OF J. NELLIE LIANG, DIRECTOR, OFFICE OF FINANCIAL 
   STABILITY POLICY AND RESEARCH, BOARD OF GOVERNORS OF THE 
                  FEDERAL RESERVE SYSTEM (FED)

    Ms. Liang. Chairman Neugebauer, Ranking Member Capuano, and 
members of the subcommittee, thank you for the opportunity to 
testify on the Federal Reserve Board's role as a member of the 
Financial Stability Oversight Council.
    The FSOC members represent a number of regulatory agencies 
that oversee a broad range of participants in the U.S. 
financial market. The Chairman of the Board of Governors of the 
Federal Reserve System is a voting member of the FSOC. I am 
here testifying on behalf of the Chairman as the Director of 
the Board's Office of Financial Stability Policy and Research.
    The Dodd-Frank Act charged the FSOC with the important task 
of identifying and mitigating risk to the stability of the U.S. 
financial system. The Council is well-placed to address risk 
that might not fall clearly with the jurisdiction of a single 
agency.
    To execute its duties effectively and efficiently, the 
Council has established a structure to leverage the existing 
expertise of the member agencies to promote the sharing of 
information to identify risk and to facilitate coordination 
with respect to policy development, rulemaking, reporting 
requirements, and other actions.
    The Federal Reserve is committed to working with the FSOC 
and other Council members to strengthen systemic oversight. We 
are helping to develop the analytical framework and procedures 
to identify systemically important non-bank firms and financial 
market utilities and for systemic risk assessment.
    We are contributing to numerous studies and rulemaking and 
are meeting regularly with staff of the other agencies to 
discuss emerging risks to financial institutions and markets.
    In addition to the Federal Reserve's role as a member of 
the FSOC, the Dodd-Frank Act gives the Federal Reserve other 
new, important responsibilities. These responsibilities include 
supervising non-bank firms that are designated as systemically 
important by the Council and supervising thrift holding 
companies.
    They also include developing enhanced prudential standards, 
including capital, liquidity, stress tests, single counterparty 
credit limits, and living will requirements for the largest 
financial firms.
    The Federal Reserve has made some internal changes to 
better carry out its new responsibilities. To strengthen 
supervision of the largest, most complex financial firms, we 
created the Large Institution Supervision Coordinating 
Committee, a centralized multidisciplinary body.
    Relative to previous practices, this new structure makes 
greater use of horizontal or cross-firm evaluations of the 
practices and portfolios of firms.
    It relies on additional and improved quantitative methods 
for evaluating the performance of firms. And it more 
efficiently employs the broad range of skills of the Federal 
Reserve staff, for example, in the areas of economic research, 
financial markets, and payment systems, in addition to 
supervision. Similarly, we have reorganized to improve the 
oversight of systemically important financial market utilities.
    As the Dodd-Frank Act recognizes, supervision should take 
into account the overall financial stability of the United 
States in addition to the safety and soundness of individual 
firms.
    Our revised internal organizational structure facilitates 
our implementation of this macroprudential approach to do 
oversight.
    More recently, we created an Office of Financial Stability 
Policy and Research to better coordinate our financial 
stability work. This office contributes to supervision of the 
large complex institutions. It also helps identify and analyze 
potential risks to the broader financial system and the 
economy.
    Such risk could stem from, among other things, potential 
asset price alignment, excessive leverage, outside financial 
flows, and structural vulnerabilities in financial markets.
    In closing, Congress has given the FSOC an important 
mandate, and the Federal Reserve will work closely with our 
fellow regulators, the Congress, and the Administration to help 
FSOC execute its responsibilities and promote financial 
stability in the United States.
    Thank you again for inviting me to appear before you today. 
I would be pleased to answer your questions.
    [The prepared statement of Ms. Liang can be found on page 
81 of the appendix.]
    Chairman Neugebauer. Thank you, Ms. Liang.
    Mr. Cook?

STATEMENT OF ROBERT W. COOK, DIRECTOR, DIVISION OF TRADING AND 
     MARKETS, U.S. SECURITIES AND EXCHANGE COMMISSION (SEC)

    Mr. Cook. Chairman Neugebauer, Ranking Member Capuano, and 
members of the subcommittee, good morning.
    I am Robert Cook, Director of the Securities and Exchange 
Commission's Division of Trading and Markets.
    Thank you for the opportunity to testify today on behalf of 
SEC Chairman Schapiro regarding the progress of the Financial 
Stability Oversight Council.
    As you know, FSOC was created by Title I of the Dodd-Frank 
Act. Its duties include identifying and designating certain 
non-bank financial companies as systemically important 
financial institutions, or SIFIs, for heightened prudential 
supervision by the Federal Reserve Board, identifying and 
designating financial market utilities, or FMUs, that are or 
are likely to become systemically important, monitoring the 
financial markets and regulatory framework to identify gaps, 
weaknesses and risks and making recommendations to address 
those issues to its member agencies and Congress, and combining 
the information of its member agencies in working with the 
Office of Financial Research to facilitate the collection and 
sharing of information about risks across the financial system.
    Since passage of the Act, FSOC has taken steps to create an 
organizational structure, coordinate interagency efforts and 
build a foundation for meeting its statutory responsibilities 
to begin defining and implementing the process.
    To identify and designate SIFIs for heightened supervision 
by the Federal Reserve Board, FSOC created an interagency 
committee and several staff committees.
    Last October, FSOC requested initial comments on the 
designation process, and in late January issued a Notice of 
Proposed Rulemaking (NPR). The rule proposes the various 
factors and attributes of firms that will be considered by FSOC 
as part of designation determinations as well as processes and 
procedures established under the Act for such determinations.
    FSOC also established another interagency committee to 
develop a framework for the designation of systemically 
important FMUs. These entities form critical links among 
marketplaces and intermediaries that can reduce counterparty 
credit risk among market participants, create significant 
efficiencies in trading activities, and promote transparency in 
financial markets.
    However, FMUs by their nature create and concentrate new 
risks that could affect the stability of the broader financial 
system. To address these risks, the Act provides important new 
enhancements to the regulation and supervision of FMUs 
designated as systemically important.
    Accordingly, FSOC sought comments last December regarding 
the designation process and in March published a Notice of 
Proposed Rulemaking to provide further information on the 
process it proposes to follow when reviewing the systemic 
importance of FMUs.
    In addition to initiating work on the identification of 
SIFIs and systemically important FMUs, FSOC has established a 
Systemic Risk Committee that seeks to identify, highlight, and 
review possible risks that could develop across the financial 
system.
    Beyond the work of these interagency committees, FSOC has 
prepared and issued two studies, including its study and 
recommendations regarding the implementation of Section 619 of 
the Act, commonly referred to as the Volcker Rule.
    That study recommends the creation of rules and a 
supervisory framework that would effectively prohibit 
proprietary trading activities by covered banking entities, 
while appropriately distinguishing statutorily permitted 
activities, such as market making and risk-mitigating hedging. 
In addition, the study identified potential challenges in 
delineating prohibited activities from permitted activities.
    While FSOC has made substantial progress in taking up its 
new responsibilities, its efforts are ongoing and the most 
challenging issues lie ahead, including the potential 
designation of SIFIs and FMUs.
    Continued public input, both generally on this process and 
specifically with respect to the notices of proposed 
rulemakings, will be critically important. In addition, as 
Dodd-Frank implementation proceeds, sustained coordination of 
the FSOC agencies remains a vital consideration.
    I look forward to continuing to work closely with Congress 
as implementation continues, and I am happy to answer any 
questions you may have.
    [The prepared statement of Mr. Cook can be found on page 52 
of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Cook.
    Mr. Murton?

STATEMENT OF ARTHUR J. MURTON, DIRECTOR, DIVISION OF INSURANCE 
   AND RESEARCH, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Mr. Murton. Chairman Neugebauer, Ranking Member Capuano, 
Ranking Member Frank, and members of the subcommittee, I 
appreciate the opportunity to testify today on behalf of the 
FDIC on the issue of the Financial Stability Oversight Council, 
known as the FSOC.
    The recent financial crisis exposed shortcomings in our 
regulatory framework for monitoring and addressing risk in the 
financial system. Before the crisis, regulatory agencies tended 
to focus narrowly on the institutions and markets within their 
jurisdiction.
    We regulators did not pay enough attention to crosscutting 
developments that contributed to the buildup of significant 
risk within the system.
    In addition to regulatory gaps, the absence of a resolution 
process for systemically important financial institutions left 
regulators with limited options for addressing problems facing 
such firms.
    This created a no-win dilemma for policymakers--bail out 
these companies or expose the financial system to the 
destabilizing effects of applying the bankruptcy process to 
financial firms that are not well-suited for it.
    My colleagues on the panel have already covered many of the 
key aspects of the FSOC. Therefore, I will focus my remarks on 
a few points of particular importance to the FDIC.
    As others have mentioned, an important responsibility of 
the FSOC is to determine whether a non-bank financial company 
should be designated as a systemically important financial 
institution, or SIFI.
    Designated firms will be supervised by the Federal Reserve 
and subject to prudential standards and to new requirements for 
developing and maintaining resolution plans. From the FDIC's 
perspective, the requirement that SIFIs have resolution plans 
is an important reason why we must get the SIFI designations 
right.
    The purpose of these resolution plans, often known as 
living wills, is to ensure that if one of these firms were to 
face failure, it would be possible to liquidate the firm under 
the Bankruptcy Code in an orderly way.
    The FDIC and the Federal Reserve Board have the joint 
responsibility for rulemaking and oversight of resolution 
plans. Within the last few weeks, the Boards of the FDIC and 
the Federal Reserve have approved a joint proposal for comment.
    Once these rules are in place, if the resolution plans 
submitted by the firms are not found to be credible, we can 
require change which could ultimately result in downsizing and 
simplification of these firms.
    Resolution plans and the FDIC's Orderly Liquidation 
Authority (OLA) are critical features of the Dodd-Frank Act 
because they will provide future policymakers with a means of 
handling the failure of a large, interconnected financial firm 
in a way that does not destabilize the financial system and 
does not bail out creditors and investors.
    It is important that we put these rules in place 
effectively so that market participants will know they are at 
risk when they invest in or lend to large, systemically 
important financial firms.
    This will ensure that these firms are subject not only to 
regulation and supervision, but also to meaningful market 
discipline. Both are necessary for the financial system to 
safely and efficiently allocate the capital and credit 
necessary to support economic growth.
    Thank you again for the opportunity to testify. And I would 
be happy to answer any questions.
    [The prepared statement of Mr. Murton can be found on page 
102 of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Murton.
    Mr. Long?

 STATEMENT OF TIMOTHY W. LONG, SENIOR DEPUTY COMPTROLLER, BANK 
SUPERVISION POLICY, AND CHIEF NATIONAL BANK EXAMINER, OFFICE OF 
             THE COMPTROLLER OF THE CURRENCY (OCC)

    Mr. Long. Thank you, Chairman Neugebauer, Ranking Member 
Capuano, and members of the subcommittee.
