[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

                             SECOND SESSION

                               __________

                             JULY 25, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-151




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

           James H. Clinger, Staff Director and Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 25, 2012................................................     1
Appendix:
    July 25, 2012................................................    53

                               WITNESSES
                        Wednesday, July 25, 2012

Geithner, Hon. Timothy F., Secretary, U.S. Department of the 
  Treasury.......................................................     8

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    54
    Paul, Hon. Ron...............................................    56
    Geithner, Hon. Timothy F.....................................    58

              Additional Material Submitted for the Record

Hayworth, Hon. Nan:
    Letter to Secretary Geithner from various Members of 
      Congress, dated June 15, 2012..............................    64
Geithner, Hon. Timothy F.:
    Financial Stability Oversight Council (FSOC) 2012 Annual 
      Report.....................................................    66
    Written responses to questions for the record submitted by 
      Representatives Paul, Perlmutter, Posey, Royce, and 
      Schweikert.................................................   281


                   THE ANNUAL REPORT OF THE FINANCIAL


                      STABILITY OVERSIGHT COUNCIL

                              ----------                              


                        Wednesday, July 25, 2012

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:33 a.m., in 
room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the committee] presiding.
    Members present: Representatives Bachus, Hensarling, Royce, 
Paul, Manzullo, Jones, Biggert, Miller of California, Capito, 
Garrett, Neugebauer, McHenry, Campbell, Pearce, Posey, 
Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, 
Hayworth, Renacci, Hurt, Dold, Schweikert, Grimm, Canseco; 
Frank, Waters, Maloney, Gutierrez, Velazquez, Watt, Sherman, 
Meeks, Capuano, Clay, McCarthy of New York, Baca, Lynch, Miller 
of North Carolina, Scott, Green, Cleaver, Moore, Donnelly, 
Himes, and Carney.
    Chairman Bachus. The hearing will come to order.
    The committee is honored to welcome Secretary Geithner to 
deliver the annual report of the Financial Stability Oversight 
Council (FSOC).
    As previously noticed, under Committee Rule 3(f)(2), time 
for opening statements is limited to 8 minutes for each side of 
the aisle. Without objection, all Members' written statements 
will be made a part of the record.
    The Chair now recognizes Mr. Fitzpatrick for 1 minute for 
an opening statement.
    Mr. Fitzpatrick. Thank you, Mr. Chairman.
    And thank you, Secretary Geithner, for taking the time to 
be with us this morning.
    We are all interested in avoiding the next financial 
crisis, and I think we can all agree that the best place to 
start is by doing no harm.
    This committee spent a lot of time examining the effect of 
Dodd-Frank on the ability of small banks on Main Street to 
comply and compete in light of the new and additional burdens 
that have been placed on them. And it is the opinion of many 
that the law favors big banks and hurts small banks, which, in 
turn, hurts small business, which is the group to whom we are 
looking for job creation in the future.
    But the more immediate issue remains lack of growth in the 
economy. High and increasing marginal tax rates reduce economic 
growth by creating strong disincentives to hard work, savings, 
investment, and entrepreneurship. Just last week, Ernst & Young 
reported that increasing taxes would do more harm to our 
economy. I hope that the FSOC will begin to address the pro-
economic-growth policies that Americans are waiting for: lower 
budget deficits; smarter regulatory policy; and Tax Code 
simplification that lowers rates and expands the base.
    And we all look forward to your testimony.
    Thank you, sir.
    Chairman Bachus. Thank you.
    The Chair now recognizes Mr. Duffy for 1 minute.
    Mr. Duffy. Thank you, Mr. Chairman, for yielding.
    Secretary Geithner, I know we are here today to talk about 
the stability of the Nation's financial system. As I travel 
around the northwest corridor of Wisconsin, I can tell you that 
my constituents feel that the financial system is far from 
stable. They are concerned about the economy.
    And as we go through the hearing today, I guess I would 
like to hear your commentary on the LIBOR scandal, the euro 
crisis, the American debt crisis, the American jobs crisis, the 
American economic growth crisis, and the codification of ``too-
big-to-fail'' in the Dodd-Frank Act. I also want to hear your 
views on why you think this has been the longest and lamest 
recovery since World War II and what we can do to turn the ship 
around.
    I yield back.
    Chairman Bachus. Thank you.
    Ms. Hayworth for 1 minute.
    Dr. Hayworth. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for appearing before us 
again.
    Your work and your comments about the FSOC are so 
important. And I share the concern that Mr. Fitzpatrick has 
raised and Mr. Duffy has raised regarding having a robust 
economy in the face of the new regulations that are being 
promulgated as a result of Dodd-Frank.
    I know that the Office of Financial Research and FSOC are 
working together to formulate the designation of nonbank 
financial companies as systemically important. And I have a 
letter I would ask unanimous consent to be introduced into the 
record regarding some concerns in terms of the coordination 
between FSOC and the OFR and, of course, the entities 
themselves so that we do not create a disruptive or, if you 
will, enterprise-compromising situation through promulgation of 
rules that may not be practically applied in the real world 
where we face global competition and the rest.
    And, indeed, sir, you have advocated for global 
cooperation, in terms of extraterritoriality, which I think is 
a very important stand and one that I hope you will share with 
the Commodity Futures Trading Commission (CFTC) as they 
contemplate those rules. But I do look forward very much to 
your testimony regarding how we go forward in a way that will 
be least disruptive and, in fact, will enhance the economy.
    Chairman Bachus. Thank you.
    Mrs. Maloney for 3 minutes.
    Mrs. Maloney. First of all, I would like to welcome 
Secretary Geithner and thank you for your extraordinary public 
service. This may be the last time that you testify before the 
Financial Services Committee, and I really want to make sure 
that my appreciation--and certainly the appreciation of many 
Americans--is expressed to you and my gratitude for steering us 
through the worst financial crisis in our lifetime, certainly 
in my lifetime.
    I would like to hear today about what it cost this country 
last summer when we went up against the debt ceiling and the 
crisis that ensued because Congress could not make a decision, 
the hundreds of millions, billions of dollars, what it meant to 
American families. And I would like to know, what would happen, 
financially, if we come up to that cliff again this summer? 
What is it going to mean for American families? And how much 
did it cost America during that crisis?
    I also want to note the statement made earlier today by 
Sanford Weill, the former Citigroup chairman and CEO, on 
``Squawk Box'' on CNBC: ``What we probably should do is go and 
split up investment banking from banking, have banks be deposit 
takers, have banks make commercial loans and real estate loans, 
have banks do something that is not going to risk the taxpayer 
dollars, that is not too big to fail.''
    I feel that is a very strong statement, stronger than the 
Volcker Rule, calling for the strictest Volcker Rule possible, 
a return really to Glass-Steagall. And certainly the goal of 
this committee and the Treasury Department is not to have this 
type of crisis again. What is your reaction to that? I feel 
that this statement is something we should certainly act on.
    On LIBOR, I would like to hear your statement about what 
you could do or what you could not do. England is a separate, 
sovereign country. To what extent can our country impose 
requirements on a foreign country?
    And I would like to hear about the car industry. How was it 
that the Treasury Department, with others, was able to save 1.4 
million jobs and turn an industry that was failing into an 
industry that is now employing, expanding, and exporting? That 
is a terrific story of success. Thank you for your role and 
your leadership in achieving that for American workers and in 
many other ways.
    My time has expired. Thank you.
    Chairman Bachus. Thank you.
    Mr. Renacci for 1 minute.
    Mr. Renacci. Thank you, Mr. Chairman.
    Good morning, Mr. Secretary. Thank you for being here 
today, and thank you for your service.
    In your testimony today, I look forward to hearing exactly 
what the FSOC has done to make our financial system stronger 
and more secure.
    One of the most obvious lessons of the financial crisis was 
that the system had become too complex for banks and their 
regulators to effectively manage. We had become overly reliant 
on a web of bloated government agencies that were incapable of 
covering all the cracks in our system. However, instead of 
simplifying the system and reducing the amount of 
jurisdictional bickering between regulators, we decided to 
double-down on a failed system. Instead of consolidating the 
number of regulators and providing clear responsibilities, we 
rewarded the failure of certain agencies and then added three 
more bureaucracies for good measure.
    Today, I hope to hear from you what FSOC has done to 
strengthen our regulatory system. I would like to hear what has 
been done to end ``too-big-to-fail'' and rein in the reckless 
behavior that led to the financial crisis. And, most 
importantly, I would like to hear what FSOC plans to do to hold 
regulators accountable for being asleep at the wheel during the 
financial crisis.
    Thank you for being here today.
    And I yield back.
    Chairman Bachus. Thank you.
    Mr. Dold of Illinois for 1 minute.
    Mr. Dold. I thank the chairman.
    Secretary Geithner, thank you for taking your time to be 
with us today.
    Our bipartisan objective has to be to maximize private 
sector job growth and global competitiveness while also 
ensuring economic stability. Regulations are obviously 
necessary, but they must be sensible and balanced. The rules 
must be transparent, unambiguous, and objectively enforced. 
Anything less leaves us with many unnecessary and potentially 
negative consequences: diminished global competitiveness; 
erratic enforcement; potential regulatory favoritism; higher 
costs; reduced product availability; and weaker economic growth 
and job creation.
    Unfortunately, in many respects, our regulatory environment 
isn't sensible or balanced. I don't think that any of these are 
controversial points. For example, President Obama has called 
for a rigorous cost-benefit analysis of existing regulations 
and proposed regulations. So I am particularly interested in 
how FSOC is coordinating and correcting ambiguous, conflicting, 
and unnecessarily burdensome regulations, in addition to 
addressing jurisdictional battles among regulatory agencies.
    I am also concerned and interested in whether you might 
recommend ways to simplify, consolidate, and streamline the 
regulatory agencies themselves. The New York Times has called 
Dodd-Frank's failure to do so a ``lost opportunity,'' and I 
think that we might also have some bipartisan agreement on that 
point.
    I yield back.
    Chairman Bachus. Thank you.
    Mr. Schweikert of Arizona.
    Mr. Schweikert. Thank you, Mr. Chairman, and Mr. Secretary.
    I have almost the same concerns you have heard from some of 
the other opening statements. We are engaged in a little 
project in our office where we are trying to build a flowchart 
of all the regulatory mechanics, all the touches to those who 
are regulated, and then trying to predict some of the rule 
promulgation. And the chart is just becoming absolutely 
Byzantine.
    Should we be coming together trying to move toward a single 
point of contact from a regulatory environment to something 
that is much more simple, much more understandable? Has Dodd-
Frank, maybe in good intentions, created a structure that is 
absolutely unworkable for the future?
    And just as sort of a personal side area I have great 
interest in, I would love if you have a second to touch on 
bonds being issued by United States. Should we be moving much, 
much, much further out in the WAM, back to the discussions of 
the super bonds, considering where interest rates are, on the 
outside of the curve right now?
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    The ranking member, Mr. Frank, is recognized for 5 minutes.
    Mr. Frank. Mr. Chairman, as my retirement approaches, a 
certain amount of nostalgia is inescapable. I try not to 
indulge it, but I am overwhelmed with it today. It is 2006 all 
over again.
    When I was about to become chairman of this committee after 
the 2006 election, I was besieged by The Wall Street Journal 
and Wall Street people and the Chamber of Commerce with pleas 
that we deregulate America, that if we did not dismantle 
Sarbanes-Oxley and cut back on the oppressive regulation of the 
financial community, everybody would soon be in England or in 
Hong Kong. And, of course, what then happened was the worst 
collapse of the American economy in a very long time, precisely 
because of the lack of regulation.
    People seem to have forgotten that. I am hearing again that 
the problem in the American economy is too much regulation.
    Ben Bernanke, who I will remind people--when George Bush, 
President George Bush, had an important economic appointment to 
make, he sent for the usual suspect, who was always Ben 
Bernanke. He appointed Ben Bernanke to be on the Board of 
Governors of the Federal Reserve in his first full year. Then, 
he made him Chairman of the Council of Economic Advisers. And 
then, he made him Chairman of the Federal Reserve. Ben Bernanke 
stays on as Chairman of the Federal Reserve as the most 
bipartisan person in this City.
    And he testified before us, and as my colleague, Mr. Himes, 
and some others noted, he listed the headwinds against the 
American economy. Excessive regulation of the financial 
industry wasn't one of them. And he said, yes, there are all 
kinds of factors, but he was asked and he said, no, it is not a 
significant headwind. Europe is a headwind. And, of course, my 
colleagues on the other side have tried to retard the efforts 
of some, including Mr. Bernanke, to help with that.
    So we are being told now the problem is not enough freedom 
for the people whose irresponsibility caused this problem. We 
are being told to back off. We are being told that, gee, the 
regulations are too complicated for these poor people in the 
financial industry to understand. What was too complicated for 
them to understand? Their own razzle-dazzle shenanigans. That 
is what got them into trouble.
    And I do want to address this question of consolidation. 
People said we have created all these new agencies. There were 
two agencies that had pretty much similar functions: the Office 
of Thrift Supervision; and the Office of the Comptroller of the 
Currency. We consolidated those. So we got rid of one operating 
agency, and we created one new operating agency. The FSOC is 
not a new agency; it is a coordinating council. And the Office 
of Financial Research is not an operating agency; it gets 
information, which I understand some people don't want us to 
have.
    But we did create one new agency, and that is really what 
they are worried about. It is called the Consumer Financial 
Protection Bureau (CFPB). And for the first time, we took from 
existing bank regulators the function of protecting consumers 
and made it their primary job. And it has been working very 
well.
    I think we have had 11 hearings now, oversight hearings, in 
which people have complained that there is no oversight of this 
institution. That is not their complaint. Their complaint is it 
is standing up for consumers, as it recently did regarding 
Capital One.
    Now, I will acknowledge there was one major flaw in our 
structure that I wish I could fix. We should not have a 
separate Securities and Exchange Commission and Commodity 
Futures Trading Commission. The biggest single gap we had in 
the American financial regulatory system was the decision to 
not regulate derivatives at all. And we made a major 
breakthrough in the financial reform bill by regulating 
derivatives. We are just now getting those rules in place, 
partly because 10 people had to be involved: 5 at the SEC; and 
5 Commissioners at the CFTC. And derivatives are split. The 
problem is, that split reflects a deep cultural and economic 
split in America.
    The Commodity Futures Trading Commission was created many 
years ago to deal with protecting, theoretically, farmers, 
while the Securities and Exchange Commission was created to 
deal with the financial community. I would very much like to 
get that consolidated. I notice the Republicans talked about 
consolidation. They left that one out. They talked about 
consolidating the bank industry, the bank agencies.
    So I just want to go back again to the fundamental point. 
The notion that the problem in America today with the financial 
institutions is too much regulation--once a week we get a 
demonstration that is not true: the banks lying about LIBOR, a 
disgraceful pattern of behavior of simply lying; Mr. Dimon at 
JPMorgan Chase, a very well-regarded, justifiably well-regarded 
executive, losing control of derivatives trading so billions 
and billions--and just like with AIG, they don't know how much 
money they had lost; and Capital One admitting that they had 
vendors who were cheating people. Only an independent consumer 
bureau was able to step in.
    Now, there have been problems in the past. We had a 
Comptroller of the Currency who, frankly, was not a good 
regulator in the sense of being tough on the banks. We have a 
new one, Mr. Curry, and I think you are going to see a great 
deal of improvement.
    But the notion that our problem is too much regulation, I 
guess I am struck by the precocity of people who make that 
comment, because it is a very articulate statement coming, 
apparently, from people who were born sometime early in 2009.
    Chairman Bachus. Thank you, Ranking Member Frank.
    Mr. Grimm of New York is recognized for 1 minute.
    Mr. Grimm. Thank you, Mr. Chairman.
    And good morning, Mr. Secretary.
    The American people were told when Dodd-Frank was signed 
into law that they could rest assured these regulatory failures 
were going to be a thing of the past. Yet over the last 2 
years, we have seen massive-scale regulatory failures. We have 
witnessed the collapse of MF Global; over a billion dollars of 
customer funds misappropriated. In the last month, we have seen 
the collapse of PFG Commodities; close to $200 million in 
customer funds missing. Now we are learning, obviously, of a 
tremendous manipulation of the LIBOR interest rates. That is 
something regulators might have known for as far back as 4 
years ago.
    So I am very interested in hearing from you, Mr. Secretary, 
how do we get the American people to feel that these 400-plus 
new regulations under Dodd-Frank are going to give them the 
comfort and the certainty that they need to invest and come 
back into the markets? But as someone who really does believe, 
as I think most Americans believe, that we have the strongest 
economy that was ever built and is the envy of the world, will 
Dodd-Frank make stronger, more robust capital markets, and will 
it lead to more American jobs?
    Thank you, and I yield back.
    Chairman Bachus. Thank you.
    And our last statement will come from the gentleman from 
Texas, Mr. Canseco.
    Mr. Canseco. Thank you, Mr. Chairman.
    The crisis of 2008 was caused by a number of factors, but I 
think at this point we can say with confidence that a lack of 
authority or information by regulators was not one of them.
    Instead of advancing a true reform of our regulatory 
structure, Dodd-Frank doubled down on the failures of the past 
by elevating the influence of the same agencies that missed the 
last crisis. This notion that a new supercouncil of regulators 
will predict the next financial calamity is a fallacy. All it 
does is further distract regulators from their core duty, which 
is to police the financial markets. And we have already seen an 
example of this with MF Global. This is harmful for our 
financial system and our economy, and I am eager to look into 
this matter further.
    I yield back the balance of my time.
    Chairman Bachus. Thank you.
    Before I recognize Secretary Geithner, let me say that the 
Secretary has indicated that he must leave at noon today. To 
accommodate as many Members as possible to question the 
Secretary, the Chair announces that he will strictly enforce 
the 5-minute rule. Members who wait until the final few seconds 
to ask a question of the Secretary should be advised that they 
will be asked to suspend when the red light comes on so that we 
can allow other Members to be recognized.
    Without objection, Mr. Secretary, your written statement 
will be made a part of the record. You are recognized for a 5-
minute summary of your testimony.
    Mr. Frank. Mr. Chairman?
    Chairman Bachus. And the ranking member is recognized.
    Mr. Frank. I ask unanimous consent to say ``hurray'' for 
what you just said. And I hope you will strongly enforce it.
    Chairman Bachus. Thank you. And I know I will have your 
cooperation. So thank you.
    Mr. Secretary, you are recognized. And the only thing that 
will not be strictly enforced is the 5-minute limit on your 
statement.

