[Senate Hearing 112-752]
[From the U.S. Government Publishing Office]
S. Hrg. 112-752
NOMINATIONS OF: JEROME H. POWELL, JEREMY C. STEIN, JEREMIAH O. NORTON,
RICHARD B. BERNER, AND CHRISTY ROMERO
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
Jerome H. Powell, of Maryland, to be a Member of the Board of Governors
of the Federal Reserve System
__________
Jeremy C. Stein, of Massachusetts, to be a Member of the Board of
Governors of the Federal Reserve System
__________
Jeremiah O. Norton, of Virginia, to be a Member of the Board of
Directors of the Federal Deposit Insurance Corporation
__________
Richard B. Berner, of Massachusetts, to be Director, Office of
Financial Research, Department of the Treasury
__________
Christy Romero, of Virginia, to be Special Inspector General for the
Troubled Asset Relief Program
__________
MARCH 20, 2012
__________
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
TIM JOHNSON, South Dakota, Chairman
JACK REED, Rhode Island RICHARD C. SHELBY, Alabama
CHARLES E. SCHUMER, New York MIKE CRAPO, Idaho
ROBERT MENENDEZ, New Jersey BOB CORKER, Tennessee
DANIEL K. AKAKA, Hawaii JIM DeMINT, South Carolina
SHERROD BROWN, Ohio DAVID VITTER, Louisiana
JON TESTER, Montana MIKE JOHANNS, Nebraska
HERB KOHL, Wisconsin PATRICK J. TOOMEY, Pennsylvania
MARK R. WARNER, Virginia MARK KIRK, Illinois
JEFF MERKLEY, Oregon JERRY MORAN, Kansas
MICHAEL F. BENNET, Colorado ROGER F. WICKER, Mississippi
KAY HAGAN, North Carolina
Dwight Fettig, Staff Director
William D. Duhnke, Republican Staff Director
Charles Yi, Chief Counsel
Laura Swanson, Policy Director
Brian Filipowich, Professional Staff Member
Andrew Olmem, Republican Chief Counsel
Mike Piwowar, Republican Chief Economist
Beth Zorc, Republican Counsel
Dana Wade, Republican Professional Staff Member
Dawn Ratliff, Chief Clerk
Riker Vermilye, Hearing Clerk
Shelvin Simmons, IT Director
Jim Crowell, Editor
(ii)
C O N T E N T S
----------
TUESDAY, MARCH 20, 2012
Page
Opening statement of Chairman Johnson............................ 1
Opening statements, comments, or prepared statements of:
Senator Shelby............................................... 3
Prepared statement....................................... 25
WITNESSES
Dan Coats, a United States Senator from the State of Indiana..... 3
Jerome H. Powell, of Maryland, nominee for Member of the Board of
Governors of the Federal Reserve System........................ 5
Prepared statement........................................... 25
Response to written questions of:
Senator Moran............................................ 31
Jeremy C. Stein, Ph.D., of Massachusetts, nominee for Member of
the Board of Governors of the Federal Reserve System........... 6
Prepared statement........................................... 26
Response to written questions of:
Senator Moran............................................ 32
Jeremiah O. Norton, of Virginia, nominee for Member of the Board
of Directors of the Federal Deposit Insurance Corporation...... 7
Prepared statement........................................... 27
Richard B. Berner, Ph.D., of Massachusetts, nominee for Director,
Office of Financial Research, Department of the Treasury....... 9
Prepared statement........................................... 28
Christy Romero, of Virginia, to be Special Inspector General for
the Troubled Asset Relief Program.............................. 10
Prepared statement........................................... 29
(iii)
NOMINATIONS OF:
JEROME H. POWELL, OF MARYLAND,
TO BE A MEMBER OF THE BOARD OF GOVERNORS,
FEDERAL RESERVE SYSTEM;
JEREMY C. STEIN, OF MASSACHUSETTS,
TO BE A MEMBER OF THE BOARD OF GOVERNORS,
FEDERAL RESERVE SYSTEM;
JEREMIAH O. NORTON, OF VIRGINIA,
TO BE A MEMBER OF THE BOARD OF DIRECTORS,
FEDERAL DEPOSIT INSURANCE CORPORATION;
RICHARD B. BERNER, OF MASSACHUSETTS,
TO BE DIRECTOR, OFFICE OF FINANCIAL RESEARCH,
DEPARTMENT OF THE TREASURY;
CHRISTY ROMERO, OF VIRGINIA,
TO BE SPECIAL INSPECTOR GENERAL,
TROUBLED ASSET RELIEF PROGRAM
----------
TUESDAY, MARCH 20, 2012
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:08 a.m. in room SD-538, Dirksen
Senate Office Building, Hon. Tim Johnson, Chairman of the
Committee, presiding.
OPENING STATEMENT OF CHAIRMAN TIM JOHNSON
Chairman Johnson. Good morning. I call this hearing to
order.
Thanks to all of our nominees for joining us here today. I
also extend a warm welcome to our nominees' families and
friends who are here with us.
Today we consider five nominees, each of whom is
individually accomplished. These nominees, if confirmed, will
have important responsibilities for our Nation's economy:
setting monetary policy; supervising and regulating some of our
largest and most complex financial institutions; continuing to
ensure the proper use of TARP funds; and providing policymakers
and regulators with meaningful data to safeguard our financial
system.
We need strong leadership in these posts to solidify our
Nation's economic recovery and to help prevent another
financial crisis. I am glad the President has sent us five
well-qualified individuals to fill vacancies at the Federal
Reserve Board of Governors, the Federal Deposit Insurance
Corporation, the newly created Office of Financial Research,
and the Special Inspector General of the Troubled Asset Relief
Program.
We will now proceed to witness introductions.
Jerome Powell has been nominated to serve as a Governor on
the Federal Reserve Board. Mr. Powell is currently a visiting
scholar at the Bipartisan Policy Center in Washington, D.C.,
where he focuses on Federal and State fiscal issues. Mr. Powell
previously served as Under Secretary of the Treasury for
Finance under President George H.W. Bush.
Jeremy Stein is also a nominee to serve on the Board of
Governors of the Federal Reserve. Professor Stein has a long
and distinguished academic career, teaching economics for more
than a decade in his current position at Harvard, and another
decade before that teaching finance at MIT.
Jeremiah Norton has been nominated to be a Member of the
Board at the FDIC. Mr. Norton is currently the executive
director of J.P. Morgan Securities. From 2007 to 2009, Mr.
Norton served as the Deputy Assistant Secretary for Financial
Institutions Policy at the Department of the Treasury. Before
that, Mr. Norton served on the legislative staff of
Representative Ed Royce.
Richard Berner currently serves as Counselor in the Office
of Research and Quantitative Studies at the Department of the
Treasury. Dr. Berner was a member of, among others, the
Economic Advisory Panel of the Federal Reserve Bank of New
York, the Panel of Economic Advisers of the Congressional
Budget Office, and the Executive Committee of the Board of
Directors of the National Bureau of Economic Research.
Christy Romero has been nominated to be the Special
Inspector General for TARP. She has served as the Deputy
Special Inspector General since February 2011 and as the Chief
of Staff at SIGTARP before that. Ranking Member Shelby and I
sent a letter to the President last year, asking him to
nominate a ``strong watchdog'' who ``will be fully focused on
protecting taxpayers in the administration of TARP.'' I believe
the President has done that in nominating Ms. Romero, a person
who brings years of experience from the SEC investigating
financial fraud and insider trading.
Congratulations to you all on your nominations.
It is my hope that after today's hearing this Committee can
move quickly to a markup of the nominees. I ask that Members
submit their written questions to the nominees by noon this
Friday, and I ask that the nominees please have their answers
back to the Committee by noon on Tuesday, March 27.
This Committee reported out and the Senate confirmed 17 of
the President's nominees last year. It is my hope that along
with today's five nominees we can confirm the remaining seven
nominees that we already reported out of this Committee.
I now turn to Senator Shelby for any opening remarks he may
have. Senator Shelby.
STATEMENT OF SENATOR RICHARD C. SHELBY
Senator Shelby. Mr. Chairman, I have an opening statement.
I would just ask that it be made part of the record so we can
move on with our business today.
Thank you.
Chairman Johnson. Thank you, Senator Shelby.
Are there any other Members who would like to make a brief
opening statement?
[No response.]
Chairman Johnson. Senator Coats joins us today to make an
introductory statement for Mr. Norton. Senator Coats.
STATEMENT OF DAN COATS, A UNITED STATES SENATOR FROM THE STATE
OF INDIANA
Senator Coats. Mr. Chairman, thank you, and, Senator
Shelby, thank you. It is a great pleasure to be here to support
the nomination of Jeremiah Norton for Member of the Board of
Directors of the FDIC. It is a privilege for me to be able to
do this. I have known Jeremiah and his family for more than 25
years. I have high regard for them and their sense of value and
their sense of commitment to public service and integrity. They
have raised their son with all the right values, in my opinion.
Jeremiah's educational background and academic achievements
as well as his professional experience I think speak for
themselves. You mentioned his professional experience. I
believe all of that is combined to make him well prepared to
serve as a very effective Member of the Board of Directors at
the FDIC.
I called Jeremiah and said, ``Jeremiah, why would you want
to leave such a valued position in the private sector to come
back to Government?'' I think it is a reflection of him and his
values that the sense of purpose that I think has brought us to
the U.S. Senate and is bringing these fine people away from
prestigious positions in the private sector, academic, and so
forth, back to public service. That sense of purpose is very
much a part of Jeremiah's decision, and I highly applaud him
for that.
His integrity, his commitment to excellence, the kind of
hard work that I have seen him demonstrate in both academic
achievement as well as professional achievement I think is
something to be very commendable, and his commitment, as I
said, to public service.
But, you know, Mr. Chairman and Senator Shelby, in the end
the numbers get crunched and the money gets transferred, but
ultimately what we need out of our supervisory agencies is a
commitment to make sure that the trust of the American people
and the trust of those who use the financial system is ensured.
Those millions of Americans, hundreds of millions of Americans
that deposit money into our financial institutions, small
amounts, medium, large, savings for education for their
children, savings for perhaps starting a business, they need to
go to bed in the evening knowing that their money is safely
provided for and insured and is there for them when they need
it. Those small business people that are trying to transfer
their dreams into reality need to know that there is credit
available for them and that the credit will continue to be
available for them if they provide the right qualifications for
receipt of those loans. And those institutions that do all the
money moving throughout the world in a global financial economy
need to know that there are rules which they have to abide by,
that there is correct oversight and supervision, that risk
management is very much a part of what they need to be
conscious of.