    My name is Tim Long. I am Senior Deputy Comptroller and 
Chief National Bank Examiner at the Office of the Comptroller 
of the Currency. In this role, I serve as OCC's representative 
on the Financial Stability Oversight Council's Deputies 
Committee. I appreciate the opportunity to provide the OCC's 
perspective on the functions and operations of the FSOC.
    Congress set forth very specific mandates regarding the 
role and function of FSOC, but its primary mission is 
threefold: to identify risks to the financial stability of the 
United States; to promote market discipline; and to respond to 
emerging threats to the stability of the U.S. financial system.
    In some cases, the Council has a direct responsibility to 
make decisions and take action. This includes designating 
certain non-bank financial companies to be supervised by the 
Federal Reserve and subject to heightened prudential standards 
should the Council determine that material financial distress 
at such companies would pose a threat to the financial 
stability of the United States.
    In other areas, the Council's role is more of an advisory 
body to the primary Federal regulators, such as conducting 
studies and making recommendations to inform future agency 
rulemakings.
    The OCC believes the very roles and responsibilities that 
the Congress assigned to the Council appropriately balance and 
reflect the desire to enhance regulatory coordination for 
systemically important firms and activities, while preserving 
and respecting the independent authorities and accountability 
of the primary supervisors.
    As detailed in my written statement, and as the other 
witnesses have described, FSOC has taken action on a number of 
items, including the publication of two required studies and 
proposed rulemakings on the designation of systemically 
important non-bank financial firms and financial market 
utilities.
    The Council and its committees are also making strides in 
providing a more systemic and structured framework for 
identifying, monitoring, and deliberating a potential systemic 
risk to the financial stability of the United States.
    Briefings and discussions on potential risks and the 
implications of current market developments on financial 
stability are a key part of the closed deliberations of each of 
the Council meetings.
    In summary, I believe FSOC enhances the agencies' 
collective ability to identify and respond to emerging systemic 
risk.
    I would, however, offer two cautionary notes. First, I 
believe the Council's success ultimately will depend on the 
willingness and the ability of its members and staff to engage 
in frank and candid discussions about emerging risks, issues 
and institutions.
    These discussions are not always pleasant as they can 
challenge one's longstanding views or ways of approaching a 
problem. But being able to voice a dissenting view or 
assessment will be critical in ensuring that we are seeing and 
considering the full scope of issues.
    In addition, these discussions will also involve 
information or findings that will need further verification, 
that are extremely sensitive, either to the operation of a 
given firm or market segment, or, if misconstrued, could 
actually undermine public and investor confidence and thereby 
create or exacerbate a potentially systemic problem.
    As a result, I believe that it is critical that these types 
of deliberations, both at the Council level and at our staff 
level, be conducted in a manner that ensures their confidential 
nature.
    Second, even with the fullest deliberations and the best 
data, there will continue to be unforeseen events that pose 
substantial risk to the system, markets or groups of 
institutions. Business and credit cycles will continue.
    We should not expect FSOC to prevent such occurrences. FSOC 
will, however, provide a mechanism to communicate, coordinate, 
and respond to such events to help contain and limit their 
impact.
    The issues that the Council will confront in carrying out 
these duties are, by their nature, complex and far-reaching in 
terms of their potential effects on our financial markets and 
the economy.
    Developing appropriate and measured responses to these 
issues will require thoughtful deliberation and debate among 
the member agencies. The OCC is committed to providing its 
expertise and perspective in helping FSOC achieve its mission.
    Thank you, and I will be happy to take questions.
    [The prepared statement of Mr. Long can be found on page 88 
of the appendix.]
    Chairman Neugebauer. Thank you, Mr. Long.
    It is the intention of the Chair, and I talked to the 
ranking member, that we try to conclude this hearing prior to 
the--we think we are going to have a series of votes around 
12:30.
    Now, what that means is we have a number of people in the 
queue here who want to ask questions, and I want everybody to 
have an opportunity to ask a question, because it is not fair 
to some of the members, and then we get right to the end, and 
they have waited here all day and didn't get to ask a question.
    The Chair is going to hold pretty strictly to the 5-minute 
rule for members. So keep that in mind and get to your best 
question first. And I ask the panel members to be as succinct 
as they can so that members will have an opportunity to ask as 
many questions as they can.
    I will start the questioning. I think one of the things 
that I think that the Council states publicly on its Web site, 
as I said in my opening statement, too, is that it is committed 
to conducting its business in ``an open and transparent 
manner.''
    Yet, we understand that there are an internal memo, in 
fact, my staff member went over and reviewed an internal memo 
that is about 80 pages, that has some very specific information 
in there about a process that is under way to determine some of 
these non-bank financial institutions and the criteria for 
them, particularly when it comes to insurance companies.
    The memo says, ``to the extent to which large insurers 
could be subject to orderly resolution of the market share of 
MBS and CMBS held by the insurer, a number of demand accounts 
held by the insurer.'' And so then when, I look at the original 
document put out for rule, it basically just restated what is 
in Dodd-Frank.
    And so, Mr. Goldstein, I wonder if we are going down a 
process here of being transparent, and as important as the 
criteria is to this process, it may be one of the most 
important pieces of it, that it doesn't appear that we are 
being very transparent.
    What we are hearing from people who are trying to respond 
back to that is they got the same response. If you reprint 
Dodd-Frank, it is the same response that they had to Dodd-
Frank. I think what they were looking for--I think what we are 
looking for is a little bit more transparency and meat in this 
process. Can you respond to that?
    Mr. Goldstein. Yes, Mr. Chairman, I will. Thank you very 
much. It is a very important question because I think that FSOC 
has committed itself to transparency and to clarity.
    The very first meeting of the FSOC in October put out an 
advance notice of public rulemaking. In addition--that received 
50 comments, 50 important comments.
    In January, a notice of public rulemaking was put out which 
received approximately 35 comments, and those comments are 
being taken very seriously.
    The process is one which is also meant, as I mentioned in 
my testimony, to be highly transparent, to be firm-specific and 
the designation process will invite firms to provide comments 
that can be utilized in making a determination.
    If a firm wants a hearing, that hearing will be provided. 
And in addition to that, there will be a requirement for 
transparency under the statute to ensure that Congress is 
informed of the basis for designation.
    I think that the comments, as I mentioned in my testimony, 
have asked for greater clarity. And in the final rule text, we 
expect to provide greater clarity.
    What was put out was an attempt to try to take the 11 
criteria that were in the Act and try to map them into two 
broad buckets.
    Bucket one is, what would be the implications of failure 
for an institution? For example, what is its interconnectivity? 
What is its size? What are the--does a firm have substitutes 
that other firms can provide? So what are the implications for 
the system of failure?
    The second broad bucket was a bucket of, what are the 
vulnerabilities of that specific firm? So for example, maturity 
mismatch, liquidity, leverage, extent of existing regulatory 
scrutiny. And all of this was informed by the statute. We are 
advancing that work and would continue to advance that work.
    You made reference to a report. I would just spend one 
moment emphasizing that the report was a draft report that was 
meant to help inform staff on the designation process. It never 
made its way to deputies. It has never made its way to 
principals. It was an early-stage document.
    And so I wouldn't want to suggest to you that there was an 
FSOC document that had been reviewed, validated, and did not 
make its way into the public domain.
    Chairman Neugebauer. Got it, just a quick follow up. When 
the criteria comes out in the final rule, there will be no 
further opportunity for comment, though. Is that correct?
    Mr. Goldstein. I think we have received, as I said, 50 
comments from the ANPR. We received 38 comments--
    Chairman Neugebauer. Yes or no, when the final rule comes 
out, there is no opportunity for final comment? Is that 
correct?
    Mr. Goldstein. That would be my understanding.
    Chairman Neugebauer. And so what we have sent out is a very 
general, broad framework, and people--the reason, I think one 
of the reasons you have gotten very few responses is that 
people really don't know what to comment on.
    I think what we owe in this process, and I am extremely 
disappointed that we didn't come out with specific criteria 
that the working group is thinking about and let people comment 
on that.
    Now what you have done is you have taken very general 
comments and you are going to huddle up, make the final 
decision, and nobody is going to have any input into that. And 
quite honestly, that is not transparency to me.
    With that, I recognize the ranking member, Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. I was actually going 
to ask the same question.
    And I will be very clear. I don't like that answer, and I 
don't like that situation. I think it is totally--I think 
everything you have done so far is fine. But to come out with a 
final regulation with specific criteria that doesn't allow 
anybody an opportunity to respond to or comment on, I think 
that is unfair. And I don't think that is transparent by any 
fair definition of the term.
    I am not prepared to argue with anything you have done thus 
far, and I am not prepared at all to argue with whatever 
criteria you may choose. But to then choose it, when we are 
into a whole new world, particularly when it comes to insurance 
and other non-bank, we have never regulated some of the people 
we are about to regulate.
    I think it is only fair to give them an opportunity to 
respond and say, ``Well, maybe you shouldn't count this or 
maybe you should count that.'' Not that you have to agree, but 
at least an opportunity for an open dialogue. That is my 
definition of transparency.
    I want to be very clear that I do not like that situation 
or that answer, and I would strongly request that the members 
of the FSOC reconsider that approach, again, not for the 
conclusion or the result, but in deference to true transparency 
and fairness.
    I guess that actually answers most of the questions I have, 
to tell you the truth. That is where I was going to go is, what 
is going to be public, how are they going to know?
    But I do want to ask another question. When you finally get 
to the point of designating somebody, when will that become 
public? When will my wife know that firm XYZ has now been 
designated as a SIFI? Will that be at the end of the process? 
Because, as I understand it, even once you designate somebody, 
there will then be some give and take, some appeals process.
    When will that happen that it becomes public? Will it be at 
the beginning when you initially designate, or at the end, when 
they have finalized their opportunities to appeal and consider 
the matters? Do you know yet?
    Mr. Goldstein. I think the designations process is meant to 
be, as I said, open in the following sense. It is meant to 
provide an opportunity to any firms that would like to provide 
information relevant to its designation. That firm could, 
subject to its own decision--
    Mr. Capuano. I understand that--
    Mr. Goldstein. --put it in the public domain.
    Mr. Capuano. --but what is the intent at the moment?
    Mr. Goldstein. I think the intent of the FSOC, as I 
currently understand it as, would be to not make a designation 
public until it went through the totality of the process.
    Mr. Capuano. Good. I think that's a fair approach.
    Mr. Goldstein. And that would be after a two-thirds vote of 
the Council. But it would not be anticipated--
    Mr. Capuano. So the two-thirds vote of the Council wouldn't 
come until after they have had an opportunity to respond?