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

    Secretary Geithner. Chairman Bachus, Ranking Member Frank, 
and members of the committee, thanks for giving me another 
chance to testify before this committee today on the 
recommendations of the Financial Stability Oversight Council's 
annual report. But, of course, I am happy to try to also 
address the range of other comments and questions you raised in 
your opening statements.
    As the Council's report outlines, we have made significant 
progress in the United States repairing and reforming our 
financial system. We have forced banks to raise more than $400 
billion in capital to reduce leverage and to fund themselves 
more conservatively. The size of the shadow banking system, the 
parallel banking system, has fallen by trillions of dollars. 
The government has closed most of the emergency programs put in 
place during the crisis and recovered most of the investments 
made into the financial system. On current estimates, the TARP 
bank investments, for example, will generate an overall profit 
of approximately $22 billion. Credit to the business sector is 
expanding, and the cost of credit has fallen significantly from 
the peaks of the crisis.
    These improvements have made the financial system safer, 
less vulnerable to future economic and financial stress, more 
likely to help rather than to hurt future economic growth, and 
better able to absorb the impact of failures of individual 
financial institutions.
    But, of course, we still face very significant economic and 
financial challenges. The ongoing European crisis presents the 
biggest risk to our economy. The economic recession in Europe 
is hurting economic growth around the world, and the ongoing 
stress in financial markets in Europe is causing a general 
tightening of financial conditions, exacerbating the slowdown 
in growth.
    Here in the United States, the economy is still expanding, 
but the pace of economic growth has slowed during the last two 
quarters. In addition to the pressures from Europe and the 
broader global economic slowdown, U.S. growth has been hurt by 
the earlier rise in oil prices, the ongoing reduction in 
spending at all levels of government, and slow rates of growth 
in household income.
    The slowdown in U.S. growth could be exacerbated by 
concerns about the approaching tax increases and spending cuts 
and by uncertainty about the shape of the reforms to tax policy 
and spending that will ultimately be necessary to restore 
fiscal sustainability. These potential threats underscore the 
need for continuing progress in repairing the remaining damage 
from the financial crisis and enacting reforms to make the 
system stronger for the long run.
    The regulators have made important progress over the last 2 
years in designing and implementing the regulations necessary 
to implement the financial reforms you call ``Dodd-Frank.'' 
Nine out of ten of the rules with deadlines before July 2, 
2012, have been either proposed or finalized, and the key 
elements of the law will largely be in place by the end of this 
year.
    We have negotiated new, much tougher global capital 
requirements, with even higher requirements for the largest 
banks. We now have the ability, the authority, to put the 
largest financial companies under enhanced supervision and 
prudential standards, whether they are banks or nonbanks, and 
also the ability to subject key market infrastructure firms to 
tougher prudential standards.
    The SEC and the CFTC are putting in place a new framework 
for derivatives oversight, providing new tools for combating 
market abuse and bringing the derivatives markets out of the 
shadows. The FDIC has new authority in place for protecting the 
financial system and the taxpayer from the potential future 
failures of large financial institutions. And the Consumer 
Financial Protection Bureau has worked to simplify and improve 
disclosure of mortgage and credit card loans so that consumers 
can make better choices about how to borrow responsibly.
    This process of reform is a very complicated process. It is 
a complicated and challenging process because our system is 
complicated, the financial system itself is complicated, 
because we want to target damaging behavior without damaging 
access to capital and to credit, because we want the reforms to 
endure as the financial market and innovation evolve over time, 
and because we need to coordinate the work of multiple 
agencies, not just here in the United States but in the 
financial centers around the world.
    Beyond the reforms enacted in Dodd-Frank, the Council has 
put forward a number of recommendations to help strengthen our 
financial system going forward. Reforms are necessary to 
address remaining vulnerabilities in the short-term funding 
markets and particularly to mitigate the risk of potential runs 
in the future on money market funds and to reduce intraday 
credit exposure in the tri-party repo market, which is a 
secured funding market.
    Regulators should establish and enforce strong protections 
for customer funds that are deposited for trading. Financial 
firms and regulators should continue to improve risk-management 
practices, including by strengthening their capital buffers, 
stress-testing disciplines, internal disciplines around complex 
trading strategies, and other areas.
    The Council recommends further improvements in the quality 
and availability of financial data. The Office of Financial 
Research will continue to lead this effort, as it has done so 
impressively over the past year.
    Finally, the Council continues to support progress toward 
comprehensive housing finance reform that will be designed to 
bring private capital back into the housing market.
    These recommendations will build on the very considerable 
progress made by the members of the Council over the past few 
years in making our system safer and stronger and more 
resilient, less vulnerable to crisis, with stronger protections 
for investors and for consumers. We have a lot of work ahead of 
us, however, and we need your support to make these rules both 
strong and effective. And we need your support to make sure the 
enforcement agencies have the resources they need to prevent 
fraud and manipulation and abuse.
    I want to thank the other members of the Financial 
Stability Oversight Council and the staff of the other agencies 
for all the work they have done over the past year, not just on 
this particular report. And I want to underscore again that we 
look forward to working with this committee and with the 
Congress as a whole in this important effort of building a 
stronger financial system.
    Thank you, Mr. Chairman.
    [The prepared statement of Secretary Geithner can be found 
on page 58 of the appendix.]
    Chairman Bachus. Thank you.
    The Chair yields himself 5 minutes for questions.
    Mr. Secretary, it is widely reported that you discovered in 
2007 that the world's biggest banks were manipulating LIBOR. 
Your own recommendations, made in May of 2008, the following 
year, indicated your recognition that there was an incentive to 
misreport. That obviously raises substantial questions about 
the honesty of the LIBOR submissions and the presence of fraud.
    When did you alert the U.S. Treasury and the Justice 
Department of the possibility that LIBOR was being manipulated 
or rigged? And to whom did you state those concerns?
    Secretary Geithner. Thank you, Mr. Chairman.
    In 2008, as the financial crisis intensified and there were 
broader concerns about the financial strength of banks, 
European banks were having a tougher time raising dollars, 
those LIBOR rates began to rise. And there was a lot of concern 
in the market that the way the rate was structured made it 
vulnerable to misreporting.
    Those concerns were widely available in the market, and 
they were published in The Wall Street Journal and the 
Financial Times, among other publications. At that time--this 
was in the spring of 2008--we took a very careful look at these 
concerns. We thought those concerns were justified, and we took 
the initiative to bring those concerns to the attention of the 
broader U.S. regulatory community, including all the agencies 
that have responsibility for market manipulation and abuse.
    Chairman Bachus. And that included the Treasury Department 
and the Justice Department?
    Secretary Geithner. I briefed the President's Working Group 
on Financial Markets. The members of that group included the 
CFTC, the SEC, and the Fed.
    Chairman Bachus. How about the Justice Department?
    Secretary Geithner. Justice is not a member of that 
committee. And then--
    Chairman Bachus. But let me ask you this: You were aware of 
the possibility of fraud?
    Secretary Geithner. We were absolutely aware, not just of 
the reports that banks were underreporting and misreporting, 
but the nature of the rate--again, this is a rate set in 
London, overseen by the British Bankers' Association, and it is 
a rate that is a constructed average of estimates, principally 
by foreign banks, of what they might pay to borrow in 10 
currencies at very different maturities--
    Chairman Bachus. There were three U.S. banks.
    Secretary Geithner. Three at that time, 3 of 16, now 3 of 
18.
    But we were aware of the risk that the way this was 
designed created not just the incentive for banks to 
underreport but gave them the opportunity to underreport--
    Chairman Bachus. Right.
    Secretary Geithner. --and that was a problem.
    Chairman Bachus. Right. I know that you went to the British 
regulators, but what action did you take? You were aware that 
they took no action, I believe?
    Secretary Geithner. Again, let me explain what I did. Our 
first instinct, of course, was not just to brief the broader 
U.S. regulatory community, including the enforcement agencies, 
but to bring this to the British. And I personally raised this 
with the governor of the Bank of England, and then I sent him a 
very detailed memorandum recommending a series of changes. And 
then--
    Chairman Bachus. Yes. And he has denied having any evidence 
of rigging or of misconduct, but, according to what you 
supplied him, his testimony would not be correct; is that 
right?
    Secretary Geithner. Again, I felt that we did the important 
and fully appropriate thing, which was to bring to the 
attention not just to the people in Washington--
    Chairman Bachus. And what--
    Secretary Geithner. --but to the British of the, not just 
of the reports and the concerns that were broadly available in 
the market and the public domain, but also of the range of 
problems in the way this rate was designed that created that 
vulnerability. And so, we brought those concerns to their 
attention.
    Chairman Bachus. Sure.
    Secretary Geithner. And we felt--and I still believe this--
that it was really going to be on them to take responsibility 
for fixing this.
    Chairman Bachus. Let me ask you this: You reported it to 
the President's Working Group in May of 2008. What action, if 
any, was taken at that time to address the concerns that LIBOR 
was being misreported, the existence of fraud and rigging?
    Secretary Geithner. What the CFTC did in roughly the same 
timeframe is to initiate a confidential but very far-reaching 
investigation--ultimately, it took 4 years--which resulted in a 
very, very strong, appropriately strong enforcement response 
you saw announced earlier this month. Ultimately, that 
investigation brought in the SEC and the Department of 
Justice--
    Chairman Bachus. Okay.
    Secretary Geithner. --and other agencies.
    Chairman Bachus. Sure.
    Let me ask you this last question: You used LIBOR to set 
the AIG $182 billion and also the $100 billion TALF. Now we 
know that those were understated. Does that work to the 
disadvantage of the taxpayer?
    Secretary Geithner. We were in the position of investors 
all around the world. In many cases, you have to choose a rate 
to decide to use as a reference for what you are lending in 
that context. And we did what everybody else did, which is to 
use the best rate available at the time.
    Now, we are all taking a very, very careful look--and this 
is a matter of litigation, as you know, not just the ongoing 
enforcement investigations--about to what extent the rate was 
moved up or moved down or actually affected in any way. I don't 
know yet what the results of those discussions will be, and I 
can't speak to them, but you are right to point out that we, 
like investors around the world, had to take advantage of the 
rates available at the time, and we chose LIBOR at that point, 
as did many others.
    Chairman Bachus. Thank you.
    Congressman Frank?
    Mr. Frank. Thank you.
    Mr. Geithner, I just want to get the context, because what 
has happened here is that some of the leading financial 
institutions in the world behaved in an outrageous fashion. 
These were not bad guesses about derivatives. This was not 
overconfidence about mortgages. This was conscious deception in 
their own self-interest. And it was done not just by 
individuals but by an association that was given powers to 
self-regulate in some ways. So as I hear some of my colleagues 
talk about the need for more self-regulation and less 
prescriptive regulation, LIBOR comes to mind as a very strong 
reputation.
    But part of this--and this is troubling to me, and it 
hasn't happened yet this morning; I hope it doesn't--but in the 
press and elsewhere, there has been an effort to kind of blame 
you for all this because you happen now to be the Secretary of 
the Treasury in the Obama Administration. And there is, it 
seems to me, extraordinary--you were an important official, but 
not one of the top officials. I don't mean to denigrate you. 
The presidency of the Federal Reserve is an important 
institution. It has been given more importance recently than it 
has ever had before, as people want to say that you were 
running the world back then. You had a Chairman of the Federal 
Reserve who was setting the LIBOR--using LIBOR to set the 
rates. Mr. Bernanke was in charge of AIG. You had Secretary of 
the Treasury Paulson. So we do want to remind people that this 
all happened under the Administration of President Bush, and 
the President's Working Group to which you reported was 
President Bush's Working Group, with Mr. Cox at the SEC, Mr. 
Paulson, et cetera.
    And I stress that because there was a failure to be tough 
enough with these private sector people who were doing this, 
but the notion that it was really all the problem of the 
President of the Federal Reserve of New York is striking.
    I want to be very clear. You reported this to the 
President's Working Group on Financial Reform. Who are the 
members of that group? Who were they in 2008? Give me names.
    Secretary Geithner. The Chairman of the Federal Reserve, 
the Chairman--
    Mr. Frank. Mr. Bernanke.
    Secretary Geithner. --of the CFTC, the Chairman of the SEC, 
and a--
    Mr. Frank. The Secretary of the Treasury?
    Secretary Geithner. And the Secretary of the Treasury.
    Mr. Frank. All right, so we have four--
    Secretary Geithner. Those were the core members of the 
group. Probably the Chairman of the FDIC, I think at that 
stage, was there maybe occasionally. But those were the core 
members.
    Mr. Frank. All right. So these were all Bush appointees.
    And I think this is a problem not of the regulators but of 
the private sector--and of the British, because this was a 
British association. But if people are going to start pointing 
fingers at regulators, all those people were Presidential 
appointees confirmed by the Senate. You were not a Presidential 
appointee.
    Secretary Geithner. No.
    Mr. Frank. So these were five or six people above you in 
the organizational chart to whom you reported what you found. 
And maybe things weren't done tough enough, although I am 
struck that you note that the CFTC, to its credit, did begin 
the investigation which culminated in this.
    So we have a situation where private banks, formed in a 
British association but with American bank participation, 
grievously misbehave. You hear about it and report it to the 
financial working group consisting of Bush appointees, many of 
whom I value highly and with whom I worked closely in 2008. And 
some people believe that not enough was done. If that is the 
case, it does seem to me that responsibility should be broadly 
shared.
    Now, let me ask you this question about ``too-big-to-
fail.'' The legislation, as you know, says that if a large 
financial institution cannot pay its debts, it is put out of 
business and that no money can be spent by the Federal 
Government on the process of putting it out of business. These 
are the death panels. They weren't for old ladies in the health 
bill; they were for big banks in the financial reform bill. The 
CEO and the other officers are gone, the shareholders are wiped 
out, and the board is dissolved. That is what the law says. And 
the law also says that if there is any money that has to be 
spent to wind it down responsibly, you or your successor is 
mandated, not authorized, to recover it.
    Now, what I read is, from, for instance, the President of 
the Federal Reserve of Dallas and his staff, that is not going 
to work, because if there was a failure of a large institution, 
there would be overwhelming pressure on you or your successor 
to provide Federal funds to keep that institution alive. Do you 
think that is likely?
    Secretary Geithner. Unlikely, but I wouldn't have the 
authority.
    Mr. Frank. You would be breaking the law to do that.
    Secretary Geithner. Again, what Congress did is change the 
law to limit the authority available to the regulators to 
protect an institution from its mistakes.
    Mr. Frank. And they are then put out of business.
    By the way, there are some now, on the more conservative 
side, who lament that. There is a new book out by Mr. Conrad, 
who was a managing director, I believe, of Bain--I just had a 
copy sent to me by the National Review--complaining that we 
have restricted the ability of the Federal regulators to 
intervene to save an institution too much.
    But I appreciate your point. If a large institution failed 
now, you would have no option under the law but to have it 
fail. And if anything had to be done to put it out of business, 
you would get the money back from the banks.
    Thank you.
    Chairman Bachus. Thank you.
    Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman.
    Good morning, Mr. Secretary.
    I still don't quite understand your answer concerning the 
New York Fed's use of LIBOR. On the one hand, I think you have 
said that, ``We acted very early in response. We were worried 
about it, we were concerned about it.'' But it appears that the 
early response was to keep using it, which means it appears 
that you treated it almost as a curiosity or something akin to 
jaywalking as opposed to highway robbery.
    I think I just heard you earlier in your testimony say, 
``It was our best choice.'' There are other interest rate 
indexes out there. How can a number that you know has been 
manipulated--how can that possibly be the best choice?
    Secretary Geithner. Again, we were concerned about this, 
