[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]




 
                 THE ANNUAL TESTIMONY OF THE SECRETARY
                  OF THE TREASURY ON THE STATE OF THE
                      INTERNATIONAL FINANCE SYSTEM

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           DECEMBER 12, 2013

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-55

                                 ______

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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              MELVIN L. WATT, North Carolina
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            STEPHEN F. LYNCH, Massachusetts
MICHELE BACHMANN, Minnesota          DAVID SCOTT, Georgia
KEVIN McCARTHY, California           AL GREEN, Texas
STEVAN PEARCE, New Mexico            EMANUEL CLEAVER, Missouri
BILL POSEY, Florida                  GWEN MOORE, Wisconsin
MICHAEL G. FITZPATRICK,              KEITH ELLISON, Minnesota
    Pennsylvania                     ED PERLMUTTER, Colorado
LYNN A. WESTMORELAND, Georgia        JAMES A. HIMES, Connecticut
BLAINE LUETKEMEYER, Missouri         GARY C. PETERS, Michigan
BILL HUIZENGA, Michigan              JOHN C. CARNEY, Jr., Delaware
SEAN P. DUFFY, Wisconsin             TERRI A. SEWELL, Alabama
ROBERT HURT, Virginia                BILL FOSTER, Illinois
MICHAEL G. GRIMM, New York           DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 12, 2013............................................     1
Appendix:
    December 12, 2013............................................    63

                               WITNESSES
                      Thursday, December 12, 2013

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury...     7

                                APPENDIX

Prepared statements:
    Green, Hon. Al...............................................    64
    Lew, Hon. Jacob J............................................    65

              Additional Material Submitted for the Record

Bachus, Hon. Spencer:
    Insert from the Dodd-Frank Act Conference Committee..........    70
McHenry, Hon. Patrick:
    Letter to Treasury Secretary Lew from Representative Garrett, 
      dated June 7, 2013.........................................    78
    Response letter to Representative Garrett from Treasury 
      Assistant Secretary for Legislative Affairs Alastair M. 
      Fitzpayne, dated July 12, 2013.............................    79
    Letter to Treasury Secretary Lew from Representative McHenry, 
      dated June 7, 2013.........................................    81
    Response letter to Representative McHenry from Treasury 
      Assistant Secretary for Legislative Affairs Alastair M. 
      Fitzpayne, dated July 26, 2013.............................    83
    Response letter from Representative McHenry to Treasury's 
      July 26, 2013, letter, dated August 22, 2013...............    85
    Letter to Federal Reserve Bank of New York President William 
      C. Dudley from Chairman Hensarling, dated November 6, 2013.    86
    Letter to Treasury Secretary Lew from Chairman Hensarling and 
      Representative McHenry, dated December 6, 2013.............    89
Peters, Hon. Gary:
    Written statement of the American Automotive Policy Council 
      (AAPC), the Mexican Automobile Industry Association (AMIA), 
      and the Canadian Vehicle Manufacturers' Association (CVMA).    92
    Proposed Language to Address Currency Manipulation in the TPP    96
Lew, Hon. Jacob J.:
    Written responses to questions for the record submitted by 
      Representative Duffy.......................................    97
    Written responses to questions for the record submitted by 
      Representative Fincher.....................................   101
    Written responses to questions for the record submitted by 
      Representative Himes.......................................   105
    Written responses to questions for the record submitted by 
      Representative Hultgren....................................   106
    Written responses to questions for the record submitted by 
      Representative Luetkemeyer.................................   107
    Written responses to questions for the record submitted by 
      Representative Moore.......................................   109
    Written responses to questions for the record submitted by 
      Representative Ross........................................   111
    Written responses to questions for the record submitted by 
      Representative Rothfus.....................................   113
    Written responses to questions for the record submitted by 
      Representative Sinema......................................   115
    Written responses to questions for the record submitted by 
      Representative Wagner......................................   117


                      THE ANNUAL TESTIMONY OF THE 
                    SECRETARY OF THE TREASURY ON THE 
                       STATE OF THE INTERNATIONAL 
                             FINANCE SYSTEM

                              ----------                              


                      Thursday, December 12, 2013

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9:35 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Bachus, Royce, 
Miller, Capito, Garrett, Neugebauer, McHenry, Campbell, 
Bachmann, Pearce, Posey, Fitzpatrick, Westmoreland, 
Luetkemeyer, Huizenga, Duffy, Hurt, Grimm, Stivers, Fincher, 
Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, 
Cotton, Rothfus; Waters, Maloney, Sherman, Meeks, Capuano, 
Hinojosa, Clay, Lynch, Green, Cleaver, Perlmutter, Himes, 
Peters, Carney, Sewell, Foster, Kildee, Murphy, Delaney, 
Beatty, and Heck.
    Chairman Hensarling. The committee will come to order. 
Without objection, the Chair is authorized to declare a recess 
of the committee at any time.
    Today's statutorily required hearing is for the purpose of 
receiving the testimony of the Secretary of the Treasury on the 
state of the international finance system.
    Before we begin, I would like to make a few preliminary 
comments. I want to thank the Members and staff for their 
flexibility in scheduling. Due to the passing of the late 
Nelson Mandela, in order to accommodate a number of Members and 
the Secretary for both Mr. Mandela's funeral and memorial 
services, we moved this hearing to this morning.
    So, as many Members know, today the committee will have a 
double feature. We will see the rest of you at 2:00, as well, 
for our monetary policy hearing, so Members will have an 
opportunity for lots of quality bonding time today. I wish to 
also announce ahead of time that at 11 a.m., I will declare a 
short recess of the committee.
    I now recognize myself for 5 minutes to give an opening 
statement.
    The committee meets today, again, to receive the annual 
testimony of the Secretary of the Treasury on reforming both 
the International Monetary Fund and the broader international 
financial system.
    There are important questions that must be raised. 
Undoubtedly, hardworking American taxpayers suffer from bailout 
fatigue, having been forced now to pay for the bailouts of AIG, 
Fannie Mae, Freddie Mac, Chrysler, G.M., banks big and banks 
small, and most recently, the Federal Housing Administration.
    Many Americans question the wisdom of supporting the IMF 
and other multilateral financial institutions that take their 
hard-earned dollars and use them to bail out other countries. 
Americans do not want to be part of a bailout nation any more 
than they wish to be part of a bailout planet.
    An important question at the outset is whether the 
Administration's credibility has been compromised and thus 
compromised our ability to reform multilateral financial 
institutions. An American President's most awe-inspiring power 
may not be the ability to launch a drone strike, but that when 
he speaks, the world listens, and the world listens because the 
President's words are backed by the moral authority of the 
United States of America.
    Lately, that moral authority of our Nation has been under 
question by the words of our President. Whether it is an erased 
red line in Syria, a deal with Iran that dismantles numerous 
sanctions but does not end the terrorist regime's march towards 
a nuclear bomb, or revelations about spying on our allies, we 
now live in a world where too many of our friends no longer 
trust us and too many of our adversaries no longer fear us.
    The collapse in confidence and credibility is not confined 
to foreign lands. Here at home, millions of Americans took 
President Obama at his word when he promised no fewer than 36 
times that they could keep their health insurance if they liked 
it. They now know better.
    Next, although the last couple of months have brought some 
welcome news on the jobs front, Americans continue to suffer 
through the slowest, weakest recovery in generations. Thus, 
regardless of the wisdom, many Americans now rightfully 
question our ability to continue supporting multilateral 
financial institutions like the IMF.
    When President Obama took office nearly 5 years ago, he was 
able to pass every major piece of legislation he wanted--the 
stimulus, Obamacare, the Dodd-Frank Act, the largest tax 
increase in our Nation's history--and the results speak for 
themselves.
    Poverty is up. Income inequality is up. The debt has never 
been higher. Small businesses are drowning in the greatest sea 
of red tape in our Nation's history. And the number of 
Americans in the labor force is at its lowest level in 30 
years.
    Five years into these policies, hardship and anxiety 
abound. Just listen to what I hear from my constituents in the 
Fifth Congressional District of Texas, people like Nancy from 
Dallas, who wrote to tell me, ``I have been looking for a job 
for close to 2 years. God has blessed me with many jobs on and 
off, but that does not pay the bills.''
    From Marsha in Reklaw, Texas, who said, ``I have spent more 
time unemployed in the last 4 years than I have employed.''
    John from Alba, in my district, writes that he has had to 
close his business and says, ``I am 70 years old, and I have 
tried to find a job, but no one wants to hire a 70-year-old 
when so many younger people are out of work.''
    These people deserve better than the results of this 
Administration's economic policies. Which brings us back to the 
central truth that you cannot strengthen and reform the global 
economy without first strengthening and reforming the American 
economy. That means respect for the rule of law, both 
fundamental tax reform and tax relief, freezing Federal red 
tape that is hindering job creation, and giving one-sixth of 
the economy, that is health care, back to the American people.
    And it also means ceasing to spend money we do not have. 
The single greatest threat to a stronger economy is our growing 
national debt. Witness the national debt clock to my left and 
right. This is a debt that has mushroomed under this President. 
Never in our history have so few indebted so many so quickly 
with such dangerous implications.
    We know our debt is unconscionable. It is unsustainable. 
And frankly, I believe it to be immoral. Yet, this President 
dismisses the threat at every opportunity and, I fear, leads a 
parade of Washington debt-deniers.
    Under the current policies we have, it is not a question of 
whether a debt crisis will come, it is a matter of when. For 
the sake of our economy, for the sake of our children, for the 
sake of our freedom, I would call upon the President to work 
with Congress now to avoid this catastrophe. Our Nation 
deserves better.
    At this time, I yield 6 minutes to the ranking member for 
her opening statement.
    Ms. Waters. I want to thank Chairman Hensarling for holding 
this hearing. And I am delighted to welcome you, Secretary Lew, 
before our committee today to testify on the state of the 
international financial system.
    I would like to discuss what I believe to be one of the 
biggest social, economic, and political challenges we face 
today, both domestically and internationally. And that is the 
problem of growing inequality. Over the past 30 years, income 
inequality in the United States has been steadily increasing. 
This was the case even during periods of growth. Before the 
financial crisis, levels of inequality in the United States 
reached peaks not seen since the late 1920s.
    While other advanced and emerging market economies have 
also experienced rising income inequality, the most shocking 
shortcomings are right here in the United States, which has the 
highest level of inequality of any advanced industrial nation. 
In fact, today 20 percent of the income in our country goes to 
the top 1 percent of Americans.
    If you look at inequality of wealth, it is even worse. The 
top 1 percent holds about 40 percent of the country's wealth. 
The gap between the rich and the poor in America has become a 
chasm. Moreover, the gains from growth during the recent 
recovery have accrued overwhelmingly to the wealthiest people 
in society. Almost 95 percent of the income gains since the 
recovery began have been captured by the top 1 percent. This 
means that the most unequal advanced industrial economy in the 
world is becoming even more so.
    I recognize that in a capitalist system, some degree of 
inequality is necessary for the function of a market economy 
since it creates incentives to work hard and take risk. But 
left entirely on its own, the market system will produce more 
inequality than is economically necessary. And here in our 
country, we have much more inequality than is necessary for 
efficiency. I believe this is a moral problem from the 
standpoint of social equity.
    But excessive inequality not only undermines social and 
political cohesion, it has also recently been shown to have 
negative effects on growth and stability as well. Recent 
research at the IMF has shown that excessive inequality slows 
growth because depressed earnings lead to weaker demand and 
lower consumption. Reducing inequality is increasingly 
understood to contribute to economic growth.
    Inequality is also a political problem. We now have an 
increasing degree of resistance on the part of many Americans 
to new trade agreements because they see themselves as victims 
of globalization, rather than as participants in its benefits. 
I believe our international economic policy has in fact been 
too one-sided, too focused on elevating the interests and 
mobility of capital over all other considerations.
    This was based on the misguided belief that unfettered 
markets would not only create wealth and stability, but would 
also trickle benefits down to others in society. But this isn't 
what has happened. In fact, one of the most important lessons 
we have learned from the recent financial crisis is that 
markets must be deeply embedded in systems of governance. The 
idea that markets are efficient and self-correcting has 
received a mortal blow.
    I believe in capitalism, and I believe that the markets are 
the main engines of wealth creation in our country and 
elsewhere, but in order to be truly supportive of the free 
market, I believe you must also be supportive of government. 
This is because we need to have an appropriate set of public 
policies in place to reign in the excesses of the market, to 
help maintain stability, and to ensure that the benefits of 
capitalism and growth are broadly shared.
    We need to do a better job of dealing with equity. 
Questions at home, for example. We should be increasing the 
minimum wage, extending unemployment insurance, and providing 
trade adjustment and other assistance for those in the United 
States clustered in the low-skilled end, who are disadvantaged 
by globalization. Until we do that, and people begin to feel 
secure at home, we will not have the political support we need 
for more active engagement by the United States with the 
international economy.
    Mr. Chairman, I thank you for holding this hearing today. 
Some of what I have alluded to in my statement are issues that 
are being dealt with as we consider the budget today. And these 
issues that I have alluded to include, of course, the 
unemployment benefits that I understand may not be in the 
budget agreement.
    Also, I believe that providing trade adjustment and other 
assistance for those that I have pointed to, who end up 
clustered in the low-skilled end, are issues that we have not 
sufficiently dealt with. And I am looking forward to engaging 
you and others on these issues so that we can get at how we 
will deal with this income inequality that is a central theme 
of my testimony today.
    I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Campbell, the chairman of our Monetary Policy and Trade 
Subcommittee, for 3 minutes.
    Mr. Campbell. Thank you, Mr. Chairman.
    And welcome, Secretary Lew.
    Your testimony today is required annually by the 
International Financial Institutions Act. And there is no 
shortage of international financial issues that we can discuss. 
I will let my opening statement stand for itself. But one of 
the things that you, I believe, will be discussing in your 
statement that we need to talk about is the IMF. And as a 
reminder, in 2009 Congress authorized a $100 billion commitment 
to the IMF in an account called, ``New Arrangements to 
Borrow.''
    Now, there is discussion of transferring $63 billion of 
that into a permanent paid-in-capital. And there is a lot of 
concern about this, Secretary Lew.
    The first thing is, we don't believe this is just a 
bookkeeping entry. This puts the $63 billion significantly at 
risk, whereas currently, it is not.
    Second, in this era of budget cuts, there is a lot of 
concern up here of whether, when we are cutting a lot of 
domestic issues, as the ranking member just mentioned, is this 
the time when we should be increasing funding to first world 
countries around the world? And there is some concern of 
whether a lot of this money could go to European countries. 
And, yes, they have some crises and some problems, but can't 
they deal with those within Europe without the U.S. taxpayer 
being involved?
    There is concern about moral hazard. Would the IMF, by 
making more loans to countries that are deeply in debt, be 
encouraging that kind of indebtedness, rather than trying to 
encourage these countries to get out of their debt, and not to 
spend so much and borrow so much?
    And then, finally, there are reforms, we understand, 
involved with the IMF in this additional contribution, but a 
lot of concern about whether those reforms are really enough, 
whether they go far enough to change the governance of the IMF 
as it should be.
    Mr. Secretary, if the Administration, if you and the 
President are committed to and want this $63 billion transfer, 
we need a couple of things. We need three things, actually. We 
need, first of all, you to make a formal request, which has not 
yet been received by this committee, for this money, for this 
transfer. Second, we need you to address these issues.
    And, third, we need you, and we need the President, if this 
is a priority, for $63 billion of U.S. taxpayer money, we need 
you, Mr. Secretary, and we need the President to vocally 
articulate why this is a priority in this era of limited 
budgets. And why these concerns that people on this committee 
have are not well-founded.
    Thank you. I look forward to your testimony.
    I yield back, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 1 minute, as well.
    Mr. Foster. Thank you, Mr. Chairman.
    Thank you, Secretary Lew, for joining us today.
    Mr. Secretary when you left your first tour of duty in the 
White House in 2001, we were paying down our debt to the tune 
of a couple hundred billion dollars a year, and were on track 
to pay our debt down to zero by roughly 2008.
    In the next 8 years, we saw the surplus we were running 
reversed and the structural deficit exceeding $1 trillion a 
year in the next 8 years.
    We are also sitting on 8 straight years of uninterrupted 
job growth, roughly 22 million jobs in 8 years. And we saw in 
the 8 years following your first departure, zero net job 
growth, 20 million people entered the job market with zero jobs 
produced for them. And we have made significant progress since 
entering the worst recession since the Great Depression.
    We have seen 45 straight months of consecutive private 
sector job growth, and there is much work left to be done. And 
I thank you for appearing today.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 1 minute.
    Mr. Heck. Thank you, Mr. Chairman. Secretary Lew, thank you 
for your service to the country, and for appearing at this 
hearing today.
    But the hearing I am most interested in is actually taking 
place at your Treasury Department as we speak. The Bank Secrecy 
Act Advisory Group is meeting right now and it is confronting 
the question of how to allow legal marijuana businesses to 
access the banking system.
    As you know, the voters in my State of Washington, and in 
Colorado, last year, approved initiatives to make marijuana 
legal for adults. These policies go into effect in the new year 
but we need cooperation from the Federal Government to make it 
work.
    If Federal banking regulations continue to prohibit 
marijuana businesses from using the banking system, these all-
cash businesses will be a magnet for robberies and organized 
crime.
    You have the power to prevent that, Secretary Lew. I hope 
the advisory group agrees on a new workable guidance today, and 
I hope you swiftly approve it.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, for 30 seconds.
    Mrs. Maloney. It is my pleasure to welcome Secretary Lew, 
who is from the great State of New York, and New Yorkers are 
very proud of your public service.
    My question concerns GSE reform. You mentioned in your 
testimony our growing economy and that your main job is to 
create jobs. Many economists have testified that one of the 
most important things we could do is bring certainty to housing 
finance. I hope you meant your comment on the efforts of the 
Administration to support housing finance reform and certainty 
in that area.
    Welcome, and I look forward to your testimony.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    Today, we welcome the testimony of the Honorable, Jacob J. 
Lew, the Secretary of the Treasury of the United States. 
Secretary Lew appeared before our committee earlier this year, 
so I believe he needs no further introduction.
    Without objection, Secretary Lew's written statement will 
be made a part of the record.
    Again, Mr. Secretary, welcome to the committee. You are now 
recognized for your oral testimony.

   STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, U.S. 
                   DEPARTMENT OF THE TREASURY

    Secretary Lew. Thank you, Mr. Chairman, Ranking Member 
Waters, and members of the committee. I appreciate the 
opportunity to testify today. And thank you for the flexibility 
and courtesy in rescheduling so that a number of us could 
attend the memorial services for Nelson Mandela.
    There are signs that the economic conditions are improving 
in advanced countries, led by the United States. Despite 
political headwinds, our economy has been steadily growing.
    Over the past 45 months, our businesses have created more 
than 8 million jobs. While we are moving in the right 
direction, we have more to do to create jobs, accelerate 
growth, and put our economy on a firmer foundation.
    As we know, economic progress at home depends, in part, on 
the global economy. And the global economy continues to face 
many challenges. A long recession in the euro area seems to be 
ending, while significant progress has been made in achieving 
financial stability. Europe is now in a position to place 
greater priority on boosting demand and reducing unemployment 
which remains very high in many countries.
    In Japan, the authorities have taken forceful action to 
begin ending deflation. But to achieve sustained success, Japan 
needs to undertake structural reforms to strengthen domestic 
demand growth.
    Recently, some emerging markets have slowed as post-crisis 
stimulus wanes. Emerging markets need to make reforms that 
increase their resilience and address structural constraints to 
growth. China's new leadership recently announced bold 
commitments to reform. The pace and character of these reforms 
will shape China's economic transition toward domestic 
consumption-led growth and away from resource-intensive export 
growth.
    An important part of my job is to work to create the most 
favorable external environment for U.S. jobs and businesses. 
The international financial institutions, the International 
Monetary Fund and multilateral development banks, are 
indispensable in this effort and we must preserve our 
leadership in these institutions.
    That is why it is so important that Congress act to approve 
IMF quota and governance reform. At the G-20 Seoul summit in 
2010, we secured reforms that preserved the U.S. board seat and 
veto without increasing the U.S. financial commitment to the 
IMF. Right now, U.S. approval is the only remaining step needed 
for these important reforms to go into effect. If we fail to 
act, we risk a loss of U.S. influence at the IMF.
    To implement the IMF quota reforms, the Administration has 
provided draft legislation to reduce U.S. participation in the 
new arrangements to borrow and simultaneously increased the 
size of the U.S. quota in the IMF by an equal amount. Our 
investment in the IMF is safe and sound. When the IMF lends, it 
does so subject to appropriate conditions and with safeguards 
to assure it is repaid. And its repayment record is 
outstanding.
    Investments in the multilateral development banks also 
provide substantial returns. These institutions leverage our 
limited contributions and multiply our impact by attracting 
contributions from other nations. They also effectively promote 
our national security and economic priorities, including 
opening up markets and lowering barriers for U.S. businesses 
abroad.
    It is important to note that the United States will be 
making new commitments to the International Development 
Association of the World Bank and the African Development Fund 
this year. These are the two largest sources of finance for the 
world's poorest countries and their impact is enormous. As we 
maintain our commitments to the international financial 
institutions, it is crucial that we continue to strengthen the 
world's financial system.
    The United States has led the global effort on 
international regulatory reform with many of the core reforms 
of Dodd-Frank largely completed at home. In fact, on Tuesday, 
the Volcker Rule, a centerpiece of these reforms, was 
finalized. This rule is both strong and comprehensive. It will 
change behavior and practice across our financial system to 
safeguard taxpayers from risks created by banks' proprietary 
trading and investments in hedge funds and private equity 
funds.
    It also fulfills the President's vision and the statute's 
intent by setting tough, but workable restrictions, while 
continuing to allow banks to perform essential market 
functions.
    As we move forward with our international agenda in 2014, 
we will work with the G-20 and through the Financial Stability 
Board to promote consistent implementation of high-quality 
regulations. We will focus on advancing vigorous implementation 
of Basel III, ensuring risk-weighted assets are assessed 
consistently across borders, and that Basel III's high-quality 
capital standard is met.
    We will also focus on strengthening arrangements for cross-
border resolution of large complex financial institutions, 
promote swift implementation of convergent requirements for the 
over-the-counter derivatives markets, and develop a road map to 
address risks posed by shadow banking.
    We also have been at the forefront of efforts to use 
financial measures to advance key national security and foreign 
policy goals. Nowhere have our efforts been more concentrated 
than in using sanctions to advance our policy and prevent Iran 
from obtaining a nuclear weapon.
    Together with our international partners, and in close 
coordination with Congress, we have built the most effective 
sanctions regime in history. And even as we explore the 
possibility of a long-term agreement with Iran that would 
provide verifiable assurance that Iran cannot obtain a nuclear 
weapon, we will continue to enforce our sanctions vigorously, 
as our action this morning imposing sanctions on more than a 
dozen entities demonstrates.
    Chairman Hensarling, Ranking Member Waters, and members of 
the committee, across the global landscape, there is much work 
ahead. And with your ongoing support, I am confident we will 
continue to protect America's vital interests abroad and at 
home.
    Thank you, and I look forward to your questions.
    [The prepared statement of Secretary Lew can be found on 
page 65 of the appendix.]
    Chairman Hensarling. Thank you, Mr. Secretary.
    The Chair now yields himself 5 minutes for the purpose of 
questioning.
    Mr. Secretary, as OMB Director in February of 2011 you were 
quoted as saying, ``It is an accurate statement that our 
current spending will not be increasing the debt. We have 
stopped spending money we don't have.''
    You said that while you were introducing the President's 
Fiscal Year 2012 budget, which according to CBO added $12.5 
trillion to the gross national debt over a 10-year budget 
window.
    And under your watch as OMB Director, $1.4 trillion was 
added to the gross national debt.
    So I am trying to get some insight into the 
Administration's view of our national debt. Do you still stand 
by those comments? Is there some context here for those 
comments?
    Secretary Lew. Mr. Chairman, at the time I was trying to 
explain the difference between a primary balance, a primary 
surplus, and spending, new spending, new commitments that are 
being made.
    The definition of primary balance is when the only deficits 
are related to paying interest on the national debt. And other 
than that, we are covering all of our expenses--
    Chairman Hensarling. Let me move on--
    Secretary Lew. --the primary balance in I believe 2 years 
in our budget.
    Chairman Hensarling. Let me then move on to a statement the 
President made fairly recently, about 6 weeks ago: ``Don't 
pretend as if America is going bankrupt at a time when deficits 
have been cut in half.''
    Isn't it true, Mr. Secretary, that these deficits have only 
been cut relative to the largest deficits in our Nation's 
history, save World War II?
    Secretary Lew. Mr. Chairman, I think if you look at the 
reduction in the deficit since 2009, we have seen the most 
rapid reduction in the deficit as a percentage of GDP--
    Chairman Hensarling. But, again, Mr. Secretary, weren't 
these the largest deficits in our Nation's history save World 
War II?
    Secretary Lew. We did come in at a time when we inherited a 
very large deficit. We were in a financial crisis and an 
economic crisis spiraling out of control.
    Chairman Hensarling. Mr. Secretary, if you are unaware, I 
would have your aides look into it. I think you will find that 
probably is true.
    Also, CBO recently released their latest long-term outlook. 
Have you had a chance to look at it? It came out about 6 weeks 
ago.
    Secretary Lew. I have--I am aware of it, yes.
    Chairman Hensarling. Under that outlook, under either 
current law or current policy baselines, deficits come down 
temporarily until 2015 and then rise thereafter with no end in 
sight.
    Isn't that true, Mr. Secretary?
    Secretary Lew. Mr. Chairman, I came here prepared to 
discuss a wide range of issues. I have not reviewed the CBO 
report in detail. I can speak generally about this issue, and I 
would be happy to.
    Chairman Hensarling. Isn't it true, then, that the 
Administration has never submitted a budget that balances in 5 
years, 10 years, 50 years, or at any time?
    Secretary Lew. Mr. Chairman, the Administration has 
submitted budgets that took a fiscal situation that was out of 
control and brought it under control. We have achieved more 
progress reducing the deficit--
    Chairman Hensarling. But, Mr. Secretary, has the 
Administration ever submitted a budget that balances over any 
time span?
    Secretary Lew. I don't believe that the measure of an 
effective budget right now is whether--
    Chairman Hensarling. That is fine, Mr. Secretary. But I get 
to ask the questions here. So if you don't know or you--
    Secretary Lew. No, no, I do know. There is a point when it 
balances in the far distant future, but it is not in the 10-
year window.
    Chairman Hensarling. Not according to the Congressional 
Budget Office.
    Secretary Lew. Well--
    Chairman Hensarling. So, according to whose analysis? Is 
this Treasury's analysis? OMB's analysis? Whose analysis?
    Secretary Lew. Mr. Chairman, I am happy to look at the 
projections of the budget. I did come to testify on a wide 
range--
    Chairman Hensarling. Okay, let me, if I could, in the time 
I have remaining, move on to the debt ceiling.
    I think, as you know, just about every major deficit 
reduction package of the generation has been attached to a debt 
ceiling, Gramm-Rudman, PAYGO, OBRA, a Budget Enforcement Act, 
even today's Budget Control Act.
    Every President in your lifetime and my lifetime has 
negotiated on a debt ceiling. I have had our capable staff 
research the issue. The debt ceiling tends to be the early 
warning system that spending is out of control.
    Yet on September 15th of this year, the President took the 
unprecedented and radical action of stating, ``I will not 
negotiate on the debt ceiling.''
    So is it the position of this Administration that if 
Congress does not functionally repeal the debt ceiling and 
allow the President to spend what he wishes, that he is 
threatening default on our sovereign debt?
    Secretary Lew. Mr. Chairman, I would disagree with the 
characterizations of the debt ceiling as an early warning. The 
debt ceiling is at the very end. All the decisions that 
Congress makes in the budget, as it is making today, all the 
decisions Congress makes on entitlement programs and tax 
policies. That determines the spending--
    Chairman Hensarling. My time is almost up.
    Secretary Lew. The debt ceiling is the very end--
    Chairman Hensarling. Are you aware of any other President 
in our lifetime who has taken the radical position of stating 
that he will not negotiate deficit reduction on the debt 
ceiling?
    Secretary Lew. Mr. Chairman, I think we learned in 2011, 
and we learned again just this past October, that treating the 
debt limit the way Congress did put our economy in grave 
danger.
    Every President in my lifetime has said the same thing. It 
is imperative to raise the debt ceiling and it is Congress' 
unique and exclusive responsibility.
    Chairman Hensarling. The time of the chairman has expired.
    And I would also say that every President in your lifetime 
has also negotiated on the debt ceiling.
    The Chair recognizes the ranking member for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to see if I can get a clearer understanding 
about where we are in relationship to finance discussions and 
trade talks with Europe.
    I sent a letter to, I think you and the President, 
basically stating my position on whether or not we would be 
including financial services provisions in a trade agreement, 
and I indicated that I think it may undermine broader efforts 
by regulators in the United States and elsewhere in the world 
to address cross-border oversight.
    And I noticed that in a Wall Street Journal report it 
indicated that U.S. Treasury Secretary Jacob Lew poured cold 
water on a push by the European Union's top financial markets 
regulator to include negotiations of a financial services 
regulation in E.U.-U.S. trade talks.
    But then I also note that there is another article that 
talks about the possibility that we are softening our position. 
So I would like some clarification from you today about where 
we are in those discussions.
    Secretary Lew. Congresswoman Waters, I think the issues of 
working on an international basis to make sure that we have a 
race to the top, to the highest standards possible in terms of 
financial stability is very important.
    We work actively through the G-20 and the Financial 
Stability Board, the FSB, to try and drive that process.
    I am actually of the belief and am proud that the United 
States is a leader, that we have taken decisive action, the 
most decisive action of any country in the world after the deep 
recession and economic crisis of 2008 and 2009.