    Mr. Goldstein. Yes, sir.
    Mr. Capuano. That is a fair approach.
    I guess I would like to know, in general, from everybody, 
what do you think of the concept of originally starting with a 
smaller list so that you can kind of walk before you run?
    And then the concept of obviously having a larger list that 
would be kept by somebody, in my opinion preferably private, 
for the companies that either are going to game the system or 
might potentially become significant.
    I am just curious. Is that the general approach that is 
being considered, or is somebody still fighting to have a 
humongous list right to begin with?
    Ms. Liang. I can address some of that, building on what Mr. 
Goldstein said. Designation is not a simple process, and it is 
not a one-size-fits-all process approach.
    There are multiple factors in the statute that we have been 
asked to consider, in contrast to banks, where Congress chose a 
$50 billion cutoff. And as Jeffrey mentioned, there is a 
process for a notice, hearings, review.
    So we are collecting information and we are trying to 
consider all the comments that we have received. We need to 
consider this carefully and thoughtfully.
    Mr. Capuano. I respect all that, but is the intention to 
consider it thoughtfully and thoroughly with 4,000 
organizations or with 100? I fully respect everything you just 
said, but it still doesn't answer the question.
    Mr. Gensler. I guess I will just--speaking as one voting 
member of the Council, I should hope that we do something 
similar to what the ranking member said, that the Council staff 
be looking at in each of these industry groups a small group. 
But I think it is the clear intent of Congress that this is a 
small group that are truly systemically relevant institutions.
    Mr. Capuano. And I think that is obviously the right way to 
go, but I am also--and my time is almost up--I am very 
concerned about only looking, for the sake of discussion, at 50 
groups, 50 entities to begin with, but missing those next 200 
that might become significant tomorrow or might merge the next 
day.
    And if you haven't looked at them going forward, then the 
minute they become significant, you will have known nothing 
about them. And I am hoping that there is a thoughtful process 
by having an ongoing review of that.
    Chairman Neugebauer. I thank the ranking member.
    Mr. Fitzpatrick?
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Mr. Goldstein, in her testimony, Ms. Liang mentioned that 
it is an important thing that the U.S. financial firms be 
coordinated with international efforts to implement the Dodd-
Frank Act and that they are well-aligned with the efforts of 
the G-20, the Financial Stability Board and Basel.
    This is, I believe, an important part of the duties of 
FSOC, and I am curious why this was not mentioned in your 
testimony. I will give you a chance to elaborate on that.
    Mr. Goldstein. The omission from my testimony does not in 
any way diminish the critical importance of the point you have 
just made. I think that it is the responsibility of FSOC and 
the member agencies to look at all of the relevant issues 
through an international lens.
    And I think that looking at the work of the Council and its 
member agencies is meant to ensure that outreach takes place on 
individual issues and collectively and that it, in fact, is 
taking place.
    It is incredibly important that we seek wherever possible 
international consistency, and I would be in full agreement 
with you on that point, sir.
    Mr. Fitzpatrick. So what type of coordination do you 
foresee?
    Mr. Goldstein. I think that there is coordination that 
takes place at multiple levels. Many of the members of the FSOC 
are participants in the Financial Stability Board. Many of them 
are, of course, part of the Basel process.
    In addition to that, many of the members of the FSOC engage 
with their European and other counterparts on issues related to 
derivatives, which I am sure Mr. Gensler can speak to, on 
issues across the spectrum. And so it is done at the individual 
agency level, and it is also done at an FSOC level wherever 
appropriate.
    Mr. Fitzpatrick. Mr. Secretary, one key position on the 
Council remains unfilled and that is a person with the 
insurance background and expertise. Can you indicate for the 
subcommittee when this position will be filled?
    Mr. Goldstein. I am not in a position to speak for the 
President of the United States. This is a presidential 
nomination subject to the confirmation of the Senate. It is my 
understanding that people are hard at work on this issue.
    I think we do have the benefit in the interim of Mr. Huff, 
who is a State insurance member. And we also have named Michael 
McRaith to head the Federal Insurance Office, who brings with 
him extensive State insurance expertise. He is currently the 
Illinois insurance commissioner.
    Mr. Fitzpatrick. So you feel it is appropriate to go 
forward with Section 113 designations without that permanent 
position being filled at this point?
    Mr. Goldstein. I think we have extensive insurance 
expertise in Mr. Huff and Mr. McRaith, but I think, as I said 
earlier, we are not at the point of making designations today. 
We are in a deliberative process and so I would not anticipate 
that designations will be forthcoming in a very short time 
horizon.
    Mr. Fitzpatrick. If Mr. Huff wanted to bring on additional 
staff and regulatory consultants, bring them on board tomorrow, 
would you let him do that?
    Mr. Goldstein. Mr. Huff has, like all FSOC members, the 
ability to utilize fully his own agency. And that is true 
across all of the FSOC members. In addition to that, he 
requested additional personal support to utilize people from 
outside of the public sector.
    The FSOC discussed and has worked with Mr. Huff to be able 
to make sure that those people who are outside of the public 
sector are covered by appropriate confidentiality constraints. 
And that is true of all FSOC members, meaning all FSOC members 
have the ability to lean on their own staffs and utilize their 
own staffs, and are subject to confidentiality constraints 
given the sensitive nature of the work done by the FSOC.
    We will continue to work with Mr. Huff. We are trying to 
balance in our discussions at the FSOC the need that Mr. Huff 
has, but also the critical confidentiality, given that the FSOC 
is exposed to confidential supervisory information, 
confidential trade information.
    But I would also add that there should be no limitation, 
nor has any limitation been imposed on Mr. Huff consulting 
without the utilization of that confidential information.
    Mr. Fitzpatrick. Is that a yes? Can he bring them on board?
    Mr. Goldstein. We will continue to work with Mr. Huff to 
make sure that he has appropriate support.
    Mr. Fitzpatrick. Thank you.
    Chairman Neugebauer. I thank the gentleman.
    And now the ranking member of the full committee, Mr. Frank 
from Massachusetts?
    Mr. Frank. Mr. Goldstein, I am going to continue that line. 
We worked very hard in writing the bill to make sure that the 
insurance industry was given representation. There is a 
delicate balance there because it is State-regulated, but we 
are going to be making decisions that could affect them. Please 
err on the side of inclusion. Let us not get too bureaucratic.
    And Mr. Huff talked about State insurance commissioners. 
When you say ``public sector,'' would that exclude State 
insurance commissioners? Are you talking--is that shorthand for 
the Federal public sector? What about if he wanted to work with 
some State insurance commissioners? Would they be covered?
    Mr. Goldstein. What we have tried to do--
    Mr. Frank. Quick. No, State insurance commissioners, could 
he deal with them? Would they be--because they are public 
sector people whom I assume better be confidential or there is 
real trouble with the State. Would there be a problem with him 
working with them in this work?
    Mr. Goldstein. I think what we would need to do is--
    Mr. Frank. You need to answer my question, Mr. Goldstein.
    Mr. Goldstein. What I would like to do, sir, is to just try 
to balance the--
    Mr. Frank. No, Mr. Goldstein, I am sorry. You are not 
answering the question. I don't understand. Let us not have a 
lot of Federal, State, ``we will pursue this'' kind of 
jealousies here.
    We worked hard to balance a lot of concerns, including 
representation of the insurance industry. It is not your fault 
that the appointments haven't been made yet, but you have to 
take that into account.
    Let me go on now. I was very disappointed that Mr. Bachus 
engaged, I thought, in a kind of partial quotation. He quoted 
Mr. Tarullo as saying, ``There was a reasonable concern that 
designating a small number of non-bank affiliates would 
increase moral hazard concerns.''
    He forgot, I guess. He didn't get that far, and he got 
interrupted. In the next paragraph, Mr. Tarullo says, ``Any 
moral hazard that might be created by the designation process 
should be substantially offset by the specially applicable 
supervisory and regulatory requirements'' to which I now turn.
    In other words, yes, some people were afraid that being 
designated would be this badge to go out and collect money, but 
Mr. Tarullo says in that same speech, he couldn't have had to 
read that much longer, ``We will offset that because you are 
subject to requirements.''
    And the fact is, and I want to ask people, the judgment of 
those who could be covered and could not be covered, who fall 
in that discretionary path, appears to be that the benefits of 
being covered are far outweighed by the hindrance of being 
covered.
    That is, they don't see it as a moral hazard in the sense 
that this would enhance their ability to attract counterparty 
funds. They think it is a pump.
    So let me ask you, the people here at the FSOC, without 
getting into companies, although some have been mentioned, and 
the press overwhelmingly reports that the companies are 
lobbying you not to be included, meaning they do not see the 
benefit of being the beneficiaries of moral hazard. They see 
the offsets that Mr. Tarullo mentioned.
    Would several members tell me, have you been lobbied by 
people trying to be excluded from designation, Mr. Goldstein?
    Mr. Goldstein. Yes.
    Mr. Frank. Let me ask at the Fed and the FDIC, at the Fed, 
have you been lobbied by people who don't want to be included?
    Ms. Liang. Yes.
    Mr. Frank. FDIC?
    Mr. Murton. Yes, we have.
    Mr. Frank. Comptroller?
    Mr. Long. No, we haven't.
    Mr. Frank. SEC?
    Mr. Cook. Yes.
    Mr. Frank. Yes, what was that?
    Mr. Cook. Yes.
    Mr. Frank. Yes, okay. The Comptroller, of course, wouldn't 
be because you only do banks and so they don't have the 
discretion.
    So all those where there is discretion have been lobbied by 
people who don't want to be covered, suggesting that this 
supposed advantage of being too-big-to-fail doesn't exist in 
the eyes of those supposed beneficiaries.
    Let me ask you, have any of you been lobbied by people who 
want to be covered?
    Mr. Gensler. No.
    Mr. Frank. Let us go down the list.
    Mr. Goldstein. No.
    Mr. Long. No.
    Mr. Huff. No.
    Ms. Liang. No.
    Mr. Frank. No, out loud, no, no.
    Mr. Long. No.
    Mr. Cook. No.
    Mr. Murton. No.
    Mr. Frank. All right. I think that pretty conclusively 
answered this question. And in fact, we had this inaccurate 
characterization that they are going to be too-big-to-fail and 
the taxpayers will be forced to cover--absolutely untrue.
    In the statute, it says yes, there are institutions that 
may be too-big-to-fail and have that failure be ignored. There 
may be institutions that are too-big-to-fail without negative 
consequences, although, as Mr. Tarullo mentioned, as we all say 
in the war, there are efforts here to do things that will keep 
that from happening.
    But if they do, if they do fail, they go out of business so 
no institution survives. That is where Sarah Palin's death 
panels show up in our bill, not in the health bill. It is for 
large financial institutions.
    And secondly, any money that is used to pay some of the 
debts, not all of the debts, has to be recouped from the large 
financial institutions that are covered by this. So let us lay 
this to rest.
