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

                       THE ANNUAL REPORT OF THE FINANCIAL
                          STABILITY OVERSIGHT COUNCIL

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

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                          ONE HUNDRED TWELFTH CONGRESS

                                 FIRST SESSION

                                   __________

                                OCTOBER 6, 2011

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 112-70

                                    _____

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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
    THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
    KEVIN McCARTHY, California           DAVID SCOTT, Georgia
    STEVAN PEARCE, New Mexico            AL GREEN, Texas
    BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
    MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
        Pennsylvania                     KEITH ELLISON, Minnesota
    LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
    BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
    BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
    SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
    NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
    JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
    ROBERT HURT, Virginia
    ROBERT J. DOLD, Illinois
    DAVID SCHWEIKERT, Arizona
    MICHAEL G. GRIMM, New York
    FRANCISCO ``QUICO'' CANSECO, Texas
    STEVE STIVERS, Ohio
    STEPHEN LEE FINCHER, Tennessee

                       Larry C. Lavender, Chief of Staff

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        October 6, 2011..............................................     1
    Appendix:
        October 6, 2011..............................................    39

                                   WITNESSES
                           Thursday, October 6, 2011

    Geithner, Hon. Timothy F., Secretary, U.S. Department of the
      Treasury.......................................................     3

                                    APPENDIX

    Prepared statements:
        Paul, Hon. Ron...............................................    40
        Geithner, Hon. Timothy F.....................................    42

                  Additional Material Submitted for the Record

    Geithner, Hon. Timothy F. :
        Financial Stability Oversight Council, 2011 Annual Report....    46
        Written responses to questions submitted by Representative
          Posey......................................................   226

                            THE ANNUAL REPORT OF THE
                              FINANCIAL STABILITY
                               OVERSIGHT COUNCIL

                                  ----------

                           Thursday, October 6, 2011

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 12:47 p.m., in
    room 2128, Rayburn House Office Building, Hon. Spencer Bachus
    [chairman of the committee] presiding.
        Members present: Representatives Bachus, Hensarling, Royce,
    Biggert, Capito, Garrett, Neugebauer, McHenry, McCotter, Posey,
    Westmoreland, Luetkemeyer, Huizenga, Hayworth, Renacci, Hurt,
    Dold, Schweikert, Grimm, Canseco, Stivers, Fincher; Frank,
    Waters, Maloney, Gutierrez, Velazquez, Watt, Meeks, Capuano,
    Hinojosa, McCarthy of New York, Baca, Lynch, Scott, Green,
    Cleaver, Donnelly, Himes, Peters, and Carney.
        Chairman Bachus. The hearing will come to order. Without
    objection, all Members' written statements will be made a part
    of the record. The Chair recognizes himself for an opening
    statement.
        Mr. Secretary, this morning you were quoted as saying that
    the biggest risk we face is financial institutions not taking
    enough risk. Secretary Geithner, with all due respect, I am not
    sure you have a clear picture of reality as it relates to not
    only the thousands of pages of restricting regulations that
    have been imposed on financial institutions, but also the daily
    drumbeat of the FDIC and other agencies directing the banks not
    to take risks. If you want a dose of reality, sit in my office
    or the offices of other members of this committee and listen to
    the stories related to them by Main Street bankers talking
    about the restrictive regulations imposed.
        Who do you think has the responsibility to encourage the
    banks to make more loans? Isn't it the regulators? Isn't it the
    regulators who are part of the Financial Stability Oversight
    Council (FSOC)? If those regulators who make up FSOC want to
    consider who is creating systemic risk, they need to look in
    the mirror. If in fact you are correct and banks are not taking
    enough risk, I would submit to you that the problem doesn't lie
    with the loan officers in the community and regional banks, it
    lies in the regulatory approach of the very members of FSOC.
        We have all been saddened by the news of Steve Jobs' death.
    His life should remind all of us that it is entrepreneurship
    and the private sector and innovation within the private sector
    that creates jobs. He worked to make his company the most
    profitable it could be, and by doing so enriched the lives of
    people around the world through his company's innovative
    products. Without those profits, Steve Jobs would not have made
    Pixar a success, and could not have vastly improved the cell
    phone, the iPod or the tablet computer. That is why many of us
    were disturbed to hear President Obama questioning whether
    businesses have a right to earn a profit. Mr. Secretary, I hope
    you don't agree with the President on this point.
        There is a very real and palatable concern among many
    Americans that the increasing size and cost of government, and
    especially the expansion of the regulatory state, makes it
    harder and harder for the next Steve Jobs to come along, and
    that more and more regulation stifles innovation and
    productivity. Many of us on this committee have expressed that
    same concern to you. Mr. Secretary, more regulations from
    Washington and higher taxes do not encourage risk- taking,
    business development, and growth.
        Another successful entrepreneur, Charles Schwab, said
    recently about our economic problems, ``We can't spend our way
    out of this. We can't tax our way out of this. We can't
    artificially stimulate our way out of this. We cannot regulate
    our way out of this. What we can do and absolutely must do is
    knock down all the hurdles that create disincentives for
    investment in business.'' Mr. Secretary, I agree with this
    statement. I hope you do, too.
        I thank you for being here and I look forward to the
    discussion we will be having today.
        At this time I recognize the ranking member, Mr. Frank, for
    an opening statement.
        Mr. Frank. I note that in the chairman's statement, while
    he discusses his objection to regulation in general, he cites
    no regulation in specific to which he objects, and that is
    because I think the basis of the argument that something in the
    legislation that we adopted prevents community banks from
    lending is fallacious. I wait for someone to show me anything
    in there.
        Now, I do agree we have had a problem with the loan
    officers perhaps being shell-shocked, perhaps being too
    restrictive. But there is absolutely nothing in the legislation
    that restricts them. In fact, there are several things in the
    legislation that empower community banks; that in fact raise
    the deposit level to $250,000; that with regard to the FDIC
    deposit insurance, gives them a break vis-a-vis the large
    banks.
        But let's talk about these regulations which are so
    demonized in general. Is it the fact that we are now regulating
    swaps and derivatives? Apparently my colleagues would like to
    go back to the days of AIG, when the loan arrangers could ride
    again roughshod over any kind of rules.
        Yes, we do regulate derivatives. That was a great mistake
    this government made 11 years ago in saying they wouldn't be
    regulated. Yes, we do say that those who are advising people on
    investments should have a fiduciary responsibility. The
    chairman comes from a community that has had a serious problem
    because they were advised to get into a financial investment
    that was a disaster, and we put into the legislation a new
    regulation. The regulation is that people in the future who are
    advising Jefferson County or anyplace elsewhere would have a
    fiduciary responsibility to that entity. And I am very proud of
    that. I think that is a good thing.
        So, again, I would like someone to tell me, what regulation
    is it that keeps community banks from lending? And do people
    want to deregulate or re-regulate derivatives? Do they want to
    dismantle an independent consumer agency? I take it back. I
    know that they do.
        The chairman had said the regulators are there to serve the
    banks. He said that was not exactly what he meant, but we did
    have a situation where the bank regulators were the arbiters of
    consumer issues, and they tended to be very pro-bank. And we
    said no, no, that it will no longer be the case. There will be
    an independent consumer regulator. There is a fundamental
    difference here.
        By the way, there were not new regulations in that
    legislation over banks. There are new regulations over the
    competitors with banks that is another thing we do for the
    community banks, is to give them some protection against
    competitors who are not regulated and put pressure on them to
    do things that would be irresponsible. That is another area
    where we have regulated.
        In that law, we do what some of us had tried to do earlier,
    including the chairman, and he was I think not able to get his
    party leadership to agree with him--we put severe restrictions
    on the kind of mortgage lending that got us into trouble.
        Yes, we regulate mortgages in there. There are mortgages of
    the sort that people should not have been granted and they had
    trouble repaying that led to this problem, and we put that in
    there. We also regulated the notion of securitization. It used
    to be that you could make bad loans without any real
    restriction and you could then sell them, count on the credit
    rating agencies to overrate them and contribute to the problem.
    Now, there will have to be some risk retention. That is a new
    regulation. You cannot make loans without money that you have,
    sell them to other people based on inappropriate credit
    ratings, and then have those cascade through the economy in a
    negative way.
        So, yes, we regulate derivatives. We put fiduciary
    responsibility on people who are advising municipalities. We
    say you can't make those loans without any kind of repayment.
    And I am very proud of those. If the Members think those are
    somehow choking off legitimate activity, they ought to be
    explicit about it.
        Chairman Bachus. I thank the ranking member.
        Mr. Secretary, you are recognized. Without objection, your
    written statement will be made a part of the record, and you
    are recognized at this time to summarize your testimony.