and we did the important, very consequential thing of bringing 
it to the attention of the full complement of regulatory 
authorities that Congress had given responsibility and 
authority for market manipulation and abuse. And--
    Mr. Hensarling. But you weren't obligated to use it. The 
New York Fed was not obligated to use LIBOR. Yes or no?
    Secretary Geithner. No, of course not. But--
    Mr. Hensarling. Okay.
    Secretary Geithner. But we had to make a basic choice among 
alternatives at that time, and I think that was the right 
choice back then.
    Mr. Hensarling. Between a manipulated number and a 
nonmanipulated number?
    Secretary Geithner. No, again, I wouldn't say it that way. 
I would say this was a rate that was structured in a way that 
was vulnerable to misreporting. We were very concerned--
    Mr. Hensarling. Apparently.
    Secretary Geithner. --about that. And what we decided to do 
was to try to initiate a reform of the process with the British 
but also just to make sure the relevant authorities made use of 
it--
    Mr. Hensarling. If I could, Mr. Secretary, I am sorry, we 
have a limited amount of time. I would like to ask another 
question here.
    As I review the annual report, I see a lot of discussion of 
the European debt crisis. Frankly, I see very little discussion 
of the U.S. debt crisis. We know that on a nominal basis, this 
country has now racked up more debt in the last 3 years than in 
the previous 200 years. We now know that our debt-to-GDP ratio 
exceeds our economy.
    Even in the President's own budget, after the 10-year 
window, his budget states, ``The fiscal situation deteriorates 
badly.'' The President has previously said that the major 
driver of our long-term debt is Medicare and Medicaid, our 
healthcare spending; nothing comes close. Yet--and that was in 
2009--I have yet to see a reform plan for entitlement spending 
out of this Administration.
    You testified before the Budget Committee in February of 
this year. In response to Budget Committee Chairman Paul Ryan, 
you said that he was ``right to say we--meaning the 
Administration--are not coming before you today to say that we 
have a definite solution to that long-term problem. What we do 
know is we don't like yours.'' That was in February. I assume I 
haven't missed any of the news clips stating that the 
Administration has come out with a plan.
    So if the President says this is the major driver--we know 
that the head of the Federal Reserve has also spoken about our 
unsustainable spending driven by entitlement spending. I look 
at this report; I cannot find one mention of the word 
``entitlement,'' not one mention of the word ``Medicare,'' not 
one mention of the word ``Medicaid.'' Yet, your own budget says 
``fiscal situation deteriorates badly.''
    How can this not be cited as a major factor that could 
disrupt U.S. financial stability? And when, if ever, is the 
Administration going to move on this?
    Secretary Geithner. Congressman, as you know, the Council's 
job is not to recommend to the Congress long-term reforms to 
entitlement spending or recommend solutions to our long-term 
fiscal crisis. We agree, as you said, that our fiscal deficits 
are unsustainable. And--
    Mr. Hensarling. Mr. Secretary, if I could, what is chapter 
3 of this report all about, ``Annual Report Recommendations?'' 
Does this not impact the competitiveness and stability of U.S. 
financial markets, our fiscal unsustainability?
    Secretary Geithner. We did identify in the report, as I did 
in my statement in summarizing the report, that these broad, 
long-term fiscal risks are a significant risk to the American 
economy and ultimately, therefore, to the financial system. And 
we highlighted that basic risk in the report, as was 
appropriate. But what we didn't do--
    Mr. Hensarling. But you make other recommendations. You 
just make no recommendation on what is actually driving, 
according to the President of the United States, the debt 
crisis.
    Secretary Geithner. I think it would be a strange thing to 
ask the Fed, the SEC, and the CFTC to recommend a detailed 
Medicare reform plan. That would be a strange thing.
    So you are right to say it is a risk, and the Council is 
right to highlight that risk. But I don't think it is correct 
to say that the Council should have laid out reform 
recommendations for restructuring a--
    Mr. Hensarling. I am out of time, but perhaps next time you 
could help me with a highlighter, because I don't see it.
    Chairman Bachus. Thank you, Mr. Hensarling.
    Ms. Waters?
    Ms. Waters. Thank you very much.
    According to Andrew Lo, a professor at MIT, this LIBOR 
fixing scandal dwarfs by orders of magnitude any financial scam 
in the history of markets. That is pretty strong. I would like 
you to tell me if you think that statement is true.
    I would also like to know what impact this manipulation had 
on our financial markets and what impact it is going to have 
moving forward. And take time to tell us about your series of 
changes that you recommended.
    I would like to give you time and not take up all the time, 
so please go ahead.
    Secretary Geithner. Okay. Let me just say a bit about this 
broader question, and thank you for giving me the chance to do 
so.
    In the detailed recommendations we gave to the British, we 
identified a series of specific things that would make it 
untenable for this rate to be affected by the banks' incentive 
to lower their reported cost of funds. We gave them, again, 
very specific detailed changes for doing that. And if those had 
been adopted--more of those had been adopted and sooner, you 
would have limited this risk going forward.
    Right now, let me just highlight a few things we think are 
important, given where we are today, because you are going to 
want to know what is next, what is ahead of us. So let me just 
walk through that, if you would just give me a minute.
    The Council and the regulating agencies, relevant agencies, 
which means the Fed and the SEC and the CFTC, are in the 
process of taking a very careful look at how to address any 
potential implications of this remaining challenge for the 
financial system. These bodies are carefully examining other 
survey-based measures of interest rates in financial crisis 
overseen by private financial firms to assess any potential 
there for misreporting similar problems. They are carefully 
examining a broad range of potential reforms and alternatives 
to LIBOR.
    There is a global effort led by the Financial Stability 
Board, which includes all the world's major central banks and 
market regulators together, to review potential reforms. We are 
considering how to deal with the careful and delicate question 
of how do we make it possible for enforcement agencies that are 
undertaking a confidential investigation which reveals behavior 
that could impact the financial system as a whole--how to make 
it possible for them to share that information, with 
appropriate protections and safeguards, with the relevant 
agencies which have responsibility to the overall functioning 
of the system. That is a very important question.
    We need to take a very careful look at parts of the system 
where we rely or where the market relies, still, on informal 
private bodies run by financial firms like the British Bankers' 
Association that have some formal or informal self-regulatory 
rule. A very important question that your colleague referred to 
earlier.
    And, of course, I think we all need to make sure that these 
enforcement agencies have the resources they need to do their 
job. Just to give a specific example, you have a small town 
with a police department. The population of that town increases 
by 10 to 100 times. You are going to need to increase the size 
of the police department. It is a necessary, responsible thing 
to do. And if we do that, you will have a more powerful 
deterrent, tougher enforcement, and that will come earlier, 
with broader effects for all of us.
    Now, in addition to each of those things, of course we are 
going to cooperate fully and be fully responsive to the 
requests of this committee for broader information on this. 
And, of course, we will brief the Congress on the progress of 
each of those efforts looking at reform and implications and 
how to reduce the vulnerability of the system in the future to 
similar problems like this.
    Ms. Waters. Given those recommendations and the problems we 
have had with the economic meltdown in this country, what else 
can Congress do to ensure that the interest rates that are 
being paid between the banks are fair and equitable and somehow 
will not negatively impact that person who has taken out a 
mortgage in the United States?
    Secretary Geithner. Again, I think what you should do is 
what you are doing, which is you are conducting oversight of 
these agencies and these efforts. And you should ask for 
periodic updates from these agencies on the reforms under way 
to address that risk. That is fully appropriate. We welcome 
that effort, and we will be fully responsive to it.
    Ms. Waters. Thank you very much, Mr. Chairman. I yield 
back.
    Chairman Bachus. Thank you.
    Dr. Paul?
    Dr. Paul. I thank you, Mr. Chairman.
    And good morning, Mr. Secretary.
    I have a question about the President's Working Group on 
Financial Markets. There is an article that said the Fed 
briefed the President's Working Group on Financial Markets in 
June of 2008. And during that time, I assume you were President 
of the New York Fed, in June of 2008?
    Secretary Geithner. It was actually in May that we briefed 
them, and I was the one who did it.
    Dr. Paul. Okay. The article said June, but, okay, May. It 
said the Fed briefed the Working Group. Does that mean you did 
it or somebody else from the Fed?
    Secretary Geithner. It was on the agenda of the meeting, 
and I went to provide--I wasn't a member of the group, but I 
occasionally went--I went to provide an update on this issue. 
And then my staff subsequently briefed officials of the 
Treasury and, separately, officials of the SEC and the CFTC.
    Dr. Paul. Okay. You are the Chairman of that group right 
now, correct?
    Secretary Geithner. Yes, I am the Chairman of the Council.
    Dr. Paul. Okay. In relation to that meeting you had and the 
meetings you have had since, do you keep detailed minutes of 
all those meetings?
    Secretary Geithner. We do keep minutes of the Council 
meetings today, and we put those minutes in the public direct 
record, with whatever the appropriate lag is to make sure we 
have a review by the agencies.
    Dr. Paul. So all records get--how often do those meetings 
lead to policy changes, where you make a decision and the Fed 
goes out and does something or Treasury does something or 
getting involved in the markets at all? How often does that 
happen?
    Secretary Geithner. The Council is still in its early stage 
of implementing the authority Congress gave it.
    The Congress gave it two different sets of authorities. One 
is specific responsibility for things like designating 
financial market utilities that have systemic implications. 
That is a specific responsibility the FSOC has which we have 
acted on.
    But Congress gave it a set of broader coordinating 
responsibilities in service of something many of you have 
spoken to, which is trying to make sure that you are not 
leaving large gaps in the system and the agencies that have 
similar responsibilities are working together, not against each 
other. That is a more general responsibility, not a specific 
one.
    Dr. Paul. Not specific.
    On LIBOR, I don't want to get into the details of fraud and 
who committed crimes and who should be punished and whatnot; I 
want to talk about the principle. And the principle here is 
that people are complaining because they believe LIBOR was 
fixed, that the interest rates were fixed, and that it 
benefited somebody financially. And I don't think there is a 
big argument on that. That is what all the talk is about, and 
that is why Barclays was actually penalized for it.
    But isn't this a whole lot like exactly what the Federal 
Reserve does? Aren't they fixing interest rates all the time 
for the benefit of special individuals? If the market goes 
down, interest rates are lowered, and there is good evidence to 
show the market usually comes back up. If banks get into 
trouble, interest rates are lowered. Right now, interest rates 
are, like, zero, and banks get a lot of free money. And they 
turn around and they put it back in the Fed, and they earn 
interest and they buy Treasury bills, and they are doing quite 
well. So it seems like there is a tremendous amount of 
manipulation of interest rates for the benefit of some 
individuals.
    But this manipulation of interest rates harms people who 
save money. If they are retired and they can't earn anything, 
it seems like, in the sense of morality and economic policy, 
our monetary system is every bit as guilty as what we are 
accusing LIBOR of doing.
    Now, the Fed may be protected by rules and laws, but isn't 
there a similarity? Isn't there something that we should 
question about the manipulation of interest rates for the 
special benefits of some individuals, as the Fed does this?
    Secretary Geithner. No, I would not make any comparison. I 
don't think they are remotely similar. The Fed, with authority 
Congress gave it to maintain--
    Dr. Paul. I am not talking about the authority. I am 
talking about what they did. I recognize that.
    Secretary Geithner. But what the Fed is doing is, with the 
responsibility Congress gave it to keep prices low and stable 
over time and unemployment low over time, it is using a set of 
tools in the public interest to achieve those objectives. I 
would say that is a fundamentally different thing from the 
behavior of individual banks to misreport the price they are 
paying or they might pay to borrow--
    Dr. Paul. Okay. I don't think we will resolve that, because 
I have one other quick question.
    Would you support a change in policy where the Fed could 
buy Treasury debt directly so it didn't go through the bond 
brokers, where they make huge commissions on this? Wouldn't 
this be much better for the American taxpayer?
    Secretary Geithner. For the Fed to directly finance?
    Dr. Paul. Yes, why can't they buy Treasury bills from the 
Treasury? Instead, we have 20 or so bond dealers, and I think 
they make some commissions on this. And then the Fed goes out 
and buys these bonds, and bond dealers make money off this.
    Secretary Geithner. Let me be careful in answering that 
question. Let me just tell you that I personally am a strong 
defender of two very important principles. One is to try to 
make sure the Fed has full independence on monetary policy 
independent of politics, but also to make sure that there is 
nothing in this relationship between the Fed and the Treasury 
that would raise concerns that the Federal Reserve is directly 
financing the fiscal deficit of the United States. That would 
be something very damaging to the Fed's independence, to the 
credibility of monetary policy, and to the fiscal credibility 
of the United States.
    I don't think that is what you are implying, of course. I 
know you wouldn't support that at all. And so maybe I should 
talk to you in more detail about your specific questions about 
the market function issue.
    Chairman Bachus. Thank you.
    Mrs. Maloney for 5 minutes.
    Mrs. Maloney. Mr. Secretary, thank you for your service.
    It is absolutely huge that Sandy Weill has called for the 
breakup of the big banks. And I would like a detailed answer in 
writing on what this means to the financial crisis. If 
investment banking and banking had been separated, what would 
that have meant for AIG, for Bear Stearns, for Lehman, for 
Wachovia, for all of the big banks?
    But I want to use my time today on crises that we are in 
right now, which is LIBOR, and also the debt-ceiling crisis and 
what it meant in financial loss to the American families last 
summer and what could it mean in the future.
    But specifically on LIBOR, was this a British problem or a 
U.S. problem?
    Secretary Geithner. It was a rate set in London that had 
implications far beyond London, not just in the United States 
but in financial markets around the world.
    Mrs. Maloney. Okay. And was it set by an association or 
professionals in the United States or elsewhere? Who set it?
    Secretary Geithner. It was set by the British Bankers' 
Association, which is a group of banks.
    Mrs. Maloney. Okay. Were you aware of any other members of 
the President's Working Group following this issue?
    Secretary Geithner. As I said, we briefed that broader set 
of relevant agencies, so they were aware of it. These reports 
were in the public domain. And, as you know, the CFTC started 
at that time a very far-reaching, to their credit, 
investigation that ultimately involved a range of other 
authorities.
    Mrs. Maloney. Did the New York Fed or the Federal Reserve 
have enforcement authority in any way?
    Secretary Geithner. The New York Fed has a range of 
authority, but the enforcement powers of the Fed rest with the 
Board of Governors in Washington, not with the individual 
reserve banks. But the other agencies that are part of our 
system--and it is a complicated system, as many of you have 
said--involve a range of other authorities and responsibility 
for things like market manipulation and abuse.
    Mrs. Maloney. Could you have taken any action, as Secretary 
of the Treasury, against Barclays?
    Secretary Geithner. As Secretary of the Treasury?
    Mrs. Maloney. Yes. Or as head of the New York Fed at the 
time.
    Secretary Geithner. I don't think the Secretary of the 
Treasury, then or now, has direct enforcement authority that 
was relevant to that. The Congress has given that authority to 
other agencies, which is appropriate.
    Mrs. Maloney. Could you have taken action against Barclays 
at the New York Fed?
    Secretary Geithner. Again, at the New York Fed, I believe--
and I have thought a lot about this, as you know, as you would 
expect--I believe we did the necessary, appropriate thing very 
early in the process.
    Mrs. Maloney. Could you put this in context in terms of the 
other things that you were working on in 2008? I know that I 
was getting calls from my constituents, screaming that there 
was a run on the markets. There was a fear of a complete 
financial meltdown. What was it like for you? What were you 
working on in 2008? Can you put this into the context of what 
was happening at the time?
    Secretary Geithner. You are right to remind us that at that 
period, we were--it got much worse later, but at that point the 
pressures on the financial system here and around the world 
were very acute. And they were creating the real risk of a 
broader run, broader collapse on the American financial system. 
The recession was already many-quarters old at that point, so 
we were seeing the economic effects of it, and it was certainly 
going to get dramatically worse.
    And, of course, we had a lot to do at that point. But on 
LIBOR, again, we were worried about this, we were concerned 