    I have said on many occasions that I do not believe that 
trade agreements are an appropriate place for us to dilute the 
impact of the steps that we have taken to safeguard the U.S. 
economy, and I think that we should make a call to the world 
community in the appropriate fora, like the G-20 and the FSB to 
try and drive that race to the top.
    I have said that in public. I have said it in private 
conversations with the Europeans.
    Obviously, a trade agreement is very important. I think it 
would open up opportunities for U.S. economic growth and for 
European economic growth.
    I would point out that Europe is 20 percent of the U.S. 
export market, so Europe's core economy is important to us, and 
keeping that line of trade open is important to us.
    I look forward to making progress in the trade 
negotiations, and I look forward to making progress in terms of 
opening up access to financial markets for even more U.S. 
competition and more U.S. investment.
    Ms. Waters. I would like to try and understand how much 
pressure you are receiving to introduce financial regulatory 
issues into these negotiations.
    Secretary Lew. The issue has come up, really, for the 
entire time that I have been Secretary, since February, March. 
It has been an issue that Europeans have raised. I have 
responded, as I just did in response to your question.
    And I made some pretty public remarks last week where I 
called on our international partners to work through the G-20 
and the FSB to tighten standards. So I have tried to be very 
clear on our policy.
    Ms. Waters. Are you--of course you are aware, you 
understand that efforts are already under way to deal with 
cross-border financial regulations including the G-20 and the 
Financial Stability Board.
    So our concerns, and some of the criticisms from other 
lawmakers, are that other Administration trade initiatives 
would effectively sidetrack domestic regulation in favor of 
international laws.
    And some of our Members are saying they fear that the 
ambitious Trans-Pacific Partnership could create rules 
affecting technology development that would supplant U.S. 
domestic regulation.
    Secretary Lew. Congresswoman, on the financial issues, I am 
quite familiar with it. On the technology issues, that is 
really an issue that the U.S. Trade Representative would be 
more appropriate to address.
    On the financial issues, I have been clear in every 
conversation that I have had that we are going to, in the text 
of agreements, promote opening markets for U.S. access, having 
standards consistent with our own. I have been very clear that 
watering down, in any way, U.S. regulatory standards is not 
appropriate in trade agreements in terms of protecting our 
financial markets, our financial system, and our economy.
    I do think, separately, we have to discuss what it means to 
harmonize across international boundaries. And I think we have 
seen very constructive developments, say in the derivatives 
area, where we took an initial action. The international 
community responded, and there is now a reconciliation so that 
we can have the world community reach the U.S. high standard.
    And we may sometimes have to go back and make some 
conforming changes for that to work. But if it is in our high 
standard, that is a real--
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from California, Mr. 
Campbell, the chairman of our Monetary Policy and Trade 
Subcommittee, for 5 minutes.
    Mr. Campbell. Thank you Mr. Chairman.
    Let me jog back to the IMF for a minute. One thing I know, 
an e-mail from a staff member with language does not constitute 
a formal request. If Congress is to consider the IMF money, we 
need a formal request from you, according to the law on that.
    But I don't want to get into too much minutia on that.
    But one thing is, what this thing costs. Would you agree 
that if you move the $63 billion into paying capital, that it 
is not without risk?
    Secretary Lew. Congressman, I think if you look at the 
history of the IMF, it supports the statement I made that there 
is very little risk.
    Mr. Campbell. Okay. But it is not zero. So--
    Secretary Lew. I believe it is awfully close to zero.
    Mr. Campbell. But shouldn't we have CBO tell us what they 
think?
    Secretary Lew. CBO has looked at this in the context of 
appropriations.
    If I could go back, Congressman, because I think the 
question of request is tied to the fact that we have been 
trying to be flexible in responding to what we have heard from 
Congress.
    In our budget last year, we proposed this as something that 
will be done as an authorization, as a mandatory provision. We 
heard back from Congress that there was a preference to deal 
with it as an appropriations matter. We responded and provided 
language that would do it as an appropriations matter.
    At the time, CBO looked at it--
    Mr. Campbell. Okay.
    Secretary Lew. --and it did have a modest score.
    Mr. Campbell. If I might say that authorizing committees 
like this don't like things that go directly through 
appropriations without the people who are actually--
    Secretary Lew. We would be happy to do it either way.
    Mr. Campbell. --involved in the issue--looking at the 
issue. So we would certainly, I think, on a bipartisan basis 
here, prefer it be done that way.
    But we think CBO should score this at risk.
    Is the President personally supportive of this transfer?
    Secretary Lew. Oh yes, the President is very much 
supportive of it. He has told me it is a very high priority in 
terms of our place in the world staying at the very strong 
point that we are at.
    I think on the cost side, CBO has scored it, but it is not 
a enormous score. CBO's score was in the neighborhood of $300 
million; it was not in the $63 billion range.
    Mr. Campbell. There are different ways CBO scores things, 
and if they score it on a risk basis--
    Secretary Lew. Yes.
    Mr. Campbell. We have to look at that.
    Let me get into the issue of trade and so forth that we 
talked about with Europe. Okay, I hear you that you say that 
you think the G-20 is a better venue for negotiating financial 
services, let's say, harmonization than with the European trade 
agreement that is being worked on.
    Won't the Europeans make the same arguments at the G-20 
that they will here? Why is that any better or any different 
than trying to harmonize these financial regulations as best we 
can through a trade agreement, particularly given how the 
borders in financial matters have dropped so much?
    Secretary Lew. I think if you look at the progress we have 
made internationally, since 2009, the G-20 and the FSB have 
been quite effective places to work through very complex, 
technical financial regulatory matters.
    I don't think the trade context is the ideal place for that 
to be done. The people at the table there are not necessarily 
the right people, and the mechanisms already exist in the G-20.
    And the real point I was making, regardless of where we do 
it, is the core issue. When we enter into a trade agreement--
    Mr. Campbell. Okay, let me just--you had a meeting in 
Brussels, I think on November 27th--
    Secretary Lew. I don't remember the date, but yes, it was 
in Brussels.
    Mr. Campbell. Okay. What was the outcome of that meeting? 
This was with the Europeans?
    Secretary Lew. I think, as I acknowledged in my response to 
Congresswoman Waters, that I have discussed this a number of 
times with the Europeans. They do make the argument that it 
should be in the trade agreement.
    We make the argument that it should be in the G-20 and the 
FSB. But the core issue, and I think, wherever we do it is we 
can't dilute our protection of the U.S. financial system, the 
U.S. economy.
    That is the core principle that applies wherever we are 
doing business.
    Mr. Campbell. Is it our position that we have the perfect 
financial regulation, worldwide, and everybody else in the 
world should copy us? I fail to--
    Secretary Lew. No.
    Mr. Campbell. --understand why talking with the Europeans 
about this, understanding better what they want to do, why that 
is a problem? What is the risk to the U.S. financial system to 
do that?
    Secretary Lew. To be clear, Congressman, not at all. We 
talk to the Europeans and to our Asian partners in the G-20 and 
the FSB, we learn from each other, we take best practices from 
each other. We are very open.
    The question is whether it is a question of financial 
regulation or environmental regulation or labor rules, is a 
trade agreement the appropriate place to do it?
    Normally, in a trade agreement, the pressure is to lower 
standards on things like that and that is something that we 
just think is not acceptable.
    Mr. Campbell. If I can stop you, because I only have a few 
seconds left. The chairman and I have written letters--several 
letters to you about this. We think and urge you to try at the 
European level, because the purpose of a trade agreement is to 
facilitate trade that benefits both economies. We can do that 
in the financial services area, and we should do it.
    Secretary Lew. Well--
    Mr. Campbell. I yield back.
    Secretary Lew. Our core goal is very consistent, we think 
we can achieve a trade agreement that opens up financial 
markets for much--even more robust cross-border trade and 
relations. And that is our goal.
    And our issue is not that we don't want to coordinate on 
financial regulation, we very much do. It is critically 
important, and I think it is one of the biggest priorities we 
have.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Missouri, Mr. Clay, 
the ranking member of our Monetary Policy and Trade 
Subcommittee, for 5 minutes.
    Mr. Clay. Thank you, Mr. Chairman. Secretary Lew, as you 
know, an earthquake devastated Haiti on January 12, 2010, 
leaving millions homeless.
    In the wake of the disaster, the American people and the 
global community rallied to provide relief to the Haitian 
people. As the Center for Economic and Policy Research points 
out in a recent report, despite billions of dollars pledged to 
build back Haiti, more than 350,000 Haitians remain internally 
displaced, and it is unclear what sustainable impact our funds 
have had.
    Secretary, can you give members of this committee a 
progress report on post-earthquake humanitarian reconstruction 
and development efforts in Haiti?
    Secretary Lew. Congressman, I would have to get back to you 
on a update. I was deeply involved in putting together the 
Haitian relief package when I was Deputy Secretary of State. I 
have not had the opportunity in the last few months to become 
familiar with the detailed, up-to-date assessment, but I am 
happy to do so and get back to you.
    Mr. Clay. This is the second time I have inquired about 
this. One of your Deputy Secretaries was supposed to get back 
to me a couple of months ago, and I haven't heard anything.
    Secretary Lew. I am happy to get--we will get back to you. 
I was not aware of that.
    I think if you look at the relief response in Haiti, we 
responded quickly with the emergency assistance. We responded 
generously with economic assistance. I know the question you 
are asking is on the efficacy of that effort. I share the 
concern that when we go in, we have to be successful.
    And I am happy to go back and look into it and get back to 
you.
    Mr. Clay. Thank you.
    Secretary Lew. I personally was very committed to putting 
that package together and I would actually very much like to be 
able to get back to you on that.
    Mr. Clay. I look forward to your response.
    And on the euro zone, economic growth is still a continued 
challenge with the annual GDP growth now forecast at zero--at 
minus 0.1 percent in the E.U. and minus 0.4 percent in the euro 
area for 2014.
    European Commission President Jose Manuel Barroso, stated 
that the economic austerity policies in Europe have reached 
their limits and they should receive minimum political and 
social support.
    He also pointed out that E.U. should focus on growth 
measures in the shorter term as reforms in the public finances 
sector should take time to have any effect.
    Additionally, a recent report by the IMF states that too 
much austerity is self-defeating, which means that the 
continuous fiscal austerity for some countries in the euro 
zone, especially in the south, leads to an even deeper 
recession, in most cases deeper than projected.
    In this vein, how do you think the United States and, more 
particularly through its participation in the IMF, could 
channel its efforts in alleviating the harsh consequences of 
this continuous crisis that has brought severe economic and 
social traumas to these countries?
    Secretary Lew. Congressman, we have been deeply involved in 
multilateral and bilateral discussions on the response to 
Europe's economic challenges. I know in my own conversations 
with finance ministers around Europe, I have made the case very 
strongly that Europe needs to worry about growth; that, as it 
looks at the weakest economies in Europe, it needs to stay 
focused on the reforms and structural changes.
    But as they look at the pace of fiscal consolidation, they 
also have to look at the enormous unemployment and the economic 
effect and the social effect that has.
    I think we have actually made some progress in these 
conversations and I don't want to exaggerate at the same time 
how much progress we have made.
    I think you are seeing more flexibility in terms of the 
timetables for fiscal consolidation. You are seeing recognition 
that the structural changes are very hard and that, as 
countries make them, they need to have some breathing room.
    But you have also seen sustained pressure to stay on the 
path. I don't disagree with that general direction because it 
is not sustainable for Europe's economies or their national 
finances to be in a place that is unsustainable.
    But I think when you are looking at 20 percent or 30-plus 
percent unemployment rates, that has a very, very serious 
impact on domestic demand, the potential for economic growth, 