    STATEMENT OF THE HONORABLE TIMOTHY F. GEITHNER, SECRETARY, U.S.
                       DEPARTMENT OF THE TREASURY

        Secretary Geithner. Thank you. Mr. Chairman, Ranking Member
    Frank, and members of the committee, thanks for giving me a
    chance to talk about the Council's work.
        In setting up this Council, the Financial Stability
    Oversight Council, you asked us to provide each year a
    comprehensive view of financial market developments and
    potential threats to our financial system, so I am going to
    give you a broad overview of our conclusions and
    recommendations.
        In early 2011, the world economy, still healing from
    crisis, was hit by a series of very severe additional
    challenges: higher oil prices; the disaster in Japan; the
    ongoing crisis in Europe. And on top of that, we had this very
    damaging debate in the U.S. Congress in the summer about
    whether we as a country should meet our obligations, and that
    debate caused a lot of damage to the basic fabric of confidence
    among businesses and consumers across the country.
        If you, as I did, talked to businesses in that period, July
    and August, they would say to me, why would I make a new
    investment today, why would I hire somebody new, if I don't
    know whether Congress is going to allow the Administration, the
    Executive Branch to pay our bills?
        Some of these factors have eased in recent months: oil
    prices have fallen; and Japan is coming back a bit. But the
    cumulative effect of these pressures has resulted in slower
    growth in the United States and around the world and much
    slower expectations, significantly lower expectations for
    growth over the next 18 months or 2 years.
        The crisis in Europe presents a very significant risk to
    global recovery, and we are working very closely alongside the
    IMF to encourage European leaders to move more forcefully to
    put in place a comprehensive strategy to stabilize that crisis.
    And the critical imperative for them is to ensure that
    governments, the governments in the financial systems that are
    under pressure, have access to a more powerful financial
    backstop that is conditioned on policy reforms, policy actions
    that can address the underlying cause of the problem. In the
    face of the situation in Europe and the general slowdown in
    growth, the most important thing we can do, Congress can do, is
    to take strong steps to strengthen our economy at home, and we
    think the most effective strategy for doing that is to enact
    steps now that would accelerate economic growth tied to long-
    term reforms to restore fiscal sustainability.
        The American Jobs Act provides a very substantial package
    of tax cuts and investments that according to estimates by
    independent economists would raise economic growth by 1 to 2
    percentage points and help create one to two million new jobs.
    In the President's proposal to the Joint Committee, we outline
    a comprehensive package of reforms to both spending programs
    and to our tax system that if enacted would bring our deficits
    down to the level where our overall debt burden would fall,
    begin to fall as a share of our economy.
        This Council, established under the law, is composed of
    each of the agencies responsible for oversight of the financial
    system and the firms and markets that comprise this system and
    it is the judgment of this Council that the U.S. financial
    system is in a significantly stronger position today to
    withstand the new risks we face in the global economy.
        Because of the actions we took in the early stage of the
    crisis to repair and reform our system, the weakest parts of
    our financial system, the ones that took the most leverage, no
    longer exist today; they were significantly restructured. The
    19 largest banks in the country have increased their common
    equity--this is the most important financial cushion we have
    for financial stability--by over $300 billion since early 2009,
    and these institutions and the system as a whole are funding
    themselves much more conservatively, maintaining much larger
    cushions of safe and liquid financial assets.
        These are very significant improvements and together they
    represent progress on the path to a more resilient, more stable
    financial system than has been achieved in the other major
    economies that were caught up in this crisis.
        U.S. financial institutions, including our major banks and
    the money market funds, have substantially reduced their
    exposure to the economies of Europe that are under the most
    pressure. Our direct financial exposure to those governments
    and their financial institutions is quite small. Europe as a
    whole is so large and so closely integrated with the U.S. and
    the world economies that a severe crisis in Europe would cause
    significant damage to growth here and around the world, but the
    largest parts of Europe are strong enough to manage the
    problems faced across the continent.
        These pressures we are facing from Europe make it even more
    important that Congress act to strengthen growth now and act to
    put our fiscal position on a more sustainable path.
        The economic and financial elements we have seen since the
    release of the report I think reinforce the importance of the
    recommendations we have presented to Congress. Let me just
    summarize those very quickly.
        First, the Council emphasizes the importance, as it always
    will, of making sure that the core parts of the U.S. financial
    system are moving to strengthen their financial position, their
    financial resilience. We want the largest institutions to
    manage their businesses so they have the ability to withstand
    future economic environments that are much more challenging
    without government assistance in crisis, and towards this
    objective, the regulators will gradually phase in over a period
    of several years the much tougher standards for capital and
    liquidity that we have negotiated with the other major
    financial systems around the world.
        Second, the Council recommends reforms to strengthen a
    number of the key funding markets in the United States, markets
    that were a critical source of vulnerability in the crisis. The
    most important of these recommendations targets the tri-party
    repurchase markets and the money market funds, and the essence
    of the Council's recommendations in these areas is to make the
    tri-party repo markets and the money funds less vulnerable to
    the classic dynamic you see in crises in which an abrupt rush
    for the exits forces a damaging spiral of asset sales,
    deleveraging and broader contagion. We have made substantial
    progress toward this objective but we have some more work ahead
    of us.
        Third, the Council recommends a comprehensive set of
    reforms to the housing finance system, which I would be happy
    to talk about.
        Finally, the Council emphasizes the importance of much
    closer coordination and cooperation in the implementation of
    financial reform, both here in the United States, but also
    around the world. This is important, of course, because if we
    allow large gaps to emerge, as we did in the years before the
    crisis, risks will migrate to those gaps, leaving all of us
    more vulnerable to another crisis.
        The most important challenge we face in building a more
    level playing field is in the design and enforcement of these
    new capital standards and the new reforms to the derivatives
    markets.
        Although our system is much stronger than it was before the
    crisis, we have more work to do on reform. But we are going to
    do this in a balanced way, weighing the benefits of regulation
    against the costs of excess restraint. We need to move at a
    pace that fully recognizes the fragility of the global economic
    recovery, phasing in these reforms over time so that we limit
    the risks to economic growth.
        I want to thank the members of the Council and their staff
    for all the hard work they have done in building this
    institution for cooperation and for producing this report. And
    I want to emphasize, as I always do, that I look forward to
    continuing to work with this committee and the Congress as a
    whole to build on the substantial progress we have already made
    in creating a stronger financial system here in the United
    States.
        Thank you, Mr. Chairman.
        [The prepared statement of Secretary Geithner can be found
    on page 42 of the appendix.]
        Chairman Bachus. I thank the Secretary.
        Secretary Geithner, earlier this week President Obama said
    that banks don't have some inherent right just to get a certain
    amount of profit if your customers are being mistreated. It
    appears as if he is equating profits with mistreating people.
        Does it bother you that he connects the idea of profits
    with mistreating people? Is there anything inherently evil
    about profits?
        Secretary Geithner. I don't think he did that. The
    President believes, as I believe, that it is not the role of
    government to determine how profitable firms are. But we also
    learn, and we learned with tragic consequences for this
    country, that if you don't put in place basic protections for
    consumers and investors, apply those across the market, don't
    prevent firms from taking the kinds of risk that could imperil
    the economy as a whole, then you leave all of us much more
    vulnerable. And so what we are trying to do is build a system
    with better protections, give consumers better choice, more
    transparency, and the basic protections against fraud and abuse
    and predation and risk that were so damaging to us.
        Chairman Bachus. Mr. Secretary, can you tell us some
    practice that the financial institutions are engaging in, how
    they are mistreating people today, that you don't have the
    power presently to stop?
        Secretary Geithner. Thank you for asking me that. There is
    an excellent example, and I will just give you one.
        Chairman Bachus. Okay.
        Secretary Geithner. The reforms Congress enacted lay out a
    much more comprehensive system of protection for consumers so
    that we have rules that apply not just to banks, but to all of
    the other institutions that are in the business of consumer
    finance, from payday lenders to basic loan companies across the
    country. And although the authority is there in the law, until
    there is a Director confirmed for the new Consumer Financial
    Protection Bureau, we do not have the authority to apply those
    protections to non-bank financial institutions. And that makes
    no sense.
        Chairman Bachus. I would agree with that. But we are
    talking about our banks, our regulated institutions, those that
    are presently regulated. Now, are there practices going on, any
    widespread practices which are mistreating customers?
        Secretary Geithner. I think the most compelling example
    today of behavior by the largest banks in the country that we
    all worry about, and we are all living with and your
    constituencies, is the mortgage servicing business. Just look
    at what is happening in the foreclosure process or the mortgage
    servicing business across the country. You have people who
    still cannot get somebody on the phone who they can talk to
    about how to figure out how they can stay in their house if
    they have income, transition to better housing options, make a
    catchup payment. And I think that is an example today where
    because we don't yet have in place authority that allows us to
    enforce national servicing standards, and because the basic
    infrastructure of servicing is still so inadequate relative to
    the scale of the crisis, we see systematic problems still.
        Chairman Bachus. I think what we found is that there were
    legal requirements that weren't complied with on many
    occasions. Is that not true?
        Secretary Geithner. You have seen some evidence of that,
    but I think the problem is much bigger than that.
        Chairman Bachus. I will acknowledge that there have been
    problems. But let me ask you about the charges for debit cards.
    That is the one the President picked out as an example of--
    actually I think in his terminology, he represented that it is
    almost a greedy reach. But do you think that Dodd-Frank and
    particularly the Durbin Amendment had anything to do with the
    banks charging for their services?
        Secretary Geithner. Mr. Chairman, I am not going to comment
    on any particular bank practice in the areas of fees, but I
    will tell you what we are trying to do.
        Chairman Bachus. Do you think it was wise for the President
    to do that?
        Secretary Geithner. I am not going to speak to that
    question, but I will tell you what he said about this, which is
    very important, that what the law does is try to make sure we
    move this system to a place where there is much more
    transparency and clarity about the fees Americans have to pay
    to access a basic banking service or to borrow.
        Chairman Bachus. And I absolutely agree with that, Mr.
    Secretary. But that $5 disclosure was a pretty honest up-front
    disclosure.
        Secretary Geithner. And I think you are seeing some
    improvements in transparency and clarity. But remember, you all
    do banking, you all do banking services. Look at your
    disclosure statements that come with the returns, and ask
    yourself how good those look today. We have some work to do.
        Chairman Bachus. But we are talking about a $5 disclosed
    fee on debit cards, which I think if you will be forthright,
    you will say is a result of the Durbin Amendment. That is what
    restricted their ability to recover the costs.
        Secretary Geithner. No, I didn't say that, and I don't
    think you can justify that judgment. What you are seeing is--
        Chairman Bachus. You don't think there is a connection
    between the charges the banks are now making and the reduction
    in their revenues based on Durbin?
        Secretary Geithner. I will tell you what I think is
    happening. We are, and we need to, we are trying to
    fundamentally improve the quality of consumer protection,
    clarity, transparency, disclosure, and we are doing things that
    change fundamentally, because we are putting tougher rules on
    institutions, how they manage risk and how they meet the needs
    of their customers, and that is changing practice across the
    system, changing how banks charge and pay for basic services.
    And there is much more change ahead of us, and that is
    necessary for us to do. Because, again, we are still living
    with the scars of the damage caused by the failures.
        Chairman Bachus. Thank you, Mr. Secretary. And I agree with
    that. I just don't understand how there is anything misleading
    about a $5 charge. I am not defending it, but it appears to be
    very transparent.
        The ranking member is recognized.
        Mr. Frank. To begin, Mr. Chairman, as I heard you talk
    about the President's quote, I think you misrepresented it very
    substantially. He didn't say he was against them making a
    profit. There was an ``if'' in there. As you read it, there was
    no right to make a profit if there is mistreatment of the
    customers. And that is saying not that there is no right to
    make a profit, in fact it is clearly suggesting that there is,
    but that if the profit came from mistreating the customers,
    there is no right.
        Now, I am not commenting on this particular controversy
    here, because, as we all remember, the swipe fee thing was a
    present to America from the United States Senate. It was never
    in our bill, and I believe you and I talked, Mr. Chairman, if
    the Senate had passed the Tester Amendment, which I strongly
    supported, we would have put it through the House very quickly.