about it, and that is why we did what we did at that point, 
despite all those other preoccupations.
    Mrs. Maloney. Could you comment also on the debt-ceiling 
crisis this country suffered through last summer? What did it 
cost our country? What did it cost American families? And what 
would happen if we had yet another debt-ceiling crisis, if we 
went over the cliff again, in terms of pain, suffering, 
increase in debt and deficit, increase of unemployment?
    Could you explain what the impact was last summer? And what 
could it be if we can't get together and come forward with a 
reasonable agreement?
    Secretary Geithner. The threat of default that hung over 
the U.S. economy in that period of time, June and July of 2011, 
was very damaging. It caused economic growth to slow at a very 
early, vulnerable time in the recovery. It caused stock prices 
in the United States and around the world to fall sharply, 
doing a lot of damage to the savings of the average American.
    It caused a precipitous drop in consumer and business 
confidence, magnifying the slowdown in growth. The shock to 
consumer confidence, to business confidence, was larger than 
you see in a typical recession--very damaging, very 
substantial, completely avoidable, not necessary. And it would 
be irresponsible to put the country through that again.
    Mrs. Maloney. My time has expired. This may be the last 
time you testify before us. Thank you for your public service.
    Mr. Dold [presiding]. The Chair recognizes the gentleman 
from North Carolina, Mr. Jones, for 5 minutes.
    Mr. Jones. Mr. Chairman, thank you very much.
    And, Mr. Secretary, thank you for being here today.
    I have said many times in my district and here in 
Washington that the two worst votes I have made in the 18 years 
I have been in Congress were on the Iraq war, which was very 
unnecessary, and on the repeal of Glass-Steagall.
    I was here with many of my colleagues, some on the dais 
today, when President Bush and Secretary Paulson called on 
Congress to bail out those who, in my opinion, were gambling on 
Wall Street with the taxpayers' money. And we bailed out those 
in trouble--I didn't vote for it then, so I won't take the 
blame on that one.
    But it seems like every time the financial institutions get 
in trouble, they come to the Congress and the taxpayer and say, 
we need for you to help us out. Mr. Dimon in the last 3 or 4 
weeks first acknowledged that they had made a $2 billion 
mistake in investments, I guess; then it later became $10 
billion.
    And the American people are just tired and sick and fed up 
with how--and I think a lot of it, quite frankly--if I could 
vote today to create public financing, we might could bring 
some sanity to this issue that we are talking about, the 
financial institutions, and really have oversight that we 
should have. But we are not going to change the way we finance 
campaigns, I realize that, and you can't change it if you 
wanted to.
    But my question to you is, isn't it time to have a 
discussion and a debate about the reinstatement of Glass-
Steagall?
    Secretary Geithner. Congress thought about that very 
carefully in the context of the Dodd-Frank discussions, and I 
am sure it will consider it in the future again. And that is an 
appropriate thing to do.
    But the reforms Congress enacted were very tough and very 
strong against just the risk you said, because they force banks 
to hold much, much more capital against risk and the large 
banks to hold much more than small banks. That is a very 
important thing. They limit how large banks can get as a share 
of the system as a whole. That is a very important thing.
    And as your colleague said earlier, they deprive the 
institutions of government of the ability to come in and rescue 
a bank from its failures. All we can do is to try to protect 
the economy from the failures banks will inevitably make. And 
they will make mistakes; it is inevitable in that context. Our 
job is not to prevent them from making mistakes. We can try to 
do that. Our job is to make sure that when they make mistakes, 
they don't imperil the broader American economy and the safety 
of people's savings and make it harder for businesses to 
borrow. And this law was the toughest, most far-reaching, most 
comprehensive set of protections against that concern than the 
United States has ever contemplated.
    Should we keep looking at what more we could do to make the 
system safer? Absolutely. And I expect Congress to continue to 
do that. You should always go back and examine those judgments 
in this case.
    But I think it is a very tough set of constraints against 
the risk you said, and we should give those reforms a chance to 
take effect and to work.
    Mr. Jones. Mr. Secretary, I appreciate your comments. I 
think that for too long that we continue to--I was one of the 
few Republicans to vote for Dodd-Frank. It was a decision I 
made that there was more good than bad in that legislation, and 
that if it was properly implemented, maybe it would do what was 
necessary to bring some honesty and integrity to the markets. 
And so therefore, I hope that most of my colleagues will give 
Dodd-Frank a chance. Maybe there are certain aspects of it that 
need to be reviewed, but that is true in any complex 
legislation.
    But I continue to say that I would hope that we would take 
a serious look. I joined Ms. Kaptur in H.R. 1489, to reinstate 
Glass-Steagall. I think that, and I am not trying to interpret 
your words, but it seems to me that it would benefit us to at 
least have a hearing from experts, you being one, about the 
possibility of reinstating aspects of Glass-Steagall for 
certain types of banks.
    But with that, Mr. Chairman, I thank the Secretary for his 
answers to my questions very much. I yield back.
    Mr. Dold. The gentleman yields back.
    The Chair recognizes the gentleman from Illinois, Mr. 
Gutierrez, for 5 minutes.
    Mr. Gutierrez. Thank you very much.
    First of all, I would like to go back to, how did you find 
out about the manipulation of Barclays and the LIBOR 
manipulation? How did you first find out about it?
    Secretary Geithner. As I said earlier, there was a lot of 
concern in the market and a lot of talk in the financial 
markets, much of which was ultimately published in major 
newspapers of record, about not just the potential that banks 
could misrepresent what they were paying to borrow, but that 
they were actually doing that. So we first learned about those 
concerns, at least I first learned about those concerns, in the 
early part or the spring of 2008, and we acted very quickly, 
Congressman, at that stage.
    Mr. Gutierrez. And you learned about it through published 
news reports?
    Secretary Geithner. No, we learned through a variety of 
ways. As you know, one of the things the New York Fed does is 
it spends a lot of time talking to people in the financial 
markets about what is going on. So it is a basis on those--on 
those reports, not just what was in the public, in the press.
    Mr. Gutierrez. Okay. And so what you did is--what did you 
do as a consequence of that publicly, or privately, in order to 
respond to what you were seeing were manipulations in the LIBOR 
rate?
    Secretary Geithner. First, we took a very careful look at 
whether there was any basis for those concerns, and we thought 
there was.
    Mr. Gutierrez. Okay.
    Secretary Geithner. And then we briefed the relevant 
members of the American financial oversight bodies, meaning the 
Treasury, the Fed, the SEC, the CFTC and others, and then we 
brought this to the attention of the British.
    Mr. Gutierrez. You wrote them a memo, didn't you?
    Secretary Geithner. And we wrote them a detailed memorandum 
with very specific, detailed recommendations for how to fix it, 
and of course--and they responded affirmatively to those 
recommendations; said they shared the concern, supported the 
recommendations, and would pursue them.
    Mr. Gutierrez. To the best of your knowledge, the 
investigation that led to the $453 million fine against 
Barclays and the continuing investigation began where?
    Secretary Geithner. That is a question you should refer to 
the CFTC, but I believe they have said publicly that their 
investigation began in roughly the same time period in April 
2008.
    Mr. Gutierrez. So if we look at the investigation that 
leads to the fine, it begins at the moment in which you are 
made aware, as head of the New York Reserve, and carry out your 
responsibilities, and then you informed the Secretary of the 
Treasury, the job that you currently hold, of this situation.
    What was the response of the other major stakeholders in 
our markets, in the protection and the oversight of our 
markets, to your comments about this and your inquiry?
    Secretary Geithner. I believe they share our concerns, and, 
as I said, the British, too, share our concerns. And the 
concerns that we shared and those that were in the public 
domain at that time were a sufficient basis for the CFTC to 
initiate this very far-reaching investigation.
    Mr. Gutierrez. I want to ask about the annual report, which 
I am sure you are dying to get to. So identified risks to the 
financial stability of the United States, promote market 
discipline by eliminating expectation of government bailout, 
respond to emerging threats to the U.S. financial system. Tell 
us how are you doing? How is the Council doing? You agree that 
those are your three major goals? Or how are you doing?
    Secretary Geithner. I would say it is a little early still. 
I will tell you what I think the main challenge is. We have a 
very complicated system of financial oversight, which involves 
a lot of different agencies. They share a lot of 
responsibilities. And they are writing a set of rules that are 
very complicated by definition because the problems are 
complicated, and we have a huge interest as a country in making 
sure they do that stuff carefully with all necessary speed, but 
do so in a way where they are not creating new opportunities, 
new gaps in the systems, new incentives for people to move risk 
to where the regulations are softer. And that is the challenge. 
Congress did not give the Council the authority to override the 
independent jurisdictional authority of those agencies. Those 
are proud agencies.
    Mr. Gutierrez. Can you give us examples of measures you 
have taken to protect and ensure that there aren't any--maybe I 
asked the wrong question.
    Secretary Geithner. Oh, I am sorry. I think you have to 
step back and look at the scale of the changes that have been 
put in place in our system not just by the measures we took in 
the financial emergency, but in the reforms that took place.
    Again, just to take two examples of that: $400 billion more 
capital in finances today. We moved much more aggressively than 
any other country at any other time in modern financial 
regulations that I am aware of to force these banks to hold 
much more capital against the risks they were taking.
    Mr. Gutierrez. That is in direct response to actions that 
the Council recommended be taken?
    Secretary Geithner. And to the authority we have in the law 
and, of course, what we did in the crisis.
    The derivatives, complicated challenges in derivatives. 
These agencies have made major, major progress in laying out a 
sweeping set of comprehensive reforms that bring more 
transparency to those markets and give them new tools to combat 
manipulation and abuse.
    The Consumer Financial Protection Bureau, apart from the 
enforcement actions you have heard about in public, and apart 
from their new effort to bring supervision to nonbank entities 
in consumer finance so they are protected, too, they have taken 
very important steps to make mortgages and credit card forms 
easier to understand so that individuals can compete for better 
terms and are much more aware of the risks in borrowing.
    I think those are the best examples. The FDIC has put in 
place a very innovative framework with a huge amount of global 
support to implement this important objective of the law to 
make sure that when firms make big mistakes, we put them out of 
their misery with no cost to the taxpayer, with as little 
damage as we can to the rest of the system. They deserve a huge 
amount of credit for a creative, very innovative framework 
using the authority that Congress gave them.
    Those things in bank capital, in derivatives oversight, in 
consumer protection, in what some people call bankruptcy for 
large dumb banks, those things are very consequential, 
important reforms.
    We have a lot of work to do still, though. Housing finance 
system, a lot of work still to do in that context, a lot of 
rules still to be refined.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentlewoman from Illinois, Mrs. 
Biggert, for 5 minutes.
    Mrs. Biggert. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for being here.
    Which regulator dropped the ball with regard to AIG? Which 
regulator was in charge of regulating AIG FP, which is the AIG 
division that engaged in the nonexistent risk management of its 
credit default swaps trading and led to its near collapse? Were 
State insurance regulators in charge of that, or was it the 
Federal holding company regulator of the OTS?
    Secretary Geithner. I do not believe there was any 
competent authority that was responsible and accountable for 
the broad consolidated entities of that very complicated global 
system.
    Now, you are right to say that the OTS did have some--
somewhat broader responsibilities alongside of the States, but 
I do not believe that their authority extended to the type of 
comprehensive oversight that obviously would have been--was 
necessary.
    Mrs. Biggert. Who is regulating AIG right now? Earlier this 
morning, the TARP Special Inspector General issued a pretty 
damning report about AIG oversight. SIGTARP found that for more 
than 2 years, AIG has had no consolidated banking regulator of 
its noninsurance financial business, and the OCC is now 
responsible for regulating the AIG Federal Savings Bank, but 
that is a tiny piece of the AIG operation, according to 
SIGTARP, but not the rest of the company.
    The Federal Reserve did not regulate AIG before the bailout 
and has not regulated it since. But the Fed could take over if 
SIGTARP--according to SIGTARP, that it would be the savings and 
loan holding company, but they don't think that is going to be 
in existence too long. I take that back--that the Treasury--
until the Treasury holds less than 50 percent of the--of AIG, 
then maybe the Fed could take that over.
    But meanwhile, AIG is engaged in security lending and 
investing, among other things, mortgage-backed securities. And 
this credit swap portfolio seeds $168 billion. So the 
proponents of Dodd-Frank say that the law was about ending 
``too-big-to-fail'' and regulating the financial industry, that 
it has become too big. But yet after Dodd-Frank, there is no 
regulator for AIG. How is this possible?
    Secretary Geithner. What Dodd-Frank did, and this was very 
important, was it gave the United States the authority to 
designate a nonbank financial institution that could cause 
systemic--could cause broader damage to the system, like AIG, 
to give the Council the authority to designate those firms and 
give the Fed the ability to provide that broad, comprehensive 
oversight you referred to. And with that authority, the Council 
and its agencies are now carefully examining which of the firms 
out there that present that potential risk need to be brought 
within these broader, tougher constraints on capital and 
leverage. And the Council is in the process of doing that. It 
designated 2 weeks ago a set of financial market utilities for 
the same reasons, and it is looking very, very carefully not 
just at AIG--
    Mrs. Biggert. But they really haven't done anything about--
there is no oversight. Who is in charge of regulating AIG right 
now?
    Secretary Geithner. What the Congress does is give the 
Council and ultimately the Fed, if the Council designates that 
firm, that authority. And we are moving to put that in place.
    Mrs. Biggert. But does that mean that there is no regulator 
right now?
    Secretary Geithner. Under the laws of the land, that is 
true. That is the way our system works. That is why in Dodd-
Frank we asked for the authority to make sure that we could 
designate. And we are going to make sure we use that authority 
carefully, but we are moving carefully because, as you know, 
and many of your colleagues referred to this, when you think 
about how to apply these rules to insurance companies, other 
types of institutions, you want to do it carefully. So we are 
moving carefully. But AIG is a dramatically different entity 
than it was in 2007.
    Mrs. Biggert. Okay. But in addition, SIGTARP said there is 
no plan to wean AIG off of TARP. Could your team please submit 
the plan to SIGTARP and to Congress?
    Secretary Geithner. I am happy to brief you, but let me 
just say it briefly. We have--our remaining financial exposure 
to AIG of the taxpayer is in the form only of equity now. We 
have sold a large chunk of that. We plan to sell as much as we 
can as soon as we can because we want nothing more than 
recovering that taxpayers' money.
    But I would say, just to remind the committee that on 
current estimates--and this is a remarkable thing--the taxpayer 
will earn a substantial positive return on the full scope of 
tens of billions of dollars of exposure we took to AIG to 
protect the economy from its failures.
    Mrs. Biggert. Would you submit a plan?
    Mr. Dold. The gentlelady's time has expired. If you can 
just get back in writing on any questions, that would be great.
    Secretary Geithner. Again, I am happy to respond and lay 
out our broad view of how we get out of our remaining exposure.
    Mr. Dold. The Chair recognizes the gentlelady from New 
York, Ms. Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman.
    And thank you, Secretary Geithner, for your service.
    Some stakeholders have found that the LIBOR manipulation 
enriched the largest banks to the detriment of community and 
regional banks. As you know, community banks are a significant 
source of small business lending, and we have dealt with this 
issue since 2008, the lack of access to capital for small 
businesses, and as a result we passed the small business 
lending bill. Some firms have estimated that U.S. community 
banks sustained $448 million in damages for that year alone.
    My question to you is: How does an artificially low LIBOR 
rate hurt small banks that operate on slim profit margins and 
rely more on interest income than large banks?
    Secretary Geithner. That is an issue which a lot of people 
are taking a very careful look at. And it is a matter of 
litigation and ongoing review by the bunch of agencies that 
should be taking a look at it. And I think it will take a 
little time for them to give you a good answer to that basic 
question, but I am sure they would be happy to do that.
    Ms. Velazquez. Roughly $10 trillion in loans are indexed to 
LIBOR, affecting the cost of many financial products including 
mortgages and small business loans. What impact will the LIBOR 