Jeremiah Norton has spent time at the Department of
Treasury as Deputy Assistant Secretary during the time when the
two of you were deeply engaged in saving this country from
default, from collapse of the financial system. That experience
is invaluable in terms of looking to the future, in terms of
how to assess the rules and the procedures that need to be in
place.
But, again, it comes down to that question of trust, and I
have great trust in Jeremiah Norton that he will be one of
those members of the Board of Directors that can assure the
American people that their sleep at night can be safe and sound
while their money is being watched over by somebody who really
knows what he is doing.
So I thank you for the opportunity and am proud to be able
to recommend him for your consideration for confirmation.
Chairman Johnson. Thank you, Senator Coats. Please feel
free to excuse yourself.
We will now swear in today's witnesses. Will the nominees
please rise and raise your right hand? Do you swear or affirm
that the testimony that you are about to give is the truth, the
whole truth, and nothing but the truth, so help you God?
Mr. Powell. I do.
Mr. Stein. I do.
Mr. Norton. I do.
Mr. Berner. I do.
Ms. Romero. I do.
Chairman Johnson. Do you agree to appear and testify before
any duly constituted Committee of the Senate?
Mr. Powell. Yes.
Mr. Stein. Yes.
Mr. Norton. Yes.
Mr. Berner. Yes.
Ms. Romero. Yes.
Chairman Johnson. Please be seated.
Please be assured that your written statement will be part
of the record. I invite all the witnesses to introduce your
family and friends in attendance before beginning your
statement.
Mr. Powell, please begin.
Mr. Powell. Thank you, Mr. Chairman, Senator Shelby. I
would like to introduce my wife, Elissa, of some 26 years
sitting behind me, as well as people I will not identify, many
friends and current and former colleagues who are here today,
which I really appreciate.
Thank you.
Chairman Johnson. Please proceed.
Mr. Stein. Thank you, Mr. Chairman. I have a bunch of
family here. I have my wife, Anne, and then hiding back there
are my parents, Eli and Ellie Stein, and my sister, Karen
Stein.
Chairman Johnson. Mr. Norton.
Mr. Norton. I would like to introduce my parents, Phillip
and Patricia Norton, and thank them for their support. And
thank you to Senator Coats for his warm introduction.
Chairman Johnson. Dr. Berner.
Mr. Berner. Senator, I would like to introduce my wife,
Bonnie, over here; my children, our children, Matt and Laura;
my sister; and some other friends and family. Thank you.
Chairman Johnson. Ms. Romero.
Ms. Romero. Thank you, Chairman. I am pleased to have my
family here today. I have Adrienne Goldsmith. I have my father,
Augusto Romero; Brooke Campbell and Julia Campbell. Also my
mother, Audrey Romero, is not in attendance today, and my
oldest daughter, Chelsea Campbell, is away at college and
hopefully attending classes right now.
[Laughter.]
Chairman Johnson. Mr. Powell, please begin your testimony.
STATEMENT OF JEROME H. POWELL, OF MARYLAND, TO BE A MEMBER OF
THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Powell. Thank you, Mr. Chairman and Senator Shelby. I
am honored and grateful to President Obama for the privilege of
appearing before this Committee today as a nominee to the
Federal Reserve Board. If I am confirmed, I will work to the
best of my abilities to carry out the responsibilities of this
office.
Most of my career has been in the private sector, including
close to 30 years working in the financial markets as an
attorney, an investment banker, and finally as an investor. I
believe that my practical experience in financial markets would
provide a valuable perspective in the Federal Reserve Board's
deliberations.
I also served as Assistant Secretary and then Under
Secretary of the Treasury from 1990 through 1993, and
throughout that period, I worked closely with this Committee
and appeared in this room a number a significant number of
times in hearings and markups. Since I left public service in
1993, it has been my highest aspiration to serve again, and it
means a great deal to me to have the possibility to do so.
My earlier service also occurred during a period of great
economic turmoil. I arrived at Treasury in June 1990 at the
beginning of the saving & loan cleanup. A year later, we faced
the insolvency of the Bank Insurance Fund and also faced
multiple failures of large financial institutions as well as a
severe credit crunch, with businesses and consumers unable to
get credit on affordable terms.
I was deeply involved in addressing all of these serial
crises and in the major legislation that typically followed,
including the FDIC Improvements Act of 1992, or FDICIA. I also
led the Administration's response to a major bidding scandal in
the Treasury markets in 1991-92, which resulted in the
Government Securities Act of 1992, as well as substantial
revisions to the Treasury's auction rules.
Since leaving Treasury in 1993, I have remained a careful
student of economic policy and events, always with the thought
that I might have the opportunity to return to public service.
Like many others, over the years I have grown increasingly
concerned about our ever more unsustainable fiscal position,
the performance of our economy, and most of all our collective
failure to come together around a plan of action.
In 2010, I left the private sector with the intention of
spending the rest of my career working on those issues. Since
then, I have worked full time as a visiting scholar at the
Bipartisan Policy Center, focusing on State and Federal fiscal
issues. Last summer, I authored a widely distributed study of
the operation of the Federal debt ceiling. After that, I put
together a public simulation of the failure of a large, global
financial institution under the new provisions of Dodd-Frank.
In 2010, I also led another public simulation of the financial
collapse of a large, fictitious American state, among other
projects.
Economic policymakers, including those at the Fed, will be
working in the shadow of the financial crisis for some time,
and there are enormous challenges on every front. This is a
time to apply the lessons we have learned from the crisis and
set the stage for another long period of prosperity.
In monetary policy, the task will be providing support for
the still weak economy but exiting the current highly
accommodative policies in time to avoid higher inflation. Along
with other governments and central banks around the world, the
Fed is also in the middle of a once-in-a-generation
refashioning of the global financial regulatory architecture.
There is much work to be done in implementing the decisions
that Congress has made and in finalizing and implementing
international accords like Basel III.
At the heart of these broad reforms is the project of
ending our practice of protecting creditors and sometimes
equity holders of large global financial institutions in
extremis--or ``too big to fail.'' What we have long needed is a
mechanism to handle an orderly resolution of a large, failing
institution. Realizing this objective will be the work of many
years, and I would love to play a part in that.
Thank you again for the honor of this hearing, and I look
forward to responding to your questions.
Chairman Johnson. Thank you.
Dr. Stein, please proceed.
STATEMENT OF JEREMY C. STEIN, Ph.D., OF MASSACHUSETTS, TO BE A
MEMBER OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Stein. Chairman Johnson, Senator Shelby, thank you very
much for giving me the opportunity to appear before you today.
I am honored to have been nominated by President Obama to be a
Member of the Board of Governors of the Federal Reserve. It is
an important job at a challenging time for both the U.S.
economy and the global financial system, and I am eager to
contribute to our meeting those challenges.
I have spent most of my career as an academic economist,
with a few breaks for Government service. I graduated from
Princeton University in 1983, got my Ph.D. from MIT in 1986,
and have since been on the faculties at both MIT and Harvard--
most recently, since 2000, as a professor in Harvard's
economics department. In between, I served on the task force
appointed by President Reagan to investigate the 1987 stock
market crash. I also spent a year as a senior staff economist
on President George H.W. Bush's Council of Economic Advisers.
And for 6 months in 2009, I was an adviser to NEC Director
Summers and to Treasury Secretary Geithner, helping to
formulate a policy response to the crisis that was then
engulfing our financial system.
As an academic, my research and teaching have been focused
on financial markets, and for many years I have been especially
interested in the interplay between monetary policy and
financial institutions, trying to understand the real-world
details of how monetary policy filters through the banking
system to ultimately impact both borrowers and lenders. Other
topics that I have worked on that are of relevance to a
position at the Fed include: the role of small banks in small
business lending; the housing market; risk management in
financial firms; and financial regulation.
In the last few years, my research and teaching have been
heavily influenced by my experiences working at the NEC and
Treasury in 2009. For example, I developed and taught a new
course on the financial crisis, which has given me a chance to
step back and reflect on the many policy decisions taken during
this eventful period, the mistakes made, and the lessons
learned.
This reflection has reinforced one of my core beliefs as an
economist: the need to be humble and honest about the
limitations of our understanding. I am a big believer in the
value of economic theory, but the role of theory should be to
help organize the jumble of evidence before us in such a way
that when new facts come in, we can most clearly see how and
why we have had it wrong in the past and adjust our thinking
accordingly. Too often in economics, theories have been used in
a rigid fashion, making us less not more open to learning from
what happens in the real world. This is when things have gone
badly off the rails for economists, as well as for those who
rely on us for policy advice.
The Federal Reserve's mission remains as it was before the
onset of the financial crisis: to deliver on its dual mandate
of price stability and maximum employment, and to help
safeguard the stability of the financial system. But to pursue
this mission in a dramatically altered economic environment,
the Fed has shown a laudable ability to adapt and evolve--in
terms of the tools it has used to conduct its monetary and
lender-of-last-resort policies, and, importantly, in the
substantially enhanced degree of transparency that it now
offers the outside world. I am fully committed both to the
mission of the Fed itself and to this spirit of pragmatic,
open, and nonideological engagement with the unknown challenges
that surely lie ahead.
Thank you again for the opportunity to testify before you
today. I would be delighted to answer any questions you might
have. Thank you.
Chairman Johnson. Thank you.
Mr. Norton, please proceed.
STATEMENT OF JEREMIAH O. NORTON, OF VIRGINIA, TO BE A MEMBER OF
THE BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION
Mr. Norton. Thank you, Chairman Johnson, Ranking Member
Shelby, and Members of the Committee. It is an honor and a
privilege to be nominated by the President and to come before
you today as a nominee for the Board of Directors of the FDIC.
I am very appreciative of the Chairman and Ranking Member
for scheduling today's hearing and of Members and their staff
for taking time to meet with me in the weeks and days leading
up to this morning. I appear before you today with full and
complete recognition of the serious responsibility associated
with the position to which I have been nominated.
The FDIC performs a critical role in our Nation's financial
system. Since its creation by the Congress in 1933, the FDIC
has helped to maintain stability in the financial system
through its provision of deposit insurance and supervision of
banking entities. If confirmed to the position, I believe that
my experience both in Government and in the private sector
would bring meaningful value to the Board and to the regulation
of financial institutions.
First, earlier in my career as an aide to Congressman Ed
Royce, a member of the House Financial Services Committee, I
learned not only the issues and challenges facing the FDIC and
other financial regulators, but also gained an understanding of
the role financial institutions play in the lives of
individuals and communities within the real economy. I
appreciate the important oversight role that the Congress plays
in guiding the FDIC and other regulatory agencies.