and ultimately political stability.
    So I have had these conversations. I do believe we are 
making progress. I think that the IMF is sensitive to the 
trade-off. I think if you look at the G-20 communiques over the 
last year, they have increasingly moved towards a position that 
reflects the view I am expressing.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from West Virginia, 
Mrs. Capito, chairman of our Financial Institutions and 
Consumer Credit Subcommittee, for 5 minutes.
    Mrs. Capito. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for joining us today. The 
Treasury Department recently announced revised guidelines on 
how the MLBs will be financing coal-fired power plants in 
emerging markets.
    As you can imagine, I represent a State that exports 30 
percent of the total coal exports because we can't burn them at 
home, and we are having difficulty with the President's war on 
coal. And now, it seems like it is an international war on 
coal.
    Explain this policy to me.
    And are you really in the--as part of your stated goals, 
fast-growing African countries were supposed to present new 
opportunities for U.S. businesses.
    What kind of energy development is going on if we can't 
help them with the cheapest, most affordable, and reliable base 
load energy production that we have around the world?
    Secretary Lew. Congresswoman, our policy on coal and on the 
climate impact is one that I know we have some differences on. 
But we believe very strongly domestically and internationally 
that we need to drive towards developing technologies that have 
a less adverse impact on the climate situation.
    So we have taken the view that at home, we need to use fuel 
more efficiently. We need to develop renewable energy 
technologies. We very much believe that we have a lot of 
potential to export technology overseas.
    You look at most of the developing countries, in some cases 
hydroelectric power is an abundant source of power. In many 
cases, highly distributed renewable energy is a very efficient 
form of technology.
    Mrs. Capito. Are you talking about wind and solar?
    Secretary Lew. Wind and solar and--
    Mrs. Capito. And you are aware how much we have to 
subsidize that here to make it any kind of cost-benefit?
    Secretary Lew. The challenge to develop cost-competitive 
renewable technology is something to which we have dedicated a 
lot of energy. We believe that we are getting there. And we 
believe in order to meet our international objectives on 
climate, it is important that we have a consistent approach 
domestically and internationally.
    Mrs. Capito. My concern on the innovation--and I don't 
disagree on the innovation and the goal, the ultimate goal, to 
make it cleaner, more efficient and less emissions. I am all 
for that.
    But I feel like, if you are cutting off the emerging 
markets, which are the fastest growing markets, from 
development--from being able to finance these kinds of 
facilities, you are going to stifle innovation in this country, 
because universities and such aren't going to devote the 
resources to it when they think they are looking at a dead end 
here.
    And so, not only from the human element of these folks in 
Africa who can't even access just baseline power generation, I 
am very concerned.
    And another thing I would like to say is I also represent a 
lot of natural gas interests. We have a glut of natural gas in 
this country; it is wonderful. It creates jobs, all down the 
spectrum, and you know this, I am certain, in your position.
    But we are now embarking on whether we should be exporting 
our natural gas. And my question to you would be, is part of 
this global initiative--natural gas is a carbon fuel. Is that 
next? Is that the next thing that is not going to have any kind 
of financing opportunities for the MLBs?
    Secretary Lew. We have obviously been very aggressively 
developing natural gas resources in this country and other less 
emitting fossil fuel. So we have been encouraging the 
development.
    I think the export question is a different one. The 
Department of Energy has responsibility for reviewing natural 
gas export license proposals.
    Obviously, it has been a source of enormous strength to our 
economy, that we have had an energy revolution, where the cost 
of energy as an input into production has made the United 
States a much more attractive place to invest. And that is 
something we are very anxious to continue.
    I would defer to the Department of Energy to review these 
export licenses, and I would be happy to follow up with you on 
that.
    On the question of kind of the need for power in the third 
world, we totally agree. One of the President's major 
initiatives is what he calls Power Africa, which is that we 
need to make sure that the African continent has access to 
electricity to fuel economic growth.
    And we are working side by side in the international 
community to be very strong partners in that because--
    Mrs. Capito. And many of these countries that you are 
working with, Germany, for instance, are building themselves 
more coal-fired power plants in their own country because they 
have had to shut down their nuclears because of the potential 
negatives there.
    And so I am just very concerned about this because I think 
it hurts the American innovator; I think it hurts American jobs 
and it certainly picks winners and losers in this country.
    And unfortunately--I love living in West Virginia, but this 
Administration has picked us as one of the ones to lose. And I 
deeply resent that.
    Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Hinojosa, for 5 minutes.
    Mr. Hinojosa. Thank you, Mr. Chairman.
    And Secretary Lew, thank you for your testimony. Thank you 
for being here with us today.
    I am going to ask a question outside the realm of 
international finance. I would like to first ask you about an 
issue in which I have great interest.
    As co-chair of the Financial and Economic Literacy Caucus 
with Mr. Stivers, I am interested in the progress of the 
Financial Literacy and Education Commission known as FLEC, of 
which you are Chair, and also the upcoming President's Advisory 
Council on the Financial Capability for Youth, which the 
Treasury will coordinate.
    As you know, FLEC was created by Congress to coordinate 
Federal financial literacy strategy.
    What is your personal philosophy on financial literacy?
    And what do you hope to achieve in 2014?
    Secretary Lew. Congressman, I am a strong believer in 
financial literacy and have been for a long time. I think that 
people have to make informed decisions when they make financial 
decisions in their life.
    For all too many Americans, it is a mystery when they make 
those decisions. I have taken FLEC very seriously. I have gone 
to several meetings. I have worked with CFPB Director Cordray 
on these issues.
    We have made it clear that it is a matter of importance to 
us personally that we continue to make progress in this area.
    I actually think, if you look at the work that the CFPB has 
done, they have actually made a lot of progress creating the 
tools for financial literacy.
    Part of the challenge is that people have to understand the 
documents that they end up looking at when they enter into 
transactions. Part of the challenge is to make sure that the 
documents are understandable.
    And I think if you look at the simplified mortgage 
disclosure forms that the CFPB has recently issued, it is 
approaching a level where people who are not financial 
professionals actually can understand the documents they are 
about to sign.
    So I think we have to remember that you have to work in 
both directions. You have to increase the awareness and the 
education of people in the economy, but you also have to make 
sure that the transactions are not so masked in language that 
is not comprehensible and in pages and pages of detail that 
hide the key points.
    And I think they have made significant progress in that 
area.
    Mr. Hinojosa. I look forward to working with you over the 
next 2 years in trying to take it to a much higher level.
    And I am going to move to an international situation that 
we are discussing.
    In your testimony that I read, you state that Europe has 
made great gains towards financial stability. Like you, I am 
cautiously optimistic about the improving economies of the 
United States and Europe.
    Secretary, how confident are you in the health of the 
economies of the eurozone, and what are the indicators that you 
are watching the closest?
    Secretary Lew. Congressman, I look at the progress of the 
eurozone and think about watching on a daily basis in the 
spring and summer of 2012 when there was the real fear that any 
day could bring a crisis. And we have made a lot of progress 
from there.
    There are still a lot of knotty problems, difficult 
situations that need to be worked through, tough structural 
decisions that have to be implemented, and risks that are still 
there. But it is not in the same place of fear that there is 
going to be an immediate crisis that it was just a year, 18 
months ago.
    I think they have made a lot of progress. They have a lot 
more progress to make. I think that the GDP measures are 
significant. They were negative broadly and now they are 
positive broadly. It is not equally distributed. Some of the 
economies, particularly in northern Europe, are doing much 
better.
    I think if you look at the economies of Europe, there is a 
correlation between how well they are recovering and how much 
they have embraced the need to make tough structural changes. 
And I think that one of the things we continue to do is try to 
be very understanding of how hard that is and the impact it has 
in the short term. But to keep the pressure on, because that is 
the path they need to follow.
    Mr. Hinojosa. I have read that some of the countries like 
Greece, Italy, Spain, Portugal, and others have very high 
unemployment rates in the group from 18 to 25 years of age, 
very similar to the problems we have in the United States. How 
are they addressing that?
    Secretary Lew. They do have very high unemployment rates in 
Europe and the youth unemployment rate is very high. I think 
that one of the reasons I mentioned earlier that we are seeing 
some additional flexibility on timetables is recognition of 
that.
    Excuse me, Congressman, I am getting over a cold.
    I think that if you look at--excuse me--this has been a 
challenging week.
    [laughter]
    Chairman Hensarling. Take your time, Mr. Secretary. But you 
can give a short answer, since the time of the gentleman has 
expired.
    [laughter]
    Secretary Lew. My problem is that my voice is not coming 
back.
    Mr. Hinojosa. Mr. Chairman, being a Texan, give me 1 more 
minute, won't you?
    Secretary Lew. Sorry, Congressman, but I have been losing 
my voice all week, and this was a longer stretch than I have 
had for much of the week. So, if you will just bear with me.
    I think the economy in Europe is moving in the right 
direction. Some of the structural changes are significant in 
terms of opening opportunities to young workers. One of the 
keys is opening up the channels of credit so that small and 
medium-sized enterprises have access to capital, because that 
is where the opportunities for young workers will come from.
    Mr. Hinojosa. Thank you.
    Chairman Hensarling. The time of the gentleman has long-
since expired.
    Secretary Lew. I apologize for coughing through part of it.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, Mr. Garrett, chairman of our Capital Markets 
and Government Sponsored Enterprises Subcommittee, for 5 
minutes.
    Mr. Garrett. Thank you, Mr. Chairman.
    Mr. Clay's question sort of precedes mine. Today, I wanted 
to focus my time on two important issues, accountability and 
transparency to the American people.
    I have been quite disturbed at this Administration's clear 
pattern of stonewalling anyone who dares shine the light of day 
into the inner workings of this Administration, from a 
terrorist attack on a U.S. embassy in Benghazi and Attorney 
General Eric Holder's refusal to turn over key documents, to a 
lack of this Administration's cooperation with Congress in 
providing details regarding Obamacare's failed implementation.
    Requests for simple information have either been met with 
silence or outright refusal by this Administration. This 
pattern has continued at the Department of the Treasury under 
your leadership.
    Mr. Clay had a very simple question and your answer to him 
was, ``Don't blame me; I didn't know; it was my staff.'' In my 
case, it was back on June 7th, 6 months ago, I sent a letter to 
you asking for details on 3 simple and straightforward 
questions regarding the IRS scandal. First, I asked when was 
the first time that you became aware of the IRS targeting 
taxpayer groups, including targeting independent of knowledge 
on the I.G.'s investigation. Curiously, the answer came not 
from you, but from an Assistant Secretary a month-and-a-half 
later, basically refusing to answer the questions.
    The second question I asked was whether you attended any 
meetings with then-Commissioner Shulman, and whether there were 
any discussions at that time regarding the IRS conservative-
leaning organizations or their tax-exempt status, and a couple 
of other simple yes-or-no questions. Again, a refusal from you 
to answer yes-or-no questions.
    So then, after several months more passed, I simply called 
your office and said, ``Would you, Mr. Secretary, just give me 
5 minutes on the phone so we could talk?'' And your answer was, 
``No, I cannot talk to you, I am too busy.'' So then, I offered 
to actually have a meeting with you, not in my office. I agreed 
to go down to your office at your convenience at any time just 
for 5 minutes to discuss this. And your answer was, no, you 
were too busy for the last 6 months to meet with a Member of 
Congress.
    So my first question is: Is it appropriate for you and your 
staff to deny even a 5-minute phone call or a 5-minute 