scandal have on access to credit for small businesses?
    Secretary Geithner. I don't think it will have any material 
impact on access to credit for small businesses.
    Ms. Velazquez. So, Mr. Secretary, how do we restore public 
confidence in the financial sector?
    Secretary Geithner. We do it by making sure we put in place 
tough rules. We give people the resources and authority 
necessary to enforce those rules, and where the responsible 
agencies find evidence of bad behavior, they should be punished 
for it.
    That is what it is going to take, and I would just say the 
obvious. We, as the financial market of the United States, and 
those institutions that dominate it, obviously have a long way 
to go in restoring the trust and confidence of the American 
people and their ability to protect consumers and manage the 
risks they face.
    Ms. Velazquez. Okay. Thank you, Mr. Chairman.
    Mr. Dold. The Chair recognizes the gentleman from 
California, Mr. Miller, for 5 minutes.
    Mr. Miller of California. Thank you.
    Secretary Geithner, welcome. It is good to have you with us 
again.
    FSOC asked the Office of Financial Research to conduct a 
comprehensive study on the asset management industry, analyzing 
the extent to which such firms might pose systemic risk, and we 
sent you a letter in mid-June, and you haven't had time to 
respond to that, but I would like to ask some of the questions 
that we put to you in the letter.
    What process is the OFR using to receive formal input from 
the asset management industry and other groups, and when do you 
anticipate the OFR will conclude the study?
    Secretary Geithner. I don't know where they are in the 
process. I know they are making a lot of progress on it, and it 
is an important thing to do, in part because the Council has to 
figure out what to do with their designation authority for that 
mix of institutions, if anything. And what they are doing right 
now is taking advantage of all of the public information 
available about the risks, instruction in those institutions, 
what it means for the system, and they are going to be able to 
take advantage relatively quickly of the new disclosure 
requirements, reporting requirements, that the law passed in 
that context.
    But they are making progress, and I welcome your attention 
to it, and we would be happy to--
    Mr. Miller of California. Maybe you can respond to it in a 
letter. We don't have time today.
    Section 175 of Dodd-Frank requires the FSOC to confer with 
foreign regulators regarding global SIFI regulations. And 
global SIFI regulations crafted without effective international 
coordination will likely increase costs, confusion, and 
complexity. Even worse, they may be contradictory or harmful to 
the purposes of systemic risk which you have to deal with.
    What are you doing to ensure that global SIFI oversight is 
coordinated with foreign regulators and does not become worse, 
contradictory to foreign regulations; and if there is not 
global coordination, what impact could that have on the U.S. 
economy?
    Secretary Geithner. Briefly what this--what your colleague 
is referring to is the requirement that we have negotiated 
globally to put on the largest firms higher capital 
requirements against the risks they hold. So they are forced to 
hold more capital against risk than a smaller institution. That 
seems sensible and fair given the risk they pose to the system.
    Now, what we did is negotiate uniform rules. That is not 
enough, because you want to make sure they are enforced on a 
common basis, and that is a very challenging process to have a 
level playing field. So what the Fed is doing is trying to work 
out, with other supervisors and central banks, are ways to make 
sure that the rules are enforced in a consistent way.
    Mr. Miller of California. Are you applying that to foreign 
regulators also?
    Secretary Geithner. Exactly, and they are part of that 
process, too, because, of course, everybody wants there to be a 
level playing field.
    Mr. Miller of California. If we don't, it is going to be a 
detriment to our economy.
    Secretary Geithner. Exactly. Like in this area and many 
others, if you end up raising standards in the United States 
and leaving them lower and weaker outside the United States, 
then risks will just shift to those markets, and that will 
ultimately hurt us, too.
    Mr. Miller of California. Recent rulemakings by the Fed 
that apply to insurers include the Fed's recently proposed 
capital standards implementing the Basel III and Collins 
amendment. The big criticizers consider it to be bankcentric 
and unworkable. What actions do you think the Fed potentially 
needs to take to ensure that they are treating insurers as 
insurers and not banks?
    That is a tremendous concern from the insurance industry 
today, that they are getting into an area the Feds were never 
authorized to get into. Yet, it looks like the way the language 
is coming out, it is going to splash over, and it should not.
    Secretary Geithner. I am aware of that concern, and what 
the Federal Reserve has said in response to that concern is 
that they recognize that if they were in a position where they 
had to apply these broad standards on capital and leverage to a 
financial institution, that includes an insurance company, they 
would have to make some changes to it to recognize the specific 
differences in the insurance business from banking, and that 
makes sense.
    So they understand that, and they are taking a look, a 
careful look at it, and they have a team of people looking at 
how it would need to be adapted if in the end, as your 
colleague just referred, the Council decides to designate, for 
example, AIG, as just one example.
    Mr. Miller of California. I guess the question--if I can be 
direct, it will probably relieve a lot of concern by the 
industries--do you agree that capital standards need to be 
appropriately recognized, and the difference between banks and 
insurance companies absolutely needs to be defined where they 
don't splash over and one encompasses the other? Because I have 
been meeting with more and more bankers and insurance 
companies, but the insurance sector is extremely concerned that 
this splash-over that they are seeing out there is going to 
have a hugely detrimental impact on their organizations, and 
they are absolutely unprepared for it.
    Secretary Geithner. I agree with you that they have to be 
adapted and modified, probably not just in the capital area, 
too, and I think the Fed shares that view, too.
    I am actually much more confident, though, that they are 
going to be able to--if they are faced with that need, that 
they are going to be able to do it in a way to mitigate those 
concerns.
    Mr. Miller of California. And you agree those concerns need 
to be mitigated?
    Secretary Geithner. Absolutely, and I think they can be.
    Mr. Miller of California. I would like to see that 
implemented beyond--I understand your statement, and I agree 
with that, but I would like to make sure that it is 
implemented.
    I yield back, thank you.
    Mr. Dold. The gentleman yields back. The gentleman from 
North Carolina, Mr. Watt, is recognized for 5 minutes.
    Mr. Watt. Thank you, Mr. Chairman, and I thank the 
Secretary for being here.
    Mr. Secretary you have gotten a lot of questions about 
LIBOR, and I think that is important because it obviously 
affects rates at which individuals are able to get loans, so I 
don't want to minimize the importance of it. But I don't want 
to dwell on that. I actually want to deal with two other things 
that are significantly important in my community, one of which 
you referenced on page 4 of your testimony where you said the 
Council recommends a set of reforms to address structural 
vulnerabilities, particularly in wholesale short-term funding 
markets, such as money market funds.
    A lot of my constituents have funds invested in money 
market funds, so I am wondering if you would just send me or 
tell me where I can access what these recommended reforms are 
so that we can take a closer look at them. I won't dwell on 
that either, but that is important also.
    What I do want to dwell on is automobile dealerships 
because the Special Inspector General for the Troubled Asset 
Relief Program came out with a report. I understand that you 
all are disputing some of the conclusions that they reached, 
but the facts are hard to dispute, and those facts suggest that 
by June 10, 2009, Chrysler had terminated 789 dealerships, and 
General Motors had wound down 1,454 dealerships.
    That has a significant impact in all of our congressional 
districts. I want to approach it from the minority perspective, 
because the statistics indicate that the number of ethnic 
minority dealers was disproportionate in the number who were 
terminated, and that African-American-owned automobile dealers 
were hit the hardest with a decline of 50 percent, from 523 
dealerships owned to 261. A number of those were in my 
congressional district. When I was practicing law 20 years ago, 
I had five African-American-owned dealerships in my 
congressional district that I represented. They don't exist 
anymore.
    So my question to you is what leverage, if any, do we still 
have with these automobile companies to leverage them into 
being more aggressive in rebuilding those minority-owned--or at 
least in the new dealerships that are being opened, giving some 
preference, as they had been historically, to minority 
dealerships?
    Secretary Geithner. I would be happy to think about that 
question more and come back to you on it, and I understand your 
concern with it. I would say that we have been, and the 
President has been very clear that even though as part of our 
effort to save this industry in the crisis, we ended up owning, 
and still own GM, so a significant amount of common equity, we 
have been very careful not to get in the business of running 
those institutions.
    Mr. Watt. I understand that. I am not criticizing. I think 
it was wonderful that we bailed out the automobile industry. We 
wouldn't have a domestic industry if we had not done that, in 
my opinion. So I am not questioning that.
    The Inspector General says the government has had quite a 
role in pushing the termination of these things. I guess what I 
am asking for is you to give some thought to how we can now go 
back and help to restore. And we can talk more offline. I think 
my--I have 10 seconds left in this 5-minute interval here.
    So we can talk more. I just want your commitment to 
brainstorm with us about how we might be able to address this 
problem.
    Secretary Geithner. You have my commitment.
    Mr. Watt. I yield back.
    Mr. Dold. I thank the gentleman.
    The Chair recognizes the gentleman from New Jersey, Mr. 
Garrett, for 5 minutes.
    Mr. Garrett. And I thank you, Mr. Chairman and Mr. 
Secretary.
    Mr. Secretary, I hear all of the whispers on the LIBOR 
situation. You really can't have your cake and eat it, too. You 
have been before this committee countless times since 2008, and 
if this is the crime of the century, as so many people are 
reporting it to be, never once did you ever come and mention it 
as being a problem. Never once did you come here and say this 
is what you are going to do about it. Never once did you say 
these are the new regulations that you would propose for 
Congress to take.
    You worked with this Administration during the last 
Administration with the ranking member trying to pass a 2,300-
page Dodd-Frank piece of legislation. Never once during that 
entire discussion did you say this was a huge problem or a 
medium-sized problem, and we think this should be included in 
there. You never did that during the last 4 years, and now it 
comes out that this is the crime of the century, and something 
needs to be done about it.
    Chairman Bachus raised the issue and asked, why did you, 
knowing these problems, knowing the falsifications, go on 
working with the Fed, and set up these bailout programs with 
the AIG situation, where the--where you use LIBOR in there, and 
work with the benchmark in TALF?
    In essence, what your answer in all of those areas is, we 
are just like every--what did you say exactly? We did what 
investors did elsewhere. We are just like investors around the 
world.
    Mr. Secretary, you are not like investors around the world. 
You are the Secretary of the Treasury of the United States of 
America. You had the authority for 4 years to come to us, lay 
out the problem, and lay out the solutions. And for 4 years, 
you didn't do anything about it.
    Now, the banks may have made problems, and I am not 
defending them for 1 minute, but we are looking to the 
Secretary of the Treasury not to come in after the fact and do 
what every other regulator has done, and that is to point the 
finger at someone else.
    You also said, when people do wrong things, they should be 
punished. In the private sector, that occurred. If a private 
bank did something wrong, they have been punished in this 
situation to the tune of hundreds of millions of dollars. 
Someone lost their job because of this. When is something going 
to happen with the regulators who did something wrong here? 
When is something going to happen to the regulators who didn't 
catch this, didn't do anything about it, didn't change 
regulations, didn't tell anybody in Congress. Will they be 
fined? Will any regulator from the top down lose their job, Mr. 
Secretary?
    Secretary Geithner. Congressman, in my judgment the 
regulators did the necessary, appropriate thing in this 
context, and they started that process very early.
    Mr. Garrett. You told Congress about this?
    Secretary Geithner. No, well, let me explain what we did. 
Again, what we did--and, again, these concerns were in the 
public domain, a matter of public record.
    Mr. Garrett. Okay. I understand.
    Secretary Geithner. No, that is not what I am saying. I am 
saying that we did not take full responsibility for this having 
looked into these concerns and believed they were a problem, we 
took the initiative to brief the broader regulatory community, 
so they had that information even though it was in the press, 
and we pushed the British to resolve it. We did that very 
early. We did that very, very quickly.
    Mr. Garrett. Did the regulators implement any changes on 
the banks in this country with regard to their reporting this 
information, or their divisions, between their trading and 
their reporting information, did the banks take any action to 
make sure that this information, when you set up these new 
programs, that you were guaranteed, that you were assured that 
now the problem has been solved?
    Secretary Geithner. Again, the two things that happened--
and as I said in my other remarks, there is going to be more 
that is going to have to happen--is the British set in motion a 
set of reforms.
    Mr. Garrett. I am not asking about the British.
    Secretary Geithner. I am coming to that.
    And the CFTC initiated at that time a very far-reaching, 
confidential investigation that ultimately included the SEC and 
Justice, and as you have seen, it resulted in a very tough, 
appropriately tough, enforcement action. That is the way our 
system works, and that is the way it should work.
    Mr. Garrett. By the way, that is the same Justice 
Department that the chairman asked you whether you notified, 
and you indicated that they were not at the table, so you did 
not notify them.
    I am just taken aback by the fact that there is always so 
much finger pointing by the regulators after the fact.
    But let me now just turn to what you are here for today, 
and that is the nonbank SIFI designation. So we have the SIFI 
designation with regard to the banks. What are we seeing as the 
result? So we have the--those with over $50 billion of assets 
have been designated ``too-big-to-fail.'' We have seen a 
doubling down in size of this, the consolidation of the 
industry. Why does that occur? Because they know with the 
designation of ``too-big-to-fail,'' they are going to find 
their funds are cheaper. There is going to be consolidation in 
the industry. Why in the world would we want to extend this 
consolidation, this problem, to the nonfinancial sector?
    And I will just close with this: I think it is the wrong 
way to go. I will be dropping legislation in to try to prevent 
this. There is no reason to look at asset management firms, 
insurance companies, finance companies and designate them as 
``too-big-to-fail'' and spread the problem that we have in the 
banking sector over to this sector, and allow them to get 
cheaper funding because of this, allow them to swallow up their 
lesser entities. Why would you want to do that?
    Secretary Geithner. We have no intention of doing that. The 
law does not allow us to do that, and we would not want to do 
that for the reasons you said. And I don't think you are--I 
respect your concerns, but I don't think you are right to 
believe that designation itself will confer a financial 
advantage, and let me just explain why. The purpose of this 
authority is to make sure that institutions that could threaten 
the broader economy are required to hold capital against risk, 
and hold more capital against risk than other institutions than 
the market would force them to hold.
    I think if you listen carefully, if you look carefully at 
the markets now--there is a debate about this right now--you 
will find it hard to justify the view that designation is 
something firms would welcome, that it will come with an 
advantage. In fact, many of your colleagues are spending a lot 
of time trying to prevent us from designating firms because 
they are worried it will come with constraints that will be 
tough on them.
    But I understand your concern, respect your views on it, 
and we can debate this a long time. I am sure we will in the 
future.
    Mr. Garrett. I yield back the balance of my time.
    Mr. Dold. Thank you.
    The Chair recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. I am trying to understand what is going on 
here. British banks lied to the British Bankers' Association. 
The Bank of England and other British regulators screwed up and 
didn't catch them even though they got extraordinary outside 
help from an ocean away. And so since the British, some British 
bankers, lied and some British regulators screwed up, the 
solution is obvious: We have to blame America. In particular, 
we have to find some American we can blame, preferably one of 
the opposite political party.
    I, for one, am not part of the ``blame America first'' 
crowd. What happened in London has caused an awful lot of 
private contracts, mortgage--adjustable-rate mortgages, et 
cetera, to be off by perhaps a half a dozen or a dozen basis 
points. That is not a huge outcome for any one individual 
consumer, and in many cases the consumer benefited. And some 
consumers and ordinary investors were hurt.
    But today we have attorneys, American attorneys, who have 
forms. They have mortgage forms, they have contracts, and they 
have all got plugged in there LIBOR, one or another kind of 
LIBOR. And it is natural for them to want to have a dollar-
denominated, interest-rate-sensitive adjustment mechanism in 