    And I do not think consumers, I don't think that when they go
    into the 7-Eleven the slushy is going to be any cheaper when
    they don't do it. But that is not what the President said. He
    said if, that there was no right to mistreat.
        Let me go on to a couple of points I wanted to ask the
    Secretary. One of the issues that people were concerned about
    legitimately with regard to the financial reform bill was the
    possibility that we would put our financial institutions at a
    competitive disadvantage, and obviously we don't want to do
    that. Money is pretty fungible. It moves pretty quickly.
        What has been the experience so far with regard to, and I
    know there have been serious negotiations, I have had them and
    others with the European Union, with England, with Japan, with
    Canada, what does it look like so far in terms of not having
    any competitive disadvantage as a result of the implementation?
        Secretary Geithner. I would say that we are reasonably
    encouraged so far; that having set the standards for our system
    here, that the world is going to move to those standards. And
    based on what we have seen so far on capital and on liquidity
    and even on derivatives, the most complicated area for making
    sure there is a level playing field, we are very encouraged by
    what the Europeans are saying and what they are doing. And, of
    course, we are not focused just on Europe, but we are looking
    at Asia, too, where you see very rapid growth in financial
    activities.
        So I would say we are modestly encouraged so far, but this
    is going to be a real change challenge and we have a lot of
    work to do.
        Mr. Frank. Let me say, we put into the bill very
    specifically, as you know, we consulted, a mandate to you and
    to the Federal Reserve if there are countries that are taking
    advantage of a gap, if they are deliberately underprotecting
    the public interest here, they are to be excluded from our
    financial system.
        So, yes, it is important to work together. And I know
    sometimes the Administration is reluctant ever to take action
    against anybody, and I am for the China currency bill. But in
    this case I think it is very important, and I don't think it
    will come from the EU or Japan or the major entities, but if
    there are some small countries that try to do that, we would
    expect you to use that authority.
        I want to turn to the other area that the chairman talked
    about which was the regulation. And, again, I am waiting for
    people to tell me which regulation they want to get rid of. I
    will say this, and I agree with the chairman, we certainly want
    to see productive activity. One of the problems I think is that
    a good deal of the financial activity that we were seeing that
    we tried to give people the authority to regulate contributed
    very little to the real economy.
        The role of the financial institutions is they are
    intermediaries, that is, they are the connector of people with
    money to invest and people who will take that money and use it
    to produce goods and services in a productive way. That is a
    fundamental role, and I think the bill did nothing to impinge
    on that. I did think when AIG was playing credit default swap
    games with other financial institutions, when we had
    collateralized debt obligations squared, that we were not
    helping the real economy. I think some of those things had as
    much relationship to the real economy as fantasy football does
    to what happens on Sunday afternoon. So I would hope we would
    go at that.
        In that regard, I was pleased to hear you say that--and we
    don't want to just be looking at the past problems. One of the
    things we tried to do in the legislation was to give the
    regulatory authority the ability to go into new things.
        You talked about some things that have people worried now
    that weren't there before. First of all, repos. But, secondly,
    and even more in the newness, the technologically produced
    ones, exchange traded funds; very, very, very rapid trading.
    Where are we on those? Because there is I think a legitimate
    concern that there are dangers in those. And I am pleased to
    say that we did I think give the regulators appropriate
    authority to look at those.
        What is the status now of looking at what the impact could
    be going forward on exchange traded funds and on the very rapid
    trading, for example, on the questions of stability?
        Secretary Geithner. Mary Schapiro is taking a lead in the
    Council and examining developments in both of the two areas you
    referred to, and she has a process under way not just here but
    around the world where there is much more rapid growth in
    exchange traded funds to examine the risks in those. But she is
    also looking at the market structure issues and the high-
    frequency trading. I don't recall precisely when she expects to
    come back to us and talk about it, but she is all over it.
        You are right to emphasize again that one of the jobs of
    the Council is to try to look at areas where we are seeing
    very, very rapid growth and innovation, untested by the kind of
    stress you need to kind of test these kinds of things to make
    sure we can move a little more quickly than the system moved in
    the past to try to contain these things.
        Mr. Chairman, could I very briefly respond to one thing you
    said in the beginning in your opening comments?
        Mr. Frank. If the chairman allows it. I am over my time.
        Chairman Bachus. Yes.
        Secretary Geithner. Mr. Chairman, you quoted something
    slightly off from what I said this morning in the Senate--
        Mr. Frank. I assume by ``Mr. Chairman,'' that was a
    cultural lag and you meant me. Okay.
        Secretary Geithner. I said this morning in the Senate that
    one of the big challenges for the economy as a whole, and I
    mean the economy as a whole now, is the risk that after a
    period where people took too much risk in a real crisis, people
    aren't going to take enough risk. And I wasn't commenting
    beyond that. But I think it is true. The natural thing you see
    after a crisis is you see a period of people pulling back, too
    much excess caution, and that tends to make growth weaker than
    it is, and we have to be worried a little bit as we go through
    this.
        So I was just making a general observation that we want
    people to take responsible risks, and that will be helpful as
    we recover. There is still a lot to be worried about, a lot of
    challenges out there. But as I also said, we have been very
    careful to make sure that as we design these tougher rules, and
    they are much tougher rules for our system, that we are
    designing them sensibly and that we are phasing them in over
    time so that we don't hurt the recovery.
        Chairman Bachus. Thank you. Mr. Secretary, what you are
    saying is the quote, if you look at the U.S. economy today I
    would say the biggest risk we face is institutions not taking
    enough risk.
        Secretary Geithner. Think about it this way: Consumers
    still have too much debt. They are bringing down debt. They are
    raising savings rates, they are being more cautious.
    Supervisors, you said it, examiners, having been a little
    burned, are being tough now. You see banks being cautious, too.
    And I was making a sensible observation that those things tend
    to work against growth in this case and you want to make sure
    people aren't overdoing it, you don't want to see too much
    tightness following too much looseness, laxity.
        Chairman Bachus. No, and I acknowledge that, but I believe
    the fault lies mainly with the regulators who are restraining
    the banks and actually questioning many of their loans.
        Mr. Frank. Will the chairman yield briefly, because I tend
    to agree with that, although not with the top regulators. I
    think we have had--the problem is a lot with the people in the
    field. But I have asked people to point to anything in the
    statute that we adopted that does that. I don't think that is
    compelled or even influenced by the statute. I do agree that
    there is a mindset among some of the people in the field that
    has been problematic.
        Chairman Bachus. I think we are all three agreeing with
    that.
        Mr. Royce?
        Mr. Royce. Thank you, Mr. Chairman.
        Secretary Geithner, you and I agree about the need for
    higher capital standards as part of the solution to the
    problem. We have talked about that in the past and agree on
    regulating derivatives for transparency, Hernando De Soto's
    arguments, the importance of that in terms of being a component
    of the equation.
        I think my concern, as I have expressed to you before, is
    that we are taking our eye off the ball and instead pursuing
    this course of micromanaging the financial sector without the
    international community really buying into the approach that we
    have laid out. And you are right to say that the regulatory
    community in Europe says that they will buy into the approach.
    But that is not what is happening in this country.
        I think the concerning comments by the CEO of the large
    foreign bank who called the U.S. approach to derivatives a
    terrific opportunity, he said it is one of the biggest own-
    goals in financial market history. And he says that the Asians
    don't need to do anything to gain an advantage. This is the
    type of press, if you pick up The Financial Times, the kinds of
    advertisements basically that are being made. Then when you
    think about the Fed Chairman's own comment on this point, he
    says portions of the proposed derivatives rules, I think he is
    talking about extraterritoriality here, could create a
    significant significant competitive disadvantage for U.S.-based
    institutions.
        So the further we get from passage of Dodd-Frank, the less
    likely it seems that Europe is going to blindly follow us. And
    I don't see that on Asia's part. They have already flat out
    rejected many of the reforms that we have instituted.
        What I want to ask you is, will Treasury commit to ensuring
    that if we can't get that concurrence, we hit the pause button
    on some of this micromanagement until we bring them online so
    that everybody is on the same playing field and we don't have
    to worry about that competitiveness issue that the Fed Chairman
    is bringing up?
        Secretary Geithner. Let me just say, the Fed Chairman is
    right to point out there are provisions of the law that because
    of how they treat the foreign operations of U.S. affiliates,
    could cause that problem that we are worried about. But I would
    say in general, based on what our counterparts around the world
    are saying, I am more encouraged than I thought I would be at
    this point. It is not just what they are saying, but how they
    are drafting their rules.
        I will just give you one example. We have had 3 decades or
    4 decades of experience with global capital standards, not an
    excellent experience, frankly, they were set too low, but we
    started 30 years ago designing a global standard for capital.
    No such regime existed on derivatives. But we proposed after
    regulation was passed that we negotiate a global regime on
    margin for derivatives, and we found very strong support not
    just from the European systems but from the Asians too to the
    same basic principle.
        So we are going to keep working on it, and we are making
    sure that we try to sequence and design the rules in the United
    States so we are not in the position of landing ours before we
    are confident that the others are going to land theirs in a
    sensible place. We are not going to do this on trust. We are
    going to verify and make sure we are all over it.
        Mr. Royce. I think I am going to lay out another argument
    here that I think would give you and I both pause because I
    think we agree on this both, too. It is no surprise that the
    international community really is pushing back on this because
    they look at us and they say it eludes the United States, they
    can't even get their international coordination right between
    the CFTC and the SEC, right? So there are wildly divergent
    views here.
        Secretary Geithner. No, I wouldn't say it quite that way.
    But I would say you are right and I will reinforce your point.
    We left in place in the American financial system a very
    complicated set of independent agencies with overlapping
    jurisdictions and different responsibilities, and that makes
    the coordination challenge much harder, but much more
    important, because you are right to say if we don't--
        Mr. Royce. It was a mistake.
        Secretary Geithner. I am not sure it was a mistake, but you
    guys decided to do it. If you don't have alignment among them,
    then you are right to say how are we going to convince the rest
    of the world--
        Mr. Royce. Right. And we are out of alignment on 50
    different items at the moment.
        Secretary Geithner. No, that overstates it. But we want
    them, where Congress--where the statute permits it, we want
    them to be fully aligned.
        Mr. Royce. And we are not there.
        Secretary Geithner. We are not there yet.
        Mr. Royce. And until we get there, it is going to be hard
    to figure out how you get the Europeans there. And that is why
    you have to be very cautious here. There is a competitiveness
    problem, to quote a former Fed Chairman, if the capital markets
    march off to London. That is the problem when you reading the
    Times.
        Secretary Geithner. You are right. We are not going to let
    that happen. I am reasonably encouraged at this point that we
    are going to be able to prevent that. But we are working very
    hard at it. And again, part of that is making sure that where
    we can, we have alignment here at home. And you are exactly
    right to point out that if we are sort of off a little bit
    here, it is harder to get the world to come to a common
    standard. But you are right to emphasize that we care about it
    as much as you do, and we are, and the SEC and the CFTC and the
    Fed are working to the same objective.
        Mr. Royce. Thank you, Secretary Geithner.
        Chairman Bachus. Thank you, Mr. Royce.
        Ms. Waters?
        Ms. Waters. Thank you very much.
        Mr. Geithner, we are delighted to have you with us again
    today. I would like to draw your attention to something that is
    going on in this country that I think is extremely important
    and needs to be addressed or recognized.
        There is an occupation on Wall Street in New York that is
    taking place by protestors and the protestors are growing every
    day. Today, here in Washington, D.C., we have an organized
    protest. In Los Angeles, they have set up camps on city hall
    steps. And in many other cities across the country.
        They are basically reciting their concerns. They are very
    concerned that 1 percent of rich Americans do not pay their
    fair share of taxes. They are really angry about the banks that
    we bailed out, the too-big-to-fail banks that were bailed out
    and they are not reinvesting in this economy with small
    businesses, they are not giving mortgages, and they are not
    modifying loans, these mortgages.
        In addition to that, they talk about the $1 trillion that
    the Feds used to bail out banks and other well-connected
    businesses and institutions. They are really agitated about the
    Bank of America announcing that they are going to charge a $5
    monthly fee for these deficit cards. Citibank has announced
    that it is going to charge up to $20 a month for checking
    accounts. They are saying no one has gone to jail as a result
    of causing the financial crisis.
        What do you say? Have you said anything about the