discussion with a Member of Congress on important issues 
relevant to them?
    Secretary Lew. Congressman, first of all--
    Mr. Garrett. That is a yes-or-no question, too.
    Secretary Lew. --I answered Congressman Clay's question 
quite directly. I demonstrated my knowledge--
    Mr. Garrett. To my question--could you answer mine now?
    Secretary Lew. --and I will follow up on it and get back to 
him.
    You and I went back and forth at the hearing I appeared at 
this committee before. And I gave you all the information I had 
and that remains the case now.
    Mr. Garrett. You never answered the three questions in the 
letter, and to this day, you have not. Do you think it is 
appropriate that you would not pick up the phone and talk to a 
Member of Congress?
    Secretary Lew. Congressman, I have responded to your 
question on multiple occasions.
    Mr. Garrett. You did not. This letter is not from you. This 
is from some Assistant Secretary. In 6 months, I have not 
gotten an answer from you. And Mr. Secretary, I am still not 
getting an answer from you right now, and I think it is 
deplorable that you would not answer a Member of Congress and 
it makes--we have to raise these issues over and over again.
    But let me get on to other issues--
    Secretary Lew. Congressman, on the question of the letter, 
it has been for generations traditional for the Assistant 
Secretary for Legislative Affairs to respond. When I was OMB 
Director, I responded to the President's letters--
    Mr. Garrett. Mr. Secretary, your assistant did not answer 
the question. When I followed up and I simply asked to speak to 
you to get a clarification, you would not answer it. So let's 
move on because obviously you are continuing in the pattern of 
this Administration of not answering simple yes-or-no 
questions, and you are doing it here.
    Let's go on--I know I am wasting my time because you are 
wasting the American public's time when you will not simply 
answer, ``Did you meet with someone?'' That is a simple yes-or-
no question.
    In the time that we have left, let's look at the Volcker 
situation and the rules that have just come out on this. Do you 
believe that there is any negative impact on the corporate bond 
market by the new rules that have come out?
    Secretary Lew. I think that the rule as it has come out of 
the five agencies reflects an important balance between 
maintaining the markets and protecting the economy from the 
risks--
    Mr. Garrett. Right. So will there be any negative impact on 
the corporate bond market and liquidity?
    Secretary Lew. I think that the financial sector will be 
able to manage implementing--
    Mr. Garrett. Will there be any negative impact upon the 
corporate bond market?
    Secretary Lew. Look, I think--
    Mr. Garrett. That is a yes-or-no question. Will there be a 
negative impact on liquidity?
    Secretary Lew. Congressman, it is not a yes-or-no 
questions. It is a very complicated issue and I am happy to 
respond to you, but it is not a yes-or-no question. It is an 
important balance that we make sure that firms do not take on 
risks that put taxpayers in their place, taking on risk if they 
fail.
    Mr. Garrett. So, let's stop there then. Let's stop there, 
Mr. Secretary. You are saying that it is okay for them to take 
on risks such as in the muni market and on sovereign debt, but 
not corporate debt? You created exemptions in it, did you not, 
so they could invest in Detroit, for example, which is a failed 
bankrupt city. They could invest in foreign Spanish banks, 
which are exceptions as well. So, they can take on and gamble 
in those markets?
    Secretary Lew. I think if you look at the--
    Mr. Garrett. That is a yes-or-no question, Mr. Secretary.
    Secretary Lew. --rule, we have struck a balance to protect 
our markets--their depth, their liquidity, and also to protect 
taxpayers from being exposed to inappropriate risk. I think the 
agencies did an excellent job striking that balance to keep 
economic growth going and to protect the economy and the 
taxpayer.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, for 5 minutes.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here today.
    I just have a couple of questions. We learned early on that 
there is something in every space; nature abhors a vacuum. And 
so, this is a question asking just for your opinion. What do 
you think would happen if there is a void left as a result of 
the United States' nonleadership in the IMF?
    Secretary Lew. Congressman, I think that U.S. leadership in 
the world is important to the United States and it is important 
for the world. As I talk with my counterparts in Asia and 
Europe, I hear over and over again, ``We need the United States 
to be the strong leader that you are.''
    In the IMF, what we see is with our contribution, which is 
less than 20 percent of the entirety of the IMF, we have 
enormous influence. We have veto over some important decisions, 
and we have the influence that goes with that to help drive 
decision-making in a way that serves U.S. interests and a 
sounder global economy.
    I think that is important for the United States. I also 
think it is important for the world. We are already seeing that 
when--if the United States in any way steps back, there is a 
rush to come in and it kind of starts to fraction, break apart 
some of that influence. I don't think we should let that 
happen. It is just too important.
    Mr. Cleaver. I think in some ways we are wanting to become 
isolates, I think, in the world, and I have some problems with 
a lot of expansionist things we do. But I am concerned about 
the IMF and our leadership and economic financial 
participation.
    My other question, though. I represent Kansas City, 
Missouri. Missouri, not Kansas. And that is important.
    That's right. I am just getting an ``amen'' from my 
colleagues.
    Secretary Lew. I started out here working for somebody who 
said all politics is local. I get it.
    [laughter]
    Mr. Cleaver. Yes.
    Kansas City used to be the second largest manufacturer of 
automobiles in the world behind Detroit. And Detroit has 
fallen, Kansas City has fallen. I think we are fifth now. But 
in recent times, we have been building up again. And when I 
speak with the automobile manufacturers and the workers, the 
unions, their biggest concern is currency manipulation. I was 
part of a group that sent a letter to the President asking for 
currency manipulation discipline in the TPP. Is that possible? 
What is your position on that, or what is the Administration's 
position on that?
    Secretary Lew. Congressman, we have worked hard and focused 
hard on currency issues for a long time. From the moment I 
stepped in at Treasury, it has been an issue that has been very 
much on my agenda. And if you look at the progress we have made 
working in the G-20 and the G-7, we have gotten the leading 
economies of the world to agree to principles that reflect our 
own, which is that currencies should be market-determined, 
exchange rates should be market-determined, and that the tools 
that governments use should be domestic tools for domestic 
purposes.
    We have maintained our focus on that in our bilateral 
conversations. We have seen progress in the conversations.
    Any trade agreement that we reach has to be built on the 
principles that we have worked to reach in places like the G-
20. And those are principles that undergird everything that we 
do.
    So without addressing the specifics of any of the 
negotiations, it is a core underlying bedrock principle that we 
are going to be deriving from market-determined exchange rates. 
We believe the G-20 is an appropriate place to do that, and we 
have made great progress there.
    Mr. Cleaver. Thank you for that, because it will be 
difficult for a lot of people to support it in light of the 
currency manipulation that is going on, particularly with 
China. And as you know, that creates an imbalance in the sale 
of automobiles and that is--
    Secretary Lew. I have engaged directly with the Chinese on 
a regular basis on this, and we have seen real progress in 
terms of the exchange rate approaching--not reaching, but 
approaching--the point that we are pressing them to get to. I 
think that they understand they have to get to a market-
determined exchange rate.
    In our exchange report, we try and focus in great detail on 
the progress made and where there are still concerns, where 
interventions are troubling. We have to keep pressing on it, 
and that is what we are doing.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Housing and Insurance Subcommittee, 
for 5 minutes.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here this morning.
    Mr. Secretary, on October the 7th, I wrote a letter to the 
Director of the Federal Insurance Office (FOI), Mr. McRaith, 
inquiring about three reports that are required by law to be 
submitted to this committee. One of those reports, a report on 
insurance modernization, is nearly 3 years overdue. Not 
surprisingly, I have not received any response to my letter.
    Do you find it acceptable that these reports have not been 
submitted to this committee and in some cases are over 3 years 
past due?
    Secretary Lew. Congressman, I know there is a report that 
is virtually complete and will be here very shortly--I hope 
even before you leave for your break.
    Mr. Neugebauer. Mr. Secretary, I appreciate that, but on a 
number of occasions that is the same story that I have gotten 
from Mr. McRaith, is that, ``We are going to have that shortly. 
We are going to have that shortly.'' And actually, that 
dialogue began last year.
    It is not like these are a little bit late. Some of these 
reports are 3 years late. And it is--this Administration talks 
a lot about transparency. But, as I think you have heard some 
of my colleagues say, we are a little concerned--it is hard to 
have transparency when you are not hearing from the 
Administration.
    Secretary Lew. Congressman, the modernization report is a 
very important piece of work. They have virtually completed it. 
It is in the stages of kind of final production, which is why I 
can say with some confidence that it will be here very shortly.
    Mr. Neugebauer. So when you say shortly, is that shortly 
next year or the year after?
    Secretary Lew. No, no, I am hoping, as I say, before you 
leave. So, I am hoping it is days, not weeks.
    The work that the FIO has done is very important. They have 
brought a knowledge of insurance into Treasury at a time when 
we know that the insurance industry is highly interconnected 
with other aspects of the financial system. It is a complicated 
system where we have a lot of respect for State regulation, but 
there are issues of national importance as well. And I think 
this report, when it is issued--it won't resolve these issues, 
but it will cue up for a serious discussion some very important 
policy questions. And I look forward to engaging with you on 
those.
    Because, frankly, the report will not be the final word. It 
is going to be opening the conversation so that we can work 
together on this.
    Mr. Neugebauer. Actually, Mr. Secretary, that segues into 
my next question. The G-20 leaders declaration coming out of 
the St. Petersburg meeting in September stated that the G-20 
leaders ``look forward to the International Association of 
Insurance Supervisors' further work to develop a comprehensive 
groupwide, supervisory and regulatory framework for 
internationally active insurance groups, including quantitative 
capital standards.''
    Were you personally consulted about that statement? Did you 
have input into that statement?
    Secretary Lew. I am aware of it. It is something that was 
part of the discussions--
    Mr. Neugebauer. Did you support the inclusion of that 
language in the report?
    Secretary Lew. I very much support the FIO being part of 
the international conversation and asking these questions so 
that as we inquire domestically as to what are the right steps 
to take, we do it in concert with our international partners. 
And the statement doesn't prescribe the end result. It is a 
process that I think we should be engaged in, yes.
    Mr. Neugebauer. So, as you know, the European model is more 
bank-like in the way that they regulate their insurance 
industry over there. Do you support that same kind of 
regulatory framework for U.S. domestic companies that have a 
much different regulatory structure?
    Secretary Lew. I think that raises some very important and 
some pretty complicated issues. I think that where there is an 
appropriate need for regulation, we ought to be sensitive to 
the differences between insurance companies and other financial 
institutions.
    I know the regulators have looked at this and they are 
looking at being flexible as they use the tools they have. And 
if they don't have all the tools they need, it is something we 
should talk about. Because to the extent that there is a need 
for regulation of insurance companies, it ought to reflect the 
characteristics of insurance companies.
    Mr. Neugebauer. I think one of the things that we hear from 
the industry, though, as this dialogue is going on, is that 
there is not a lot of transparency, again, in this process and 
that the industry, particularly the U.S. domestic insurance 
industry, feels like that they are being kind of left out of 
this debate and discussion. And I think they may be concerned 
that there is some movement within Treasury and others to move 
to a European model for regulating U.S. insurance companies 
that many people feel like--when you go back and look at the 
crisis, the insurance industry fared extremely favorably.
    Secretary Lew. The inquiries that have taken place with 
regard to the Financial Stability Oversight Council (FSOC) have 
really been questions of determining whether there is systemic 
risk that is presented by any individual insurance companies.
    The question of how to regulate them is a totally different 
question. The FSOC standard is to make the determination on 
risk.
    And I think that we are very much interested, as regulators 