their contracts, but I think now most of them would prefer to 
have one that is not a result of a few private actors acting 
privately. They would prefer to have a government-released 
rate, or maybe one that is tied to a public market, auction 
market, that is so broad that it can't be manipulated.
    A few in my own party have suggested that I return to the 
practice of law, and therefore, when I get--go back to my old 
forms, and they say ``LIBOR,'' what alternative benchmarks are 
available?
    Secretary Geithner. We are, and everybody else is, taking a 
very good look at just that question, and there are lots of 
potential alternatives to this. The challenge, though, is not 
finding a rate that captures the government's cost of funds; 
the challenge is trying to figure out what is the way to 
capture the credit risk and exposure to a bank.
    The right people are taking a look at just that question, 
and they are going to do it carefully and look at all of the 
alternatives, and they will brief us and brief you as they go 
through that process.
    Mr. Sherman. I would hope very much--one of the things they 
like the Federal Government to do is weights and measure, and 
it would be great if you could release this. And there are 
going to be court cases where people go in and seek 
modification of contracts, prospectively or retroactively, and 
it would be great if judges can turn to the Secretary of the 
Treasury and say, when the parties agreed to LIBOR, they didn't 
agree to something private and subject to manipulation. And the 
thing that isn't subject to manipulation, that is closest is a 
report that I look forward to getting from your Department.
    In your opening statement you said, as we move forward, we 
must take care not to undermine the housing market, which is 
showing signs of recovery, but is still weak in many areas. A 
few have suggested that one of the great things we could do for 
the Federal Treasury is to eliminate the home mortgage 
deduction and eliminate the property tax deduction. That would 
no doubt drive housing prices down, and I wonder whether a 
decline in housing prices would be bad for the economy, bad for 
the deficit, but particularly bad given the fact that today we 
are not just a government. You happen to own a couple of large 
companies, Fannie Mae and Freddie Mac, and obviously, if home 
prices go down, foreclosures go up, and the loss on each 
foreclosure goes up.
    So obviously, home mortgage, losing the home mortgage 
deduction would bring in some money, but what effect would it 
have on the Federal Government through its effect on the 
economy, and Fannie and Freddie?
    Secretary Geithner. I think you were right in describing 
the effect, and I think that it is important to remind people 
that we have a very long way to go to repair the remaining 
damage in the housing market. And I think our overwhelming 
obligation now still is to be doing everything we can to give 
people a chance who can afford to, to just stay in their homes, 
transition to other types of housing opportunities, take 
advantage of short sales, and repair and heal the terrible 
damage still out there.
    That has to be our overwhelming responsibility still, and 
we are going to continue to use all of the authority we have, 
but also to encourage Congress, like we have, in considering 
legislation to make it easier to refinance if you are 
underwater, do things which would help our broader objective. 
We need to be very sensitive to it still. And, of course, as we 
do those things, we want to make sure we are not making the 
long-term problems worse for the country and the taxpayer, and 
we will be very attentive to that, too.
    Mr. Sherman. Thank you.
    Mr. Dold. The Chair recognizes the gentleman from Texas, 
Mr. Neugebauer, for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Secretary, it is good to have you back.
    Mr. Secretary, I want to go back to April of 2008, and I 
think that is when you were President of the Federal Reserve 
Bank in New York, you first addressed or started addressing the 
issue of LIBOR. Now, were you aware in the fall of 2007 that 
some informal emails were coming into the New York Fed saying 
that there was something up with LIBOR?
    Secretary Geithner. Congressman, I do not believe that I 
was aware of those specific concerns before that period, 
roughly in the spring of 2008. But in response to your request 
and others, the New York Fed, my colleagues are going back and 
looking at the full range of things available, and we will 
share that with you, make sure you have that.
    Mr. Neugebauer. And I was looking at your response back to 
the Bank of England about this disclosure, and basically I 
thought what you made in I think it was five or six bullet 
points there, some structural recommendations of how maybe 
LIBOR could be more reflective.
    But here is my issue with that. If they were having 
structural problems, I thought your email was appropriate. But 
what was being disclosed here was fraud, that this rate was 
being manipulated. Mr. Dzivi, who is the--I guess he was the 
Special Counsel for the Federal Financial Crisis Inquiry 
Commission--said the regulator has an obligation to make a 
criminal referral if he suspects a crime may have occurred, and 
how manipulating LIBOR didn't rise to that level is a little 
puzzling to him, and it is a little puzzling to me.
    Secretary Geithner. I think you should think about--I 
thought about this in two different ways. One is you had a rate 
set in London overseen by the British Bankers' Association, 
which, because of its design, created not just the incentive to 
underreport, but the opportunity to do that.
    That was a problem for a lot of different reasons, 
including the opportunity it created for fraud and 
manipulation, not just underreporting. So it was very important 
that there be an effort to fix those problems in the rate, and, 
of course, our first instinct, as you might expect, at that 
point was to go to the British, and they said, we agree with 
you. We are on it.
    Now, we didn't know whether that was going to be sufficient 
or not, so we also did, I think, the appropriate thing. Again, 
we did it at an early stage, even though these concerns were in 
the press. And we went and briefed the relevant authorities 
with enforcement authority and responsibility for fraud and 
manipulation so that they would have the ability to choose 
whether to act on those concerns. And we thought the 
combination of the concerns in the public domain and the 
efforts we took directly with them provided more than enough 
basis for action. So not just reform the structure of the rate, 
but to pursue the behavior that was obviously so consequential.
    Mr. Neugebauer. I talked to Mr. Gensler, and he said really 
where they got their information to proceed was not from the 
New York Fed, but basically from The Wall Street Journal 
article that prompted them to open up an enforcement action.
    But, it wasn't just a British problem. You know well, and 
you have been involved in the financial markets for a very long 
time. You are very knowledgeable. You had to know that 
manipulating LIBOR wasn't a small impact. There were people on 
the buy side and the sell side. Some people benefited, but some 
people were losers because of that. And a lot of financial 
transactions, as one of my colleagues mentions, are tied to 
that and indexed off of that. And the outcome of that 
transaction is based on that. So, there are domestic U.S. banks 
that are a part of that.
    Secretary Geithner. Absolutely, I agree with you. This rate 
had implications for not just the United States, but for 
financial markets around the world and currencies.
    Mr. Neugebauer. The world.
    Secretary Geithner. And that is why we did what we did. We 
did not view this as something that was some small, life-
related problem with the impact limited to London in that 
context, and you are exactly right.
    So, again, what we did was try to push them to fix it, 
reform it--``fix'' is a bad word in this context--and to make 
sure that the U.S. enforcement agencies and authorities were 
able to focus on--
    Mr. Neugebauer. I am going to interrupt you there just a 
minute, because--after the June memo, did you ever follow up 
and say, hey, what have you guys done since our last 
conversation or our last memo?
    Secretary Geithner. We did, and my colleagues did. And the 
British Bankers' Association at three separate points, I think, 
after we acted in this context announced some changes to that 
process. But obviously, we don't think they went far enough.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from New York, Mr. 
Meeks, for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Secretary, I want to go back to something in the area 
of what Mr. Sherman was talking about. I understand and agree 
that LIBOR is very important, but what I have found to be a 
continuing divide between--is Wall Street and Main Street. And 
you touched on it previously, in answer to Mr. Sherman's 
question, that there is a lot to be done for those individuals 
who are underwater in mortgages and that whole area.
    I believe we did the right thing when we did TARP, but 
there are a lot of questions now with reference to--and here is 
what Main Street says: ``Well, we helped out others; what 
happens to me? Why can't we get a hand up on this stuff?''
    Recently, I saw in the New York Times there was some, I 
think, out-of-the-box type of proposals, one of which where 
governments have used the legal doctrine of eminent domain. And 
people look at it generally in real estate or in property, but 
using eminent domain to purchase underwater mortgages at a 
fair-market value, then work with private investors to reissue 
new mortgages with smaller balances to homeowners. In so doing, 
homeowners would no longer be underwater and would be able to 
repair their credit rating so that they would not be--not 
likely default, and thus new investors would be repaid, and the 
taxpayers won't be involved. There won't be anything added to 
the budget.
    So my first question is, to me, that sounded like somewhat 
out-of-the-box thinking. Have you, or the Administration or 
Treasury thought about--what do you think about that kind of 
proposal? And if you are not thinking about this in particular, 
what kind of out-of-the-box thoughts do you have to help 
homeowners?
    Secretary Geithner. We are carefully looking at exactly 
that proposal. It raises a lot of complicated legal and policy 
questions, but we have to look at those carefully in this 
context.
    I do think it is important to recognize that there is a 
broad range of other tools available for States, probably 
because we have helped them by providing them money through the 
Hardest Hit Fund, available to the GSEs themselves, Fannie and 
Freddie, within existing authority, to provide principal 
reduction to homeowners who are deeply underwater, but can 
afford to make payments if their mortgages are modified in that 
context.
    We have been very supportive of those programs and the 
programs we administer under HAMP, and we have encouraged the 
other agencies to take advantage of those things, and we are 
going to continue to do that. But we will carefully look at 
those proposals and look at all of their implications.
    Mr. Meeks. Because clearly, and you mentioned HAMP, which 
has been a good program, but too many people have not been able 
to take advantage of it. And, too many are still suffering. And 
part of that same piece, Wall Street, Main Street, is banks 
lending money.
    There was another article that was in The Wall Street 
Journal, I think it was by Alan Blinder, where he was talking 
about an effort to get banks to lend money again. And he talked 
about the central banks in Europe cutting their interest they 
pay on excess reserves to zero; that the Danish cut it to a 
negative 0.2 percent, meaning banks have to pay the central 
bank to keep reserves with them; and that this was a powerful 
incentive to either lend or--have the bank to either lend money 
or put money into the markets.
    Now, you work closely with the Federal Reserve. Do you 
think a policy or something like that would be beneficial if it 
was implemented here, and would it help our economy?
    Secretary Geithner. Congressman, I want to be very careful 
not to comment on the authorities the Fed has or how to use 
them just in respect of the independence of the Fed. But I will 
tell you my general view on this. The economy is not growing 
fast enough. Unemployment is very high. There is a huge amount 
of damage left in the housing market. Americans are still 
living with the scars of this crisis.
    The institutions with authority should be doing everything 
they can to try to make economic growth stronger. That is an 
obligation we all share. Congress, under the Constitution, has 
the authority for the most powerful tools we have available to 
help economic growth. We would like Congress to use those tools 
now in this context. And, again, we will keep supporting 
anything practical, sensible that would make growth stronger; 
help get more people back to work; help make credit more 
available to people, not just to buy a home or to refinance a 
mortgage, but to make sure businesses can expand to meet 
growing demand for their products.
    We made a lot of progress doing that. Lending to small 
businesses is growing. Lending to the overall economy is 
growing. It is shrinking in Europe still. It is growing in the 
United States because of the things we did. But we have a lot 
of work to do, and I think that given the damage remaining from 
this crisis, the obligation we all share still would be to do 
as much as we can to make sure we are getting growth stronger.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
McHenry, for 5 minutes.
    Mr. McHenry. Thank you, Mr. Chairman.
    Mr. Secretary, thanks for being here today.
    Just to note for the record, about Vice Chairman 
Hensarling's and Congressman Garrett's line of questioning 
about the LIBOR issue, it was about 3 months later that--after 
you, the LIBOR issue came to note, and you shared this 
information that you agreed to the AIG credit line that was 
tied to LIBOR. I just want to note that for the record. The 
taxpayers are on the hook for that, $85 billion.
    So, Mr. Secretary, the unresolved eurozone debt crisis 
obviously had a severe consequence for the global economy. Do 
you agree?
    Secretary Geithner. Oh, absolutely.
    Mr. McHenry. That has an impact on the American economy; 
does it not?
    Secretary Geithner. It has already had a significant impact 
in slowing growth here and around the world, yes.
    Mr. McHenry. A significant impact.
    Secretary Geithner. Yes.
    Mr. McHenry. So in the FSOC report you say concerning the 
Spanish fiscal performance--concerns about the Spanish fiscal 
performance have persisted, fueling doubts about the prudence 
of adhering to strict budget targets amid deepening recession. 
And as a result, euro area finance ministers agreed to a 
relaxation of Spain's fiscal targets and assistance to 
recapitalize its troubled banking sector. Market reacted 
adversely to this.
    It seems to me that Spain is proof positive that relaxing 
fiscal targets and spending more money just doesn't work. So 
would Spain be better off had they maintained or adhered to 
more austere fiscal targets?
    Secretary Geithner. My own view is that the actions the 
Spanish Government is taking and the strategy that the 
Europeans support in that context is moving in the right 
direction. Let me just explain why. You are right to remind us 
all that if you have unsustainable deficits over time, and you 
leave them unaddressed, it is going to hurt you economically, 
absolutely. We agree with that. But when you are in recession, 
as Europe is, or even if you are in a period where growth is 
still slow, you want to be very careful that when you are 
putting in place reforms to address those long-term questions 
of sustainability, you do so where they are phased in gradually 
over time, and they aren't making the growth challenges worse.
    Mr. McHenry. Sure.
    Secretary Geithner. The balance is going to differ across 
countries. What is appropriate for Spain now would be very 
different than what is appropriate for Italy, and certainly no 
comparison to what is appropriate for us.
    Mr. McHenry. Do you believe that the issues in the eurozone 
are going to get worse before they get better?
    Secretary Geithner. It depends on the choices they make 
going forward. Again, they are doing a set of important, 
necessary, tough things on the reform side to make their 
economies work better, more competitive, but also to make sure 
that the institutions of Europe over time create better fiscal 
disciplines and better management of their financial systems, 
which got very big and very risky, very leveraged. But in the 
near term, they are going to have to do more to make sure there 
is confidence in their markets and banking systems, and those 
countries that are doing these right things face lower 
borrowing rates.
    Mr. McHenry. Of note, though, of interest, which is there 
might be a parallel, there may not be, but U.S. public debt as 
a percentage of the GDP is greater than it was in Spain, when 
their 10-year Spanish sovereign jacked up to 7 percent when all 
of this action took place.
    So do you think that the market is already discounting sort 
of the adverse consequences of the eurozone crisis on the world 
economy?
    Secretary Geithner. There is no way to know that. You just 
can't tell. You know what markets do, and you know markets get 
things wrong.
    Mr. McHenry. You only can tell in looking back, right?
    Secretary Geithner. And even then you can't really tell. 
What you can tell is the market every day is making a new 
assessment about whether the European leaders are going to do 
enough to hold it together. They have committed to do that. 
They have said that is their intention, their plans. They have 
the ability to do that, but--
    Mr. McHenry. But my question to you with the time remaining 
is what is the Obama Administration's plan that you are putting 
forward for the eurozone debt crisis? I know there have been 
numerous summits. You are frequently there. You are spending a 
significant amount of time on a significant problem; are you 
not?
    Secretary Geithner. I am.
    Mr. McHenry. Okay. So do you have any plans, like a Bretton 
Woods-style large action by the world to take on this issue? 
What is the Obama Administration's plan? You said it has a 
significant impact on our economy. What is the significant plan 
you are putting forward to take on and to actually show some 
leadership on this?
    Secretary Geithner. As you know, and as the European 
leaders have said in public, we have played a very active role 
in encouraging them to move much more aggressively to contain 
the damage from this crisis. And we have been careful to help 
where we had the ability to help in that context, mitigate the 
pressure on us, we have done that. The Fed swap lines are one 
example of that. We have also been very supportive of the IMF 
in some circumstances coming in, and on tough conditions for 