    protestors? Do you support them? Do you recognize them? Do they
    have a real beef here? You are the treasurer. They are angry at
    all of us. And I am not just saying they are angry at you. But,
    you represent the money systems of our government. So what have
    you said about the protests? Do you support them?
        Secretary Geithner. I have been asked this several times
    over the last couple of days when I was in New York on, I think
    it was Tuesday, and I will tell you what I said in response to
    those questions, which is I think you see reflected there, like
    you see reflected across the country, a deep sense of concern
    about the fact that we have 9 million Americans out of work. We
    have seen a huge increase in inequality, a huge rise in
    poverty. I don't know if many people know this, but I think 40
    percent of Americans born in the United States today, children
    born this day, are born to families eligible for Medicaid. I
    think one in eight Americans are eligible for food stamps
    today. You have seen a dramatic change, deterioration, in
    people's basic confidence in the ability of this political
    system to do a better job of meeting the needs of middle-class
    families. We are still living with the scars of the worst
    financial crisis in generations. So that is what I say to them.
        I think that is why it is important, so important that we
    are working to improve confidence, not just in the quality of
    public institutions, but in the safeguards we provide,
    protections we provide Americans in the financial system, but
    also that we can find a way to get Congress to demonstrate that
    we can do things to help the economy now. And if Congress does
    not act this fall to do things to help growth, help get more
    Americans back to work, then you are going to be causing much
    more damage to an economy already--
        Ms. Waters. I don't want to interrupt you, but some of us
    have been wondering for a long time what you are saying about
    principal writedown? That is a big issue in this debate. What
    can you do to get the banks and the financial institutions that
    caused the subprime meltdown to do something about keeping
    people in their homes? That is a big issue. Where do you stand
    on principal writedown, Mr. Geithner?
        Secretary Geithner. That is a very good question, and thank
    you for asking about that. The programs we put in place in the
    housing system have helped directly and indirectly about 4
    million Americans get their mortgages restructured and their
    payments reduced significantly. As part of our programs, we
    have also created a targeted program for principal reduction,
    which, to be frank, has had very little take-up to date, in
    part because we don't have the power to compel the biggest
    parts of the mortgage market. FHA is prohibited by law, and
    Fannie Mae and Freddie Mac, we can't compel them to do it, and
    they have been unwilling to move in that direction to support
    targeted principal reduction where it makes sense. But we have
    been supportive of it. We have put a fair amount of care and
    effort and resources into it, but we don't have the authority
    now to compel the largest parts of the system to move.
        Ms. Waters. I don't want to interrupt you. My time is up.
    Would you like to send a message to the protestors while you
    have national attention right now?
        Secretary Geithner. I would just say what I said, which is
    that--
        Ms. Waters. You support them.
        Secretary Geithner. We all need to do a better job of
    demonstrating that the responsible bodies in the United States,
    and for the economy today it requires Congress, are able to act
    to do more things to help get the economy stronger today. And
    without that, you are going to be living with more pain, more
    poverty, more fear, and more insecurity about the future.
        Chairman Bachus. Thank you. Congresswoman Waters and
    Secretary Geithner, I do agree with you that the demonstrators
    probably ought to be demonstrating in front of Congress and the
    White House and the Secretary over at Treasury. Maybe they
    misdirected their protests at the wrong city.
        Secretary Geithner. I didn't imply that.
        Mr. Frank. But I am sure the banks will appreciate it.
        Chairman Bachus. I was talking about all these job-killing
    regulations.
        Mr. Hensarling?
        Mr. Hensarling. Thank you, Mr. Chairman.
        Good morning, Mr. Secretary. I noticed in your testimony
    you work in a reference to the President's latest economic plan
    where you speak about the tax relief. I do think it is
    important from one perspective. According to the job creators I
    speak to in the Fifth Congressional District of Texas, number
    one, when you combine temporary tax relief with permanent tax
    increases on the other end you are unlikely to create too many
    jobs. And at the same time I would point out that the payroll
    tax relief in the President's plan, although perhaps it could
    be meritorious in a certain context, without a simultaneous
    plan to deal with the insolvency of Medicare and Social
    Security by borrowing from the payroll tax for this program,
    you are frankly hastening the bankruptcy of programs that we
    already know are going bankrupt for our seniors.
        But the question I have is, you assert in your testimony
    that the President's economic plan, according to outside
    economists, would raise economic growth by 1 to 2 percentage
    points and help create one to two million new jobs. My question
    is, are these the same outside economists who told us the
    President's original economic plan would ensure that
    unemployment never went past 8 percent and that it would create
    three to four million jobs?
        Secretary Geithner. Congressman, it is always a pleasure to
    debate these deep questions about tax policy and economic
    policy.
        Mr. Hensarling. I knew you looked forward to the
    opportunity.
        Secretary Geithner. I was looking forward to it. Let me
    respond this way, and I will make some arguments that many on
    your side have been making for some time. If Congress does not
    act on the tax front now or on investment, what happens? What
    happens is the taxes every person with a job in this country
    pays go up by roughly $1,000 at the end of this year. The taxes
    every business pays will go up. Now, what we propose to do is
    to extend and expand those tax cuts and to tie them to long-
    term reforms that give people confidence that we are going to
    go back to living within our means.
        Mr. Hensarling. But, Mr. Secretary, if I could, I am really
    curious, because I haven't seen the estimates of these outside
    economists, if you would be able to share them with me.
        Secretary Geithner. Oh, they are in the public domain, but
    I would be happy to do it. If you look at the broad range of
    views, and there is a range of views, economists disagree on
    everything, but the broad consensus is in that direction. They
    are not our estimates, they are their estimates.
        Mr. Hensarling. If I could, because unfortunately, the time
    is running out here, and specifically I was trying to figure
    out about which economists were saying this. At least when I
    speak to a number of people, small business people, and I think
    you mention it in your testimony, there does seem to be a lot
    of uncertainty, frankly, a lack of confidence, part of this
    does have to do with regulatory uncertainty, and I do know that
    there has been a dizzying array of rulemakings that have to
    take place of which FSOC certainly has some, frankly a fair
    amount of oversight.
        As I understand it, 64 new rules have been finalized, and
    126 deadlines have been missed. And, believe it or not, I am
    not actually trying to ascribe blame, I would rather it get
    done right than get down quickly, and we still have another 210
    rules to come, as I understand it. I guess the question I have
    is that there still appears to be so much lack of specificity
    and certainty within a lot of the community financial
    institutions I speak to, what is it that FSOC can do to move
    this particular process forward? Because I believe, again, it
    is the uncertainty of the rulemaking process and frankly the
    certainty of bad rules that is inhibiting a lot of our job
    creators today.
        Secretary Geithner. I disagree with you on that, but I will
    respond in the following way, and I just want to repeat some of
    the comments made earlier, if you talk to community bankers
    across the country as I do, most of them will say the
    following: They will say they recognize that they were largely
    and almost completely left out of, if not privileged and
    advantaged in the Dodd-Frank Act, but they are concerned, some
    of them, that they are under too much pressure from examiners
    to tighten standards beyond what they think is necessary.
        It is hard to know how much of that is true, but that is
    what they say. They don't complain about the regulatory
    framework. As you know, the people who represent community
    banks supported the bill and they were very successful in
    convincing you to carve them out of most of the protections,
    and they are privileged in many ways. But they say they are
    concerned they get a lot of heat from examiners that they think
    goes beyond what is necessary. It is hard to justify that.
    Examiners are trying to do their job.
        Mr. Hensarling. Mr. Secretary, I see I am running out of
    time. I would just say it is clear that we are speaking to a
    different universe of community bankers. But I appreciate your
    testimony.
        I yield back.
        Chairman Bachus. I thank the gentleman.
        Mrs. Maloney is recognized for 5 minutes.
        Mrs. Maloney. Thank you.
        First of all, I would like to say thank you, Mr. Secretary,
    for your service. You probably understand more than anyone how
    close we came to a total collapse in 2008, and your leadership
    has been a great part of helping us to dig out of that
    challenge.
        I also want to join the comments of our ranking member who
    said the swipes was a gift from the other body. But a gift from
    this committee and this Congress on this side of the aisle was
    the CARD Act, the Credit Cardholders' Bill of Rights. In that,
    they had many of the principles of Dodd-Frank, of transparency,
    a level playing field, and really making life better for the
    working men and women in our country. It stopped many of the
    most abusive practices, such as raising rates any time, for any
    reason, retroactively on balances.
        I want to note that many issuers were not following these
    unfair deceptive practices as prescribed by the Fed, but others
    were. A report that came out recently from the Pew Foundation
    said that this bill alone saved consumers over $10 billion last
    year. So this is an effort that the President signed into law,
    that you championed and many members of this committee on both
    sides of the aisle championed, and I want to say thank you for
    that.
        Yesterday, I was in New York, and I met with some of the
    protestors. They were very angry, and I can understand their
    anger. They were angry about what has happened to them
    financially, about their prospects for the future. So my
    question to you is, what would you say to the protestors if
    they were camped out in this room today about what has happened
    to them, what have we done to change their prospects for the
    future, what has this FSOC report said to the possibilities of
    the future? Certainly, stabilizing our markets, bringing in
    balanced and fair regulation that protects their deposits, that
    protects their work in the future is something that is really
    important.
        I want to share with my colleagues, many of whom treat
    Dodd-Frank like it was a horrible thing, I call that mentality,
    let's forget that the financial crisis ever happened.
        When President Obama came to Wall Street and spoke to Wall
    Street, it was the day after the Senate vote and he pulled out
    a press clipping and he said, I want to read this to you. And
    he said, it passed out of the Senate yesterday. And many
    leaders in the financial industry were aghast. They thought
    this was going to be the ending of the capitalist system, of
    the opportunity to grow and expand capital and jobs. He went on
    and on. And then he said, this came out in 1929, 1930, after we
    created the FDIC, which performed, I think, so brilliantly in
    helping us confront this financial crisis.
        So I would like to hear what the FSOC report says about
    what Americans can hope for and plan for a more stable future
    financially, and thank you for your service.
        Secretary Geithner. I don't think I can improve on how you
    said it. What the financial reform law does is establish the
    basic protections we did not have to prevent Americans from
    being victimized by not just fraud and abuse and predation, but
    from the type of risk-taking that we saw that almost brought
    down the American financial system.
        I am very confident that with these reforms, we are going
    to build a much better system, a much more stable system. It
    will be to the benefit of not just the average working family
    who needs to borrow to put their kid through college or to buy
    a house, but for businesses that need to raise capital. And we
    have all seen what happens when you get that basic balance
    wrong. It hurts everybody, not just the imprudent. It hurts the
    innocent victims in that sense.
        What I would say generally, and I would say this to the
    American people generally, is that you should be demanding
    better results from Washington in things that can help the
    economy now. Because even with the strength of those reforms on
    the financial system and the progress we have made, we still
    have an economy that is not growing fast enough, millions of
    Americans are out of work. And we have seen these new shocks
    from Europe, and we have to act to protect ourselves from those
    things and do things to make the economy heal more fastly.
        I think this argument you have heard that what is hurting
    the economy now is an excess of regulation is without
    foundation. I want to quote to you a concluding paragraph from
    an article that Bruce Bartlett published on October 4th. Bruce
    Bartlett held senior policy roles in the Reagan and Bush
    Administrations and served on the staffs of Representatives
    Jack Kemp and Ron Paul.
        These are his words. ``In my opinion.'' It is a pretty
    thoughtful article, and he goes through the evidence, and he
    says, ``In my opinion, regulatory uncertainty is the canard
    invented by Republicans that allows them to use current
    economic problems to pursue an agenda supported by the business
    community year in and year out. In other words, it is a simple
    case of political opportunism, not a serious effort to deal
    with high unemployment.''
        And he cites in this context--I will tell you what he cites
    because it is useful. What he looks at is the level of
    unemployment and the rate of growth and profitability in the
    sectors of the economy where we are trying to put in place
    better protections: health care; energy; and financial
    services. And he cites an academic in that context and he says
    that there is no evidence you can find to support the
    proposition that our efforts to design better protections in
    those areas are damaging growth. What is damaging growth, what
    is damaging confidence is that growth is slower than we would
    like because we are still healing from a terrible financial
    crisis and we face the cumulative burden of these other
    shocks--oil, Japan, Europe, etc.--and that is why we have some