follow through, that they think this through carefully and that 
we not jump to a conclusion which says the banks and insurance 
companies are exactly the same. So--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Foster, for 5 minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    I would like to switch a moment to the question of the Iran 
sanctions. And then, first of all, congratulate you on the 
recent--this morning's designation of an additional batch of 
these.
    However, it seems to me that the rate at which these have 
been coming out is sort of erratic. In the 6 weeks prior to the 
Iranian elections in June, the Treasury Department issued 7 
notices of designations of sanctions violators that included 
more than 100 new people, companies, aircraft, and sea vessels.
    Since June 14th, when Hassan Rouhani was elected, the 
Treasury Department issued only 2 designation notices that 
identified only 6 people and 4 companies as violating the 
sanctions.
    And now we have a new batch, for which I commend you.
    And so, my question is, to what do you attribute this sort 
of erratic, batch-by-batch nature of the designations? Just 
start with that.
    Secretary Lew. Congressman, the work of enforcing sanctions 
is painstaking work that we have an extraordinarily talented 
team at Treasury working on. They are dedicated to it, they are 
committed to it. And they make progress at the pace that they 
make progress. I think the designations today reflect the fine 
work that they have done and the determination that we have to 
be true to what I said in my opening remarks and what I have 
said over and over again, that we will continue to investigate 
for violations of sanctions and take action where we find them.
    That is important to the sanctions being effective, that 
they be implemented.
    Mr. Foster. Now, in light of this 6-month freeze and 
negotiating window, many people, including myself, have the 
concern that companies will say, oh, boy, the sanctions are 
going to go away in 6 months, and that you will see massive 
cheating on the sanctions for companies that are trying to gain 
a commercial advantage with anticipating the easing of the 
sanctions.
    And I was wondering, do you feel like you have all of the 
authority you need to make sure that any company that is caught 
cheating on the sanctions gains no commercial advantage from 
that?
    Secretary Lew. Congressman, enforcement is the answer. And 
I have said in every meeting I have had with CEOs since the 
interim agreement that there should be no uncertainty, we are 
continuing to enforce sanctions, no one should think that 
having Iran on a bill of lading or on a financial record is 
going to go unnoticed, that we are going to stay on this and 
that this is not an opening up of any door to relaxing our core 
financial, banking, and oil sanctions.
    I said it in a public speech again last night. I have 
probably talked to several hundred CEOs in one group or 
another, and delivered the message personally.
    So I don't know how to be more clear than that. It is not 
like we have some other mechanism, other than enforcement. But 
we are very clear that any CEO, any business that steps into a 
space that violates sanctions is doing it at the risk of having 
an enforcement action.
    Mr. Foster. Yes. But do you anticipate, for example, that a 
company that is caught cheating on this will have sanctions 
that extend past the time that normal sanctions would be 
released?
    Secretary Lew. Congressman, the duration of sanctions is 
something that is a technical matter depending on the violation 
and the provision, so rather than give you an off-the-cuff 
answer, I would rather follow up and do it on a more detailed 
basis, based on which provision you are referring to.
    Mr. Foster. Okay. So I would like to change for a moment to 
a couple of things that relate to your position on FSOC and 
some important issues there.
    One is the application of, basically, banking capital 
standards to insurance companies. And I wonder if you have any 
reaction to the appropriateness of that?
    Secretary Lew. To be clear, the only actions taken at FSOC 
regarding insurance companies were to designate the 
institutions that met the standard of financial--presenting 
that degree of financial risk.
    The question of how they are regulated is something that 
each of the regulators will now be dealing with. They have made 
it clear that they are looking at how to do this in a way that 
works.
    The charge under FSOC is not to implement; it is to make 
the determination as to whether or not there is that kind of 
systemic risk. And then, the tools of each of the regulators 
will be used as appropriate.
    But, as I tried to indicate in my response to Congressman 
Neugebauer, we understand that banks and insurance companies 
are not identical.
    Mr. Foster. And another issue related to this in the few 
seconds left is the issue of collateralized loan obligations 
and risk retention which is--obviously, C.L.s were not involved 
in our financial collapse, and the specter of risk retention is 
something that makes a lot of people uncomfortable.
    And I was wondering if you have a reaction to that?
    Secretary Lew. I think, in general, the idea that firms 
should internalize their risks is a very important principle. 
There are many ways to achieve that. And we have tried, as we 
have laid out our actions in response to financial reform, to 
make that clear.
    The test is are firms putting themselves at risk rather 
than tax payers at risk for the business decisions that they 
are making? And it is--capital is part of it and restrictions, 
like some of the things, the Volcker Rule, are part of it, and 
leverage as well.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. McHenry, chairman of our Oversight and Investigations 
Subcommittee, for 5 minutes.
    Mr. McHenry. Mr. Chairman, I request unanimous consent to 
submit for the record five letters from the leadership of this 
committee to the Treasury Secretary, and two responses from 
Treasury to those letters.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. McHenry. Secretary Lew, thank you for being here.
    I want to state this for the record. Article I of the U.S. 
Constitution establishes and makes vital the oversight 
authority of the Congress vis-a-vis the Executive Branch. And I 
am sure you agree with that notion.
    But your Treasury Department has stiff-armed this committee 
in its oversight capacity by your unsupported refusal to 
provide complete responses to this committee. That is 
unacceptable.
    Chairman Garrett already covered his concern. I also sent 
you a letter on August 22, 2013, requesting documents that were 
the subject of a FOIA request made by a public interest group.
    The Treasury's position is that the Department would 
provide this committee with only redacted documents that group 
already received. This implies that FOIA is applicable to 
Congress.
    Mr. Secretary, I would hope you understand that FOIA does 
not apply to Congress, and that you will direct your 
Legislative Affairs staff that they will provide those 
documents promptly.
    Furthermore, in addition, on November 6, 2013, Chairman 
Hensarling sent a letter to the New York Fed requesting 
information regarding contingency planning related to U.S. debt 
limit.
    The New York Fed pointed the finger at the Treasury 
Department, claiming they needed the Treasury's permission to 
produce the requested information.
    Although we have rejected the Fed's claim that it needs 
Treasury permission, I ask that you commit to resolving this 
issue and ensuring that the committee receives the requested 
documents by the requested production date of December 18th.
    You can respond in writing. We will move forward.
    Additionally, this question of prioritization of debt, Mr. 
Secretary, you have mentioned in the past that you are unsure 
whether your Department has the legal authority to prioritize 
debt payments in the event of a failure to raise the debt 
ceiling.
    I voted to raise the debt ceiling. I think we have to--we 
have an obligation to pay our obligations.
    But have you requested from the--or has your Department 
requested from the Office of Legal Counsel, the Department of 
Justice, an answer to this question?
    Secretary Lew. Congressman, on the question of 
responsiveness to oversight, I very much accept--
    Mr. McHenry. I just asked for you to respond in writing to 
that.
    If you would address this prioritization question: Have you 
asked or your Department asked whether or not you can 
prioritize debt from the Office of Legal Counsel--
    Secretary Lew. Congressman, the question--
    Mr. McHenry. --of the Department of Justice.
    Secretary Lew. The question of prioritization is 
fundamentally a policy question. And I think, as your comments 
reflected, I do not believe nor has any President nor any 
Treasury Secretary--
    Mr. McHenry. I understand that. You have established that. 
Let me ask you to answer my question.
    Secretary Lew. And I have also said publicly that 
ultimately--
    Mr. McHenry. I appreciate that, but I have 1:54 left. Have 
you asked the Department of Justice's Office of Legal Counsel 
whether or not you have the authority, in the event of not 
raising the debt ceiling, to prioritize debt payments?
    Secretary Lew. The issue of whether or not that decision 
can be made is fundamentally a Presidential decision. It would 
be a communication--
    Mr. McHenry. I know, but have you--
    Secretary Lew. It would be--
    Mr. McHenry. --as Treasury Secretary, your Department, 
requested from the Office of Legal Counsel whether or not you 
can prioritize?
    Secretary Lew. Let me answer your question, Congressman.
    It would fundamentally be a question between the White 
House counsel and the Justice Department, because the 
President--
    Mr. McHenry. Okay. Let me point you to the fact that a 
Huffington Post article from last week says the Obama 
Administration took the platinum coin option more seriously 
than it let on.
    This idea that you have a $1 trillion coin minted and 
deposited at the Fed, and then draw upon that, it is, according 
to the Huffington Post, the Administration did ask the Office 
of Legal Counsel for this absurd idea to actually be judged 
whether or not it is legal.
    Yet at the same time, you will not say that you have asked 
whether or not you can prioritize payments? That is deeply 
concerning--
    Secretary Lew. I am prepared to discuss the policy on both 
of those issues. I don't disagree with you that the platinum 
coin is not a serious option.
    Mr. McHenry. Good. I am glad we agree on that.
    Let me ask one final question on Volcker.
    Who is the primary enforcer of the Volcker Rule?
    Secretary Lew. So if I could just go back, Congressman, on 
the question of the debt limit, the real issue is we must keep 
all of our obligations.
    Mr. McHenry. I agree. Let me ask you--
    Secretary Lew. That is the--
    Mr. McHenry. Who is the primary enforcer of the Volcker 
Rule?
    Secretary Lew. The Volcker Rule is a rule that came out of 
five different agencies. As you know--
    Mr. McHenry. So there are five different primary enforcers 
or is there one--
    Secretary Lew. There are different aspects of the Volcker 
Rule, depending on what kind of a financial institution you 
are. You are regulated by--
    Mr. McHenry. Will you submit in writing sort of your view 
of this as Chairman of FSOC?
    Secretary Lew. I am happy to respond to your question in 
writing.
    Chairman Hensarling. The time of the gentleman has expired. 
As previously announced, the Chair now adjourns the committee 
for a brief recess. ``Brief'' is going to be defined as 
approximately less than 5 minutes. The committee stands in 
recess.
    [recess]
    Chairman Hensarling. The committee will come to order.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being with us today.
    I have a few question, but I just want to take a minute, 
maybe, to restore a little bit of order to this--or balance to 
this discussion that has emerged on our debt.
    Mr. Secretary, like you, I believe that a concern with our 
debt is prudent. And I think I say that with some credibility, 
having supported measures that balance our long-term debt 
scenario, some of which were unpopular.
    However, when that concern becomes ideology blind to all 
facts and economic advice and reality, it is something 
different than prudence. In the 5 years I have been here, I 
have heard over and over and over again that the question is 
not if we will have a disaster associated with our debt, but 
when, that just around the corner is a debt-induced disaster 
that the Federal Reserve's expansionary monetary policy, 
inflation is just around the corner.
    And of course, the hallmark of every single one of those 
multiple predictions in the last 5 years is that they have been 
absolutely wrong.
    Of course, in those 5 years, a consensus has developed in 
the economic community broadly shared that in fact the fiscal, 
the contractionary fiscal policies of this Congress, the 
austerity, have meaningfully contributed to a reduction in 
growth and to the loss of otherwise creatable jobs in this 
economy.
    Mr. Secretary, you might be interested to know that when 
Chairman Bernanke was sitting just where you are sitting, I 
asked him, conscious as I am of the importance of long-term 
stability in our debt, whether he could point to any 
industrialized country which had better managed the tensions in 
the last 5 years between the need to reduce long-term debt and 
the need to assist in economic recovery. Sometimes, there are 
significant tension in those two needs.
    The Chairman of the Federal Reserve, Ben Bernanke, could 
not name a country which had better managed those tensions. And 
I know you have been a part of that effort and I thank you for 
your work in that regard.
    Mr. Secretary, my question is about the Volcker Rule. Like 
you, I was pleased to see that the regulators finally came out 
with a rule. I agree with you; I think that it is strong and 