Second, from 2007 to early 2009, I was privileged to serve
in the United States Treasury Department as Deputy Assistant
Secretary for Financial Institutions Policy. In that position,
I oversaw the development, analysis, and coordination of the
Department's policies on legislative and regulatory issues
affecting regulated and nonregulated financial institutions.
Additionally, while at the Treasury, I worked closely with the
regulatory agencies--including the FDIC--to help the country
quickly respond to the most severe financial crisis since the
1930s.
Last, in my current and most recent professional role, I
work in the private sector providing investment banking
services to financial institutions, both large and small. I
believe this background enables me to provide an important
perspective on the way in which regulation impacts financial
institutions and the communities they serve, the capital
markets, and the broader market for goods and services.
In this critical period for all financial regulators,
including the FDIC, should I be confirmed to the Board, I will
bring the collection of my experiences to help guide the FDIC
as we continue to encounter challenges in the financial system
and in the broader national and global economies. In addition
to helping ensure that our country's banks are able to operate
in a safe, sound, and balanced manner, I believe it is
imperative that the FDIC work with the other regulators, both
domestically and internationally, to prioritize and address
issues that pose risks to the financial system.
If confirmed, I pledge to work with my colleagues at the
agencies, the regulatory community, and the Congress as we
address these and other important issues.
Thank you, and I look forward to your questions.
Chairman Johnson. Thank you.
Dr. Berner, please proceed.
STATEMENT OF RICHARD B. BERNER, Ph.D., OF MASSACHUSETTS, TO BE
DIRECTOR, OFFICE OF FINANCIAL RESEARCH, DEPARTMENT OF THE
TREASURY
Mr. Berner. Thank you, Chairman Johnson, Ranking Member
Shelby. Thanks for the opportunity to be here today.
I am honored that President Obama and Secretary Geithner
have asked me, if confirmed, to serve as Director of the Office
of Financial Research at this critical moment for our Nation's
economy and financial system.
Earlier I introduced my wife, Bonnie, and our children,
Matt and Laura, but I want to thank them for supporting and
encouraging me to return to public service.
As you know, the Office of Financial Research was
established to serve the Financial Stability Oversight Council,
its member agencies, and the public by improving the quality,
transparency, and accessibility of financial data and
information, by conducting and sponsoring research related to
financial stability, and by promoting best practices in risk
management.
Those goals all represent challenges. I am fully committed
to help build this institution to fulfill those goals, and I
believe that my family background and my educational and
professional training have equipped me with the dedication and
skills to meet those challenges.
My mother, who is 97, was a town meeting member and taught
me the ingredients of good government. My father, who passed
away in 2005, taught me respect for the virtues of free markets
and capitalism, as well as an understanding of their
shortcomings. My parents had different political views, but
they agreed on the importance of public service.
In my education, I turned to economics and its power to
make peoples' lives better. I received an A.B. from Harvard
College and a Ph.D. from the University of Pennsylvania. My
training in college and graduate school gave me the tools to
analyze the economy and financial markets and to appraise
economic and financial policies.
Most important, I believe my career has provided me with
the skills in research, data, and markets necessary to serve as
Director of the Office of Financial Research. My career helped
me develop broad knowledge of the changing global economy,
financial institutions, financial markets, and financial
regulation. Through many market and economic cycles, I saw both
the benefits of financial innovation and the costs of periods
of severe market stress.
My professional experience has also equipped me to
understand the needs of policymakers and risk managers. In my
first job, I served as an economist at the Board of Governors
of the Federal Reserve System. Subsequently, I directed the
Policy Analysis Group at Wharton Econometrics. I served for 30
years at four major financial services firms, on the Senior
Management Committee of one and on the Risk Management
Committees of two; most recently, as co-head of Global
Economics at Morgan Stanley. As Counselor in the Treasury, I
currently advise Secretary Geithner on financial and regulatory
issues.
My service on advisory boards has also kept me on the
cutting edge of policymaking, research, and data. I have served
on advisory boards for the Federal Reserve Bank of New York,
the Congressional Budget Office, the National Bureau of
Economic Research, and the Bureau of Economic Analysis. As an
associate on the Counterparty Risk Management Policy Group II--
that was a group of market participants assembled in 2005 to
identify and resolve many of the problems in our financial
system--I gained further insight into the complex plumbing of
the financial system.
Finally, I believe I have the critical thinking skills to
challenge conventional wisdom and a passion for a stronger,
safer, and appropriately regulated financial system that guides
my vision for how the office should fulfill its mission.
We face many challenges to rebuild the financial system,
one that helps our economy grow and restore lost jobs. I am
humbled and honored by the opportunity to help meet those
challenges and to serve our Nation. If confirmed, I would look
forward to working with the Members of this Committee and
Congress. I will work hard to carry out my oath of office and
to earn your trust and confidence.
Thank you. I look forward to your questions.
Chairman Johnson. Thank you.
Ms. Romero, please proceed.
STATEMENT OF CHRISTY ROMERO, OF VIRGINIA, TO BE SPECIAL
INSPECTOR GENERAL FOR THE TROUBLED ASSET RELIEF PROGRAM
Ms. Romero. Thank you, Chairman Johnson, Ranking Member
Shelby. It is with great honor that I appear before you today
as President Obama's nominee for Special Inspector General at
SIGTARP. I want to thank each of you for the support that you
have given to SIGTARP over the years.
I also want to thank my parents, who instilled in me a call
to public service, one which I hope to live up to, and I also
hope to instill in my three beautiful daughters--Chelsea,
Brooke, and Julia. My father, Augusto Romero, who is here
today, joined the United States Navy as a young man in the
Philippines, and he served our country for 20 years. And every
day, as a child, I would watch him with great pride putting on
his Navy uniform each day. My mother, Audrey Romero, raised all
seven of us kids alone while my father was deployed. And when
my dad's ship would return back, all the sailors would line the
deck of the massive ship, standing ramrod straight with their
hands clasped behind their back in their full white dress
uniform. And I would search for my dad's face, and when I would
find it, he was always beaming with pride, and so was I.
My brother, Scott Romero, has also served our country,
wearing camouflage, in year-long deployments in Bosnia,
Afghanistan, and Iraq. So with two veterans in the family,
there would be an expectation that I, too, would commit to
public service. So I left private practice, and I went to the
Securities and Exchange Commission where I investigated fraud
in order to protect investors. I also had the privilege of
serving as counsel to two SEC Chairmen--the current Chairman
Mary Schapiro and former Chairman Christopher Cox--and I have
much admiration for both.
During my time at the SEC, our Nation suffered a profound
financial crisis, and the Government's response included TARP.
I had a deep concern for who would safeguard the TARP money
against fraud. And as I voiced these concerns to a friend of
mine, he told me that if I was really concerned, I should
volunteer by joining a new office called SIGTARP. And that is
exactly what I did in August of 2009. And since then, I have
had an unwavering commitment to SIGTARP's mission of
transparency, oversight, and enforcement.
I am deeply humbled by the confidence that President Obama
has shown in nominating me to such an important position. Our
Nation continues to face challenges with $120 billion in TARP
funds outstanding and $51 billion that still could be spent.
There is also fraud by those who sought to exploit TARP, and I
am committed to answering these challenges.
My experience of serving on the staff at the SEC, in
leading the dedicated and courageous team at SIGTARP during the
last year, and serving as SIGTARP's Chief of Staff for nearly 2
years, has prepared me to serve as Special Inspector General.
As a result of my experience at the SEC, I developed a strong
resolve to protect investors. Once again I am protecting
investors--the very taxpayers who funded TARP.
In the last year, I have prioritized SIGTARP's criminal
investigations, and under my leadership, 44 individuals have
been criminally charged as a result of a SIGTARP investigation.
And I will tell you that the 45th individual is being charged
as we speak in a Federal courtroom right now in Alexandria.
These charges carry severe repercussions such as prison
sentences.
I also take very seriously SIGTARP's oversight role. In the
last year alone, I have issued 28 recommendations designed to
protect TARP funds against fraud, waste, and abuse. In
addition, the American taxpayers have a right to know how TARP
funds are spent, and I have led SIGTARP to issue a series of
reports bringing significant transparency to TARP.
Although I may not wear a uniform like my father and my
brother, I share their dedication to public service. If
confirmed, I pledge to work closely with you to advance our
mutual goal of protecting taxpayers. This Committee's support
of SIGTARP has been instrumental in giving weight to SIGTARP's
recommendations and in keeping a watchful eye over the TARP
funds. I am committed to maintaining the close relationship
between this Committee and the office which I am nominated to
lead. It has certainly been the greatest privilege of my career
to be nominated by President Obama for this important role and
to be considered by this Committee for confirmation.
I thank you very much. I would be delighted to answer any
questions that you may have.
Chairman Johnson. Thank you all for your testimony.
We will now begin asking questions of our nominees. Will
the clerk please put 5 minutes on the clock for each Member for
their questions?
Dr. Stein and Mr. Powell, as a Governor at the Fed, you
will play a key role in finalizing a number of Wall Street
reform rules, such as the Volcker Rule and new macro prudential
and capital rules for large financial firms. What are your
thoughts about this task? And how do you plan to work with the
Chairman and other Governors? Mr. Powell.
Mr. Powell. Thank you, Mr. Chairman. The Fed's role in the
matter of Dodd-Frank is one of implementation, and my first
thought is that the job is to implement the rules, the Volcker
Rule and all the other rules, in a way that is faithful to the
language of the statute but that minimizes any negative impact
on credit availability and economic activity.
I would also say that we need to keep in mind that we had a
financial system and a regulatory system that worked very well
for a long period of time--reasonably well for a long period of
time--and then in 2007, financial institutions failed broadly,
and the regulatory system in a way failed with it. And so it is
definitely time to try to learn the important lessons--mistakes
were made by everyone involved--and try to rebuild a regulatory
system that will do a better job of seeing problems coming and
preventing them from coming and, frankly, build financial
institutions that will be strong enough to withstand a big
storm in case the radar does not work next time either.
So, really, that is how I see the role of the Fed in
relation to implementing Dodd-Frank.
Chairman Johnson. Dr. Stein.
Mr. Stein. Thank you, Mr. Chairman. As your question
suggests, the implementation of Dodd-Frank is one of the most
important and consequential tasks for the Fed over the next
several years. As Mr. Powell suggested, at a broad level, the
job of the Fed is to implement faithfully the statute while
minimizing undue regulatory burden, especially, I should note,
for the smaller community banks for whom such a burden is hard
to bear and for whom many of the issues in Dodd-Frank are not
intended to be front and center.