    And again, the financial institutions themselves have 
answered the question, is there some benefit to being 
designated? Everyone here has said they have been lobbied by 
people who don't want to be designated. And nobody has been 
lobbied by people who want to be designated, so we ought to be 
able to put that one to rest.
    Finally, on the competitive side, I repeat again, the 
British banks were worried that they were going to be too 
tough. You were asked why you didn't talk more about the 
competitive issues. Are the competitive issues entering into 
your conversations?
    Let me ask the Federal Reserve. Have you been concerned 
about the competitive issues internationally?
    Ms. Liang. We are working with our international 
counterparts in trying to promote financial reform, moving 
roughly in the same direction.
    There are a few issues in Dodd-Frank that raise competitive 
issues. We put those out in studies. We have noted those 
concerns and asked for comments, and are considering those as 
we are--
    Mr. Frank. Very appropriate.
    Ms. Liang. --following the statute.
    Mr. Frank. Thank you.
    Thank you.
    Chairman Neugebauer. I thank you.
    And now the gentleman from New Mexico, Mr. Pearce?
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Gensler, I am happy to see on page two that you are 
saying that we need to ensure protections for the American 
public where investors and savers can get return on their 
money. If you get that part of the report out really quick, you 
have a lot of retirees out there who are getting one-quarter of 
1 percent.
    I don't know if that qualifies as a return on their 
investment, but many of them have lost 25 percent, maybe 50 
percent of their core savings. And so if the government is 
going to insure these things, I think the American people would 
really appreciate us getting to it.
    Mr. Goldstein, Mr. Gensler refers to AIG and then he 
refers, on page two of his report that taxpayers should not be 
forced to stand behind institutions and then there are a 
variety of institutions. And you yourself mentioned something 
to that effect.
    Now, when we look at insurance, and we look at failures of 
insurances, the first one that we have to think about is the 
Flood Insurance Program.
    And so I wonder if you all are going to--if you think it is 
proper that the American public is being asked to stand behind 
the Flood Insurance Program, and we are doing that, first of 
all, through taxpayer dollars, but then, secondly, we are 
forcing the fees into homes that were not previously required 
to have flood insurance, many in New Mexico.
    Our elevation starts at 4,000, basically 4,000 feet above 
sea level. That is where New Mexico starts. We start pretty 
high in the atmosphere, and yet we are being required to pay 
for those. Is that a proper thing, and is that something that 
you are going to look at?
    Mr. Goldstein. Sir, this is not an issue that I am well-
versed in, and I would be happy to come back to you and work 
with my staff and--
    Mr. Pearce. But you would generally say you agree that 
taxpayers or people who receive new fees which are indeed a tax 
might not should have to stand behind programs that are in the 
process of failing? Is that more or less correct?
    Mr. Goldstein. I am not familiar with it, sir. I apologize.
    Mr. Pearce. No, this is a generality, that taxpayers should 
or should not stand behind? You were just saying that the 
taxpayers, in the previous line of questioning, taxpayers are 
not going to be required to pick up the tab. And is this, or 
should they or should they not be?
    Mr. Goldstein. I think that the context of the Dodd-Frank 
legislation makes abundantly clear that taxpayers should not be 
at risk for those--
    Mr. Pearce. So you are going to take a look at the Flood 
Insurance Program, where taxpayers are having to bail out a 
program that has failed, a program that is originating from the 
same government that is saying now it is going to stop all 
failures in the future. I find that curious. But you are going 
to take a look at that?
    Mr. Goldstein. Yes, sir.
    Mr. Pearce. Okay, I appreciate that.
    You mentioned that every designation, in page five of your 
testimony, that every designation is going to be firm-specific. 
When you tell me that every designation is going to be firm-
specific, that is almost--that goal is rated to people and 
taxpayers who are trying to ensure that they get a return on 
their investment would look at that list of institutions and 
say, well, the Federal Government has declared that they looked 
at this as firm-specific, and yet you are not going to give any 
implicit guarantees.
    I find myself believing that there are going to be beliefs 
in the minds of people that are the same. In other words, GSEs 
never had a guarantee. It was just sort of implicit. The 
government had, sort of, taken a position on it.
    And so, to find that you are firm-specific giving 
designations, and then you are not going to stand behind it, 
which was, I think, the context of the ``No, no, no, noes,'' I 
find that to be a curious position.
    Could you clarify that briefly? We have a lot of questions 
still behind us, and--
    Mr. Goldstein. I think the purpose of Dodd-Frank was to 
help ensure that no large interconnected institution that could 
do damage to the U.S. financial system would be outside of 
effective supervision, would be able to operate without 
appropriate prudential standards, and would ensure that the 
large financial institutions would--
    Mr. Pearce. Let me get to my last question. I am not, kind 
of, hearing an answer there. But I would appreciate it.
    The last question is that you yourself say that there are 
failures of the regulatory system. And then Mr. Gensler also 
refers to the financial system failing and the regulatory 
system failing.
    So you have created this new agency. Are you in the process 
of dismantling the systems that failed, or are we just going to 
continue to fund those? We are spending $3.5 trillion right 
now, and we are bringing in $2.2 trillion, so we are deeply out 
of balance. We need to find ways to save money in the 
government, ways that don't take money away from end users.
    So this system failed, and it is being replaced by a new 
system. Is the old system being dismantled and defunded?
    Mr. Goldstein. I think what Dodd-Frank does is create--
    Mr. Pearce. No, I am asking--you all have the jurisdiction. 
Are you all dismantling the pieces that failed? You said they 
failed. Just a yes or no would be--
    Mr. Goldstein. We do not have jurisdiction to change 
independent regulatory agencies, sir, if that is your question. 
And maybe I have misunderstood.
    Mr. Pearce. So you all are not realigning the oversight, or 
somebody is not realigning the oversight of the financial 
system? I think they are, and I don't think we are doing the 
legislation.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentleman from Massachusetts, Mr. Lynch?
    Mr. Lynch. Thank you, Mr. Chairman. I want to thank all the 
witnesses for your attendance here.
    Recently, after a long legal battle over an information 
request, a FOIA request by Bloomberg financial company, 
Chairman Bernanke was forced to disclose the details of his 
lending practices during the peak of the crisis.
    He fought very hard to keep that information secret from 
Congress and from the public. As it turns out, at the peak of 
the banking crisis, 70 percent of the lenders who came to the 
discount window at that time and 70 percent of the loans--
excuse me--were foreign banks.
    Many of them had very little business here in the United 
States, but the top 6 institutions that requested loans, 
discount loans, backed by the Federal Reserve, totaled $274 
billion. They got loans from the Fed for $274 billion. And they 
tried to keep that secret from the American people.
    Part of your responsibility under Title I will be to 
address issues of U.S. competitiveness. Ms. Liang, since you 
are in the seat for the Fed, is it not counterintuitive that we 
would be bailing out foreign banks at a time when your 
responsibility is to make us more competitive in a global 
financial market?
    We are bailing out, with American taxpayer money, or backed 
by the American taxpayer, we are bailing out foreign banks that 
we compete with. Can you try to help me reconcile that action, 
where we take $274 billion, give it to foreign banks, and like 
I said, many of them with insignificant activity directly here 
in the United States, yet we are bailing them out? Can you help 
me with that?
    Ms. Liang. Congressman, we have a statutory requirement 
that branches and agencies of foreign banks have access to the 
discount window under the same conditions as domestic banks.
    These are loans. They are not gifts. They are fully 
collateralized. They are subject to the same haircuts as 
domestic institutions would receive.
    Mr. Lynch. I just want to point out, though, that the vast 
majority here went--70 percent. So we are not talking about at 
the same level of support for domestic banks. We are talking 
about 70 percent of the loans going to--that is not equal. That 
is heavily favoring foreign banks.
    Ms. Liang. I can only speak to--
    Mr. Lynch. And I am not sure that the statute requires us--
they may be eligible for support, but that is a discretionary 
function of the Fed, whether to loan the Dexia Bank in Belgium 
$33 billion or to loan Depfa Bank in Ireland--I think theirs 
was $28 billion. I might be wrong on that number, but it was 
considerable, and there is $274 billion.
    So what I am asking you is, you have a responsibility here, 
and I just see some inconsistency, if you don't mind, where we 
are supposed to compete with folks, yet we are using U.S. 
taxpayer-backed funding to bail them out. And it bothers me to 
no end, number one, but, number two, I just don't see the 
consistency in that policy.
    Ms. Liang. We provide--
    Mr. Lynch. And if anybody else would like to jump in and 
explain this, go right ahead, because maybe I am asking the 
wrong person.
    Ms. Liang. We set the terms and standards to be the same. 
We do not determine the volumes at which they might want to 
borrow.
    Mr. Lynch. I am sorry. I am having a hard time hearing you.
    Ms. Liang. We set the terms and standards. They are the 
same as would be available to domestic institutions. We do not 
determine the amount that they borrow.
    The foreign entities play a pretty big role in the United 
States in credit provision in the United States. For example, 
the firm Dexia that you referred to is a main primary liquidity 
provider to municipal, State, and local governments.
    So I think the foreign institutions do play a large role in 
the provision of credit in this country. There would be many 
considerations if Congress wanted to consider changing this 
law, in terms of international cooperation and reciprocal 
treatment. I think those are issues that could be discussed.
    Mr. Lynch. Okay, I believe my time has expired. Thank you, 
Mr. Chairman.
    Chairman Neugebauer. I thank the gentleman.
    And now the gentlewoman from New York, Ms. Hayworth?
    Dr. Hayworth. Thank you, Mr. Chairman.
    I want to return--a couple of our colleagues have talked 
about the Financial Stability Board and our coordination of the 
regulations that FSOC is now preparing.
    And I am concerned, fundamentally, with the arbitraging of 
regulations, the outmigration of capital from United States' 
markets. And I think we are already seeing that. Certainly, one 
of my friends who serves in the financial services industry, 
said that Singapore, for example, had a growth in its domestic 
product of 14 percent last year.
    I have the sense that there is an opportunity for our 
counterparts internationally to hang back on creating 
regulations in anticipation of what FSOC will be doing so that 
they can then promulgate their own sets of regulations that may 
be more conducive to capital investment in their own country.
    So how is FSOC monitoring that kind of potential 
development, and what tools do you have at your disposal to 
address those concerns, particularly if we in the Congress 
raise them on behalf of our constituents, on behalf of the 
country? What is your plan for dealing with that potentially 
significant problem?
    Mr. Gensler. I can speak less about FSOC as FSOC and more 
about just one area in Dodd-Frank, and that is the derivatives 
regulations. I think each of our agencies has been working very 
closely with Asia and in Europe. We do it in turn. Sometimes, 
it is the Secretary of the Treasury, and sometimes it is the 
head of the SEC and the head of the Federal Reserve.