comprehensive.
    I am, however, concerned by the explicit exemption for 
proprietary trading with respect to sovereign bonds, and 
frankly, also the exemption for muni bonds. The headline, 
``Bank Brought Low by Investments in Greek Debt,'' I think, is 
probably not just an idea, and certainly it is a possibility in 
the future.
    So I wonder if you could address the ability under the 
Volcker Rule of the banks to invest in securities which could 
be very, very risky and quite volatile over time.
    Secretary Lew. Congressman, obviously our initial core 
concern was the treatment of U.S. Treasurys. And issues arose, 
particularly with regard to the impact that the rule would have 
on banks with relationships with other foreign nationals and 
their sovereign debt.
    I believe that the way the provisions were worked out 
provides guidelines, a path for sovereign debt bonds to be 
treated appropriately. I think if you look at the structure of 
the rule, it is clear that there is accountability at the level 
of the CEO to come up with a plan for implementing these rules 
in a way that is consistent with the statute and the risks that 
are being undertaken.
    So I don't think all of the detail is necessarily reflected 
in the black-letter law of the rule. There are going to be 
questions of interpretation. It was deliberately left to be 
worked out by the regulators and the firms to reach a balance 
so that we don't shut down a very important sovereign market, 
including the market for U.S. Treasurys.
    So it is something we will continue to work on with this 
committee and with the regulators.
    If I could just say a word on--
    Mr. Himes. I have one other question. I appreciate that 
answer. I just, having worked in that industry for a long 
period of time, know they will gravitate towards exemptions. 
And both munis and sovereign bonds present the possibility of 
very real risk. So I hope that you and the regulators will 
continue to watch that closely.
    One other question before I run out of time, Mr. Secretary, 
pertains to a statement in your written testimony--Dodd-Frank, 
many of the regulatory changes being largely completed now. I 
wonder if--I am heartened to hear that, but I wonder if in my 
30 or so seconds remaining you could talk a little bit about 
how you are feeling about systemic risk, and in particular the 
problem of too-big-to-fail.
    To make the question very simple, has Title II succeeded in 
fact in reducing the likelihood that we will see a major 
dislocation or problem in one of our major banks?
    Secretary Lew. I am not sure I can do that in 5 seconds. 
Mr. Chairman, do I have--
    Chairman Hensarling. You have 3 seconds.
    [laughter]
    We will give you about 20 or 30 seconds.
    Secretary Lew. Yes, we have made enormous progress since 
2009. We are much safer and sounder. And I made some very 
detailed remarks on this last week. I would be happy to give a 
more detailed response when I have the time.
    Mr. Himes. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Alabama, Mr. 
Bachus, our chairman emeritus, for 5 minutes.
    Mr. Bachus. Thank you.
    Mr. Secretary, I am going to introduce for the record some 
dialogue from the conference committee that we had just 2 weeks 
before we passed Dodd-Frank. And it is what we are still 
dealing with now that we have the Volcker Rule.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Bachus. What I asked, and this was on June 23rd, I 
asked Mr. Frank if he was aware of any other country that had 
committed to adopting the Volcker Rule that would be imposed on 
U.S. firms if this bill went into effect. And I actually said 
that the European financial ministers have indicated that the 
Volcker Rule restrictions would actually violate E.U. universal 
banking laws.
    I reminded him that, and Chris Dodd, Chairman Dodd also, he 
had said just 3 months before, ``For us to adopt this rule 
without the rest of the international community, that makes it 
unworkable.''
    And I then said that I felt like universal, unilateral 
adoption of the Volcker Rule by the United States will only 
undermine our competitive advantage, and therefore is going to 
undermine the profitability of financial institutions. If it 
does that, it raises the cost of capital to American business, 
consumers, and home buyers, and it will slow economic activity 
and job creation. And we all agree on the need for more jobs in 
our country.
    Mr. Frank responded to me, and the first thing he said is 
just sort of a diatribe on Republicans. But after four pages of 
that, he said, ``As for the rest of the world, we are going to 
get this bill done and then we are going to take it to the G-20 
and there will be serious conversations going on with the rest 
of the world.'' He talked about Davos, where people were coming 
together to talk about banning proprietary trading. And he 
assured me that the world was moving in that direction. And Mr. 
Kanjorski joined that. So, he goes on for several pages, and 
basically assures me that the world is going to go along with 
it.
    We know now that they haven't. And just this week, in 
talking about the Volcker Rule, the Federal Reserve noted, 
``This rule may create a competitive disadvantage for U.S. 
financial institutions because their foreign peers are still 
able to trade proprietarily. There does not seem to be any 
traction right now for other countries to follow suit with 
similar rules.''
    In my opinion, what I said then will happen now, absent 
restrictions in other countries. Under the Volcker Rule, 
prohibited transactions will likely be offshored to foreign 
banks, shifting the risky behaviors to another venue, but not 
eliminating it from the global financial system as a whole.
    I also quoted Mr. Geithner, just as when we talked about 
the rule. Mr. Geithner was quoted as saying, when I asked him 
in a hearing a year before, and I repeated that, about 
proprietary trading and banning it. He said, ``Most of the 
losses that were material for the weak institutions and the 
strong relative to capital did not come from proprietary 
trading activity. They came overwhelmingly from what I think 
can fairly be described as classic extensions of credit.''
    So what I am saying is that Secretary Geithner said that 
proprietary trading--and others have also said this--was not a 
significant cause of the financial meltdown. We have adopted 
the rule prohibiting proprietary trading. The rest of the world 
has not. Does that concern you?
    Secretary Lew. Congressman, I think fundamentally our 
objective has to be to meet the challenge of making sure that 
we are taking the steps we need to to safeguard the U.S. 
financial system, the U.S. economy, and then to try to bring 
the world to that high standard.
    Mr. Bachus. But after 3\1/2\ years, have we brought the 
world--
    Secretary Lew. I think we have in many areas. I think you 
are seeing a lot of progress in capital, in leverage, in--
    Mr. Bachus. Have any other countries adopted--
    Secretary Lew. I think that now we have just completed--our 
agency has just completed the Volcker Rule--
    Mr. Bachus. Let me just--
    Secretary Lew. I would just point to the comments made by 
the European commissioner who is responsible for financial 
regulation, just yesterday, which were quite favorable towards 
the Volcker Rule and the policy--
    Mr. Bachus. All right. They are quite favorable, but has 
any country adopted it?
    Secretary Lew. I think that other countries will have to 
make their own judgments. We will continue to make the case. If 
you look at the response in the United States--
    Mr. Bachus. Have any of them adopted it?
    Secretary Lew. I think the question to me is: What is the 
strength of the U.S. financial services industry? Are we 
leaving the U.S. financial services industry--
    Mr. Bachus. I understand that. Have any other countries 
adopted a Volcker Rule?
    Chairman Hensarling. The time of the gentleman has expired, 
but if the Secretary would like to give a yes-or-no answer to 
the question?
    Secretary Lew. I think that the Volcker Rule in the form it 
is in is unique, but other countries are looking at--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Peters, for 5 minutes.
    Mr. Peters. Thank you, Mr. Chairman.
    Secretary Lew, thank you so much for your testimony and for 
appearing here today before our committee.
    As you know, the United States is in the process of 
negotiating the Trans-Pacific Partnership, which is a 
multilateral free trade agreement that now includes Japan, a 
country with a history of both currency manipulation and 
closing off their auto markets for imports.
    I sent a letter to the Administration in December of 2011 
which argued that Japan should not be included in the TPP 
negotiations until they open up their market to U.S. 
automobiles. And I, to this day, remain very deeply concerned 
about the impact of Japan's inclusion in those negotiations.
    This hearing, of course, is focused on international 
finance. And so, I would like to focus on the currency 
manipulation issue. I know Mr. Cleaver asked you some questions 
about that earlier. But currency manipulation has cost millions 
of jobs in the United States and many of those jobs were in my 
home State of Michigan.
    There have been various proposals ranging from my 
colleague, Congressman Sander Levin, to The Peterson Institutes 
to the auto industry, to address currency manipulation in the 
TPP without tying a country's hands to its own monetary policy.
    Today, I have with me language from the Automotive Policy 
Council that I would like to enter into the hearing record, Mr. 
Chairman.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Peters. And as I mentioned, this proposal would direct 
currency manipulation--or would target, rather, direct currency 
manipulation without stopping necessary quantitative easing by 
evaluating first the protracted large-scale intervention in one 
direction in the exchange market; excessive and prolonged 
accumulation of foreign assets and, three, prolonged current 
account deficits or surpluses.
    So my question is, just generally speaking, do you support 
strong and enforceable currency manipulation provisions in a 
free trade agreement to address trade-distorting practice, 
generally speaking?
    Secretary Lew. Congressman, I tried in my response to 
Congressman Clay to explain my view. And I am happy to do it 
again.
    I believe that it is very important that we continue to 
insist on having market determined exchange rates, that we do 
that through the proper mechanisms.
    We have done it, I think, quite effectively through the G-
20. We are doing it quite effectively in bilateral relations.
    I think if you look at the policies country by country in 
our currency report, try to analyze in some detail what we see 
as problematic and what we see as movement in the right 
direction.
    With regard to some countries, in Japan, we, for a decade, 
were saying Japan needed to do something to get its economy 
moving. The deflation in Japan was hurting the world economy 
and it was hurting the U.S. economy as well.
    Whether or not their monetary policies are manipulation or 
not depends whether or not they abide by the standard of market 
determined exchange rates and domestic tools for domestic 
purposes.
    Obviously, it is a fine line. We are going to keep our eye 
on that line to make sure that countries don't cross it. And 
when they cross it, we are going to press very hard. We have 
done it time and again.
    I have met with my counterparts from Japan on many 
occasions. I met with my counterparts from China on many 
occasions. And we have made it exceedingly clear that this is a 
matter of necessity in order for us to have our bilateral 
relations continue to improve.
    And I think we are making a lot of progress. A trade 
agreement has to be built on that firm commitment for us to 
continue making progress on these matters.
    Mr. Peters. In response, in the negotiations that have gone 
on that you talked about, the problem still is about 
enforcement and whether or not we have the ability to step up 
and enforce those kinds of actions on currency manipulation and 
hopefully bring it to an end.
    And that is why I think it is important to actually have it 
in the agreement, in the TPP agreement. And I just want to say 
that in June of this year, 230 House Members, including 30 
Members who are on this committee, including myself, sent a 
letter to the President calling for currency manipulation 
disciplines to actually be written into the TPP.
    And in September, we had 60 Senators who sent you and 
Ambassador Froman a letter calling for strong and enforceable 
currency manipulation disciplines in the TPP. Now to my 
knowledge, none of us has received even a letter in response--
and this is a letter from 230 House Members and 60 Senators.
    Does the Administration plan to send a letter and respond 
directly as to what will be in this TPP to us?
    Secretary Lew. Congressman, I realize this is different 
than the letter, but I have spent a fair amount of time with 
Members of Congress on this. I spent several hours with the 
Ways and Means Committee on both sides discussing it. I have 
talked to many Members about it. I look forward to remaining in 
close conversation.
    Mr. Peters. Good. I appreciate that. And hopefully, we can 
get that in the agreement.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Westmoreland, for 5 minutes.
    Mr. Westmoreland. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here. This is kind 
of off the subject, but I would like to ask this of all of our 
witnesses, are you taking part in the Affordable Care Act 
change?
    Secretary Lew. Congressman, like most of the employees at 
the Treasury, I participate in the Federal employee health 
benefit plan.
    Mr. Westmoreland. Okay. So you haven't voluntarily gone on 
the exchange? Because all the staff in here and the Members 
here are required to be on the exchange. And if it is such a 
good deal--
    Secretary Lew. The goal of the Affordable Care Act 