A couple of other specific things--obviously, there are
many, many issues that fall into this, but a couple specific
things that I think deserve particular focus. One is the
general issue of international cooperation and harmonization so
that on the one hand we can have appropriately robust capital
and liquidity standards for the largest banks to help mitigate
too-big-to-fail issues, while at the same doing the best one
can to keep the playing field level and, importantly, level not
only in terms of the rules as they are written, but the rules
as they are, in fact, carried out and implemented.
A second point I would just like to note--it is also an
international issue--is dealing with multijurisdictional issues
having to do with the orderly liquidation authority element of
the Dodd-Frank Act. The better a job that the Federal Reserve
and the other regulators can do in nailing down the specifics--
and these are very complicated issues in many cases of how a
liquidation would work, the more credible will be the threat to
impose losses on the shareholders and on the creditors of a
large institution, and in turn the better a job one will be
doing in terms of removing any perception of an implied
Government subsidy.
So, again, there are other issues, but I think those are
some of the important ones.
Chairman Johnson. Mr. Norton, one of my priorities is
preserving the community banking model. There is a significant
concern from this industry that the model is threatened from
consolidation, regulation, competition, and the current exam
environment. What do you see as the most significant threats to
community banking? And how will you work with your colleagues
on the Board to strengthen community banks?
Mr. Norton. Thank you, Mr. Chairman. As you pointed out,
community banks are an important mechanism for providing credit
to our Nation's economy, especially small businesses and
farmers. I think the smallest banks, those under $1 billion in
assets, represent about 10 percent of the banking assets in the
system but provide about 40 percent of loans to small
businesses and farmers. So it is critically important that
regulation recognizes that import and that the FDIC, which is
the primary Federal regulator for a majority of those banks,
takes that responsibility very seriously. If I were to be
confirmed and join the Board, I certainly would share that
burden and responsibility to get it right.
With regard to your second question, I am very committed to
working with the other members of the Board, should I be
confirmed. It is very important, given the number of rules that
the FDIC and the other agencies must propose and finalize, to
have a good working relationship and get our work done
expeditiously.
Chairman Johnson. Dr. Berner, the OFR released its
strategic framework. If confirmed, how do you intend to
implement the strategic framework outlined in the plan and
ensure that OFR is accountable?
Mr. Berner. Thank you, Senator. The strategic plan that we
just released that you referred to has five key goals that I
think will guide us in implementing the work of the OFR.
The first is to serve the needs of the Financial Stability
Oversight Council in providing data and research to help the
Council identify threats to financial stability.
The second is to promote data-related standards and best
practices and data management.
The third is to build a center for excellence in financial
research, one that complements the work that is going on
elsewhere in the Council but does not duplicate it, in effect
fills in the gaps, helps to fill in the gaps in our knowledge.
The fourth key goal of our plan is to distribute data
appropriately to the members of the public, to the Council for
the benefit of them and their work, but to safeguard those data
appropriately and to make sure that any confidential data are
kept just that--confidential.
And, last, our goal is to make the Office of Financial
Research an efficient and cost-effective and world-class
workplace.
So those are the five goals of our strategic plan, and we
plan to use them in implementing the work of the Office of
Financial Research.
Chairman Johnson. Ms. Romero, how will you ensure that
SIGTARP continues its investigative role over the use of TARP
funds? And what ideas do you have to make it stronger under
your leadership?
Ms. Romero. Thank you, Chairman Johnson. I appreciate your
question. I also want to say I am very touched by the words
that you said for me in your opening statement, and I thank you
for that and for your support.
If confirmed, the investigations will be a very high
priority for me, and it has been over the last year. I believe
that we need to act very swiftly to try to detect and stop any
fraud related to TARP before it is too late, for example, if a
bank fails. So the time to act is now. And one of the focuses
of the priorities of investigations, if confirmed, under my
leadership will be in looking at the banks that have received
TARP funds. And we have right now over 150 criminal
investigations into a number of different areas, including the
banks that have received TARP funds, and making sure that there
is no fraud in the TARP funds, that there is no fraud in the
application for the TARP funds.
This is very important for not only bringing accountability
and justice through jail time, but also SIGTARP investigations
actually bring money back to the Government and back to
victims. And as a result of SIGTARP's investigations, there
have been orders of forfeiture and restitution of nearly $4
billion.
We also stopped a very significant, one of the longest
running and largest bank frauds in our Nation, and this was at
Colonial Bank and Taylor, Bean & Whitaker where seven people
were convicted, and Lee Bentley Farkas is serving 30 years,
which is a very, very significant prison sentence for a white-
collar crime.
The important thing about that case which is telling of
SIGTARP's investigations is that Treasury was ready to send
$553 million in TARP funds to Colonial Bank. We stopped that
money from going out, and the prevention of the loss of all of
that money, which is what would have happened, due to fraud
will more than pay for SIGTARP during its entire existence.
Chairman Johnson. Senator Shelby.
Senator Shelby. Thank you, Mr. Chairman.
I would like to direct this question to Mr. Powell and Dr.
Stein. The Fed's balance sheet stands at almost $3 trillion.
And while the FOMC minutes reveal that the Board of Governors
has discussed the principles that should ``guide the strategy
of shrinking the Fed's balance sheet,'' the Fed has not
publicly announced a formal plan.
Do you believe that it is necessary for the Fed to announce
its formal plan for shrinking its balance sheet? And if not,
why should it remain a secret? Mr. Powell, you first, and then
Dr. Stein.
Mr. Powell. Thank you, Senator Shelby. I think the broad
point I would make to start is that the timing of the exit from
the balance sheet and from the highly accommodative monetary
policy generally is one of the most critical questions that we
would face, if confirmed, at the Fed, so very, very important.
I think that the Fed has gone maybe a little farther than
your question might suggest. In the June 2011 minutes, they
announced a plan, and they sort of announced a series of steps
that they would take starting with--well, it is five steps.
They do not come to mind right off the top of my head, but----
Senator Shelby. To deleverage the balance sheet?
Mr. Powell. Yes, ending with asset sales. It will come to
me--as soon as I turn the mic off, I will remember them, but
there are five steps. And so they have gone a little farther
than you suggest, but getting out of a large balance sheet like
that is unprecedented, it is terribly important, and it is not
done until it is done. The plan is there, but it needs to be
executed, and I am ready to play my part in that.
Senator Shelby. But it has got to be done right; otherwise,
it could cause havoc in the marketplace, could it not?
Mr. Powell. Yes. There is tremendous risk in that, the
exit, and I think that is well understood. You run the risk of
inflation, disturbing inflation expectations, asset bubbles,
and all of that. And so that is why it is terribly important to
do it right and not to do it too early either. It is difficult.
You do not want to do it too early and snuff out a recovery
that is still weak.
Senator Shelby. Absolutely.
Mr. Powell. And you do not want to do it too late and let
inflation out of the bag. So that is a challenge.
Senator Shelby. Dr. Stein.
Mr. Stein. Again, I know the Fed has made some broad
principles clear, and my view is that the Fed on a number of
dimensions has been very good about increasing transparency.
And as your comments suggest, this is another place where I
think it is important to think about these issues. My guess is
that as the moment gets closer, it will be important to start
letting markets know the tactics, the sort of tactical level
decisions of how things will evolve. I have not been involved
in the discussions enough to have a good sense of exactly when
and how that will happen, but I am certainly committed to the
principle of being transparent as we go. And obviously one does
not want to have disruptive impact on markets by unwinding the
balance sheet in an unexpected way.
So, I would fully endorse the principle that one be more
transparent going forward as----
Senator Shelby. But the bottom line here, the deleveraging
has got to be done right.
Mr. Stein. It will be one of the most important tasks,
along with the regulatory implementation, one of the most
important tasks for the Fed over the next several years for
sure.
Senator Shelby. This same question to both of you. The Wall
Street Journal recently reported that the Board of Governors
has held just two public meetings since Dodd-Frank was enacted.
Do you believe whether or not it is important for Governors,
the Board of Governors of the Fed, to meet in an open forum to
publicly discuss their viewpoints prior to implementing rules?
Or do you believe the Fed's practice of not publishing internal
dissent should be changed? How do you go about this? Mr. Powell
first.
Mr. Powell. To begin, when I was in office before, the Fed
did not even announce what it did in an FOMC meeting. There was
no press release until 1994, which was after I left, so the
level of transparency now with the press conferences and the
forecasts, it is night and day, and all the things that the
Chairman does.
But in terms of public meetings, I cannot think of a single
reason why the Fed would not have more public meetings. It has
done so historically. Given all the focus on transparency, for
some reason the number of public meetings has come down, and I
think it is a perfectly good question: Why would that be the
case? I read the same article, and there was a comment in there
by a couple of the Governors saying, ``Yes, we will do more
public meetings.'' So I suspect there will be more public
meetings going forward.
Senator Shelby. Dr. Stein.
Mr. Stein. Just to underscore the progress that the Fed has
made on transparency and the fact that it is clearly a work in
progress, that one wants to continue on this path and with this
broad theme. And I agree that on the regulatory dimension, more
transparency would be a good thing.
Now, I have not been involved at a detailed level enough in
the rulemaking process to know what the best mode of doing that
is, whether it is open meetings, whether it is other things.
But I am certainly sympathetic and committed to trying to do a
better job on that dimension.
Senator Shelby. I will direct this question to Mr. Norton.
Are Basel III capital standards high enough? Some people think
they are not; some think they are too high. What is your
assessment of these capital standards, if you have had a chance
to study them? And are they sufficient in your judgment to
prevent another crisis or to mitigate a crisis?
Mr. Norton. Senator, I think my view on the Basel III
capital requirements is that it is a tremendous step forward,
especially given where we were--both in the United States and
globally--with regard to bank capital levels.
I am particularly pleased to see that not only the amount
of capital has gone up as a result of Basel III, but also the
quality of capital, and more common equity being a focal point
of that agreement. As you know, the coordination of regulation,
both domestically and internationally, is an important process,
so I think from my perspective outside looking in, the United
States has done a good job of encouraging higher capital and
better quality capital, and I am supportive of that.
Senator Shelby. Mr. Norton, do you know of any financial
institution offhand that has been well capitalized, well
managed, and well regulated that has failed?
Mr. Norton. Senator, I cannot think of one. From my
professional experience, you can see that institutions that
have sufficient capital and have good management and take that
responsibility seriously tend to do well.
Senator Shelby. Thank you.
I want to direct this question to Mr. Berner. Under Dodd-
Frank, sir, the Director of the OFR has the authority to
collect information about the American people under the pretext
of monitoring systemic risk. This type of authority raises
serious privacy concerns with a lot of people, conservative and
liberal both.