    In my case, I have gone over to Europe on a repeated basis. 
Our staff--we are actually sharing some of the internal work 
product with them. It does look like Europe is going to be 
moving forward as Japan has already moved forward on 
derivatives reform. Their parliament is taking it up right now.
    We also at the CFTC host between 15 and 20 countries coming 
in on a periodic basis where we compare and try to coordinate 
and harmonize. We are different cultures and different 
political systems. There will be differences. And, 
Congresswoman, you are absolutely right, there will be probably 
a little bit of a race to the bottom.
    But I am optimistic, particularly in terms of the 
coordination between Europe and here, Canada and here, Japan 
and here, but there are some countries that will do just what 
you said.
    Dr. Hayworth. Yes, sir. And I appreciate that.
    By keeping in close touch with them, obviously, you are 
also letting them know what we are doing, so anybody who did 
want to compete with us in that way would have the keys to the 
kingdom, in a sense. But you are confident that we will be able 
to adapt should we detect a competitive disadvantage, if you 
will?
    Mr. Gensler. We at the CFTC are certainly taking it into 
consideration in each of our rules, then have deliberations, 
and then sharing that across--even when I meet with the 
Secretary of the Treasury, it is usually one of the topics in 
our regular meetings is this international aspect.
    Dr. Hayworth. Yes, sir?
    Go ahead, please.
    Mr. Goldstein. I was just going to emphasize that there are 
multiple fora, including the G-20, including the Financial 
Stability Board, including Basel. And as the Secretary has 
stated on repeated occasions, a primary objective needs to be 
the setting of an international level playing field.
    And so we agree with the concern that you have articulated 
and are trying to ensure through those fora and other 
mechanisms to address the important concern.
    Dr. Hayworth. Yes, sir.
    Please?
    Mr. Huff. If I could just build on that, speaking from the 
insurance side, because the United States is 40 percent of the 
worldwide insurance market, the NAIC, the insurance 
commissioners, are very active at the International Association 
of Insurance Supervisors. And we are working within that 
committee's structure to build the metrics for designation.
    I would just add, because we have different insurance 
commissioners working on that and we have staff that overlap, 
this issue on involving insurance commissioners in FSOC does 
make that coordination more difficult because we need to be 
able to communicate with one another as we work to harmonize 
those international with domestic.
    Dr. Hayworth. Clearly, that is an important concern.
    So we can then assure, and you are assuring our financial 
market participants, our financial institutions, that they can 
be confident in continuing to prepare to invest capital 
resources in the United States because we will not allow other 
nations to compete successfully with us in the regulatory 
climate. Is that fair to say?
    Mr. Goldstein. I think, as Mr. Gensler said, it is 
impossible to assure that there will not be some people that 
will try to arbitrage the system. I think what we need to do is 
to make sure that through global fora, we ensure and push 
aggressively for a level playing field. And I think that should 
be our objective.
    I would say, however, that having a strong U.S. financial 
system is itself a competitive advantage. I think that what we 
need to do and one of the benefits of Dodd-Frank is it helps us 
accomplish that. The unique role of the financial system is 
built on its stability, and I think that should be a primary 
objective as well.
    Chairman Neugebauer. I thank the gentlewoman.
    And now the gentleman from North Carolina, Mr. Miller?
    Mr. Miller of North Carolina. Thank you, Mr. Chairman. 
Sometimes the rule of law raises difficult issues in 
democracies. Elections should have consequences, but they 
should never have the consequence of either being prosecuted 
because your party lost an election or being excused from 
prosecution because your party won an election, that the 
criminal law should be neutral. It should not be subject to 
political considerations.
    But the movie ``Inside Job'' repeated a criticism that a 
great many people have had with respect to the financial crisis 
and what followed it, that a couple 3,000 people went to jail 
as a result of the savings and loan crisis, and no one had gone 
to jail as a result of this crisis.
    And I don't think the criticism was that an angry public 
was demanding that people be rounded up and put in jail, that 
we have mob rule, but that the ordinary prosecutorial judgments 
were, in fact, being interfered with where there would be 
prosecutions otherwise.
    I don't want to urge prosecutions, but I do want to inquire 
about whether there are criminal investigations at least going 
on.
    There is now pending, I think, in New York, but there is 
now pending litigation, Ambac v. Chase, that actually has to do 
with conduct by Bear before they were acquired by Chase, that 
seems clearly to give rise--these are admitted.
    These are allegations, but they are allegations in an 
admitted complaint that does seem to include information 
contained in discovery, documents produced in discovery, that 
Bear bought mortgages from originators, immediately securitized 
the mortgages, sold the securities. Some of those mortgages 
went into default almost immediately, 30 days, 60 days, 90 
days.
    And what Bear did was instead of requiring the originator 
to buy those back, settled for attached compensation, kept the 
money, even though they had no beneficial interest at that 
point in the mortgages, they had sold them to the investors, 
did not pass along the money to the mortgage investors, and in 
fact did not tell the investors.
    That appears to give rise to--it certainly sounds criminal. 
Other allegations were that Bear would turn over to a third 
party due process examiner mortgages.
    They would sample the pool, 1 in 10, and then the mortgages 
that investigator, that due process firm said did not meet the 
requirements of the representations and warranties of the 
pooling and servicing agreements, Bear would remove those from 
those pools, from that pool, but then put them in another pool 
where they would be subject to a 1-in-10 chance of being 
reviewed.
    Again, that sounds pretty likely to be criminal, if those 
allegations are true.
    Mr. Cook, the SEC is one of the agencies of government that 
has investigatory powers in this area. I think the concerns 
have been not--well, perhaps to some extent that potential 
defendants had great political and economic power, but also 
there was a judgment that criminal prosecutions or even civil 
litigation might undermine the health, the return to health of 
some of those institutions. Are those allegations being pursued 
by the SEC, and if not, why not?
    Mr. Cook. As you probably know, the SEC does not have 
criminal prosecutorial authority. I know you are asking really 
about civil authority and--
    Mr. Miller of North Carolina. But you refer matters for 
prosecution when your investigation shows possible--
    Mr. Cook. It can be referred by the SEC to prosecutors. The 
investigations enforcement proceedings that you are talking 
about would be handled by our Division of Enforcement. And I am 
not familiar with the details of their investigations. I 
believe that their investigations are ongoing.
    I would be happy to arrange for further updates to you, or 
a briefing for you on some background. I am sorry--
    Mr. Miller of North Carolina. Okay.
    Mr. Cook. --it is just not my division.
    Mr. Miller of North Carolina. Okay.
    And, Mr. Long, the OCC obviously has investigative powers 
here as well. Almost all of these institutions are regulated or 
are subject to the OCC. Is the OCC pursuing any of these 
investigations, investigating any of these allegations?
    Mr. Long. As part of our exam process and as part of our 
look back on incidences that we see, we certainly will embark 
on investigations and open criminal referrals and subpoena 
documents. We do that on a regular basis.
    Mr. Miller of North Carolina. Well, do--
    Mr. Long. I would, on this specific--
    Mr. Miller of North Carolina. --but do you know anything 
about this--
    Mr. Long. No, no, I don't.
    Mr. Miller of North Carolina. Okay.
    All right, my time has expired, Mr. Chairman.
    Chairman Neugebauer. The gentleman from Florida, Mr. Posey?
    Mr. Posey. Thank you, Mr. Chairman.
    I don't want to be piling on, but I want to echo the 
comments of you and the ranking member here about the 
rulemaking process. It is my understanding that in the 
rulemaking on systemic relevance, the FSOC was not specific. 
And I think that lack of specificity makes it all the less 
transparent, as was pointed out.
    Can you tell me how that is going to get corrected?
    Mr. Goldstein. As I indicated, I think we have had 50 
comments on the ANPR, another approximately 35 comments on the 
NPR, and we are trying to bring forward a rule that is highly 
informed by those comments, and we would share your view that 
greater clarity would be highly beneficial in the final rule 
text. And we will do our very best to help accomplish that 
objective, informed by the comments that we receive.
    Mr. Posey. Will it contain the metrics that you will use to 
analyze financial firms or how it intends to weigh the various 
criteria Dodd-Frank requires for FSOC to consider?
    Mr. Goldstein. The work on that is still very much a work 
in progress, and so I can't answer specifically what it will 
include or will not include.
    The basic framework that we have been talking about will, 
however, I think, continue to help inform the approach, meaning 
the two buckets that I alluded to earlier.
    One bucket of issues that affect the firm's impact on the 
system and that includes its interconnections. It includes its 
size. It includes its uniqueness, if you will, or lack of 
substitutes.
    It will include as well reference to the impact that a firm 
is likely to have if it fails. Those--excuse me--in addition to 
the impact, it will include a bucket that talks about the 
vulnerability of that firm.
    Mr. Posey. Okay, so you are not going to cut and paste the 
factors spelled out in Dodd-Frank. You are going to go into 
more detail. Is that correct?
    Mr. Goldstein. As I said, sir, this is a work in progress 
and I can't speak to specifics of the final rule. That is work 
that is currently being undertaken, but I can assure you that 
the comments that have been received will be taken very 
seriously, and we will do our very best to be responsive to 
those comments.
    Mr. Posey. I assume that you are going to take the message 
back that the chairman and the ranking member are probably 
going to have you back here, and it may even get ugly next time 
if the picture is not clearly received.
    Is that correct, Mr. Chairman?
    Chairman Neugebauer. Would the gentleman yield?
    Mr. Posey. Yes.
    Chairman Neugebauer. I think one of the things that is 
becoming clear in this hearing is that, and this is I think 
what we were talking about throughout the implementation of 
Dodd-Frank, is what we are hearing is that these rules are 
being put out with very little information, very difficult to 
respond to or to give comment to because they are really not 
sure what they are commenting to.
    The other thing that we are hearing from the people is that 
there is no across the spectrum of analysis of what jointly all 
of these rules, the implications that they are going to have on 
competitiveness, on safety and soundness and on compliance 
where we have, and I think the question is going to come up 
here shortly, that we have some conflicting rules.
    And so, I think it is absurd that we are going to issue a 
rule as important as this, and we do not have specifics of what 
criteria are going to be used until after you have already 
decided that, and you are already deciding it without everybody 
at the table.
    And so Mr. Goldstein, I hope that when you go back to the 
Secretary, I think the message is that I think a review of this 
process is in order.
    And with that, I apologize and yield back.
    Mr. Posey. Yes, thank you. Just to put it one more way, I 
think everyone is troubled that FSOC appears to be ignoring the 
question of what precise criteria that it is going to use in 
its designations of whether a company is systemically relevant.
    I think that you would have to agree that it would be a 
good idea for FSOC to get out to the public some kind of 
additional information about the rule proposal metrics.