    more work to do.
        Mrs. Biggert. [presiding]. Thank you. The gentlelady's time
    has expired. The gentlewoman from West Virginia is recognized
    for 5 minutes.
        Mrs. Capito. Thank you, Madam Chairwoman, and welcome, Mr.
    Secretary.
        My first question is, one of the principal mandates of the
    FSOC was to look at the systemic connectedness of our larger
    institutions, because obviously that was a big problem with
    what happened in 2008. Would you say today that our
    institutions are more or less systemically connected than they
    were pre-2008?
        Secretary Geithner. They are obviously very closely tied,
    but the most important thing we have seen is they hold much
    more capital against risk and they are funded much more
    conservatively, with much longer-term sources of funding. In
    addition to that, there has been dramatic progress in trying to
    make sure there is much more conservatism in the derivatives
    markets where people come together and the funding markets that
    join them. For those reasons, it is much less likely that a
    particular shock would damage the strong, not just the weak,
    and much less likely that pressures on a weaker institution
    would spread to the stronger.
        Mrs. Capito. Would you say that the effects, and we are
    seeing you address this in some of your statements, the effects
    we are seeing from the European situation, which is billowing
    over and affecting our markets and our financial institutions,
    doesn't that kind of play into this systemically connected
    issue? In my speaking with some of these institutions, they are
    sort of saying one of the problems was we were too systemically
    connected. Why is the FSOC not saying, unwind your systemic
    relationships and maybe that would alleviate any kind of
    possible collapse such as we saw?
        Secretary Geithner. I think we are moving in the same
    direction, but just to be realistic, banks and markets are
    always going to be terribly closely connected. There is no way
    to separate them, disentangle them, separate them--you can't
    put them in silos like that.
        What you need to do is to make sure that the firms have
    much bigger cushions against risk, again, are much less
    vulnerable to funding pressure, and that the markets where they
    come together, like tri-party repo and money market funds and
    derivatives, have a much stronger financial cushion. If you do
    that, then you have much less risk of contagion, which is the
    risk you were referring to.
        But in a competitive market--and we are going to run a
    market-oriented financial system--you can't disentangle those
    things or otherwise, we wouldn't have a financial system that
    worked.
        Mrs. Capito. How close are you, as the FSOC, to designating
    the SIFIs?
        Secretary Geithner. On Tuesday, I think, next week, the
    Council meets to consider approving new guidance that we would
    give to the market on the criteria we are going to use to
    determine--
        Mrs. Capito. So when will that occur? After you do the
    guidance, then you have another year, so you are really 2\1/2\
    years into--
        Secretary Geithner. No, I don't think so. But we are doing
    what people asked, really, which is--what people asked is for a
    little bit more clarity in the criteria we use before we
    designate. And we were trying to do something that is sensible,
    which is to give people a chance to look at those criteria,
    give us feedback on them, comments on them, so that we come out
    with judgments that people understand and respect and people
    can plan for those and adapt to them.
        So we are trying to be responsive to the concern many have
    expressed that we give people more guidance.
        Mrs. Capito. Okay. And once those are designated, whenever
    that is, 2\1/2\ years from now, will they--the living wills
    that they are creating, when are they due in to the FSOC?
        Secretary Geithner. I can't speak to that. I would be happy
    to get back to you in writing. I am not sure exactly when. But
    I don't think you are right about the 2\1/2\ year thing. I hope
    we can move more quickly--
        Mrs. Capito. I just know how slowly these things move. You
    know that, too.
        Secretary Geithner. Let me say one more thing on that. We
    are moving more slowly than some of the deadlines required. But
    I want you to know that, where we are slower, it is because we
    are trying to get them sensible and get them right, and we are
    trying to get everybody to move together, not separately with
    different standards. And it is a complicated thing to do.
        And we recognize that, in some ways, slow is bad, but slow
    is better in the service of a better outcome with smarter
    rules.
        Mrs. Capito. Thank you.
        And then just one thing about the regulatory--obviously,
    this is a big issue that is coming up--the regulatory burden of
    Dodd-Frank. And your previous answer--I wrote you a letter--and
    you responded to it, and I appreciate that--about what types of
    regulations after the President's Executive Order 1 and 2
    asking you to weed out old regulations, streamline. And,
    basically, your final point here is that, ``I will seek ideas
    from council members on concrete ways in which agencies can use
    the council as a vehicle to improve coordination.''
        I write these kind of letters, too. So, you are really
    saying that you haven't really done anything here.
        Secretary Geithner. Not quite. But you are right, we
    haven't made much progress yet. And it is hard, but I am very
    committed to this.
        When I first went to the New York Fed a long time ago, I
    remember looking at the bulk of accumulative stuff that had
    been built up over the years in the regulatory process, well-
    motivated stuff--Bank Secrecy Act, consumer protection things--
        Mrs. Capito. Right.
        Secretary Geithner. --and what we generally don't do is go
    back and look at those when we do the new things to clean up
    the ones that don't meet their objectives in the past. And it
    is very important we try to do that, because we are trying to
    get a smarter system and a tougher system, not just more muck
    piled onto the current system.
        Mrs. Capito. I would encourage you to--
        Secretary Geithner. But I want to give you two examples. In
    the area of consumer--
        Mrs. Capito. I think my time is up. Sorry.
        Secretary Geithner. --mortgage disclosure--
        Mrs. Capito. Right.
        Secretary Geithner. --credit card disclosure--
        Mrs. Capito. That was in your letter.
        Secretary Geithner. --and there are two examples I can't
    refer to you in detail but I would be happy to write you about
    in the Bank Secrecy Act where we have started to simplify
    things in a way that help.
        But we are just at the beginning of this process. We have a
    lot more work to do.
        Mrs. Capito. Thank you.
        Mrs. Biggert. The gentlewoman's time has expired.
        The gentleman from Illinois, Mr. Gutierrez, is recognized
    for 5 minutes.
        Mr. Gutierrez. Thank you very much.
        And welcome, Secretary Geithner.
        I want to go back to TARP and see if we agree on something:
    $700 billion for banks and $30 billion for homeowners under the
    HAMP program; is that correct, Mr. Secretary?
        Secretary Geithner. No. We--when I took office, the
    President took office--
        Mr. Gutierrez. I didn't ask you when you took office--
        Secretary Geithner. No, no. I--
        Mr. Gutierrez. --but according to TARP. How much money was
    there in TARP?
        Secretary Geithner. No, there was $700 billion authorized
    for the system as a whole, but--
        Mr. Gutierrez. And how much was authorized under HAMP?
        Secretary Geithner. Hold on, I am coming to you. I am going
    to respond to your question.
        Mr. Gutierrez. It is only--it is already half a minute.
        Secretary Geithner. Roughly $350 billion.
        Mr. Gutierrez. $700 billion authorized. And how much was
    authorized for HAMP?
        Secretary Geithner. Roughly $350 billion was disbursed to
    banks.
        Mr. Gutierrez. Okay.
        Secretary Geithner. Fifty authorized for HAMP. Thirteen-
    billion-dollar profit on the investments in banks.
        Mr. Gutierrez. But I am--
        Secretary Geithner. Hold on.
        Mr. Gutierrez. I am not--those aren't the questions. See,
    we ask the questions. I know it is uncomfortable, but every now
    and then, we ask questions, you answer questions. You have
    answered other people's questions. You are answering questions
    I haven't even asked. So you might be getting ahead of yourself
    here a little bit, Mr. Secretary.
        So let me just ask, so there was $50 billion for HAMP,
    right? Is that what you just stated?
        Secretary Geithner. Authorized for HAMP.
        Mr. Gutierrez. Authorized for HAMP. How much of that $50
    billion was spent?
        Secretary Geithner. A very small amount.
        Mr. Gutierrez. A very small amount--$2 billion.
        Secretary Geithner. We have committed substantially more.
        Mr. Gutierrez. I know. How much has been spent?
        Secretary Geithner. Very little.
        Mr. Gutierrez. Very little, okay. So you won't agree to $2
    billion, but I know it is $2 billion. You can write me a
    letter--and you are going to write me a letter that says it is
    $2 billion.
        Secretary Geithner. You have to look at the Hardest Hit
    Fund, the whole package of it.
        Mr. Gutierrez. That is okay. It could be $3 billion, but it
    is still a miserable amount of money.
        Secretary Geithner. It is not $50 billion.
        Mr. Gutierrez. Even if it is $4 billion, it is not very
    much. It is terrible.
        And so we authorized $700 billion. The banks got $350
    billion. We authorized $50 billion so that people could stay in
    their homes. So the banks got quite a bit of money to stabilize
    themselves, and the money that we put forward so that
    homeowners could stay in their homes really wasn't utilized
    that much. Isn't that a fair--
        Secretary Geithner. If you want me to respond to your
    point, I am happy to do it?
        Mr. Gutierrez. But isn't that fair, though?
        Secretary Geithner. First of all, it is true that we have
    spent a very small fraction of the money authorized under the
    housing programs. And that is because the number of people who
    are eligible through those programs are a fraction of those
    that we thought would be eligible. But--
        Mr. Gutierrez. Okay. So, in other words--
        Secretary Geithner. But one more thing.
        Mr. Gutierrez. --Mr. Secretary, you are going to blame, as
    the Republicans do, Freddie Mac and Fannie Mae. And we--
        Secretary Geithner. Nope.
        Mr. Gutierrez. --hear from them all the time how terrible
    they are. And they won't do anything because they are under
    receivership, and there is nothing you can do with the money.
    So--
        Secretary Geithner. No, I am not going to say that. I am
    just saying--
        Mr. Gutierrez. But the fact is--let me ask you a question.
    So, you said to us--first, you said mortgage-servicing
    business, you said that was really big. All right? And you said
    to us earlier, you said, huge increase in poverty and
    inequality. You said that to us, and that we should speak more
    clearly and more boldly, you said.
        So I guess my point is, when the regulations were
    established as to how you could use the HAMP program, were
    there regulations established so that you could reduce the
    principal amount of the loan, which you and your Assistant
    Secretary have agreed would be very helpful in keeping people
    in their homes?
        Secretary Geithner. Yes. As I said in response to your
    colleague's question, we did establish--at the beginning, we
    had authority to do it. And we were providing assistance for it
    with the taxpayers' money, both through the State programs and
    directly, programs that support targeted principal reduction.
    Yes.
        Mr. Gutierrez. So why hasn't more money been used?
        Secretary Geithner. For the reasons I said. Because our
    programs directly only reach--
        Mr. Gutierrez. Okay. Mr. Secretary, forgive me if I fail to
    grasp this. I am not the Secretary of the Treasury. I didn't
    work at the Federal Reserve in New York, and maybe I don't
    understand. But it seems to me that, as I see people out there
    on Wall Street and I see this conversation that we are having
    here, look, I think it is pretty natural to say, hey, there was
    hundreds of billions of dollars in TARP money, there was a
    sense of urgency both by your predecessor, Mr. Paulson, and you
    and others to come here to the Congress of the United States
    and say, let's stabilize our financial system, it is in
    gridlock, it is going to fail, we need to give them the money.
    And, indeed, they got hundreds of billions of dollars to
    stabilize that system. But, basically, the homeowners didn't
    get very much from the HAMP program which was established.
        And I just want to state for the record, I voted for it,
    primarily because I thought, well, at least there will be some
    money so that people can stay in their homes. I think that is
    why people are a little angry.
        And then, Mr. Secretary, to be quite honest, when you come
    and say to us, there are a lot of people in poverty and then
    you say, I don't want to talk about the $5 fee, look, Mr.
    Secretary, people pick up the newspaper and they read stories
    that you talked to JPMorgan Chase and Morgan Stanley and all
    the boys and girls on Wall Street first thing in the morning
    and at the end of the day, but you can't comment when they put
    a $5 charge at Bank of America. They want you to speak, because
    they pick up the phone, Mr. Secretary, all the time to those
    same banks, and those banks won't return their phone calls so
    they can get their mortgage mediated.
        Secretary Geithner. Can I say one thing in response, Mr.
    Chairman?
        Chairman Bachus. Absolutely.
        Secretary Geithner. Congressman, I just wanted to say
    that--and I tried to say this at the beginning, but you didn't
    let me--this Administration, at my recommendation, with the
    President's support, put hundreds of billions of dollars into
    the housing market, not directly through HAMP but through the
    GSEs and through the direct purchase of mortgages, that had a
    dramatic effect in lowering mortgage rates for everybody,
    helping people refinance, stay in their homes--made a huge
    difference in easing the pain.
        But our programs have dramatically underperformed what we
    thought. But why did they do that? It is because there were far
    fewer people eligible for our programs than we estimated
    originally. We have tried to reach as many as we can, and we
    are going to keep doing it for exactly the reasons you said,
    and we should keep doing it. And we are very disappointed and
    frustrated by it, and we have a lot of challenges ahead.
        But we did not--the HAMP authorization of $50 billion does
    not capture the full scale of the resources we put into the
    housing market. We put much more into the housing market, in
    total, than we did for the banking system as a whole.
        Mr. Gutierrez. I just want to say, the next time they have
    a crisis, don't call me.
        Chairman Bachus. Thank you.
        And thank you, Mr. Secretary, for that response.
        At this time, I am going to recognize Mr. Garrett. Then I
    will go to Ms. Velazquez. And then Mr. Neugebauer will have
    voted, and we will go to Mr. Neugebauer. He may be in the Chair
    at that time. And if Members wish to go vote and come back, Mr.
    Meeks, we can keep the questioning going on.
        The Secretary has agreed to be here until 3:45. Originally