What are the statutory limits of your authority, as you
understand it, to collect information about the American
people? In other words, give us the full spectrum of financial
information that you could collect, as you understand it, under
the pretext of monitoring systemic risk. And is there any
information that the OFR cannot collect even if it could help
improve the monitoring of systemic risk?
Mr. Berner. Senator Shelby, thanks for your question.
First, let me state that, as you know, the goals of the Office
of Financial Research are to collect those data on behalf of
the Council that will help it in monitoring threats to
financial stability, and that really is our primary focus. And
those data, as a result, tend to be the ones that are involved
with financial transactions between institutions or between
institutions and their clients.
I also want to say that preserving the confidentiality of
those data when they are confidential or secure is the highest
priority for the Office of Financial Research. Likewise,
preserving the privacy of individuals in our economy is of the
utmost importance, and we take those goals and that mandate
very seriously.
So I stated before that we will be extremely thoughtful and
judicious about the way we collect data, where----
Senator Shelby. And what you do with that data.
Mr. Berner. And to be very thoughtful and judicious about
what we do with those data as well, Senator. We are not
collecting data for collection's sake. We are interested only
in collecting those data that will help us fulfill our mandate.
And we want to avoid duplication in the collection of data if
they are already collected by other agencies.
You referred to the statute. The statute actually does
provide several safeguards that are important in prescribing
what the OFR can do. Specifically, we need to go to the
supervisors of record, the other regulatory agency, to find out
whether those data are, first, being collected already, and if
so, then there is no need for us to do additional collection.
To that end, we are in the process of completing an
inventory of the data that are held collectively by the Council
to make sure that we do not duplicate and so that the Council
is fully aware of the data that are being collected.
Senator Shelby. Thank you.
I have one last question of Ms. Romero. Before the passage
of the legislation that created the Small Business Lending Fund
that you are familiar with, a lot of people warned that it
would create a TARP II bailout. A lot of the concern was that
banks receiving TARP loans would simply use the program to pay
off TARP loans and then refinance into SBLF loans at a lower
rate. You understand that, I think.
Ms. Romero. Absolutely.
Senator Shelby. A recent Treasury report dispute this
notion, stating that it is not a TARP program. But about how
may banks that received TARP funds ended up refinancing into
the Small Business Lending Fund?
Ms. Romero. Thank you for that.
Senator Shelby. Do you have some data on that?
Ms. Romero. Absolutely. Thank you for that. This is an
important issue, Senator. I am happy to have a chance to
address it. One-hundred-thirty-seven banks came out of TARP and
refinanced into SBLF, which is non-TARP----
Senator Shelby. 137?
Ms. Romero. 137 of 332 banks went into SBLF.
Senator Shelby. A lot of banks. What are the costs to the
taxpayers here? Can you calculate that yet?
Ms. Romero. The amount of money that SBLF put out was
around $4 billion. More than half of that went to refinance the
banks out of TARP.
This goes to a bigger concern that I have. Really, if
confirmed, this would be a high-priority area for me. What
about the banks who were left? I mean, there are nearly 400
banks left in TARP, and there was this big push to get the
largest banks out.
Senator Shelby. And how much money is owed by these banks
to TARP now, roughly?
Ms. Romero. For banks, there is owed----
Senator Shelby. Still in TARP.
Ms. Romero.----$20 billion.
Senator Shelby. $20 billion.
Ms. Romero. That is correct. And so there was no sort of
corresponding big push to get the community banks out of TARP,
except for this SBLF legislation, and this did end up having
137 banks come out of TARP and refinance into SBLF.
One of the recommendations that I just recently made in the
last couple of months was to tell Treasury come up with a
concrete plan for the rest of the banks, work with the banking
regulators to try to get those banks back on their feet without
Government assistance before the dividend, the TARP dividend
rate increases from 5 percent to 9 percent, which happens next
year.
Senator Shelby. How much money is still owed to the
Government through the TARP loans, unpaid?
Ms. Romero. Thank you. I appreciate that question as well.
Taxpayers are owed $132 billion.
Senator Shelby. $132 billion still outstanding.
Ms. Romero. That is correct. We are not going to get all of
that back; $12 billion has already been written off, and the
recent cost estimate----
Senator Shelby. $12 billion has been lost, right?
Ms. Romero. That is correct.
Senator Shelby. OK. And what is the rest, ma'am?
Ms. Romero. The recent cost estimate of TARP is $68
billion.
Senator Shelby. $68 billion. So that is a long way from
being a break-even place, isn't it?
Ms. Romero. That is a long way. There is a lot of work left
to be done, a lot of challenges left in TARP.
Senator Shelby. Thank you very much.
Ms. Romero. Thank you.
Senator Shelby. Thank you, Mr. Chairman.
Chairman Johnson. Senator Menendez.
Senator Menendez. Thank you, Mr. Chairman.
I would like to ask our two nominees to the Fed--there are
those of us who have worked very hard to put policies and be
supportive of policies in place to get this economy moving
again, and we see that from a whole host of indicators it is
moving in a positive direction. But many of us are still
concerned that it is tenuous.
So the question for me is: Give me a sense of how you view
tightening monetary policy. How do you know when you have
reached a point where that is wise? What considerations will
you take into account? For both of you, yes.
Mr. Stein. If you would like, I will take the first shot.
Thank you very much, Senator.
At the broadest level, I would want to be guided by the
Fed's dual mandate, which is, on the one hand, price stability
and, on the other hand, maximum employment. So as we go
forward, as you know, the Fed has indicated an expectation,
given the sort of current expectations for the economy's path,
that monetary policy is likely to remain highly accommodative
through 2014.
I just wanted to emphasize that my understanding and my
interpretation of that is that that is not a commitment on the
part of the Federal Reserve. That is what sometimes is called
the Fed's reaction function, that is to say, given our
estimates, this is what we expect. But, very importantly, it is
not a commitment, and if the economic situation were to change,
for example, as you suggest, if the economy were to strengthen
materially faster than expected, it would be absolutely
warranted to revisit--again, just guided by the dual mandate--
the path of the easing. So I think, one will have to consider
the data as it comes in, both the data for the strength of the
economy as well as inflation data, and try and balance that on
a going-forward basis.
Senator Menendez. And in that duality of responsibility
that the Fed has, is that an equal footing?
Mr. Stein. Yes, it is my understanding that they are on an
equal footing, with just the note that, of course, in many
cases--and particularly, I think, in this case--the two goals
are likely to be complementary because, of course, as the
economy strengthens, it will both tend to push inflation up and
to push employment up as well, so you will be moving in the
same direction of converging on both of the two goals. So I
think they are complementary in that sense.
Senator Menendez. Mr. Powell.
Mr. Powell. Thank you, Senator Menendez. I am in
significant agreement with Dr. Stein's points. As discussed
earlier, the timing of the Fed's exit from the balance sheet
and from all other aspects of its now highly accommodative
monetary policy is a critical question. And I cannot do better
than to say that it has to be weighed under the dual mandate,
of which both aspects are equal. And the Committee recently
published its reaction function, which is to react in a
balanced and symmetrical way, and I would certainly be bound by
that and be open-minded. It is not a date that you could pick
here today. It is going to depend on the future path of the
economy.
Senator Menendez. How do you both view how the housing
market has responded to the Fed's low interest rate monetary
policies? That should be helping homeowners. What is your
assessment so far? And if you would change anything, what would
that be?
Mr. Stein. Well, as you know, the housing market continues
to struggle in many parts of the country, and this is an issue
not only of macroeconomic concern, but it is a wrenching issue
for many of the families that are involved in the foreclosure
process. It is costly not only at the macro level, but for the
neighborhoods that are involved in foreclosure.
Typically, when the Fed eases monetary policy, that is
quite helpful because families can refinance and thereby lower
their mortgage burden. That has been a more difficult process
this time around because it is hard to refinance when your
loan-to-value ratio is so high that you cannot qualify for a
new mortgage.
So that has been a challenge. I think that is one of the
reasons that the Fed has maintained an accommodative policy, is
because they are pushing effectively against a relatively
strong headwind coming from this issue. So there are a number
of policy options on the table for dealing with this. A number
of them are fiscal in nature and so are more properly the role
of Congress to consider. But it, again, remains one of the
important challenges for us to kind of keep front and center.
Senator Menendez. So would you do anything different than
what is being done at this point in time with the indicators as
they exist?
Mr. Stein. I think one thing that is more in the Fed's
bailiwick, if you will, which is worth considering, although I
am not an expert on this issue, is its supervisory policy with
respect to real estate owned; this is to say, the banks that
own an inventory of foreclosed properties. And one wants to be
careful not to create impediments to kind of the natural market
adjustment which may involve more rental as opposed to putting
a lot of properties on the market. So I think that there is
room to be thoughtful about that, and I look forward to kind of
learning more.
Senator Menendez. Mr. Powell.
Mr. Powell. When the Fed eases, one of the principal
channels for its easing to take an effect on the economy is the
housing market, and that is not happening to a significant
degree now due to structural issues in the economy. So the
stimulus that is being provided is not having that desired
effect, as Dr. Stein indicated. And some of the things that can
be done are perhaps within the Fed's jurisdiction, but many of
them are not, about the structure of the housing market. And to
the extent it is within the Fed's jurisdiction, it would have
to do with bank regulatory policy and making sure that
regulators do have--in my prior experience in Government,
regulators crack down in a downturn. It is just human nature.
Things happen that are embarrassing and they get tougher--and
it is appropriate to some level--but it has a way of
accentuating a downturn. So you have to be careful about that.
In addition, as an outsider, you can see the Fed racking
their brains about ways to help the housing market. If there
were a silver bullet, I think we would have used it by now, but
I do think that both changing real estate owned policy and
bringing private capital into that, as apparently is now
happening, are constructive areas of focus.
Senator Menendez. Mr. Norton, I want to take off where Mr.
Powell just left off in his observation that in a downturn the
ratcheting further creates a downturn. Do you believe the FDIC
is currently striking the right balance between what many of us
on this Committee have said to institutions that have come
before us, which is we want responsible lending to take place,
but we do want lending to take place, versus what I hear back
at home that I have to give, you know, 10 or 12 points over
LIBOR and my firstborn to get a loan? What do you think is the
present balance? Is it the right balance, or can we do better?
Mr. Norton. Senator, I see it today from my seat in the
private sector, and I hear a lot of the same comments that you
just alluded to, that there has been an effort in the field to
perhaps restrict credit when there are some good loans out
there to be made. So if I were to join the Board, it would be a
critical component of something I would be focused on to make
sure the message from Washington is consistent with the message
in the field, that we need to recognize that especially
community banks are an important mechanism to credit for the
economy, and the business models of community banks are
different than the business models of very large banks, and we
can regulate both appropriately and safely and allow them to
perform their role in the economy.