reform, providing some assistance in that context, and we will 
continue to do that.
    But fundamentally this is--the solutions to this problem 
are going to have to come from the Europeans. They are the ones 
who are going to have to finance it. They are the ones who are 
going to have to agree on it. It has to fit with their politics 
and their economics.
    We can't want this more than them. What we can do is what 
we are doing was try to put--pressure is the wrong word--to 
put--I will use it--to put as much pressure as we can on them 
to move more quickly and credibly to address this because of 
the implications for us.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from Massachusetts, Mr. 
Capuano, for 5 minutes.
    Mr. Capuano. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    Mr. Secretary, we have heard a lot of people now who 
obviously think--some people think you didn't do enough in 
2008, and that is great. But it kind of strikes me that these 
are the very same people who thought you were doing too much 
probably most of the time. They don't like any regulation. They 
are currently undercutting and defunding the SEC and the CFTC 
and others who do regulation. They argue against every 
regulation on everything, no matter what it is, particularly in 
the financial services industry, and they learned nothing from 
2008.
    Do you think that is really the best way to move forward? 
What would you say to people who say that now that--we are not 
happy with what you didn't do before, but now we don't like 
what you are doing now?
    Secretary Geithner. I don't know what to say to them except 
to say, as you did, that we have had compelling, overwhelmingly 
compelling evidence in the financial crisis of the damage you 
can do to the average American when you allow a system to 
outgrow any sensible set of protections and safeguards for 
consumers, et cetera, and that is what happened to our country. 
And the responsibility of this body and of the Executive Branch 
is to make sure we put reforms in place that prevent that from 
happening, and that is what we are working so very hard to do.
    And as you said, we are facing enormous opposition to doing 
that, and we are going to work against that because we are 
going to make sure these reforms are tough. But, again, you 
need to not just have good design, tougher rules and 
protections; you need to have agencies--
    Mr. Capuano. Do you think the word ``hypocritical'' might 
be appropriate here?
    Secretary Geithner. I would leave that to others to say. 
But, again, as I said in my opening statement, we need the 
support of this committee and this Congress to put these rules 
in place and to make sure these agencies have the resources 
they need to enforce them.
    Mr. Capuano. On another matter, Mr. Secretary, I am just 
curious, do you agree with Moody's comments that they made on 
June 21st of this year when they downgraded 15 financial 
institutions? On page 14, and this is a direct quote from the 
page, ``We believe the FDIC--and I assume they mean others--
remains committed to achieving the goals set out in Title II of 
Dodd-Frank, including ending bailouts of too-big-to-fail 
institutions.''
    Do you agree with the Moody's assessment?
    Secretary Geithner. I will say it this way. I try to never 
comment on those reports, for obvious reasons. But what they 
point out, as your colleagues have done today, is to remind 
people that under these reforms, Congress has limited very 
significantly the ability of the Government of the United 
States to in the future come in and protect an institution from 
its failures.
    And for that reason, if you look at the financial markets 
today, there is much less confidence in markets--and this is a 
good thing, fundamentally--that Congress or the Administration 
in the future would come in and protect them from their 
mistakes. And that is a good thing, and you are right to 
highlight it.
    Mr. Capuano. It also strikes me, on another matter, that 
some of the very same people who voted to repeal the Glass-
Steagall Act are also the ones complaining that some banks are 
getting bigger today. I happen to agree with them; I voted 
against that repeal. And I wish they had voted against that 
repeal, as well, but they didn't.
    Obviously, the LIBOR matter can't be ignored today, and I 
don't intend to ignore it. But I am not interested in rehashing 
history because that will come out over the next several months 
as to what was done and what wasn't. This isn't the place for 
it.
    But, nonetheless, I will tell you that since we passed 
Dodd-Frank, in just the last year or so, we have had the MF 
Global issue, we have had Capital One having a significant 
fine, and now we have seen Barclays has agreed to a $450 
million fine. All those numbers are big, but $450 million to 
Barclays is about 1 percent of their annual revenue. So it is 
interesting, it is a good number, but it is not the kind of 
number that is going to change anything.
    And yet, on page 9 of the executive summary of FSOC's 
report, you, I think quite properly--or the drafters quite 
properly point out, ``The vulnerabilities in the financial 
system can be grouped into three broad classes.'' They do one 
and two. The third class states, ``and behavioral 
vulnerabilities, the incentives to take too much risk.'' I 
understand you are working on that, and we will continue to do 
that. But, obviously, those are not in place yet; otherwise, 
these instances wouldn't have happened. They took too much 
risk--maybe a different type of risk, the risk of manipulating 
a market.
    But I would ask a simple question. I know this is not your 
place, as the Secretary of the Treasury. But as a member of 
FSOC, more importantly, do you think it would be appropriate 
for FSOC to stay in touch or be in touch with the Justice 
Department to inform them--and I guess I would first ask you 
the question, do you think the markets would be well-served if 
individuals were held liable for criminal activity, if there is 
criminal activity here?
    Now, certainly, Barclays and the Justice Department have 
indicated that there might be criminal activity in this LIBOR 
situation. Many of us think so. But if people are doing 
something wrong, at some point, some individual has to be held 
responsible. At least, that is my opinion, and I guess I would 
like to hear your opinion on the matter.
    Secretary Geithner. I want to be careful not to respond 
directly to the question you raised about these enforcement 
actions, but I will say the following: It is very important to 
this country that we have in place a very tough enforcement 
regime so that people who violate the law are held accountable 
for their actions, so that they are not just held accountable 
but that we are deterring others from engaging in that 
behavior.
    We have a huge interest as a country in trying to restore a 
sufficiently powerful enforcement mechanism. And part of that 
is good rules against manipulation and abuse, but a big part of 
it is to make sure that there are adequate resources available 
to enforcement agencies. If we starve them of resources, they 
will not be able to do an adequate job of protecting investors 
and consumers in this context.
    So I am very supportive of that basic imperative, and we 
are going to keep working very hard to meet that test.
    Mr. Capuano. Thank you, Mr. Secretary.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from New Mexico, Mr. 
Pearce, for 5 minutes.
    Mr. Pearce. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    As you respond to Ms. Maloney on the questions about the 
separation of the investment banks from the independent 
community bankers, I would like to be included in that written 
response.
    I have to say that you have an impressive resume: 
Dartmouth, Johns Hopkins, started young in the Department of 
the Treasury, worked for five Secretaries of the Treasury, 
Chairman of the New York Fed, Secretary of the Treasury. 
Notwithstanding one of my friends on the other side of the 
aisle trying to make you sound like a choir boy in the room 
with these terrible Bush appointees who were kind of 
overwhelming you, you have a really strong resume and you have 
accomplished a lot.
    I think you recognize there are critics who said you didn't 
have enough experience when you went with the New York Fed. 
There are critics who--you all said that--I think the 
estimation is that you worked with the Bush Administration, Mr. 
Paulson, to minimize the effects in 2008. And there are people 
who strongly question whether or not the actions actually did 
that or they didn't. And so, we can accept the fact that there 
are discussions.
    I don't know fancy policy. I am just a Congressman from New 
Mexico. We don't have big banking institutions. I am not going 
to sit here and dazzle you with some question that is going to 
reorient your thinking about the country. But I have an 
obligation to those people who elected me to represent them.
    Now, the whole idea the Administration came in with was a 
definite change for the country, and it was pitched that this 
is the hope for the future. And we have sustained 8 percent 
unemployment, we have financial difficulties that are erupting 
everywhere, you have pension systems that are going to fall 
trillions of dollars short that is going to make the debt in 
Europe look small.
    And it looks like you are not going to stay. If you don't 
believe in the pathway that you have laid out--I am just going 
by what our friends on the other side of the aisle said, that 
this is probably the last time. I don't know, I haven't read 
any reports, I am not on the inside of that room.
    So if you are going to go, or even if you stay, why should 
the people of New Mexico, who are all 99 percent--I doubt we 
have any of the 1 percenters in New Mexico--why should they 
believe and trust you or the policies that you have set in 
place?
    Secretary Geithner. Let me just say a few things in 
response to that.
    I believe very strongly that this country, this economy, is 
in a much stronger place than it was when the President took 
office. I think by every measure, we are in a dramatically 
stronger place and a much better position to deal with the many 
challenges still ahead of us. And we face many challenges 
still, not just on our fiscal deficits and the remaining 
problems people face getting a job or keeping a home.
    I also believe that the policies we have laid out, have put 
before the Congress, are the best way to make the country 
stronger, not just to go back to living within our means, but 
to make sure we are protecting the safety net for Americans and 
that we are making the economy more competitive in the future 
in that context. So I am strongly committed to those things.
    Now, you are right that, like you, I am in public office. I 
have the privilege, in that context, of making lots of 
decisions. Those decisions are going to be controversial 
decisions. I have taken a lot of criticism for judgments I have 
had to make from both sides. All I can do and what is my 
responsibility is to do what I think is in the public interest 
and to help the President deal with the problems facing the 
country.
    Those judgments are going to be viewed by everybody, looked 
at, appropriately. And I fully respect the process of oversight 
you guys undertake in this context. It is the right thing to 
do, and you guys should do that process. But all I can do is 
make sure I am doing things that I think are in the public 
interest.
    Mr. Pearce. Okay, I appreciate that.
    On page 4, the FSOC report talks about the fact that 
budgetary trims are unsustainable. In your written testimony, 
you talk about the fact that the budgets are being cut, that 
government spending is being cut, which is causing a weakness 
of the economy.
    So when the report talks about how the budget trims are 
unsustainable, is that talking about the debt and the deficits, 
or is that talking about the cutting and spending that is 
occurring, in your opinion?
    Secretary Geithner. It is true that government spending is 
falling across the American economy, and that is making growth 
weaker than it would otherwise be. It is also true, of course, 
that our long-term deficits are unsustainable, and it would be 
good for the country for Congress to enact--
    Mr. Pearce. Why are they unsustainable? What is the problem 
with those? What is the problem with debt?
    Secretary Geithner. The deficits are too high, and if left 
unaddressed, then our debt will grow to be too large, and 
ultimately--
    Mr. Pearce. Let me finish up here. I just have a second.
    I noticed that you spent a lot of time in very strong words 
talking about the debt discussion, the debt-ceiling 
discussion--
    Mr. Dold. The gentleman's time has expired.
    Mr. Pearce. --but almost no time talking about debt. And I 
think that is a huge indication of where you are.
    Mr. Dold. If you could just give that to us in writing, 
that would be great.
    The gentleman's time has expired.
    The Chair recognizes the gentleman from Massachusetts, Mr. 
Lynch, for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman.
    Mr. Secretary, I want to thank you, as well, for helping 
the committee with its work.
    There is a document that has been referred to a number of 
times. Let me first ask you--this is regarding your response 
back in 2008, when--I believe it was in April of 2008--there 
was a series of articles that came up in the British press, 
also in the Financial Times, about the possible manipulation of 
LIBOR by some of the British banks. And then you had an 
opportunity, you responded, if I understand your earlier 
testimony, you informed the President's Working Group on 
Financial Reform.
    And just to be clear on that, back then it was Secretary 
Paulson, it was Ben Bernanke at the Fed, it was Chris Cox at 
the SEC, and who was the fourth member? The CFTC? Do you 
remember?
    Secretary Geithner. The CFTC. And there were other 
agencies, too, represented on that, but it was the heads of all 
the agencies.
    Mr. Lynch. Okay.
    So, after you informed them, you also--I have a document 
that has been mentioned a few times. It is a memo. It is dated 
6/1/2008, 5:00 p.m., and the cover page says it was actually 
delivered the previous Tuesday. It is addressed to Mervyn King. 
Was he the governor of the Bank of England at that time?
    Secretary Geithner. Yes.
    Mr. Lynch. And then, it is from you.
    So can I have somebody--I want to put a fine point on this, 
because you have talked about your response, but in subsequent 
questions it seems to be ignored. So I just want to make sure 
this goes into the record and that we have a clear 
understanding of what you actually did when you were at the 
Federal Reserve Bank.
    It has here a--it says, ``Recommendations for Enhancing the 
Credibility of LIBOR,'' FRBNY Markets and Research and 
Statistics Group. Do you recall what the recommendations that 
you made--this is unfair. I have the document and you don't.
    That would help. Thank you.
    I think, to save time, maybe you could just look at the 
document and say exactly what it is, rather than me asking you 
these questions one at a time.
    Secretary Geithner. The six specific recommendations read 
as follows: strengthen governance and establish a credible 
reporting procedure; increase the size and broaden the 
composition of the U.S. Dollar Panel; add a second U.S. dollar 
LIBOR fixing for the U.S. market; specify transaction size; 
only report the LIBOR maturities for which there is a net 
benefit; and eliminate incentives to misreport. Under each of 
those subheadings, we gave a series of specific suggestions for 
how to do that.
    And, again, that goes on to explain, in pretty significant 
detail, the range of potential vulnerabilities in the way this 
thing was being run.
    Mr. Lynch. Exactly.
    Mr. Chairman, I would ask unanimous consent that this memo 
from Secretary Geithner--actually, back then, the head of the 
Federal Reserve Bank of New York, to the governor of the Bank 
of England be accepted into the record.
    Mr. Dold. Without objection, it is so ordered.
    Mr. Lynch. Thank you.
    Mr. Secretary, there is also an article that came out 
yesterday in the press, and I can't lay my hands on it, but it 
talked about the fact that a lot of the requests for 
manipulating LIBOR came from traders who were asking to lower 
LIBOR, as opposed to coming from lenders asking to raise LIBOR 
to enhance their loan portfolios.
    In this particular article--and I wish I had it with me--it 
talked about the fact that for Barclays and a number of these 
other banks, two-thirds of their depository assets were 
actually invested and used in their trading portfolio, and only 
one-third of their depository assets were used for making 
loans. So there was a bigger upside if they could lower LIBOR 
and enhance their trading positions, as opposed to raising the 
interest rate to enhance their loan performance.
    This goes back to really what the Volcker Rule is trying to 
get at. And I just want to know, do you think that fact, that 
banks--and this goes to Mr. Weill's--I know Mrs. Maloney talked 
about Sandy Weill this morning on ``Squawk Box,'' talked about 
the fact that maybe we have to go back and look at what banks 
are doing. And if we are going to have the taxpayers 
supporting--
    Mr. Dold. The gentleman's time--
    Mr. Lynch. --their conduct and the performance of their 
basic businesses--
    Mr. Dold. The gentleman's time has expired.
    Mr. Lynch. --is it better to separate the risk-taking 
versus the traditional lending?
    Secretary Geithner. Good question. And, again, in response 
to that general set of questions about how to think about the 
Volcker Rule in this context and what other things we can do to 
mitigate risk, I will be happy to respond more to the Member's 
questions.
    Mr. Lynch. Thank you, Mr. Secretary.
    I yield back.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from Pennsylvania, Mr. 
Fitzpatrick, for 5 minutes.
    Mr. Fitzpatrick. Thank you, Mr. Secretary, for your 
testimony, your time today, and for the report.
    I wanted to follow up on the questions that Mr. Pearce was 
asking regarding annual budget deficits and the growing 
national debt. In the report, on page 8, entitled, ``Potential 
Emerging Threats to United States Financial Stability,'' you 
write that, ``Threats to financial stability, like threats to 
national security, are always present, even if they are not 
always easy to discern in advance.''
    A couple of years ago, Admiral Michael Mullen, at the time 
the Chairman of the Joint Chiefs of Staff, said that the 
greatest threat to our national security is our national debt, 
which shocked a lot of people. Do you agree that a growing 
national debt is a significant threat to our economic and 
financial security going forward?
    Secretary Geithner. If left unaddressed, our long-term 
fiscal deficits would damage the American economy. I agree, if 
left unaddressed, that would be true.
    Mr. Fitzpatrick. Henry Morgenthau, Jr., was, of course, 
Secretary of the Treasury under President Franklin Delano 