    And rather than keeping that information vague and 
uncertain, which is what we have heard today and which is what 
there was before, it should be clear what standards are going 
to be used to make that kind of determination and allow an 
opportunity for the interested persons to comment before any 
final version of the rule is issued.
    Is there any question about what I just said? Did anybody 
here not understand what I said? Is it pretty clear to 
everybody?
    Thank you very much. Thank you.
    Mr. Gensler. It is clear here, and as one member of the 
FSOC, I would hope that we would put the transcript of this 
hearing in our comment file at the FSOC because I think this is 
very important.
    Chairman Neugebauer. Absolutely. I think you can expect 
more than just a comment.
    Mr. Gensler. No, no. I understand that. I am listening 
pretty closely.
    Mr. Goldstein. We fully appreciate--
    Chairman Neugebauer. Now, the gentleman from Minnesota, Mr. 
Ellison?
    Mr. Ellison. Thank you, Mr. Chairman. I appreciate you 
having this hearing.
    Just a few questions, and my first question is this. We are 
in the middle of a huge budgetary debate here in Congress, have 
been since the beginning of the year, and certainly will be for 
the foreseeable future.
    How does this budgetary fight impact your ability to 
collectively provide the financial oversight that was 
envisioned in Dodd-Frank? For example, if there are massive 
cuts to the CFTC or any one of your agencies, can you do the 
job that we are asking you to do?
    Mr. Gensler. No. The CFTC is a small agency, about 675 
people. I think we are a very good investment for the American 
public. But we have just been asked, along with the SEC, to 
take on a market, the swaps market, that is 7 times the size of 
what we currently regulate.
    It is interconnected to the entire real economy. It is very 
important to the real economy, so the real economy can lock in 
prices, hedge the risk in a transparent and competitive 
marketplace. I look forward to working with Congress on 
securing the necessary resources.
    Mr. Ellison. Mr. Cook?
    Mr. Cook. I would just echo the comments with respect to 
the SEC. The amount of work that the SEC has as a result of 
Dodd-Frank is quite significant and extensive. There is the 
rule-writing phase and then there is the implementation phase, 
and I think we need to think about both of those in terms of 
the adequate resources.
    We recognize the very difficult situation we are in, in 
terms of the budget, but I think at some point a decision will 
have to be made about what is doable and not doable in terms of 
implementing those parts of Dodd-Frank.
    Mr. Ellison. So we have charged you with financial 
oversight and systemic risk, but we are not going to give you 
the tools you need to do it, or we might not?
    Let me ask my next question. In the aftermath of all of the 
mergers and acquisitions that we have seen over the course of 
the last 24 months, and you all know exactly what I am talking 
about, right? We have seen a more concentrated, it seems to me 
more systemically interconnected and perhaps vulnerable system.
    Do you agree with that? If you do, have you given any 
thought in your work to really scale down and also increase the 
number of financial firms so that we are not so--we don't have 
so many eggs in one basket?
    Mr. Goldstein. I think that is a very important point. And 
in fact, it is addressed in Dodd-Frank through the updating of 
the concentration limits. Before Dodd-Frank, concentration 
limits were based upon deposit market share.
    In Dodd-Frank, that was updated to have a more broad view 
of liabilities. And one of the studies that FSOC did was to 
assess the impact of this concentration limit which limits any 
one institution to 10 percent of aggregate liabilities and 
cannot grow beyond that by acquisition.
    That study found that in the fullness of time, that 
concentration limit will, in fact, make the system stronger, 
deeper, wider and help eliminate moral hazard and other 
problems. And we think that is a very important part of the 
legislation.
    Mr. Ellison. Anybody else on this concentration problem?
    Mr. Gensler. Yes, I would just maybe add, I do think it is 
a perverse outcome of a crisis, and a crisis that the system 
failed, that it is more highly concentrated. One of the things 
Congress said was that the swaps marketplace, the derivatives 
marketplace get the benefit of risk reduction in something 
called ``central clearing,'' which helps to address some of the 
interconnectedness--not all of it, but some of it.
    And so that is why I think it is very important that we 
move forward. We thoughtfully consider comment. We are not 
going to rush this by the date of July. We will consider the 
comments, but try to finalize our rules on clearinghouses and 
other parts of the swaps marketplace.
    Mr. Ellison. So I have a yellow light and I have one more 
question. The Office of Financial Research is part of what is 
going to help you do your job. How are you staffing that? And 
where are we at in terms of the appointment of a Director? Can 
you just give us a status update?
    Mr. Goldstein. The appointment of the Director has not 
taken place as yet, and that is a decision by the President. 
But we have not let the absence of a director inhibit our 
continued aggressive push on the three core mandates of the 
Office of Financial Research, the standardization agenda.
    And some important work that is taking place, by way of 
example, in partnership with the CFTC and the SEC on one 
standardization project by way of example on so-called ``legal 
entity identifiers.''
    There is important work that is taking place on the second 
mandate, which is the development of collection and data 
dissemination, importantly being guided by an FSOC group on 
data to help ensure that work is not duplicative, but rather is 
coordinated across FSOC members.
    And in addition to that, there is the development of an 
already early implementation of an important part of the 
research and analysis agenda of the Office of Financial 
Research.
    Mr. Ellison. I have a red light, so let me thank all of you 
for being here and wish you the best in protecting our 
financial system.
    Chairman Neugebauer. I thank the gentleman.
    And we have been joined by a member of the full committee, 
one of the more ranking members and Mr. Royce, from California, 
for 5 minutes.
    Mr. Royce. Thank you very much, Mr. Chairman.
    I would like to direct my question to Mr. Goldstein. Just 
going over the concerns that economists had, and certainly a 
vigorous opposition that was put up to both the labeling of 
firms as systemically important, given the market distortions 
that would surely follow, and the resolution mechanism that 
could be used should they begin to fail.
    Given the concerns over moral hazard and all the rest of it 
that we had here in the United States, let me ask you from 
Treasury's standpoint, this is a purely domestic resolution 
authority. So it is going to apply only within the United 
States.
    Any type of cross-border resolution authority would require 
either agreement among the various governments involved or some 
form of synchronization of the relative parts of the commercial 
Bankruptcy Codes and procedures. This would have to be worked 
out to be uniform. Let me just ask you if Treasury is engaged 
in such conversations.
    Mr. Goldstein. I think Treasury is engaged in those 
conversations, but I also think that other members of the 
panel, including the Federal Reserve Board and the FDIC, have 
been engaged in discussions to help ensure that the Orderly 
Liquidation Authority is robust, not only domestically but 
internationally.
    But I would agree with you, sir, that work needs to be done 
in order to help ensure that this is an international process.
    Mr. Royce. And I follow the conversations about the 
conversations, but I don't think that work is going to get 
done.
    Simon Johnson is the former chief economist at the IMF. And 
as he says--and I am just going to quote him: ``For more than a 
decade the IMF has been advising that the euro zone adopt some 
sort of cross-border resolution mechanism, but European and 
other governments do not want to take this kind of step.''
    And as he says, ``rightly or wrongly, they do not credibly 
commit to how they would handle large-scale financial failure, 
preferring instead to rely on various kinds of ad hoc and 
spontaneous measures.'' That is the reality of where Europe is 
on this.
    And in closing, I understand that you are testifying today, 
the witnesses, to the belief that this designation and the 
resolution authority is going to help long term with mitigating 
systemic risk. I simply disagree.
    I think the economists who have raised their concerns in 
terms of the moral hazard of doing this are correct. And beyond 
this fact, the greater worry I have here is that it is likely 
unworkable.
    It will cause significant market distortions. That is 
readily apparent to all economists and even to many of you who 
might support what was done here. It is going to cause market 
distortions.
    Increased measures to control risk such as higher capital 
requirements are constantly undermined anyway and avoided by 
the regulated entities. There is a precedent for this, and I 
see no reason why that isn't going to continue.
    You are doing this in an environment in which you are not 
getting buy-in by the regulatory authorities overseas. I just 
don't see that happening. And being stamped too-big-to-fail is 
unprecedented, but on top of that, it is irreversible once you 
stamp an institution that way.
    These firms have benefited from being caught in the 
government's safety net throughout the financial crisis. They 
are surely going to benefit now from this explicit backstop in 
the future. It is going to be a lower cost of capital for them.
    And I would simply like to caution you to tread carefully 
here. The broader this line is drawn, the more institutions 
labeled systemically important, the larger the safety net will 
grow under our financial sector and the harder it will be to 
reverse.
    And the one thing I would hope we would learn from the past 
is the cost of that safety net continuing to expand in this way 
and the moral hazard that goes with it.
    Thank you, Mr. Chairman.
    Chairman Neugebauer. I thank the chairman.
    And I now recognize the ranking member of the subcommittee.
    Mr. Capuano. Thank you, Mr. Chairman.
    Mr. Chairman, before I forget, I would like to ask 
unanimous consent to put a recent speech by Governor Dan 
Tarullo into the record.
    Chairman Neugebauer. Without objection, it is so ordered.
    Mr. Capuano. Mr. Chairman, I guess everybody here except me 
knows what Europe is going to do. I am not even sure what 
America is going to do. That is what the purpose of this 
hearing was about, to try to figure out what you guys are doing 
behind those closed doors, maybe actually open up one or two of 
those doors.
    Does anybody here know what Europe is going to do, or any 
portion of Europe? Does anybody here know what Asia is going to 
do? I don't see any hands raising, so I assume you are as much 
in the guessing game as we all are.
    But all I can say is that what I did see Europe do when 
this crisis first unfolded was first go down one direction, and 
then in a matter of weeks, withdraw from that direction and 
follow the same direction the United States took. Now, whether 
that was right or wrong, I don't know. But that is what 
happened.
    So I guess I do want to be clear, market distortion, that 
is what I want. And I want it because the market technically 
``undistorted'' ruined or came close to ruining the world 
economy, which is the whole purpose of the Dodd-Frank bill, to 
limit the ability of 1 or 2 or 10 or 100 firms to destroy the 
world economy again.
    Now, if you want to call that a market distortion, so be 
it. I don't. I call it thoughtful, intelligent regulation, 
which is where we hope that you will go.
    But in order to get back to what I thought was the purpose 
of this hearing, which is to kind of figure out what you are 
doing as opposed to relitigating what we have already done and 
having those debates again, which we will have if we are forced 
to have. I don't find them very useful.
    I do think it is important, to the best of our ability, 
which is why I go back to what I said in my opening statement, 
that I see this as a living situation. Europe will take action 
at some point. Asia will take action at some point. And when 
they do, there certainly will be a need to coordinate.
    My hope, and I would like to hear it verbally, is that you 
are aware of that, and not necessarily will follow them or take 
their lead, but at least consider whatever they do, as I hope 
they will consider whatever we do, so that there will be a 
reduced as much as possible difference of opinion.
    Nobody is looking to overregulate American companies and 
non-American companies, but at least an idea to intentionally 
know what we are doing. Is there anybody here who disagrees 
with that as we move forward?