Senator Menendez. I hope we can get the right balance
struck here because I think the pendulum has swung too far the
other way.
Let me ask you one other--two final questions, Mr.
Chairman. What are your views on TAG?
Mr. Norton. I was in the Government when the TAG program
came to life in the depths of the financial crisis, so it was
certainly an important tool that the official community used to
stabilize the banking system. As we know, the program expires
under the statute at the end of this year, so I think that
provides a good opportunity for the FDIC, the Congress, and the
regulatory community to review the program and see if it is
merited for further extension or if it has served its purpose.
Senator Menendez. Obviously, community banks are seeking an
extension. They believe it would be very helpful. But you do
not have a definite view at this point as to whether that is
desirable?
Mr. Norton. I think, if you would not mind, I would like to
have a broader set of information if I were to be on the Board,
if confirmed, to make that assessment. But I think it is
certainly worthy of serious consideration.
Senator Menendez. Finally, Dr. Berner, let me ask you--I
think your position is very important. There are those--I chair
the Housing Subcommittee for this Committee, and there are
those who have said in hearings before us that the weak state
of the housing market poses a systemic risk. What do you
believe of that?
Mr. Berner. Well, Senator, thanks for your question. There
is no question that a weak housing market, if it threatens the
economy and the health of financial institutions and the
financial system more broadly, could pose a systemic risk. And
I think what we saw in the crisis was that that certainly was a
possibility.
If confirmed, I would think that that is a key area for
research and for collecting more data so that we can evaluate
the extent to which what is going on in housing markets and
housing finance continues to pose not just a threat to housing
per se but to the broader economy and the financial system, and
that certainly is one of our goals.
Senator Menendez. Well, the other thing I would commend to
you is the commercial real estate mortgage market that is
unfolding. It is a multi-trillion-dollar market. It is a market
that I do not believe presently would be absorbed under the
present system, and it is a real challenge that I think people
are not paying attention to is unfolding.
I remember years ago, with a different set of witnesses,
well before the housing market had its tremendous dive, I said
we are going to face a tsunami of foreclosures. I was told that
I was an alarmist and, unfortunately, I wish I had been wrong.
But they were wrong and I was right. I am concerned about the
commercial real estate mortgage market and what is unfolding,
and an opportunity to try to think about that before it unfolds
in a way that creates big challenges to a lot of our financial
institutions should the marketplace not be able to absorb a
couple trillion dollars of unfolding debt that will be due for
refinancing but I just presently do not see in the existing
marketplace. So we would look forward to some of your attention
on that upon your confirmation.
Mr. Berner. Thank you, Senator.
Senator Menendez. Thank you, Mr. Chairman.
Chairman Johnson. Ms. Romero, I understand SIGTARP has
partnered with CFPB and Treasury to combat HAMP mortgage
modification scams. Please describe how this coordinated effort
will better protect innocent homeowners. Are there other ways
SIGTARP is working with other agencies to fight fraud?
Ms. Romero. Thank you for that question, Chairman. This is
a very important area that I have focused on in the last year.
Mortgage modification fraud is really just an outrageous
type of fraud. These are struggling homeowners who are seeking
help, and someone promises them that if they pay them up front
a fee and not pay their mortgage and not talk to their lenders,
these scam artists will ensure that they get a HAMP mortgage
modification and get their mortgage payment lowered.
This has been a very serious area that we have focused on
as SIGTARP and, if confirmed, I would continue to prioritize.
And as we have brought accountability and justice through
stopping these frauds and supporting the prosecution against
these people who are doing this, we were talking to victims and
realize that a lot of these victims were falling prey to these
schemes through the Internet.
So in working with the SIGTARP staff, what I decided to do
was work with Google and Microsoft to shut down the advertising
for these scams on the Internet, and we were able to do that
with 125 Web sites that we identified. But that shut down
advertising relationships with hundreds and hundreds of agents
for these people.
On top of that, I have made a big push to try to educate
homeowners, and what I would like is ultimately for homeowners
to know these scams when they see it and know that they are a
scam. I would like this to be as popularly known as the
Nigerian email scams.
So what I did was I approached the CFPB and Treasury and
asked them to join a task force with me where we would educate
homeowners, and so we issued a fraud alert, and the next step
that we are moving forward is working with military bases to
try to educate our armed forces so that they do not fall prey
to these schemes.
All of SIGTARP's investigative work is done with partners.
This is how we leverage the resources that we have. And we work
significantly on the President's Financial Fraud Enforcement
Task Force. I spent the last year really building strong
partnerships, particularly with our prosecutors, because
SIGTARP just investigates cases and then we refer them on to
prosecution, and the results of those partnerships have been
very, very strong, and we have been able to have 100 percent of
the cases we refer be accepted for prosecution.
Chairman Johnson. Senator Hagan.
Senator Hagan. Thank you, Mr. Chairman. Thank you for your
testimony today.
Dr. Berner, given your background at the Federal Reserve
Bank in New York and as a senior executive at major financial
services firms, I was hoping--I want to ask a couple of
questions about primary dealers. As we all know, primary
dealers serve as trading counterparties of the New York Fed in
its implementation of monetary policy set by the Federal Open
Market Committee. These dealers distribute our U.S. debt in
exchange for revenue generated through the appreciation of
financial positions they take on at weekly Fed auctions.
Is it common for primary dealers to enter into hedging
transactions designed to mitigate risks that arise from
participation in a Fed auction?
Mr. Berner. Senator Hagan, thanks for your question. The
primary dealer community is not something that is directly our
focus in the Office of Financial Research, but certainly, if
confirmed, we want to look at all the factors that might
constitute threats to financial stability. So if you will
permit me, again, if confirmed, that is something that we could
focus on in the future.
Senator Hagan. Does anybody else have any comments on that?
[No response.]
Senator Hagan. OK. Thank you.
Let me ask about gasoline prices. Mr. Powell and Dr. Stein,
in recent weeks we have seen an uptick in the price of oil and
of gasoline at the pump. Yet at the same time, demand for oil
in the United States is at its lowest level since 1997. Can you
discuss your views on the drivers of these price increases if
U.S. demand is low?
Mr. Powell. Thank you, Senator Hagan. I am not an expert in
the oil market, but I can tell you that what I have read
suggests this explanation, and it makes sense to me: gasoline
prices are significantly a function of crude oil prices, and
crude oil prices have gone up very significantly in the last
couple of months, to a big degree because of what is happening
in the Middle East and the threat that there might be an
outbreak of hostilities there and that the Strait of Hormuz
might close. You know, it tracks very well with that series of
events, so that makes sense to me.
In addition, because of the high price of crude, some of
the refining capacity in the United States is being taken out,
so it is kind of spring cleaning for refining capacity, so you
have more expensive oil trying to go through a smaller and
smaller funnel, and that leads to higher prices at the gas
pump. So when I read a lot of commentary on that issue, that is
what I take away.
Mr. Stein. Senator, thank you for the question. Yes, so on
top of the supply factors that Mr. Powell alludes to, while, as
you noted, the demand here has not been overwhelming, the
demand from abroad, from China and from others, is also helping
to push the prices up. Obviously this is something of a first-
order concern for the Fed, although it is important to say that
energy prices and commodity prices in general tend to be quite
volatile. So the right way to respond to that is one has to be
a little bit careful given the lags in policy and so forth. So
it clearly bears very, very careful watching these days, but
one does not want to immediately overreact in terms of a policy
response.
Senator Hagan. Thank you, Mr. Chairman.
Chairman Johnson. I thank the witnesses for your testimony
and for your willingness to serve our Nation.
I ask Members of this Committee to submit questions for the
record by noon this Friday, March 23, and I request that the
witnesses submit your answers to us by noon on Tuesday, March
27.
This hearing is adjourned.
[Whereupon, at 11:21 a.m., the Committee was adjourned.]
[Prepared statements and responses to written questions
supplied for the record follow]:
PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY
Thank you, Mr. Chairman. Today, the Committee will consider five
important nominations.
Jerome Powell and Jeremy Stein have been nominated to be Members of
the Board of Governors of the Federal Reserve. Mr. Powell is currently
a visiting scholar at the Bipartisan Policy Center. He has several
years of experience working in financial markets as an attorney and
investment banker. He served as Assistant Secretary and Under Secretary
of the Treasury for Finance during the Savings & Loan crisis and the
cleanup that followed.
Dr. Stein is currently a professor of economics at Harvard
University. In addition to being an accomplished academic, he has
served as a staff economist to the Presidential Task Force on Market
Mechanisms after the 1987 stock market crash and as a senior advisor to
the Treasury Secretary after the financial crisis. Dr. Stein has also
served as an economic advisor to the Federal Reserve Bank of New York
for several years.
I hope to receive assurances from both Fed nominees that they will
work to increase the Fed's transparency and accountability to Congress
and the public.
Jeremiah Norton has been nominated to be a Member of the Board of
Directors of the Federal Deposit Insurance Corporation. Mr. Norton
currently is an executive director with J.P. Morgan Securities. Prior
to that role, he served as the Deputy Assistant Secretary for Financial
Institutions Policy in the Treasury Department before and during the
financial crisis. I look forward to hearing how his private and public
sector experience will help guide him in the important challenges
facing the FDIC as it implements the Dodd-Frank Act.
Richard Berner has been nominated to be the first Director of the
Office of Financial Research in the Treasury Department. Dr. Berner is
currently a counselor to the Treasury Secretary. He has worked as an
economist at the Fed and four major financial services firms. Dr.
Berner has also served on economic advisory boards to the Department of
Commerce, the Congressional Budget Office, and the Federal Reserve Bank
of New York. I look forward to hearing how he plans to build the office
and what initiatives he will undertake to achieve the OFR's statutory
mission.
Christy Romero has been nominated to be the Special Inspector
General for the Troubled Asset Relief Program, or SIGTARP. Today, TARP
has about $120 billion outstanding, and the government still owns 70
percent of AIG, 32 percent of General Motors, and almost 74 percent of
Ally Financial, formerly GMAC bank.
Ms. Romero has served for over two-and-a-half years at SIGTARP,
including as Acting Special Inspector General and Deputy Special
Inspector General. During her tenure, SIGTARP investigations have led
to criminal charges against 33 individuals. She has also managed
efforts to combat widespread fraud associated with TARP loan
modification programs. Ms. Romero brings with her years of experience
in investigations and securities law, including as a Counsel to both
the former and current Chairmen of the Securities and Exchange
Commission. I look forward to hearing how she plans to lead SIGTARP and
protect taxpayers while overseeing Treasury's management of TARP.