Roosevelt, and he has been often quoted recently. One 
particular quote I just want to highlight here. He said, I 
think it was in the late 1930s, ``We are spending more money 
than we have ever spent before, and it does not work. I want to 
see this country prosperous. I want to see people get a job. We 
have never made good on our promises. I say after 8 years of 
this Administration we have just as much unemployment as when 
we started and an enormous debt to boot.''
    What is different between the late 1930s and what is 
happening right now, in light of Secretary Morgenthau's 
comment?
    Secretary Geithner. That is a good question and a good 
context, and it is worth looking back to that point.
    Chairman Greenspan and others have said that this crisis 
was caused by a shock, a storm much larger than what caused the 
Great Depression, but because of the things we did, we were 
able to get the economy growing again much more quickly. And 
the economy is really much stronger than it was at that period 
in history that you referred to and much stronger than it was 
when we came into office.
    The fiscal challenges we face--you are right to say that 
those deficits are unsustainable, but these are very manageable 
challenges for our country at this time in history. They are 
much more manageable than the challenges that are faced by any 
other country around the world.
    And I think the challenge we face is not just to recognize 
they are unsustainable and to work to bring them down to earth, 
but we have to decide how to do it. Because in doing that, we 
have to balance the obvious concern, we need to have growth 
stronger, but also we have to protect our national security 
interests and we have to make sure we protect the basic safety 
net for retirees and for low-income Americans. So we are going 
to have to make some tough choices about what do we do for 
education, what do we do for infrastructure, what do we do for 
incentives for investment so we are making growth stronger over 
the long run, as we figure out a way how to make sure that we 
make those commitments to retirees and to low-income Americans 
more sustainable over time.
    And I think that is the challenge. I think that is what 
separates us. What separates us is not a recognition that these 
fiscal deficits are unsustainable. What separates us is a 
debate about what is the best composition of spending, savings, 
and tax reforms to restore sustainability.
    Mr. Fitzpatrick. Normally, what follows a debate is a 
budget resolution. Would you agree, in order to bring this back 
down to manageable levels, wouldn't passing a budget resolution 
in both houses of the Congress put us on a path toward getting 
those deficits under control?
    Secretary Geithner. I know where you are coming from on 
that question, but I would just make the obvious point that you 
are right that Congress has to act. It won't happen on its own. 
It is not enough for us to propose things. Congress has to come 
together and negotiate a framework that brings these reforms--
    Mr. Fitzpatrick. So you are aware it has been over 3 years 
since the Senate Democrats have passed a budget resolution. We 
passed one this year, we passed one last year; that hasn't 
stopped the Federal Government from spending $10 trillion since 
the Senate has passed a budget resolution.
    Section 112(b)(2) of Dodd-Frank requires that each voting 
member of the FSOC submit a signed statement indicating what 
reasonable steps such member believes the government should be 
taking to ensure financial stability. Yet neither the annual 
report nor any individual member has recommended that the 
Senate Democrats pass a budget resolution.
    Any comment on that?
    Secretary Geithner. That is true, but, again, I think it 
would be strange if we were to ask the SEC or the CFTC to tell 
Congress how it should restore fiscal sustainability. And, 
again, there is nothing standing in the way of Congress taking 
more action--it has taken some action--taking more action to 
reduce the deficit, except that you need both sides to come 
together and reach some agreement.
    Mr. Fitzpatrick. I yield back.
    Mr. Dold. The gentleman's time has expired.
    The Chair recognizes the gentleman from North Carolina, Mr. 
Miller, for 5 minutes.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman.
    Secretary Geithner, you have said today and previously that 
you and others at the New York Fed became aware in 2008 that 
there were concerns about LIBOR, that LIBOR was vulnerable to 
manipulation, it was essentially an honor system, there were 
incentives to misreport. And there were rumors; there were 
reports in the public domain that that was, in fact, happening, 
that the New York Fed conducted an investigation, decided that 
there was a basis for those concerns, and passed along the 
concerns to the FSA and the Bank of England, as well as to the 
members of the President's Working Group on Financial Reform.
    But among the documents released by the New York Fed is a 
transcript from a telephone conversation on April 11, 2008, 
between an employee of the New York Fed, Fabiola Ravazzolo, and 
an unnamed Barclays trader, in which the Barclays trader said 
that, yes, they were reporting about 20 basis points lower than 
what it would really cost them to do it; that when they had 
posted an honest, a correct LIBOR rate, there was an article 
that they were coming in higher than the other banks. There is 
an implication the other banks were also misreporting. But he 
said, yes, that when that happened, there was an article in the 
Financial Times that raised questions about Barclays, or the 
other banks knew something about Barclays that was not known 
generally; Barclays' stock went down, and so they decided they 
weren't going to report an accurate LIBOR anymore. In fact, he 
said, ``So we know that we are not, um, posting, um, an honest 
LIBOR.'' And the reason that they did it was not to have 
questions about Barclays' financial conditions.
    And this was a month after Bear Stearns and--JPMorgan Chase 
bought Bear Stearns in a fire sale that the New York Fed was 
involved in.
    Did you know of this conversation?
    Secretary Geithner. Congressman, I do not believe I was 
aware of that specific conversation--made aware of that 
specific conversation. But I didn't need to be made aware of 
that because--
    Mr. Miller of North Carolina. Why not?
    Secretary Geithner. --because the concerns about the 
structure of the rate and the broad concerns across the market 
about what could be potentially happening we thought were a 
sufficient basis on which to do the things I said I did, which 
is to, again, try to get--
    Mr. Miller of North Carolina. But, Mr. Secretary, this 
conversation is not just about the vulnerability of LIBOR to 
manipulation, but, in fact, an admission that it was, in fact, 
being manipulated, that there were false reports being filed by 
someone who was involved in it.
    And is there any--I asked Chairman Bernanke this last 
week--element of criminal fraud that isn't admitted to in this 
transcript?
    Secretary Geithner. There is a set of lawyers who will 
answer that question, and you can be confident they are going 
to do that.
    But, again, on this basic point, we had a sufficient basis, 
based on what the market was saying was happening and the way 
this thing was designed, on which to take the actions we took.
    Mr. Miller of North Carolina. Yes. I understand that. But 
did the employees of the New York Fed who were involved in 
market surveillance tell you of this conversation or perhaps 
others like it, that it was not just theoretically possible but 
participants in LIBOR admitted that they were, in fact, 
misreporting--did they--were you told that it was not just a 
theoretical vulnerability, that, in fact, it was happening?
    Secretary Geithner. I believe that--and this is why we did 
what we did--that we were not concerned this was just a 
theoretical vulnerability. We were concerned about the range of 
different reports that were out there we thought were credible 
that banks were actually misreporting, underreporting.
    So it was not on the basis of a theoretical concern that we 
did the things we did. It was on the basis of concern that 
those reports were plausible and credible. And, again, that is 
why we took the steps we did.
    Mr. Miller of North Carolina. Okay. But Chairman Bachus 
asked you if you reported to Justice. You said, no, that 
Justice was not part of the President's oversight, or the 
President's Working Group. So you did not report this 
conversation or any others like it to the Justice Department. 
You did not, did you?
    Secretary Geithner. I want to be careful about this, but--
and my colleagues at the New York Fed are going back over the 
full records in this case.
    I do not know what the New York Fed staff did in terms of 
who else they informed about specific--I don't know that, but--
    Mr. Miller of North Carolina. But you did not.
    Secretary Geithner. No, I did not.
    Mr. Miller of North Carolina. You did not. Okay.
    Mr. Secretary, you also said earlier that litigation was 
certainly possible, it was being contemplated. Various lenders 
who had--or now have either filed suit or are contemplating 
litigation against the LIBOR banks for having gotten paid too 
little in interest.
    There was probably no greater lender during that period 
than the United States Government. Are we considering filing 
litigation, pursuing claims to get back some of the money, some 
of the interest that we did not get because LIBOR was 
artificially low during that period?
    Secretary Geithner. I do not know whether we were 
disadvantaged by this practice. Obviously, we will take a 
careful look at that.
    We also don't know what the net effect was of this behavior 
on those prices at that point. As many of your colleagues have 
said, there are some people who believe that people who 
borrowed money generally benefited, and people who lent money 
generally did not benefit. It is not clear that is the case. 
But, again, that is going to be the subject of a very careful, 
extensive review by a lot of people in this context, and it is 
going to take some time for them to figure that out.
    Mr. Dold. The gentleman's time has expired.
    In an effort to try to honor our commitment to make sure 
the Secretary gets out on a hard stop and also to try to make 
sure we are getting as many questions as possible, the Chair is 
going to recognize the gentleman from Michigan, Mr. Huizenga, 
for 3 minutes.
    Mr. Huizenga. All right. Thank you. I appreciate that, Mr. 
Chairman, and Mr. Geithner, as well, for being here.
    I would like you to expand a little bit and maybe revisit--
I was watching ``Squawk Box'' this morning when Sandy Weill 
made his comments. I then saw the crawler about Glass-Steagall, 
and I was like, okay, did he really specifically say that? And 
he did kind of go back and revisit it.
    But I don't know if you have had a chance to see it or read 
it. I certainly would like to then get your reaction, both here 
but then more in depth, as I am sure you will be looking at it.
    So if you have any reaction or comment?
    Secretary Geithner. Again, I haven't seen those reports, so 
I don't know exactly what he said, don't know what he meant.
    But on the broader question about laying out to this 
committee the extent of the actions Congress has authorized and 
taken to limit this risk, I would be happy to walk you all 
through that in as much detail as you would like. I would be 
happy to--
    Mr. Huizenga. It struck me that maybe he was kind of 
getting at the too-big-to-fail element and the question of 
whether just some of the organizations are too big. Do you--can 
you comment on that?
    Secretary Geithner. That is a widespread and common subject 
of concern, and it is something that people are going to be 
looking at for a long period of time. But I do think it is 
important to recognize that we did force these banks to hold 
much, much more capital against the risk they take. We forced a 
dramatic restructuring of the financial system. Congress put in 
place limits on how large they can get and deprived the 
government of the ability to come in and rescue them from their 
mistakes in very significant ways.
    And if you look at the net impact of those actions on how 
the market perceives the risk of ``too-big-to- fail,'' that 
market perception is diminished significantly. But I am not 
saying that is the end of the story; it is just worth noting.
    Mr. Huizenga. I do want to touch on the reserves here in 
the remaining time. You had talked about a $400 billion 
increase in reserves and the fact that the cost of credit has 
fallen. It does strike me, though, that whether it is Denmark, 
Switzerland, countries out of the eurozone, or the euro market, 
the United States, in a way it is sort of Gulliver among the 
Lilliputians. It is not that we are doing so great or that 
maybe they are doing so great; it is just that maybe everybody 
else is such a mess and the flight to credit is coming to here.
    But I had a very prominent economist out of Chicago, Dr. 
Bob Genetski, who actually put out an email today to his 
clients--I happen to be on that list--regarding those reserves. 
And he was saying that reduced access of reserves by the Fed 
was $100 billion and that means that there is $100 billion 
less. And I have emailed him back, looking to hear his answer.
    But it does seem that--his argument is basically that it 
runs counter to a lot of the goals, some of those reserve 
requirements that on one hand were requiring additional 
reserves, yet on the other hand were lowering interest rates 
through quantitative easing and other things to try to 
stimulate more liquidity.
    Is it truly a liquidity problem, or do we have some other 
issues?
    Secretary Geithner. I would be happy to look at his 
concerns if you want to share them with me, and I would be 
happy to try to respond, although that might be for the Fed.
    But I think those are combining two different things. There 
is $400 billion more capital in the financial system than there 
was before the crisis, which is a necessary, very important 
thing. It makes the system safer--
    Mr. Huizenga. Is that because of the reserves?
    Secretary Geithner. And that is a different thing. Some 
people use those words interchangeably, but I think you are 
referring to a question about excess reserves in the banking 
system, the incentives to hold them and what that does. But I 
would be happy to take a look at his concerns.
    Mr. Huizenga. I appreciate that. And we will maybe put that 
down in writing, and I would love to get that response. So, 
thank you.
    Mr. Dold. The gentleman's time has expired.
    Secretary Geithner, there has been a request from some of 
my colleagues to see if we could have an equal number of 
Members on each side ask questions. So, with your indulgence, 
we would like to see if we could have you stay for an 
additional 3 minutes.
    Secretary Geithner. Okay.
    Mr. Dold. The Chair recognizes the gentleman from Texas, 
Mr. Green, for 3 minutes.
    Mr. Green. Thank you, Mr. Geithner. I will be as pithy and 
concise as possible.
    You indicated that the economy is in much better shape now 
than when the President took office. And I am bringing this to 
your attention notwithstanding LIBOR and FSOC, all of which are 
important, but I am bringing it to your attention because if we 
are not very careful, the fatuous will be perceived as fact.
    I think that it is important for you to reiterate the 
condition that this economy was in when the President took 
office and juxtapose that to where we are now, such that we can 
move forward with a much better opportunity to improve the 
economy. So I would like to yield time to you to, please, sir, 
do not allow the fatuous to become fact.
    Secretary Geithner. I want to emphasize that we have a long 
way to go, and it is still a very tough economy. We have to be 
open and honest with that. But, just for comparison, the U.S. 
economy was shrinking at an annual rate of 9 percent in the 
last quarter of 2008. We were on the verge of what most people 
thought was a plausible chance the American financial system 
would collapse at that time. You had seen trillions and 
trillions of lost wealth in the savings of Americans.
    And 6 months later, because of the actions that we took, 
Congress authorized, the Fed took, the things we took to fix 
the broken financial system, the economy was growing. A 
remarkable turnaround in a very short period of time. And the 
economy has been growing now for 3 years since.
    Not fast enough. And the reason it has not been growing 
faster is because of this combination of concerns you are all 
aware of, which is: Europe is hurting us; spending by the 
government is now declining, not increasing; and people have 
been bringing down their debt and trying to fix some of the 
problems that got us into this mess.
    So we have a long way to go, but, absolutely, we are in a 
much stronger position than we were at that time in our 
history.
    Mr. Green. To be more specific--because we have incredible 
people saying some incredible things, and I am sure you are 
very much aware of some of these incredible statements--we were 
about to lose the American auto industry. I think you agree. 
And do you agree that the auto industry is in a position now 
such that it is coming back?
    Secretary Geithner. I do.
    Mr. Green. At the time the President came into office, the 
financial system was almost in collapse. Do you agree that it 
has been stabilized and that it is now in much better shape 
than it was when the President took office?
    Secretary Geithner. Absolutely.
    Mr. Green. At the time the President took office, do you 
agree that economic uncertainty, while people say that there is 
much of it now--and I concur, there is some--but economic 
uncertainty was to the extent that banks would not lend to each 
other?
    Secretary Geithner. That is true.
    Mr. Green. Would not lend to each other. Which is why you 
could not structure a deal with banks to save the auto 
industry, because the banks wouldn't lend to each other. They 
weren't about to go out and try to salvage an auto industry 
when they were trying to salvage themselves. True?
    Secretary Geithner. True. There is no private market 
solution to a financial crisis like we faced.
    Mr. Green. And for those who want to--
    Mr. Dold. Time has expired.
    Mr. Green. --lay all of this at your feet, I have heard a 
new term called a ``black swan event.'' Is there some semblance 
of that with this?
    Secretary Geithner. Oh, absolutely, yes.
    Mr. Green. Thank you very much.
    Mr. Dold. The gentleman's time has expired.
    Mr. Secretary, I want to thank you for your time and your 
testimony today.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for Members to submit written questions to this 
witness and to place his responses in the record.
    The hearing is now adjourned.
    [Whereupon, at 12:08 p.m., the hearing was adjourned.]


                            A P P E N D I X


                             July 25, 2012
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