    5:00, but he was going to come at 2:00, but we had agreed on 3
    hours, Mr. Secretary.
        Secretary Geithner. No, Mr. Chairman, I am sorry--
        Chairman Bachus. Two hours, that is right, 2 hours.
        So, as long as the questioning goes on, we will have a 2-
    hour stop. If it is interrupted, we will extend to the point it
    is interrupted, but hopefully we won't interrupt it.
        Mr. Garrett?
        Mr. Garrett. I thank the Chair.
        I have to say I am taken aback by some of the comments by
    our witness today. The uncertainty being a canard, with regard
    to a weight on the pressures on the markets today?
        Secretary Geithner. Not my--not my words. I was just--
        Mr. Garrett. No, but I know you were quoting from them
    favorably. But if there is anything more of a pressure on the
    markets than uncertainty, it is the certainty that this
    Administration would take this view and take the view that the
    over 2,300 pages of regulation, the 400 of statute, the 400
    regulations that are coming from it, is not a burden and the
    uncertainty that creates is not a burden on this marketplace.
        Just as an aside, I would very much appreciate if you could
    provide me with even half a list of those community bankers who
    you have talked to who say that they are privileged that they
    don't come under Dodd-Frank. Because I have not met one.
        Secretary Geithner. Again, they supported the law because--
        Mr. Garrett. They have supported the law, but if you are
    saying that they appreciate not being under it, I would like
    the individual names of those bankers.
        And to the ranking member, to say that he has not seen
    anything in the legislation specifically articulated that would
    either raise the intermediation costs or the costs on
    businesses, obviously the ranking member has not been listening
    to any of the testimony we have had before and after Dodd-Frank
    has gone into effect and he is not listening to what the
    markets are saying right now.
        Mr. Frank. Will the gentleman yield?
        Mr. Garrett. No, I will not yield.
        Mr. Frank. Big surprise.
        Mr. Garrett. The other uncertainty in this, of course, Mr.
    Secretary, is in a couple of other areas--GSEs.
        Mr. Secretary, do you remember we had a meeting back in
    April and we said, ``We want to work with you.'' You did a
    White Paper, you had three plans, and we sincerely want to work
    with you. And you asked us to let you have a little bit of
    time, and you will have your staff work on it--give you a few
    weeks, and then you will get back to us.
        That was back in April. This is--May, June, July, August,
    September--October. And now I understand you may have just told
    Senator Vitter on the Senate side, or you may have told someone
    else, that you are now working on coming up with it still.
        In a nutshell, when can we have a response to our April
    request as to what the Administration's exact details are and
    not another White Paper?
        Secretary Geithner. I meant what I said when I said it to
    you in April, which is that we are looking at options and we
    are happy to discuss them with you. But, as you know, we have
    been a little busy. We had a little crisis in Europe. We had a
    little debt limit debate--
        Mr. Garrett. I understand that, but when--that is 6 months,
    so--
        Secretary Geithner. So, soon. I don't know when yet, but
    soon.
        Mr. Garrett. It was a couple of weeks back in April--6
    months. By the end of the year? Because this is important.
    Isn't GSE reform very important, that we should be tackling it?
        Secretary Geithner. It is. It is. And I am glad to hear
    that the debate seems to be moving in a constructive direction
    on your side--
        Mr. Garrett. It is constructive over here in the House. It
    is not constructive from the White House and from yourself.
        Secretary Geithner. But we are not stopping you. If you
    want to come up with ideas, it is fine.
        Mr. Garrett. But we would like to work--the President is on
    TV today saying that we are not working with him. We are all
    about working with him, as long as we have something specific
    from you or the Administration.
        Secretary Geithner. I took you at your word when you said
    you wanted to work with us. And I also said, and I said it
    publicly today again, that I think the burden is on us to
    propose a detailed plan. And I would like to do that.
        Mr. Garrett. And, on that note, I will just say, we are
    still waiting.
        And, also, we sent you a letter that was also a reference
    to FSOC--and this just went to you, so I am not asking for an
    immediate response. But our letter basically asked, with regard
    to all the regulations out there, can't we have a roadmap,
    basically, in place, directed by FSOC, as for a timetable for
    the regulations to come out, and put it in the Register by
    FSOC? Can we--
        Secretary Geithner. I read your letter, and--
        Mr. Garrett. Good.
        Secretary Geithner. --I have to confess to you, I had the
    same basic instinct at several times over this process, because
    it is a very complicated, confusing path of uncertainty on
    timing, and we are trying to resolve it. So we are going to try
    to get as much clarity as possible from the regulators--
    remember, they are independent of us--about what the timeframe
    is going to be.
        Mr. Garrett. But they are independent of--if FSOC put it
    out and put it in the Register as the timeframe that you wanted
    to go by--right?
        Secretary Geithner. As I said, it would be great to have a
    little more clarity out there about actual sequencing, and--
        Mr. Garrett. Two more quick questions. Now, I will switch
    over to other uncertainty, not here but over in Europe. I
    understand that you have urged the Europeans to leverage their
    $400 billion European financial stability facility--their
    facility--to issue euro bonds.
        Secretary Geithner. No, that is not quite right. But go
    ahead.
        Mr. Garrett. No?
        Secretary Geithner. No, not precisely. But go ahead, I will
    let you finish your question.
        Mr. Garrett. Okay. So, basically, if they were to do that,
    these would be euro bonds that would be issued by the EU, which
    would be backed by member states, who basically can't print
    their own money because member states can't do their own money
    anymore. Some would connote that, then, to be some sort, if you
    will, a CDO sort of thing, a sovereign CDO to try to infuse
    capital into those marketplaces.
        My question on that is, if they were to do that, can you
    assure us that this Administration, the Fed, would not be
    looking to buy any of those euro bonds?
        Secretary Geithner. I don't think we would have the
    authority to do it. So I don't think you have anything to worry
    about.
        Mr. Garrett. And so, nothing through the Fed. Okay.
        Secretary Geithner. I don't think so. I can't envision a
    circumstance like that.
        As you know, they are members of the IMF. So they have the
    right, as members of the IMF, to borrow from the IMF if they
    meet the conditions.
        Mr. Garrett. That is my next quick question, in 6 seconds,
    is that the Fed has swap lines where we--
        Secretary Geithner. They do have swap lines, that is right.
        Mr. Garrett. --and these go back to those banks over there,
    and those banks get--and, in return, is they are backed by the
    social security of what? Of the other banks over in those
    countries or the sovereign debt of those countries?
    Effectively, we are put on--by the swap lines, we effectively
    are connected, if you will, through the Fed and through those
    swaps, to the potential for a contagion of the failure over in
    the EU.
        Is that something that is good for us to be in the position
    of?
        Secretary Geithner. Absolutely. And there is no risk to us
    in this country. These are the swap lines extended to the ECB.
        Mr. Garrett. Yes.
        Secretary Geithner. And they are swaps of euros for
    dollars. There is no risk in them. We have used them once at
    enormous scale. And there is no risk to the United States.
        And they are very much in our interest to do because we run
    a dollar-based international financial system. And those
    institutions, when they need dollars, have nowhere to go except
    from us, and we are trying to meet that need.
        Chairman Bachus. All right. Thank--
        Mr. Garrett. But the ECB is backed by--
        Chairman Bachus. Thank you, Mr. Garrett.
        Mr. Garrett. Thank you.
        Chairman Bachus. Ms. Velazquez?
        Ms. Velazquez. Thank you, Mr. Chairman.
        I yield to Mr. Frank.
        Mr. Frank. First, Mr. Garrett, as he often does, won a
    debate with a straw man. ``The Wizard of Oz'' must be his
    favorite movie.
        The fact is that I never said there was nothing in the bill
    that would restrain businesses. I am very proud that we
    restrained the kind of credit default swaps that AIG engaged in
    with no ability to repay. I am very glad we restrained people
    from making the kind of mortgage payments they shouldn't make
    in selling them. So, of course there were things that
    restrained some activity that was not productive.
        What I said we did not do in that bill, and no one has
    pointed to me, was anything that would increase the lending
    standards for banks on conventional loans. Nothing in that bill
    tightens them.
        But, secondly, as the gentleman leaves, I have to say, his
    blaming the Administration because we haven't done anything
    about GSEs--have people forgotten he is the chairman of the
    subcommittee that has jurisdiction over the GSEs? When he
    blames the Administration for the fact that this committee has
    not gone beyond subcommittee on the GSEs, he makes Pontius
    Pilate look like a standup guy.
        The fact is that there has been the greatest inability to
    focus on this. And the notion that they can't do it without the
    Administration has to be the least credible excuse I have ever
    heard. It is not that the dog ate my homework, it is that the
    unicorn ate my homework. Because what we have here are people
    who have been very critical of the Administration, who have
    never asked the Administration's permission to do anything, but
    when it comes to the GSEs, because there is this great gap
    between their ideology and reality, all of a sudden the poor
    dears can't do anything without the Administration's telling
    them to.
        I thank the gentlewoman for yielding.
        Ms. Velazquez. Mr. Secretary, last month, the Treasury made
    its final round of investment in the Small Business Lending
    Fund, bringing the program's total to just $4 billion, just 13
    percent of the $30 billion that was set aside. And only 332
    banks across the country were able to access the funds.
        Mr. Secretary, I truly personally believe that the Small
    Business Lending Fund's error was that it wasted today's
    resources on yesterday's problems. It was in 2008-2009 when
    small businesses were not able to secure access to capital, but
    we didn't do anything. Then it wasn't until 2010, a year after
    we passed the legislation, that the program was up and running.
        So, at the height of the financial crisis, small businesses
    struggled to find credit, but today they struggle more with
    depressed sales. So you put a solution to a problem that didn't
    exist, because basically you bring a solution to the banks.
    With interest rates effectively at zero and deposits at all-
    time highs, banks have ample capacity to lend.
        So, still, now, small businesses are struggling. And when
    people try to explain why is it that in the 1990s, we created
    3.6 million jobs, small businesses did it, why is it that we
    are not doing that today?
        Secretary Geithner. I agree with much of what you said, but
    I want to just change one thing. This President and this
    Congress did a dramatic, with your leadership, huge number of
    things in the early stages of the crisis for small businesses
    through the SBA and even through the TARP program at the
    beginning and, in addition, did very substantial tax cuts for
    small business at that early stage in the crisis.
        Ms. Velazquez. Ye, but I am talking about this bill.
        Secretary Geithner. And this bill, although it took a long
    time to design it by Congress, time to implement it, it was
    also very well targeted to help make sure that there are no
    more credit constraints across the country.
        But you were right to say that the biggest problem facing
    small businesses across the country is weak growth and weak
    growth in sales. The best thing we can do about that, in
    addition to making sure they can get credit, is to make sure
    that we make the economy stronger. And that is why this mix of
    tax cuts and infrastructure spending that the President has
    proposed is so important.
        If Congress were to enact those things, there would be more
    demand for products small businesses create and services they
    produce across the country. But you need the credit, too,
    because, as you know--this is your life's work--they need the
    oxygen in this context.
        And the reason why you saw relatively limited participation
    in this program was, in part, because, as you said, some banks
    have plenty of capital, and we only had applications for about
    one-third of the authorized assistance, but only half of those
    banks met the standards in the law, and it is less than we
    thought. We were a little surprised by the takeup.
        But you are right to point out that the most important
    thing we should do is to make sure we get growth stronger so
    demand is greater, and more demand for the products and
    services small businesses create.
        Chairman Bachus. Thank you, Mr. Secretary.
        Mr. Dold from Illinois is recognized for 5 minutes.
        Mr. Dold. Thank you, Mr. Secretary, for taking the time to
    be with us. And I certainly know, I guess, one of the
    advantages of waiting while there are votes is that we get to
    ask questions.
        So I am concerned and wanted to talk to you about the China
    currency bill that currently just got passed, actually, by the
    United States Senate. As somebody who represents a district
    that exports over a billion dollars over to China, I am
    obviously concerned about what kind of ramifications this has.
        Currently, we have had little word from the Administration
    about what their plans are. A lot of other bills, we hear that
    the President is going to put his veto threat out there. If
    this were to pass through, would your recommendation be to the
    White House to veto the bill or to sign it?
        Secretary Geithner. As the White House said yesterday--and
    I will just repeat their language just to be careful--if this
    bill were to advance, then Congress would, or should, address
    the concerns that have been raised about the consistency of
    some provisions with our international commitments.
        But let me just say, we--
        Mr. Dold. Specifically with the world trade obligations; is
    that correct?
        Secretary Geithner. Yes.
        We have a problem, though, which is that I think we all
    need China to let their currency rise more rapidly, and we need
    to find a bit more effective way to address a whole range of
    practices the Chinese continue to do to subsidize and
    disadvantage U.S. companies--stealing offshore property,
    forcing transfer technology. And we are very concerned about
    that, working very hard to address them. And we have not made
    enough progress. We want to build on that progress.
        Mr. Dold. If the bill were to go--sometimes you have the