I thank all of the nominees for their willingness to serve and to
appear before the Committee this morning. Thank you, Mr. Chairman.
______
PREPARED STATEMENT OF JEROME H. POWELL
Nominee for Member of the Board of Governors
Federal Reserve System
March 20, 2012
Chairman Johnson, Senator Shelby and Members of the Committee, I am
honored and grateful to President Obama for the privilege of appearing
before this Committee today as a nominee to the Federal Reserve Board.
If I am confirmed, I will work to the best of my abilities to carry out
the responsibilities of this office.
Most of my career has been in the private sector, including close
to 30 years working in the financial markets as an attorney, an
investment banker and finally as an investor. I believe that my
practical experience of the private sector and the financial markets
would provide a valuable perspective in the Federal Reserve Board's
deliberations.
I also served as Assistant Secretary and then Under Secretary of
the Treasury for Finance from 1990 through 1993. Throughout that
period, I worked closely with this Committee, and appeared in this room
a number of times as a witness in hearings and markups. Since I left
public service in 1993, it has been my highest aspiration to serve
again. It means a great deal to me to have the possibility to do so.
My earlier service also occurred during a period of great economic
turmoil. I arrived at Treasury in June 1990 at the beginning of the
saving & loan cleanup. A year later we faced the insolvency of the Bank
Insurance Fund. We also faced multiple failures of large financial
institutions as well as a severe ``credit crunch'', with businesses and
consumers unable to get credit on affordable terms.
I was deeply involved in addressing these serial crises and in the
major legislation that followed, including the FDIC Improvements Act of
1992, or ``FDICIA''. I also led the Administration's response to a
major bidding scandal in the Treasury markets in 1991-92, which
eventually resulted in the Government Securities Act of 1992, as well
as revisions to the Treasury's auction rules.
Since leaving Treasury in 1993, I have remained a careful student
of economic policy and events, always with the thought that I might
have the opportunity to return to public service. Like many others,
over the years I have grown increasingly concerned about our ever more
unsustainable fiscal position, the performance of our economy, and most
of all our collective failure to come together around a plan of action.
In 2010, I left the private sector with the intention of spending
the rest of my career working on those issues. Since then, I have
worked full time as a Visiting Scholar at the Bipartisan Policy Center,
focusing on Federal and State fiscal issues. Last summer I authored a
widely distributed study of operation of the Federal debt ceiling.
After that, I put together a public simulation of the failure of a
large, global financial institution under the new rules of Dodd-Frank.
In 2010, I also led another simulation of the financial collapse of a
large, fictitious American state, among other projects.
Economic policymakers, including those at the Fed, will be working
in the shadow of the financial crisis for some time. There are enormous
challenges on every front. This is a time to apply the lessons we have
learned from the crisis, and set the stage for another long period of
prosperity.
In monetary policy, the task will be providing support for the
still weak economy but exiting the current highly accommodative
policies in time to avoid higher inflation. Along with other
governments and central banks around the world, the Fed is also in the
middle of a once in a generation refashioning of the global financial
regulatory architecture. There is much work to be done in implementing
the decisions Congress has made, and in finalizing and implementing
international accords such as Basel III.
At the heart of these broad reforms is the project of ending our
practice of protecting creditors and sometimes equity holders of large
global financial institutions in extremis--too big to fail. What we
have long needed is a mechanism to handle an orderly resolution of a
large, failing institution. Realizing this objective will be the work
of many years. And I would like to play a part in that.
Thank you again for the honor of this hearing. I will be happy to
respond to your questions.
______
PREPARED STATEMENT OF JEREMY C. STEIN, Ph.D.
Nominee for Member of the Board of Governors
Federal Reserve System
March 20, 2012
Chairman Johnson, Senator Shelby, and Members of the Committee,
thank you very much for giving me the opportunity to appear before you
today. I am honored to have been nominated by President Obama to be a
Member of the Board of Governors of the Federal Reserve. It's an
important job at a challenging time for both the U.S. economy and the
global financial system, and I am eager to contribute to our meeting
these challenges.
I have spent most of my career as an academic economist, with a few
breaks for government service. I graduated from Princeton University in
1983, got my Ph.D. from MIT in 1986, and have since been on the
faculties at both MIT and Harvard-most recently, since 2000, as a
professor in Harvard's economics department. In between, I served on
the task force appointed by President Reagan to investigate the 1987
stock market crash. I also spent a year as a senior staff economist on
President George H.W. Bush's Council of Economic Advisors. And for six
months in 2009, I was an advisor to NEC Director Summers and Treasury
Secretary Geithner, helping to formulate a policy response to the
crisis that was then engulfing our financial system.
As an academic, my research and teaching have been focused on
financial markets, and for many years I have been especially interested
in the interplay between monetary policy and financial institutions-
trying to understand the real-world details of how monetary policy
filters through the banking system to ultimately impact borrowers and
lenders. Other topics that I have worked on that are of relevance to a
position at the Fed include: the role of small banks in small-business
lending; the housing market; risk management in financial firms; and
financial regulation.
In the last few years, my research and teaching have been heavily
influenced by my experiences working at the NEC and Treasury in 2009.
For example, I developed and taught a new course on the financial
crisis, which has given me a chance to step back and reflect on the
many policy decisions taken during this eventful period, the mistakes
made, and the lessons learned.
This reflection has reinforced one of my core beliefs as an
economist: the need to be humble and honest about the limitations of
our understanding. I am a big believer in the value of economic theory,
but the role of theory should be to help organize the jumble of
evidence before us in such a way that when new facts come in, we can
most clearly see how and why we've had it wrong in the past, and adjust
our thinking accordingly. Too often in economics, theories have been
used in a rigid fashion, making us less, not more open to learning from
what happens in the real world. This is when things have gone badly off
the rails for economists, and for those who rely on us for policy
advice.
The Federal Reserve's mission remains as it was before the onset of
the financial crisis: to deliver on its dual mandate of price stability
and maximum employment, and to help safeguard the stability of the
financial system. But to pursue this mission in a dramatically altered
economic environment, the Fed has shown a laudable ability to adapt and
evolve--in terms of the tools it has used to conduct its monetary and
lender-of-last-resort policies, and the substantially enhanced degree
of transparency that it now offers to the outside world. I am fully
committed both to the mission of the Fed itself, and to this spirit of
pragmatic, open and non-ideological engagement with the unknown
challenges that surely lie ahead.
Thank you again for the opportunity to testify before you today. I
would be delighted to answer any questions you might have. Thank you.
______
PREPARED STATEMENT OF JEREMIAH O. NORTON
Nominee for Member of the Board of Directors
Federal Deposit Insurance Corporation
March 20, 2012
Thank you Chairman Johnson, Ranking Member Shelby, and Members of
the Committee. It is an honor and a privilege to be nominated by the
President and to come before you today as a nominee for the Board of
Directors of the Federal Deposit Insurance Corporation (FDIC).
I am very appreciative of the Chairman and Ranking Member for
scheduling today's hearing and of Members and their staff for taking
time to meet with me in the days and weeks leading up to this morning.
I appear before you today with full and complete recognition of the
serious responsibility associated with the position to which I have
been nominated.
The FDIC performs a critical role in our Nation's financial system.
Since its creation by the Congress in 1933, the FDIC has helped to
maintain stability in the financial system through its provision of
deposit insurance and supervision of banking entities. If confirmed to
the position to which I have been nominated, I believe that my
experience both in government and in the private sector would bring
meaningful value to the FDIC Board and to the regulation of financial
institutions.
First, earlier in my career as an aide to Representative Edward R.
Royce, a Member of the House Financial Services Committee, I learned
not only the issues and challenges facing the FDIC and other regulatory
agencies, but also gained an understanding of the role financial
institutions play in the lives of individuals and communities within
the real economy. I appreciate the important oversight role that the
Congress plays in guiding the FDIC and other regulatory agencies.
Second, from 2007 to early 2009 I was privileged to serve in the United
States Treasury Department as Deputy Assistant Secretary for Financial
Institutions Policy. In that position, I oversaw the development,
analysis and coordination of the Treasury Department's policies on
legislative and regulatory issues affecting regulated and nonregulated
financial institutions. Additionally, while at the Treasury Department,
I worked closely with the regulatory agencies--including the FDIC--to
help the country quickly respond to the most severe financial crisis
since the 1930s. Last, in my current and most recent professional role,
work in the private sector providing investment banking services to
financial institutions, both large and small. I believe this background
enables me to provide an important perspective on the way in which
regulation impacts financial institutions and the communities they
serve, the capital markets, and the broader market for goods and
services.
In this critical period for all financial regulators, including the
FDIC, should I be confirmed to the FDIC Board, I will bring the
collection of my experiences to help guide the FDIC as we continue to
encounter challenges in the financial system and the national and
global economies. In addition to helping ensure that our country's
banks are able to operate in a safe, sound, and balanced manner, I
believe it is imperative that the FDIC work with the other regulators,
both domestically and internationally, to prioritize and address issues
that pose risks to the financial system.
If confirmed, I pledge to work with my colleagues at the agency,
the regulatory community, and the Congress as we address these and
other important issues. Thank you.
______
PREPARED STATEMENT OF RICHARD B. BERNER, Ph.D.
Nominee for Director, Office of Financial Research
Department of the Treasury
March 20, 2012
Chairman Johnson, Ranking Member Shelby, and distinguished Members
of the Committee, thank you for the opportunity to be here today.
I am honored that President Obama and Secretary Geithner have asked
me, if confirmed, to serve as Director of the Office of Financial
Research at this critical moment for our Nation's economy and financial
system.
I am grateful to my wife, Bonnie, and to our children, Matt and
Laura, for supporting and encouraging me to return to public service.
Thank you for coming to this hearing today.
As you know, the Office of Financial Research (OFR) was established
to serve the Financial Stability Oversight Council (Council), its
member agencies, and the public by improving the quality, transparency,
and accessibility of financial data and information, by conducting and
sponsoring research related to financial stability, and by promoting
best practices in risk management.
Those goals all represent challenges. I am fully committed to help
build this institution to fulfill those goals, and I believe that my
family background and my educational and professional training have
equipped me with the dedication and skills to meet those challenges.
My mother, who is 97, was a town meeting member and taught me the
ingredients of good government. My father, who passed away in 2005,
taught me respect for the virtues of free markets and capitalism, as
well as an understanding of their shortcomings. My parents had
different political views, but they agreed on the importance of public
service.