    Mr. Gensler. I agree. It is what we are doing at the CFTC 
on derivatives regulation. It is what I do as a member of the 
FSOC.
    Mr. Goldstein. I, too, fully agree with that, and we are 
trying both individually and collectively to be in 
communication with and, hopefully, advance the level playing 
field.
    Mr. Huff. I also agree, and on insurance, it is imperative 
that we remain very active internationally and domestically for 
systemic risk.
    Ms. Liang. I agree on all fronts.
    Mr. Cook. I would echo that. And to that, I think that 
there are two dynamics there. One is the ongoing close dialogue 
with the other regulators to maintain information sharing. And 
the other part is as we roll out our rules, to make sure we are 
being very thoughtful and careful about what we are doing.
    And as you say, it is not a one-shot thing. We need to 
think about how the framework will evolve over time and maybe 
approach it with a sense of what should we do first and what 
should we do second and what should we do third, a phasing 
mentality.
    Mr. Murton. We agree also. And we have been working on many 
fronts, particularly on cross-border resolution issues. We have 
been working with other jurisdictions quite a bit on that.
    Mr. Long. I agree with everything that was said.
    Mr. Capuano. Thank you, Mr. Long. And since the yellow 
light is on, I want to add my voice, too, to the exhortation 
and suggestion that the insurance industry be more fully 
included in this.
    The Federal Government has never regulated insurance 
companies. I am a proponent of an optional Federal charter for 
insurance companies. So I think that is the way it is going to 
head whether we do it tomorrow or next year or 10 years from 
now. It is going to get there.
    So I think that the insurance industry should be heard, but 
I will be clear. It is not just the insurance industry. We have 
never regulated the hedge fund industry. We have never 
regulated the mutual fund industry, all of which may or may not 
be included.
    So all of those industries that none of you have ever 
overseen should be heard, which is why I go back to my original 
point. When you have come up with these regulations, give them 
all an opportunity to be heard again as to specifically how 
that might impact industries that you have never regulated. And 
I wouldn't expect you to be experts in those areas--some day, 
but not yet.
    With that, I yield back the time I don't have.
    [laughter]
    Chairman Neugebauer. I thank the ranking member.
    I want to go back to another statutory requirement in FSOC, 
and I will read--just paraphrase it here--facilitate 
coordination among member agencies regarding policy development 
and rulemakings. Recently, the CFTC and the SEC issued rules on 
Swap Execution Facilities (SEFs).
    And the CFTC proposed that requests for quotes be sent to 
at least five SEFs. The SEC required one request for a quote. 
Is that the kind of coordination policy that meets the spirit 
of Dodd-Frank?
    Mr. Cook?
    Mr. Cook. Thank you, Mr. Chairman. I think when one looks 
at the SEF rule and at all the other rules, ultimately they 
have been the outcome of a lot of consultation and discussion 
across the two agencies. We have had some joint roundtables 
together. There is lots of active dialogue.
    Now, there are some differences in some of the rules. And I 
think we only proposed them at this stage, and we need to go 
back and consider the comments that we have gotten.
    There may be some differences that are borne out by 
differences in products or differences in the trading 
characteristics of the market. I think most would agree that 
those are legitimate differences and important differences to 
maintain.
    There may be other differences in our rules that reflect a 
different understanding of the facts of the markets or a 
different understanding, a different approach to the policy.
    And I think on those, as we move forward with the adoption 
stage, we need to be in very close coordination and make sure 
we understand what is the nature of those differences and try 
to bring them as close together as possible.
    Chairman Neugebauer. Here is the question, and I am going 
to let Mr. Gensler respond, but you are both working on the 
same issue. If we are to facilitate coordination of the member 
agencies, why, before those rules are put out, would you all 
not not coordinate and come up with a consistent regulation?
    I think, again, this is a part of the credibility of this 
and so it, from my perspective, doesn't sound like that FSOC is 
meeting the spirit of some of the statutory duties here if we 
are not doing that.
    We have other examples. We have the FDIC with an overdraft 
policy. I don't know what the OCC's policy is going to be on 
that, but it looks like to me there ought to be some dialogue 
going on so that we are all seeing it from the same book.
    Because these kinds of things have implications on our 
financial markets. And the consequences aren't just to these 
entities, but are ultimately to the financial markets as a 
whole.
    So Mr. Gensler, do you want to respond to that?
    Mr. Gensler. Yes. I think that, in fact, we have at the 
CFTC done just what you have said. We have had nearly 600 
meetings with fellow regulators. We shared, starting last 
September, all of our internal drafts, term sheets and so forth 
on the specific rules that you are referring to, it is mostly 
with the SEC but the Federal Reserve has been a terrific 
partner, as well as the FDIC and the OCC on many of our rules.
    And on the specific rule, there are some differences in the 
underlying statute and trading patterns in the futures markets 
and the securities markets. We have jurisdiction, for instance, 
on interest rate swaps that have different characteristics than 
some of the equity or credit default swaps that the SEC will 
have.
    Again, as Mr. Cook says, it is just a proposal. But they 
were very aware, and we were very aware of the swap execution 
facility rule, we won't get much credit for it in this hearing, 
well over 90 percent of it is the same and very similar 
language and tack.
    But you were right. There is this difference on requests 
for quotes. And we have a lot of comments on it, probably 
hundreds of comments on it. And we are going to take that into 
consideration as we go towards considering final rules this 
summer and fall.
    Chairman Neugebauer. So the question is, who is in charge 
of the FSOC?
    Mr. Goldstein. The Secretary of the Treasury is the 
Chairman of the FSOC. And the FSOC has some very specific 
statutory oversight on rulemaking, so for example, coordination 
of the Volcker Rule, implementation and coordination of risk 
retention.
    In addition, the FSOC has been a very important body for 
discussions of this sort for collaboration and coordination. 
Ultimately, the decision on something like this is the SEC and 
the CFTC. But I think that the FSOC can and will play an 
important role in being a forum to help achieve consistency, 
which I think all of us would share, is an important objective.
    Chairman Neugebauer. And I would agree with you on that. 
But I think what we need here is some leadership from that 
position, in that it is--obviously we are not necessarily 
accomplishing the goal here.
    And I think if otherwise we sold that we were going to--
that Dodd-Frank would bring some consolidation to the 
regulatory process and not bring additional confusion and 
another layer there. And if that coordination is going to be an 
integral part of that, and it is not happening, then we failed 
here.
    So I think another message we want to send back is that 
these kinds of differences hopefully would be worked out before 
we get out with these regulations rather than after where then 
we confuse--if market certainty is one of the roles of 
government and transparency and integrity, but certainty is 
another piece of it.
    We have to bring more certainty than we are bringing, and 
what we have heard in this hearing today is we may be not be 
helping the certainty piece of it much.
    With that, I go back to the gentleman from Massachusetts.
    Mr. Lynch. Thank you, Mr. Chairman. We have all, obviously, 
handed you an awful lot of responsibility. And much of it, as 
Mr. Capuano has noted, may be new areas of regulation.
    I know that you are required to meet under Dodd-Frank, I 
think, quarterly. And I understand that at least in the 
formation stage, your staffs are meeting every couple of weeks. 
Is that right?
    What about resources? I know there is a sense that the 
chairman has pointed out a lack of coordination, but I was just 
curious about resources and whether you think that the current 
formation, the way this is working, is sustainable.
    Mr. Goldstein. I think you are correct that the principals 
have met more often than the quarterly mandate in the statute. 
Deputies meet on a biweekly basis to help set the agenda and 
drive--
    Mr. Lynch. I don't want to burn my question. This is a 
small question. So resource-wise, do you think it is adequate 
right now?
    Mr. Goldstein. We think we have adequate resources and we 
benefit not only from direct hires, which we will continue to 
make, but we also have DTLEs from member agencies that help 
make sure that the FSOC staff is informed and has the expertise 
from across--
    Mr. Lynch. Okay. That is great. Thank you. Thank you, Mr. 
Goldstein.
    I am also concerned about the designation of financially 
significant or risk-based institutions. And you have a bunch of 
criteria that you could apply. You have large industries, like 
the mutual fund industry that are incredibly large when you 
look at their size, but when you look at the history here, they 
haven't really been a part of the problem here.
    And I just wonder how that balances out, because it seems 
like they are, frankly, they have provided the ability for a 
lot of working folks, a lot of middle-class folks to accumulate 
wealth. They haven't been a source of the erratic behavior or 
the danger that we have seen in the economy over this past 
crisis.
    Yet, they are under the gun, so to speak, where they might 
be, because of their size, included within your scrutiny or 
heavier scrutiny than was previously the case. How do you 
balance out those factors with respect to mutual funds?
    Mr. Goldstein. The statute makes very clear that there is a 
distinguished--there needs to be distinguished on balance sheet 
assets and managed assets.
    Mr. Lynch. Okay.
    Mr. Goldstein. And I think that there is an awareness of 
that important distinction--
    Mr. Lynch. Right.
    Mr. Goldstein. --as we think through the designation 
process.
    Mr. Lynch. They are managing other people's money. They are 
not investing their own, right?
    Mr. Goldstein. Correct, sir.
    Mr. Lynch. Okay. And lastly, I would like to say that given 
the fact that we did bail out a fair number of foreign banks 
with U.S. resources, Fed resources, I am always hearing this 
threat that we are afraid we are going to lose business to 
Europe if we pass certain regulatory guidelines or 
restrictions.
    And I am just--look, we could put our foot down, so to 
speak, and use the strength of the U.S. market to say, look, we 
are not going to assist in an emergency capacity or a 
nonemergency capacity a foreign bank, if they are engaging in 
reckless practices, things that are outside Dodd-Frank, outside 
of Basel III, those type of practices that might make them more 
attractive to some institutions.
    But, there have to be some consequences to those banks 
operating in a fashion that we don't agree with. And I think 
that we could certainly close down the discount window to those 
banks and institutions that we feel are not compliant with 
Dodd-Frank.
    And I would like to get your sense, Mr. Goldstein, on that, 
and anybody else who would like to jump in.
    Ms. Liang?
    Ms. Liang. I think the issue of access to the discount 
window is an issue that the Congress could consider. There 
would be a number of considerations, to consider, again, 
international cooperation, reciprocal agreements, etc.
    I think we are all in favor of trying to promote a level 
playing field for U.S. institutions, recognizing the potential 
for regulatory arbitrage, moving not just activities from the 
U.S. banking system or the regulated sector into foreign 
regulated sectors, but outside the regulated sector entirely. 
So I think those are all considerations we need to consider, I 
think.
    Mr. Lynch. All right, thank you.
    Mr. Chairman, I see my time has expired. I yield back.
    Chairman Neugebauer. I thank the gentleman.
    The gentleman from Pennsylvania, Mr. Fitzpatrick?