    opportunity to say, ``We want you to address those things,''
    and sometimes they do and sometimes Congress doesn't--in its
    current form right now from the United States Senate to the
    President's desk, your recommendation would be what?
        Secretary Geithner. As I said, if this bill were to
    advance, we would want Congress to address the concerns that
    exist about the design of those provisions that would violate
    our international commitments. That is what I would say. I
    won't go beyond that, for reasons you can appreciate.
        Mr. Dold. All right.
        If I can, I will just jump to something else. Overseas
    regulators have made it clear that they will potentially not
    follow the lead of the United States on a number of provisions
    that are a prominent feature of our regulatory reform,
    including the Volcker Rule and swaps push-out, more
    specifically with Section 716.
        Shouldn't this make you skeptical that they will not
    harmonize their rules with those of the United States on other
    important provisions, as well?
        Secretary Geithner. I am a little worried about that. But,
    we never could expect that the world would match us identically
    for specific provisions we thought were in our interest of
    protecting our system.
        But I think we have a very good chance, as I said earlier,
    on the fundamental things that determine the economics of
    finance here and around the world--in capital liquidity
    derivatives, margin, etc.;--we are going to work very hard to
    make sure we come to a common position so we don't see that
    material shift in activity outside of the United States to the
    disadvantage of U.S. firms.
        Mr. Dold. I had some other questions with regard to the
    FSOC specifically and derivatives, but Congressman Royce went
    over those, so I will just jump on to something else.
        The SIFI designation, which you are in the process right
    now of trying to take a look at those, about how many U.S.
    companies do you think would fall under that SIFI designation?
        Secretary Geithner. Can't tell yet.
        Mr. Dold. Rough estimate?
        Secretary Geithner. Don't know yet.
        But I will tell you what we are trying to do. We are trying
    to define the mix of size and risk that we think requires us to
    take a closer look about whether those institutions should be
    subject to the type of constraints we put on banks in terms of
    capital and leverage. That is the motivation for this. It is a
    very important thing to do because in our crisis, we had a huge
    buildup of risks outside the system, alongside banks, doing
    basically what banks are doing--
        Mr. Dold. Sure.
        Secretary Geithner. --and that was devastating. And so we
    are trying to make sure the scope of that authority will extend
    to institutions that fell outside of those safeguards but need
    to be under them.
        Mr. Dold. If I could just go out--and we don't like to deal
    in hypotheticals, but if we can, I know there are specific
    companies out there that have actually filed Chapter 11, that
    have gone through a bankruptcy reorganization. Wouldn't that,
    by sheer definition, make them outside of a SIFI designation?
        Secretary Geithner. We have had centuries, decades of
    experience with banking and financial crisis, and--
        Mr. Dold. And I certainly don't mean to say that you don't.
        Secretary Geithner. No, no, I know--``we''--as a country,
    unfortunately.
        And what we learned as a country in that context is that
    banks, or institutions that are like banks--they take on
    leverage, they borrow short, lend long, assets are liquid,
    vulnerable to runs--those institutions require a modified
    bankruptcy regime to deal with them because of the risk that
    you suck the oxygen out of them and they come crashing down.
        And, the way bankruptcy works, normally under the corporate
    context, you need somebody to be able to lend in the financing
    role, and you need to adapt that model, as we did after the S&L
    crisis in particular, to give a special way--and Dodd-Frank
    did--to make sure you can adapt that same basic principle to
    institutions that are structured with that mix of leverage and
    liquidity risk.
        Mr. Dold. I appreciate that my time is now up, but I do
    want to just mention that I was up and met with a company that
    actually has gone through the bankruptcy process, did not suck
    that oxygen out of the air, and yet they are considered under
    that SIFI designation, as of right now. And I would simply
    argue--
        Secretary Geithner. Nobody is under it yet.
        Mr. Dold. They fear--
        Secretary Geithner. They fear.
        Mr. Dold. --they fear, and I think rightfully so, that they
    will be put under these constraints. And I would just certainly
    like to caution you and those who are making these decisions
    that, if there is an organized way already existing in the laws
    that they would not fall under that SIFI designation, we want
    to make sure that we are not casting as wide a net and more of
    a narrowly tailored net if possible.
        Secretary Geithner. Fair point. We are going to try to get
    that balance right. And I think if the Council adopts this
    guidance, people will have a lot more clarity about the
    criteria we are going to propose and another chance to comment
    on that criteria.
        Mr. Dold. Mr. Secretary, thank you for your time.
        Mr. Neugebauer. [presiding]. I thank the gentleman.
        The gentleman from Georgia, Mr. Scott.
        Mr. Scott. Thank you very much.
        And welcome, Secretary Geithner.
        Certainly, as you recall when you were last down in
    Atlanta, we had an opportunity to visit and have a chat. Let me
    just say at the outset, I would like for you to pass on a
    couple of words of commendation to members of your staff: Mr.
    Tim Massad, who is, I think, your Assistant Secretary of the
    Treasury for Stability; and Ms. Alvina McHale, who worked--as
    you know, we have decided to go in and approach this whole home
    foreclosure situation as a ground war. We put together home
    foreclosure prevention workshops.
        And I just want to commend your staff and those folks. And
    please pass the word along to Ms. McHale and Tim Massad, Carol
    Lambert and Andrea Risotto and Troy Clair, who works with
    Massad--all. We couldn't have done it without them. We were
    able to get over 6,000 folks there, and we were able to help
    save 2,565 homes. And we are planning for the next one, and our
    goal is 10,000 homes that we can save.
        But I want to talk about this, because in getting there and
    working on this, I learned a lot, as I mentioned to you, and
    that we can correct some things. We are losing homes that we
    shouldn't.
        One of the areas that we found--one of the reasons we were
    successful was because Bank of America, for example, brought
    their underwriters with them. That means they could go ahead
    right there on-site when we had the person there and write down
    that loan and be able to do modifying.
        If we could work and incorporate that with all of the other
    banks and all of the others that would come to such events--
    because I am not the only one that Treasury works with. You do
    this. This is something that you are to be commended for.
    Because I think that this is the way we are really going to win
    this war in helping people stay in their homes, is to get right
    down there on the ground with them and get the banks, get them
    face-to-face, with our encouragement, to make sure this
    happens.
        But, in your comments, you mentioned that what you needed
    was greater authority and enforcement with mortgage servicing.
    And let me just ask you to respond to that. Would that mean how
    we could work to make the HAMP program more successful? Because
    what I found out with HAMP was, the reason why that is not
    working as it should--and as Mr. Gutierrez was pointing out,
    only $2 billion--is because it is basically voluntary; the
    banks are not there.
        So could you comment about that? That might be helpful to
    us.
        Secretary Geithner. Let me just start by thanking you for
    commending the people who are working so hard on this. And I
    agree, you need to do it homeowner by homeowner, because it is
    such a tough thing to do. And I appreciate your suggestion for
    how to make it work better.
        This requires a longer conversation, but we have all been
    living with the limitations of what HAMP can do. And there are,
    really, three types of limitations we discovered. One is, as I
    said, the number of people we thought would be eligible for the
    assistance is a fraction of what we thought--the number
    actually is a fraction of what we thought--meaning there are
    far more people than we thought where the home is an investor-
    owned home, it is a second home, it is a jumbo mortgage, where
    the people can really meet their payment, or they really just
    have too much debt. That is one factor.
        The second is, in our programs we don't have the power to
    compel Fannie and Freddie to come alongside us. They have been
    willing to come on some things, but we can't force them on the
    rest. That is one limitation. The fact that it is voluntary I
    am not sure is a fundamental constraint, but it is another
    constraint there.
        We are still looking for ways to expand the reach of these
    programs, and we are going to keep at it. And the fact that we
    still have resources available gives us an opportunity, but we
    have some constraints on how much we can spend those. And we
    have proposed, as part of the Jobs Act, asking Congress to
    appropriate substantial additional sums of money to the
    Department of Housing so they can get more resources into
    communities where you have had such terribly concentrated
    foreclosures. And we think that would be helpful, too.
        We expect to move forward in the next couple of weeks with
    FHFA to make it much easier for Americans to refinance even if
    they are somewhat underwater. That will be helpful.
        We are trying to get the huge amount of vacant property
    that is still on the market into the hands of people who can
    rent. That will be helpful, too.
        We have a lot of work to do, and we are going to still use
    all the authority we have to try to reach as many people as
    possible. And I am happy to get suggestions from you on how
    best we can do that on the ground.
        Mr. Scott. Yes. And getting more authority, what
    specifically, what would you say you absolutely need in terms
    of that authority for the--
        Secretary Geithner. To help with the neighborhoods that are
    facing just--there are just thousands of concentrated vacant
    property across these neighborhoods. You need resources. And
    that is why the Jobs Act has this proposal to give the
    Neighborhood Stabilization Fund substantially more resources.
        To substantially broaden the authority we have over the
    program, you would have to give us authority over Fannie and
    Freddie.
        Mr. Scott. Right. Now, one of the things that might be in
    there that we found out in these prevention workshops that we
    were able to be successful with was, in having FHA there and
    having Fannie and Freddie there, we are able to get the banks
    who would be able to work closer with the HAMP program to
    interact and go right to the table where the FHA is because we
    had them there. And that might be an area where we can improve
    upon, so--
        Secretary Geithner. That makes sense. I agree with that.
    That makes sense.
        And, again, I just want to point out that, although we have
    only had a little over 800,000 people with permanent
    modifications under HAMP, if you look at the broad range of
    modifications, it is closer to 4 million across the financial
    marketplace.
        Mr. Scott. Right.
        Secretary Geithner. And that is a lot of people. And that
    is a big reduction in the monthly payment. And that is 4
    million foreclosures avoided.
        We have a lot more risk we need to try to work to avoid.
    And, we are going to do everything we can to do that.
        Mr. Scott. Thank you so much. And I appreciate your letting
    Ms. Alvina McHale and Mr. Tim Massad know how much we
    appreciate the job that they are doing. Great job.
        Secretary Geithner. Thank you again.
        Mr. Neugebauer. I thank the gentleman.
        Mr. Secretary, welcome. It is good to have you back.
        Secretary Geithner. Nice to see you.
        Mr. Neugebauer. Back in April, Secretary Goldstein
    testified before our Oversight Subcommittee. And one of the
    things he said is that, as the Chair of FSOC, you would make it
    a top priority to make sure that the regulation process was
    well coordinated. And, in fact, I think you said this morning
    that failure to coordinate rulemaking will be enormously
    expensive to the economy and create opportunities for
    regulatory arbitrage.
        So, as the overseer of that process, what are you doing to
    go above and beyond to get these agencies to coordinate?
        Secretary Geithner. Under the law that the Congress passed,
    I was given the responsibility to try to coordinate but not the
    authority to enforce it. So I am doing what you would expect me
    to do, which is try to get them together, encourage them to use
    the discretion they have to be more closely aligned, and make
    sure it is being sequenced in a sensible way and make sure they
    are looking at the full scope of the things we are imposing on
    the system.
        Of course, the things we are imposing on the system have
    costs. And we are trying to make sure that it is done in a way
    that everybody knows what everybody else is doing. And, as you
    can see, it is a challenge.
        But you did not give me the authority to compel them to
    work closely together, and they exist with independent
    statutes, independent mandates, and they are going to be
    protective of that. But where they have the flexibility under
    the law to be more aligned, they are moving closer to being
    aligned.
        Mr. Neugebauer. Because I think an example of that, and it
    was brought up a while ago, about the CFTC and the SEC,
    particularly on derivatives--in other words, business conduct
    standards and margin and capital requirements and clearing--
    there is obviously not coordination or mutual agreement on
    those. And obviously, those are very important issues to the
    economy.
        And I think you make a good point, that you were not given
    the authority to compel these agencies. So is this a flawed
    process? Because, as you say, this is maybe the most important
    thing that can happen here, important to the economy. And if
    the process isn't going to work and we are not going to have
    harmonization between this rulemaking, then what direction
    should we be going?
        Secretary Geithner. It is a dramatic improvement in the
    system we had before the law was passed--dramatic improvement.
    They are working very closely together.
        They recognize, if you had them here with me, the people
    who run the CFTC, the SEC, and the Fed, they would commit to
    the same basic objective, because they recognize it is
    important. They have a very elaborate, closely coordinated
    process to try to make sure that they are doing this in a
    sensible sequence.
        And, you are going to want to see, like we are, where they
    land the stuff, how closely they get to that stated commitment.
    But they are committed to it, and I think they are doing a
    reasonable job. It is a little messy to look at, I agree with
    that. We just have to keep emphasizing the importance of it.
        Mr. Neugebauer. If it is not working or if it is--what is
    the alternative here? Should we elevate this to another level?