Summer jobs in high school, as a stock boy in a camera store and a
lifeguard at a local pool, taught me about work and teamwork. I also
learned the rewards of dedication and hard work as a competitive
swimmer. These lessons carried through to my education and professional
career.
In my education, I turned to economics and its power to make
peoples' lives better. I received an A.B. from Harvard College and a
Ph.D. from the University of Pennsylvania. My training in college and
graduate school gave me the tools to analyze the economy and financial
markets, and to appraise economic and financial policies.
Most important, I believe my career has provided me with the skills
in research, data, and markets necessary to serve as Director of the
Office of Financial Research. My career helped me develop broad
knowledge of the changing global economy, financial institutions,
financial markets, and financial regulation. Through many market and
economic cycles, I saw both the benefits of financial innovation and
the costs of periods of severe market stress.
My professional experience has also equipped me to understand the
needs of policymakers and risk managers. In my first job, I served as
an economist at the Board of Governors of the Federal Reserve System.
Subsequently, I directed the Policy Analysis Group at Wharton
Econometrics. I served for 30 years at four major financial services
firms, on the Senior Management Committee of one and on the Risk
Management Committees of two; most recently, as Co-Head of Global
Economics at Morgan Stanley. As Counselor in the Treasury, I currently
advise Secretary Geithner on financial and regulatory issues.
My service on advisory boards has also kept me on the cutting edge
of policymaking, research, and data. I have served on advisory boards
for the Federal Reserve Bank of New York, the Congressional Budget
Office, the National Bureau of Economic Research, and the Bureau of
Economic Analysis. As an associate on the Counterparty Risk Management
Policy Group II--a group of market participants assembled in 2005 to
identify and resolve many of the problems in our financial system--I
gained further insight into the complex plumbing of the financial
system.
Finally, I believe I have the critical thinking skills to challenge
conventional wisdom and a passion for a stronger, safer, and
appropriately regulated financial system that guides my vision for how
the Office should fulfill its mission.
We face many challenges to rebuild the financial system, one that
helps our economy grow and restore lost jobs. I am humbled and honored
by the opportunity to help meet those challenges and serve our Nation.
If confirmed, I would look forward to working with the Members of this
Committee and Congress. I will work hard to carry out my oath of office
and to earn your trust and confidence.
Thank you. I look forward to answering your questions.
______
PREPARED STATEMENT OF CHRISTY ROMERO
Nominee for Special Inspector General
Troubled Asset Relief Program
March 20, 2012
Thank you, Chairman Johnson, Ranking Member Shelby, and Members of
the Committee. It is with great honor that I am here before you today
as the President's nominee for the position of Special Inspector
General at SIGTARP. I am very grateful to the Committee Members for the
support each of you has given to SIGTARP.
I am pleased to have my family here today. I would like to thank my
parents who instilled in me a call to public service, which I hope to
live up to, and hope to instill in my three beautiful daughters
Chelsea, Brooke, and Julia. My father, Augusto Romero, who is here
today, joined the United States Navy as a young man in the Philippines
and served our country for 20 years. My mother, Audrey Romero, raised
all seven children alone during my father's deployments. As a child, I
was exceptionally proud to watch my Dad put on his Navy uniform each
day. When his ship would return from deployment with every sailor
lining that massive deck standing ramrod straight, hands clasped behind
their back, I would find my Dad's face among the sea of white uniforms.
He was always beaming with pride, and so was I. My brother Scott Romero
has also answered the call to service, wearing camouflage to protect
our country in yearlong deployments to Bosnia, Afghanistan, and Iraq.
With two veterans in the family and the expectation that I too
would commit to public service, I left private practice to investigate
fraud for the Securities & Exchange Commission. I also had the
privilege of serving as counsel to two Chairmen of the SEC, the current
Chairman Mary Schapiro and former Chairman Christopher Cox, and I have
much admiration for both.
During my time at the SEC, our Nation suffered a profound financial
crisis and the Government's response included TARP. I had a deep
concern for who would safeguard TARP money against fraud. A friend told
me that if I was really concerned, I should volunteer by joining a new
office called SIGTARP. And that is exactly what I did in August of
2009. Since then, I have had an unwavering commitment to fulfilling
SIGTARP's mission of enforcement, transparency, and oversight.
I am deeply humbled by the confidence that President Obama has
shown in nominating me to serve in such an important role. Our Nation
continues to face challenges with $120 billion in TARP funds
outstanding, $51 billion not yet spent, and fraud by those who sought
to exploit TARP. I am committed to answering these challenges.
My experience of serving on the staff at the SEC, in leading the
dedicated and courageous team at SIGTARP during the last year, and
serving as SIGTARP's Chief of Staff for nearly 2 years, has prepared me
to serve as Special Inspector General. As a result of my experience at
the SEC, I developed a strong resolve to protect investors. Once again
I am protecting investors--the very taxpayers who funded TARP. I have
prioritized SIGTARP's criminal investigations. In the last year under
my leadership, 44 individuals have been criminally charged as a result
of a SIGTARP investigation. These charges carry severe repercussions
such as prison sentences. I also take very seriously SIGTARP's
oversight role and in the last year, I have led SIGTARP to issue 28
recommendations to protect TARP from fraud, waste, and abuse. In
addition, the American taxpayers have a right to know how TARP funds
are spent, and I have led SIGTARP to issue a series of reports
providing significant transparency.
Although I may not wear a uniform like my father and brother, I
share their dedication to public service. If confirmed, I pledge to
work closely with you to advance our mutual goal of protecting
taxpayers. This Committee's support of SIGTARP has been instrumental in
giving weight to SIGTARP's recommendations and ensuring a watchful eye
over TARP. I am committed to maintaining the close relationship between
this Committee and the office that I am nominated to lead. It has
certainly been the greatest privilege of my career to be nominated by
the President to serve as the Special Inspector General at SIGTARP and
to be considered by this Committee for confirmation.
Thank you very much. I would be pleased to respond to any
questions.
RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM JEROME H.
POWELL
Q.1. The regime that limits credit exposures in Europe is
generally not comparable to the regime established in the
Federal Reserve's proposed rule to implement Sections 165 and
166 of Dodd-Frank. Since the Federal Reserve's proposal
currently contains significant differences and is generally
more onerous than the European Union's Capital Requirements
Directive, are you at all concerned that U.S. institutions will
have a competitive disadvantage with their European peers?
A.1. Section 165 of Dodd-Frank requires the Board to establish
enhanced prudential standards for those institutions that are
covered, including concentration limits under Section 165(e).
In carrying out this obligation, it is important that the Board
avoid unnecessary negative competitive effects.
The December 2011 Notice of Proposed Rulemaking (the
``NPR'') is open for comment through the end of April 2012. In
order to better inform decisions regarding a final rule, the
NPR specifically invites comment on its quantitative impact. As
the Board reviews comments on the NPR and moves toward
development of a final rule, it is important that it avoid
hampering the competitiveness of U.S. institutions, provided
always that it remain faithful to the language of the statute.
It is also appropriate for the Board to seek international
harmonization of large exposure rules. The NPR states that
Basel Committee on Banking Supervision is considering such a
harmonized approach, and that the Board may amend the proposed
rule to make it consistent with such an approach.
Section 165(b)(2) also requires the Board to apply enhanced
prudential standards, including concentration limits, to
qualifying foreign banking organizations that it supervises,
while giving ``due regard to the principle of national
treatment and equality of competitive opportunity.'' The Board
has not yet issued regulations under this authority.
Q.2. Similar to the ``Volcker Rule'', U.S. Treasuries are
exempted from the Federal Reserve's rules on counterparty
credit limits while foreign high-grade sovereigns are not. Can
you make the case that this is an appropriate distinction? What
should the Federal Reserve be doing to understand how this
would impact American firms and markets?
A.2. The proposed rule exempts U.S. Treasuries but not State
and local government debt or foreign sovereign debt. My
understanding is that the exemption of Treasuries was done in
part to harmonize the rule with several other Federal lending
restrictions that apply to U.S. banks. The NPR specifically
seeks comments on the scope of this exemption and the Board's
decisions on a final rule should be informed by such comments.
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RESPONSE TO WRITTEN QUESTIONS OF SENATOR MORAN FROM JEREMY C.
STEIN
Q.1. The regime that limits credit exposures in Europe is
generally not comparable to the regime established in the
Federal Reserve's proposed rule to implement Sections 165 and
166 of Dodd-Frank. Since the Federal Reserve's proposal
currently contains significant differences and is generally
more onerous than the European Union's Capital Requirements
Directive, are you at all concerned that U.S. institutions will
have a competitive disadvantage with their European peers?
A.1. The financial crisis has made clear the need to better
understand and control single-counterparty concentrations at
systemically important financial institutions (SIFIs), and to
reduce inter-SIFI interconnectedness. At the same time, as the
Federal Reserve and other regulators move forward with the
implementation of Dodd-Frank, it will be important to make
every effort to harmonize the rules for SIFIs internationally,
to the extent that this can be done consistently with safety
and soundness considerations, and with the intent of the
statute itself. In the specific case of large exposure rules,
it should be noted that the Basel Committee is currently
exploring whether it makes sense to pursue international
harmonization of these rules. This would be one way to reduce
any potential adverse competitive effects of the Fed's single-
counterparty credit limit rules on U.S. banking firms relative
to foreign banking organizations. It should also be noted that
the Fed's single-counterparty credit limits only apply to bank-
holding companies with more than $50B in total assets.
Accordingly, they do not apply to community banks or even
medium-sized regional banks.
Q.2. Similar to the ``Volcker Rule'', U.S. Treasuries are
exempted from the Federal Reserve's rules on counterparty
credit limits while foreign high-grade sovereigns are not. Can
you make the case that this is an appropriate distinction? What
should the Federal Reserve be doing to understand how this
would impact American firms and markets?
A.2. The exemption of U.S. Treasuries, but not foreign
sovereign debt, is not specific to the Federal Reserve's rules
on counterparty credit limits. Rather, it is a more general
feature of other principal lending restrictions to which U.S.
banking firms are subject. Other examples include national bank
lending limits (Office of the Comptroller of the Currency),
affiliate transaction limits (Fed's Regulation W), and insider
lending limits (Fed's Regulation O). So the treatment in this
particular case is arguably consistent with a significant body
of precedent, and serves to harmonize the rules along this one
dimension. The Federal Reserve has sought comment on its
proposal on the treatment of sovereign exposures, and on the
quantitative impact of the proposal on U.S. banking firms. The
Fed should carefully consider any comments it receives on this
issue as it crafts a final version of the rule.