[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.]





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                            October 6, 2011






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