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    Our Nation is facing a spending-driven debt crisis. The 
national debt is now over $14 trillion. Forty-two cents of 
every dollar the Federal Government spends in 2011 will be 
borrowed.
    Admiral Mike Mullen, who, of course, is Chairman of the 
Joint Chiefs of Staff, has identified the greatest threat to 
our national security, not a military threat or a terrorist 
threat, but our national debt.
    And Erskine Bowles, who is one of the President's leaders 
on the National Commission on Fiscal Responsibility and Reform, 
has likened the national debt to a cancer. He said that it will 
truly destroy our Nation from within.
    Given the fact that it is the job of FSOC to identify 
emerging threats, I would ask Mr. Goldstein, what work has FSOC 
done to address the debt crisis?
    Mr. Goldstein. The FSOC addresses a wide variety of issues. 
The FSOC has not taken up this specific issue in its 
deliberations, but I would assure you, sir, that, as the 
President articulated yesterday, the important fiscal 
consolidation, the importance of addressing the debt load of 
this country, is paramount in the view of this Administration.
    And I think that the $4 trillion number that was 
articulated in his speech yesterday and the path to greater 
fiscal sustainability is one that has the highest priority of 
this Administration, sir.
    Mr. Fitzpatrick. Has the issue of the national debt ever 
come up in any of the deliberations of the Council? And if not, 
why not?
    Mr. Gensler. It has. Yes.
    Mr. Fitzpatrick. I am sorry?
    Mr. Gensler. I just said it has.
    Mr. Fitzpatrick. In what context was that?
    Mr. Gensler. Oh, we are asked by Congress, I don't remember 
the section, but to do an annual report with regard to risks in 
the financial system and risk in the financial markets. And I 
have certainly directed staff, and I know that others have, in 
the consultation on systemic risk and then in consultations on 
that report, that is included in the discussions around that 
report.
    Mr. Murton. I would just note that Chairman Bair feels this 
is an important issue. I would refer you to an op-ed piece that 
she put in The Washington Post on how the rising deficit is a 
concern for the financial system. So we do feel that this is 
something that is important, and as we prepare the annual 
report, we would want that to be considered.
    Ms. Liang. I would that add the Federal Reserve Board 
thinks that it is important to address structural fiscal 
imbalances.
    However, we do not think we can know how any future crisis 
will manifest. And so our objective in the FSOC and in the 
Systemic Risk Committee is to identify a number of potential 
risks, of which this is one we have assessed.
    Mr. Fitzpatrick. Mr. Huff, do you have the resources to 
address this issue in the context of the Council?
    Mr. Huff. The resources to bring insurance commissioners to 
the Council? Yes.
    Mr. Fitzpatrick. Correct.
    Mr. Huff. State regulators are ready to help.
    Mr. Fitzpatrick. Do you have permission from the Council, 
the other members of the Council to bring them to bear?
    Mr. Huff. No, sir.
    Mr. Fitzpatrick. Are you waiting for that authority?
    Mr. Huff. Yes.
    Mr. Fitzpatrick. I yield back.
    Chairman Neugebauer. As a follow up to that, what does it 
take for you to get permission?
    Mr. Huff. I will defer to Mr. Goldstein.
    Chairman Neugebauer. Yes, Mr. Goldstein, what does it take 
for Mr. Huff to be able to bring additional resources to the 
table?
    Mr. Goldstein. I would like to be clear. The only 
limitation that the FSOC discusses as it relates to supporting 
Mr. Huff is the confidentiality of the Council's work.
    He has not been, nor would we ever want to limit his 
capacity to utilize his office in the State of Missouri, nor 
have we limited, nor would we want to limit his ability to 
consult on this important issue.
    The only constraint that we have put is that the member 
agencies of the FSOC have expressed concern about having too 
wide a group that is under the confidentiality umbrella outside 
of--
    Chairman Neugebauer. I heard that answer before. I guess 
the question is, if they sign confidentiality agreements, can 
Mr. Huff bring additional resources to the table?
    Mr. Goldstein. We would be happy to work with Mr. Huff to 
make sure that he is appropriately staffed.
    Chairman Neugebauer. Yes. Is there any objection by any of 
the other members here?
    I know, Mr. Long, you said on the, I guess the chief's 
Council, or whatever it is called, would you object to Mr. Huff 
bringing additional resources?
    Mr. Long. Here is the issue that we have. And, clearly, we 
fully support that they need to have positions that are 
authorized under Dodd-Frank, and he needs some help.
    The discussion that FSOC deputies have had is that Mr. Huff 
and some of the other agencies or non-voting entities are going 
to need to draw from trade associations. And, those are non-
government, non-State entities. They are trade associations.
    So there is a concern, from the OCC standpoint, that if 
everybody needs to bring on five or six or seven non-
government, trade association-related people and rotate them 
through, the numbers get big. And we do have some concerns 
about the confidentiality of discussions of documents.
    So clearly, the signing of MOUs is important, and we need 
to get that executed. But I think everybody is of the same mind 
to get Mr. Huff the help he needs. But there is an issue here 
with a lot of people around the table.
    Chairman Neugebauer. Why don't we see if we can get it 
resolved? That would be helpful.
    All right, back to the gentlewoman from New York.
    Dr. Hayworth. Thank you, Mr. Chairman.
    In listening, and thank you for your patience today and for 
all of the thoughtful answers that you have all provided, in 
listening, there is a sense that there is this regulatory 
world.
    You kind of live on this Cartesian plane of ideals, if you 
will, and then, of course, there is the real world. And when we 
talk about deficit and debt, we need an economy that can 
actually support a great leap into greater prosperity.
    I had the opportunity, earlier this week, to speak with 
some men and women who are substantially involved in the health 
of our financial industry. And they expressed great frustration 
with a fairly specific piece, a large one of Dodd-Frank, if you 
will, Section 716, and it is regarding derivatives trading and 
the regulation thereof.
    And their contention is that to endeavor to layer 
essentially a retail regulatory structure on, at least as they 
frame it, a retail regulatory structure onto institutional 
derivatives trading will substantially limit their capacity for 
flexibility, for opportunity to do their job ever better, if 
you will, and could actually increase risk because they can't 
hedge as effectively.
    And the sense that I also had, in fairness to all of you, 
and I don't doubt your dedication at all, was that they hadn't 
been heard. They had been trying to break through.
    You are obviously all talking with each other quite a bit, 
not necessarily with the happiest results sometimes, but that 
the real world guys have had trouble breaking through into this 
process to say, hey, we need some action on this now.
    And we were talking about arbitrage and capital earlier, 
regulatory arbitrage. This seems to be one example of that 
risk.
    What can we do to facilitate a more productive interaction 
about that?
    Mr. Gensler. Can I just say, the financial system failed 
America. There are 7 million people still out of work because 
the system failed. And yes, the regulatory system failed, too. 
We have had hundreds of meetings. We post them on the Web site. 
But I ask, what large Wall Street firm hasn't gotten a meeting 
with us?
    They are putting their thousands of comments in. They are 
getting the meetings. We are soliciting meetings with them. We 
are going to change the final rules. But this system has to 
work for America and that means the transparency, the openness, 
the competitiveness that the Congress intended to come in Dodd-
Frank.
    So I think that is what we all take from the intent of what 
you all passed.
    Dr. Hayworth. I think part of--in fairness to all of you on 
the regulatory side, part of the distress, if you will, had to 
do with the fact that, during the process of promulgating Dodd-
Frank, they didn't feel that they were breaking through. I 
realize I can't lay that at your feet. That is at the 
legislators' feet, if you will, in the composition of Dodd-
Frank.
    But, nonetheless, this is one of the examples. This is 
happening in real-time and real opportunity is being lost in an 
economy that desperately needs to be as productive as possible. 
There is this stasis, as we all know, going on, as people await 
the dropping of the next shoe, if you will.
    So can we offer them something today in this hearing to 
reassure them?
    Mr. Gensler. I personally will attend any meeting you want 
in your district with any of the banks, the end users. I mean--
    Dr. Hayworth. Okay.
    Mr. Gensler. --the input is very needed and helpful to our 
process. But I really raise the question of anybody that hasn't 
been able to break through. This CFTC process, I am very proud, 
is pretty darn open.
    Mr. Goldstein. We all have transparency policies, and I 
think what will be revealed is the range and depth of 
conversations that have been had across multiple stakeholders.
    And so I would say that I think there is more than ample 
opportunity for people to be heard. And if you have any 
suggestions as to who would like to be heard who has not had an 
opportunity, I for one would be more than happy to be 
responsive to that.
    Dr. Hayworth. I appreciate that. And perhaps we can arrange 
a meeting. I think that might be very productive and helpful.
    Mr. Gensler. I look forward to it.
    Dr. Hayworth. Great. Thank you.
    And I yield back, Mr. Chairman. Thank you.
    Chairman Neugebauer. I thank the gentlewoman. Before we 
conclude here, does the ranking member have any closing things?
    Mr. Capuano. Good job.
    Chairman Neugebauer. I want to thank all of you for being 
here. It has been a very healthy discussion.
    I do want to mention one thing. Mr. Goldstein, on March the 
15th, Chairman Bachus and I sent a letter to your boss and 
asked you for information used for the application and comments 
submitted on the financial stability, the FSOC, regarding the 
study that was prepared under the Volcker Rule. We would like 
to--and we haven't received a response on that, so in your 
little tickler file, if you would, maybe?
    I think what we have had is a very healthy discussion here 
today. The purpose of the Oversight and Investigations 
Subcommittee is to oversee the implementation of regulation.
    And, one of the things that I think we said from the very 
beginning of this hearing is this is a very important piece of 
Dodd-Frank. It is how it is implemented and, more importantly, 
how it is carried is extremely important.
    So I would say that this probably is not the last hearing 
that we are going to have on this. And when you hear Mr. Frank 
and others say that more transparency is important, the ranking 
member is saying it.
    This is not a partisan issue. I think we are looking for 
some leadership from the Secretary in this area on the 
transparency. And I think the coordination is an extremely 
important piece of that and particularly in this rulemaking is 
actually having substantial things to comment on, like, what 
are the rules going to be?
    I think, when you talk to me about rulemaking, you say, 
well, what do you think about the rule? And we already had an 
opportunity to speak on what we thought about the legislation. 
What we want to have is an opportunity now to speak about the 
interpretation of that legislation, which is a rule and 
certainly has to be more specific than just regurgitating what 
is in the legislation.
    So I hope that the next time you have a little team 
meeting, you will say, did you hear what I heard when we went 
before Congress?
    And with that, I remind members that the record will remain 
open for 30 days for members to submit additional questions to 
the witnesses and to place their responses in the record.
    We are adjourned.
    [Whereupon, at 12:35 p.m., the hearing was adjourned.]

                            A P P E N D I X



                             April 14, 2011




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