    I hate to bring another bureaucracy in there, but if the--do we
    need a referee here? A working group?
        Secretary Geithner. I don't think you are going to pass a
    law. You don't need another committee, that is for sure. You
    have enough committees. You are not going to pass a law, I
    don't think, that gives me authority to tell them what to do.
    And I wouldn't seek that authority.
        So what we are doing is the best we can with the authority
    we have. And I think it is working; it is just not--we can't be
    certain yet it is going to work well enough. But I take a more
    optimistic view.
        Mr. Neugebauer. I think one of the things you said earlier,
    too, is you are worried about the cumulative burden of the
    regulations. I am worried about the cumulative effect of all
    these regulations. Just the first 102 regulations that came out
    of Dodd-Frank, for example, according to the regulators
    themselves, will take 10.8 million hours of compliance.
        And we did a press conference not too long ago, and you may
    or may not know this, but you have a little--you did a little
    stint in New York. They built the Empire State Building in 7
    million manhours. And so, this is just the first 102 rules.
        How are we not just suffocating the financial markets? And
    we have just begun.
        Secretary Geithner. I think you are too worried about the
    cumulative impact of these financial reforms on the basic
    business of finance in the United States.
        Now, we are not going to get it perfect, but we saw what
    happens when you get it wrong, when they are too weak, they are
    poorly designed, there are huge gaps, we leave a huge amount of
    stuff to operate in the shadows. We have a chance to fix that
    now.
        As I said--and I say this over and over again in public--as
    we fix it, we want to make sure we don't overdo it. And where
    we have to get tougher standards in place, like on capital over
    time, we are going to make sure they are phased in over time so
    we are not going to hurt the recovery.
        And I do not believe--I do not believe there is credible
    evidence to support the conclusion that the rules, as they are
    now being designed, are doing material damage to the basic
    objectives we seek, which is to create a more stable system.
    Now, they have consequences. They will raise costs of business
    for financial institutions. That is their objective, in some
    ways, or that is the necessary outcome of that stuff. But we
    have to get the balance right, and we are being careful to do
    it.
        Mr. Neugebauer. I think that is the reason that
    coordination is extremely important, because not only are we
    seeing a lot of those regulations coming out by multiple
    agencies, but when we talk to people in the regulated
    community, they tell you that more coordination is needed.
        And so I would encourage you, Mr. Secretary, even though
    you may not be able to compel, but that you spend a tremendous
    amount of energy to make sure that process is moving along,
    because I think it is extremely important to the economy.
        Secretary Geithner. Thank you for emphasizing the
    importance of that. And I share your view about the importance,
    and I am spending more time than you can imagine.
        Mr. Neugebauer. Thank you.
        Mr. Schweikert?
        Mr. Schweikert. I wasn't sure someone else wasn't in the
    queue to go ahead of me. Thank you, Mr. Chairman.
        Mr. Secretary, I assume a day like this becomes a long day
    for you. You were in the Senate this morning?
        Secretary Geithner. Not so bad. Sort of a good debate to
    have. Fun to be with you again.
        Mr. Schweikert. Hopefully, it is not necessarily a debate;
    it is an opportunity for us to learn. And hopefully, you are
    well caffeinated.
        I want to go off on a side issue. I have been trying to
    learn more about Basel III and what it affects and how it
    affects our capital requirements. First question: I see in some
    articles a discussion of what will be counted as Tier 1, Tier
    2, Tier 3 types of capitals. Am I under the impression in Basel
    III that bonds from Fannie and Freddie would be Tier 2?
        Secretary Geithner. I don't think I can answer that, but I
    would be happy to get back to you in writing.
        The fundamental thing we did in Basel III is to basically
    say, for the core minimum capital requirement, we are going to
    require you to meet it with common equity, not with a bunch of
    other stuff. That is for the Tier 1 capital requirement. But we
    do still--regulators do still allow you to use other forms of
    capital to meet the additional--
        Mr. Schweikert. Within that Tier 1?
        Secretary Geithner. No. In Tier 1, we are essentially
    limiting it to common, for all practical purposes.
        Mr. Schweikert. Okay.
        Secretary Geithner. But I would be happy to respond to you
    in writing on the details.
        Mr. Schweikert. Look, this is why I am trying to educate
    myself, because my understanding is, sort of like in FSOC, some
    of the additional premium out there is a couple hundred billion
    dollars of additional, even beyond what would have been a Basel
    III requirement?
        Secretary Geithner. I have read those reports and the
    letters and concerns about that, and I do not believe that
    those estimates are accurate. But I have to talk to the Fed
    about it.
        But you are correct to say, in addition to the Basel III
    threshold, we have proposed--and the law asks us to do this,
    and I fully support this--that the largest institutions in the
    world should hold an additional buffer of capital. And the Fed
    is in the process of negotiating those details with our
    counterparts around the world.
        Mr. Schweikert. And I appreciate that. I am still trying to
    hunt for, sort of, the math that tells me what creates a level
    of safety, where at the same time holds so much capital out of
    the markets that we actually inhibit economic expansion and
    growth. And my fear is, are we heading toward a layering where,
    well intended, but we may be starting to pull too much of that
    capital away?
        Secretary Geithner. I don't think so. And I will cite--you
    are right to say there is--first of all, there is no science to
    that basic choice.
        Mr. Schweikert. Yes, but there is always someone willing to
    make up a formula.
        Secretary Geithner. There is. And, you can go too far. I
    agree with that.
        But all we know is that they were way too low and they
    weren't applied far enough across the system. And we are trying
    to get them more conservative so there is much lower
    probability of failure, of default, of financial crisis in the
    future, without going too far.
        If we go too far, what is the consequence of going too far?
    You are right, you say you put additional burden on the
    economy. But you also have the effect of just shifting the risk
    outside the banking system in ways that don't necessarily make
    us better off. So we are trying to get the balance right for
    those reasons.
        My basic sense is that, first of all, U.S. firms, on
    average, are very far along to meeting those requirements
    already and that it seems, on the basis of the available
    evidence and what analysts have said independently, that since
    the remaining requirements will be phased in over a long period
    of time that they will be able to earn their way into those
    higher requirements. And because of that, we think we can
    manage this in a way where we will have limited effect on the
    recovery that is still sort of fragile.
        Mr. Schweikert. Two other quick things, because I only have
    about a minute and 20 seconds.
        In my running back and forth to vote, I was hearing some of
    your comments and discussions about mortgages and foreclosures
    and those. I happen to be one of those people who believe we
    don't drive health back to our residential real estate market
    until we actually get the glut of nonperforming paper but also
    of vacant homes. What is it? The estimate is 13 percent of
    residential units in the country are functionally vacant. In
    some places like I represent in Arizona, Maricopa County, it
    could be 16 percent of our residential units.
        A lot of well-meaning mortgage-foreclosure moratoriums and
    abatements and those things, in many ways, have actually made
    the problem worse and last longer. I know that doesn't feel as
    warm and fuzzy, but, ultimately, if we are going to bring back
    our home values--I was somewhat happy to hear the
    understanding, saying, look, we have to grind through this,
    what isn't performing we have to move into some status of
    performing. Am I hearing you correctly?
        Secretary Geithner. I think much of what you said is right,
    that we won't do the system any good if we leave those broader
    foreclosure systems as broken and frozen as they are. And, in
    many ways, the best thing you can do for those communities is
    to get those vacant properties into better hands, into rental
    or other uses. That would help as a whole.
        But there is still a very strong argument, economic
    argument, financial fairness argument, that you want to make
    sure that people who have income and can afford to stay in
    their homes if they are given a chance are able to do that. And
    we are trying to help that. And I think, in helping that, I
    don't think we are getting in the way of the necessary
    adjustment for this to happen in the marketplace.
        Mr. Schweikert. I know I am a little bit over time, but you
    have hit on something that concerns me. And, actually, this is
    one I actually give Fannie and Freddie some credit for. Some of
    their servicing best practices they have put out in the last
    couple of months actually seem to do that mechanic. If we can
    get you there, if we can keep you in the home and work those
    out, we are going to get you there. If we can't, then we cannot
    let this slow decay of foreclosure linger.
        Secretary Geithner. Right.
        Mr. Schweikert. And it is sort of--you have to hit a
    decision point and actually make that tough decision, but you
    have to make it.
        Secretary Geithner. What we try to do is to say that some
    people need to be given some help through a short sale or a
    deed in lieu of sale to transition in some ways. And so, we
    have had a mix of approaches across the system. But, as you
    know, the servicing framework is still fundamentally broken,
    and the securitization system makes it much harder for that to
    happen on the scale you need to.
        Mr. Schweikert. And, Secretary, actually, I would love if
    you also have a staffer--you hit on one thing. I am a fan and
    we have been trying to write now for a couple of months the
    concept of deed in lieu to a lease-backed, maybe even a
    downpayment IRA, so in the future you could actually buy the
    property back--some of those mechanics. And, actually, believe
    it or not, we keep running into, sort of, regulatory hurdles
    within those concepts, because you are having to do three or
    four very different things all at once. If you have someone who
    intellectually has been working on that, I would love to spend
    some time--
        Secretary Geithner. I would be happy to do that.
        Mr. Schweikert. Mr. Chairman, thank you for your tolerance.
        Chairman Bachus. Thank you.
        Mr. Secretary, we appreciate your testimony today.
        I want to end on a positive note. You made a speech in June
    of this year, when you said there is a very strong case for
    requiring the largest firms to hold more capital relative to
    risk than smaller institutions. And I agree with that.
        But you also asked that day how much, which is, I think, a
    very important question. You said, ``In making this judgment,
    the central banks and supervisors need a balance between
    setting capital requirements high enough to provide strong
    cushions against loss but not so high to drive the re-emergence
    of a risky shadow banking system.''
        And my question is, with, say, Basel III capital rules
    combined with all the rules imposed by Dodd-Frank, whether they
    are good or bad or neutral, will there be at least a tendency,
    a shift from the banking system or the banking sector to a less
    regulated, what we call a shadow banking system?
        Secretary Geithner. We always have to be worried about that
    risk, but I don't believe that is likely, on the strength of
    the rules we see coming into place today. But we are going to
    be very attentive to that, for the reasons you said.
        Chairman Bachus. All right. Great. I appreciate that.
        A significant move away from financial activity and highly
    regulated financial institutions into less-regulated sectors,
    how would that affect financial stability, or how could it?
        Secretary Geithner. It could be very damaging. As we saw,
    what some people call the shadow financial system or the
    parallel financial system, these are entities that were
    effectively doing what banks do but they operate outside of the
    prudential constraints on capital. They grew to be larger than
    the traditional banking system.
        And when that happens, you leave the economy at risk and
    the banking system at risk, because when the storm came and
    funding ran from those institutions, they collapsed, had to
    sell assets, put a huge amount of pressure on the economy. So
    if you get that balance wrong, you can do enormous damage.
        Chairman Bachus. Thank you.
        Mr. Secretary, there have been 3,700 new regulations in the
    last year that have been enacted by the Congress and signed by
    the President. But there are actually--actually, by
    regulations, the regulators, in response to laws. But there are
    almost 4,300 regulations still in the pipeline, many of those
    in financial services. And, as you know, we have been asking
    for cost-benefit analysis. And 219, our best estimate, of those
    have an economic impact of over $100 million or more.
        And I would just close this hearing by asking--I think
    maybe the most important policy that you could adopt, the
    regulators and this Congress, is to promote, not restrain,
    policies which create capital, investment, jobs, what we
    sometimes refer to as wealth growth. The American people are
    actually 8 times richer than they were in 1820. And while there
    are actually countries that are--their populations are no
    richer.
        So I would simply urge you to look--and we have sent you a
    letter on--because the President did say he was going to look
    at all the different regulations and rules and see if those are
    restraining economic growth. And we would ask you to do that
    and make that a priority. We want to encourage and promote
    growth and wealth creation because that creates jobs.
        I thank you for your attendance. I thank you for working
    with us to start this hearing early. And I think we worked with
    you so you would be free to go to the White House at 4 o'clock.
    So, with that, I will discharge you.
        The Chair notes that some Members may have additional
    questions for you, and they will submit those in writing.
    Without objection, the hearing record will remain open for 30
    days for Members to submit written questions to you and to
    place your responses in the record.
        And you could also, your written statement if you wish to
    clarify that in any way, or your responses, you are welcome to
    do that.
        This hearing is adjourned.
        I thank you for your attendance, Mr. Secretary.
        Secretary Geithner. Thank you, Mr. Chairman.
        [Whereupon, at 2:35 p.m., the hearing was adjourned.]

                                A P P E N D I X

                                October 6, 2011