obviously is for employers to provide coverage. Federal 
employees have access to coverage with cost sharing between the 
Federal Government and the employee. And I participate in the 
Federal employee health benefit plan, as do most employees.
    Mr. Westmoreland. We are all envious. We wish we could have 
stayed there, too.
    I want to follow up a little bit on the Volcker Rule.
    From 2006 to 2009, you were the lead at Citigroup's 
alternative investment unit, correct?
    Secretary Lew. I was in the--I ran operations, not the 
business practices.
    Mr. Westmoreland. But you ran that group's proprietary 
trading, right?
    Secretary Lew. Just to be clear, I was chief operating 
officer. So I was responsible for kind of the internal 
mechanics in the business. I was not making investment 
decisions.
    Mr. Westmoreland. Okay. But you were doing proprietary 
trading.
    Secretary Lew. The firm did, yes.
    Mr. Westmoreland. Yes.
    Would those people still have a job today?
    Secretary Lew. I think I have spoken to my views in my 
response to questions on the Volcker Rule. I think coming out 
of the financial crisis, it is incumbent on all of us to ask 
what was happening before 2008 that should be done differently. 
I believe that this--
    Mr. Westmoreland. But you never thought you or Citigroup or 
anybody else was doing anything wrong? Did you feel like you 
all were doing something that was sleazy or--
    Secretary Lew. I think, going forward, the challenge we 
have is to ask the questions: how do we take risk out of the 
financial system; how do we maintain strong, healthy financial 
institutions; how do we protect taxpayers from being exposed--
    Mr. Westmoreland. While Citigroup was doing the proprietary 
trading, do you think they were weakening the company or taking 
a big risk?
    Secretary Lew. I think that the challenge going forward is 
to look at what practices can we put in place to make sure we 
have visibility into financial institutions and make sure that 
they are not taking on risks which they can't internally absorb 
themselves.
    And I think the Volcker--
    Mr. Westmoreland. Did you ever take any of the--did your 
group or Citigroup ever take on any of these things that they 
didn't feel they can manage?
    Secretary Lew. I am not testifying today on behalf of one 
firm or another.
    Mr. Westmoreland. Oh, I know.
    Secretary Lew. I think I have made it clear that the 
positions I have taken reflect my view and the view of the 
Administration. And it may not be consistent with views that 
are shared by people I may have worked with in the past.
    Mr. Westmoreland. Sure.
    On November 26th, the Treasury and the IRS published in the 
Federal Register proposed guidance for clarifying the range of 
acceptable political activities for tax-exempt social welfare 
organizations under Section 501(c)(4) of the Internal Revenue 
Code.
    Were the same IRS personnel who targeted the nonprofit 
conservative organizations responsible for making the decision 
as to what is political and what is not political under the 
law?
    Secretary Lew. To be clear, Congressman, in the aftermath 
of what we all discovered was going on in that program, all of 
the senior leadership in that area has been replaced. We have 
had significant new leadership, a set of leadership changes put 
in.
    So in general, it is--
    Mr. Westmoreland. Who is going to be making the decision as 
to what--
    Secretary Lew. There is a policy in there, to be clear, 
there was an I.G. report. The I.G. report called on us to take 
a number of actions. And one of the actions was to provide 
greater clarity here.
    The notice that you are describing was not a final act. It 
was asking for comment to--
    Mr. Westmoreland. All right--
    Secretary Lew. --conversation. I think we have some policy 
that we have to make. And that policy is policy that is going 
to be made by policy officials and we should do it in 
conversation--
    Mr. Westmoreland. Do you think it is good to be putting new 
rules in while we are in the process of trying to investigate?
    Secretary Lew. I think it is important that we took all of 
the I.G. recommendations seriously. We have acted on each of 
them. This was one. And while it is not final, it is a step in 
the direction of working through what the right--
    Mr. Westmoreland. When do you think it will be finalized?
    Secretary Lew. I actually would have to get back to you on 
the schedule. I don't know the exact schedule. This was the 
first step. So, it is some space away from being final.
    I think this is an important subject and there is a need 
for comment and for us to hear the different views.
    Mr. Westmoreland. Thank you, sir.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Kildee, for 5 minutes.
    Mr. Kildee. Thank you, Mr. Chairman.
    I have a couple of questions, but I just wanted to say, Mr. 
Secretary, that today, as I think we are all aware, the 
Treasury Department designated a number of entities that have 
been providing support for Iran in violation of international 
sanctions.
    And I just want to thank you for your continued diligence 
on that point. It is obviously important to the Congress. There 
is discussion and a lot of debate occurring even as we speak on 
this particular question. And it is a pretty dynamic condition 
that we are in.
    For me, it is particularly important. I have a constituent, 
Amir Hekmati, a former U.S. Marine who was held prisoner and 
has been for nearly 2\1/2\ years in Iran. So I want to thank 
you for your continued diligence on this subject. And if there 
is time, I would invite any comment that you might have on that 
particular question.
    I just want to return to the question of the Trans-Pacific 
Partnership. I represent Flint, Michigan, and Saginaw, 
Michigan--communities that--in the case of my own hometown, 
once had 79,000 auto workers, people working for the auto 
industry directly, and now that number is roughly one-tenth 
that number. So we have seen the effect of some trade 
agreements that are sold on the notion of economic growth but 
don't necessarily deliver, and in particular communities 
actually have exacerbated an already difficult problem.
    And for a year now, under the direction of Prime Minister 
Abe, Japan has taken a number of drastic macroeconomic 
measures, including setting negative yen interest rates, 
engaging in major quantitative easing measures, including 
setting negative interest rates. That has caused the yen to 
drop roughly 20 percent to the dollar over the past year, 
severely undermining our competitiveness.
    And I guess I would like to ask, without going into much 
further detail, what will Treasury do to ensure that U.S. 
exports remain affordable and domestic manufacturing jobs are 
protected as we move forward and potentially see TPP enacted, 
and particularly with Japan's involvement?
    Secretary Lew. Congressman, I think our commitment to 
making sure we have a healthy U.S. auto industry is reflected 
in many actions that we have taken. And I was very pleased this 
week that we were able to sell the final shares of GM stock 
that the government owns, and leave GM and Chrysler stronger 
than anyone thought they would be. And it is our goal to have a 
competitive domestic auto industry. It is so important to our 
economy and to our country.
    I think that the challenge of--in taking the policy 
agreements that we have reached on exchange rates, which I 
described earlier, and making sure each country lives up to 
them is something that we have to do constantly. We have to do 
it in our bilateral conversations. We have to do it in our 
multilateral conversations.
    I think that we have taken it very seriously. We continue 
to take it very seriously. And we are making progress.
    I think that the fact that we got an agreement in the G-20 
in February to the principles that I described is very 
significant. Living up to that commitment is something I remind 
my counterparts on a constant basis is as important as the 
agreement itself.
    I think if you look at Japan's economy, they were in a 
long-term period of deflation and negative economic growth. 
There was a need for them to take action with their combination 
of policies. And the question of whether they ultimately 
crossed the line is one that we are very alert to, and as we 
said in our currency report, we will keep an eye on.
    But it is a good thing for the U.S. economy for Japan to be 
out of deflation and growing; is one of our biggest trading 
partners. And in our relations with countries, we don't shy 
away from being very direct on making sure that they live up to 
their obligations which they have agreed to, in the case of 
Japan as a member of the G-20.
    Mr. Kildee. I thank you for that. I just want to make sure 
that there is continued diligence on this. The auto community 
has really suffered. Many communities don't consider themselves 
auto communities, but I would suspect that every Member of 
Congress, on this committee in particular, would say the fact 
that we have such a trade deficit, and particularly in the auto 
sector, impacts the local economy and it really affects our 
ability to put people back to work.
    Secretary Lew. If I could just respond on the issue you 
started with. We are very sensitive to the suffering of people 
who are held in--Mr. Hekmati is very much on our minds. I would 
refer you to the State Department. They have kept a very close 
eye on this.
    Mr. Kildee. Thank you very much.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross, for 5 minutes.
    Mr. Ross. Thank you, Mr. Chairman.
    Mr. Secretary, thank you very much for being here.
    In my home State of Florida, insurance plays a significant 
role in our economy and our markets. We have natural disasters 
there probably more frequently than other States.
    In fact, Kevin McCarty, our insurance commissioner, has 
testified on the importance of insurance companies to 
appropriately match their assets with liabilities. And I am 
encouraged with the Federal Reserve Board's recent announcement 
that more insurance experts are necessary as we look into 
continuing in the regulatory scheme, especially with capital 
requirements under Basel III.
    My concern, and you have addressed this a little bit, you 
have acknowledged that there is a difference between capital 
requirements, I think, for insurance companies and for banks. 
You stated in your initial testimony--your written testimony 
today that, ``We will focus on promoting vigorous 
implementation of Basel III, ensuring that risk weighted assets 
are assessed consistently across borders, and that Basel III's 
high-quality capital standard is met.''
    My concern has to do with what assurances can the Treasury 
give to make sure that certain insurance companies are not 
subject to bank-centric capital requirements which do not fit 
their business models?
    Secretary Lew. Congressman, I know that as the regulators 
look at implementing supervision, they are looking very hard at 
the question of how to treat insurance companies. Obviously, 
they don't have infinite flexibility. They--
    Mr. Ross. But you acknowledge that there is a difference 
between the two.
    Secretary Lew. I have acknowledged there is a difference, 
and I have acknowledged that they are looking to define 
flexibility in their tools. I can't speak for them in terms of 
how they will exercise that.
    Mr. Ross. Would you give them any--would you give these 
insurance companies any advice as to how to prepare for what 
may be coming down the pike as far as capital requirements?
    Secretary Lew. My advice would be for them to work closely 
with the regulators that supervise them, and to have this 
conversation that we are having right now.
    Mr. Ross. Again, looking back at my State of Florida, I 
think we have a very good framework. And we have a very good 
regulatory scheme. The Financial Stability Oversight Board, of 
which the Department of the Treasury is a member, released a 
report in August recommending that the United States consider 
federalizing insurance supervision. Is this something with 
which you agree?
    Secretary Lew. I think that we need to keep taking a look 
at how we are working at the State level, and at the Federal 
level.
    Mr. Ross. Because there is a pre-emption there that we have 
to be concerned with. And I think in Dodd-Frank, we have 
reaffirmed McCarran-Ferguson and that State-based regulatory 
schemes work for consumers. But there must be something here 
that allows for some assurance that consumers can be guaranteed 
that the Federal Government is not going to impose new 
requirements that raise premiums.
    Secretary Lew. The question that Congressman Neugebauer was 
asking earlier about studies, the reports that--
    Mr. Ross. Right.
    Secretary Lew. --the Federal Insurance Office is issuing, 
when they issue the report on the future of the insurance 
industry, it will raise some of these questions so that we can 
have a discussion of what, if any, is an appropriate Federal 
role.
    And we have been very respectful of the States' role in 
this area. We are also very aware that there is an 
interconnectedness which raises national issues. And we have to 
have the conversation--
    Mr. Ross. Good. Because I want to give you an example. Most 
insurance companies use statutory accounting principles. They 
required by--in fact, the National Association of Insurance 
Commissioners recommends that. However, the Generally Accepted 
Accounting Principles (GAAP), are used more for bank-centric 
entities.
    If FSOC deems certain non-bank entities to be Systemically 
Important Financial Institutions (SIFIs), would they not then 
require them to change their accounting procedures from the way 
they report to the State to change to the way they report to 
the Federal Government? That is an issue I see that could 
realistically happen.
    Secretary Lew. I know from the conversations that I have 
had with regulators that they are very sensitive to the fact 
that there is an ongoing regulatory structure. And these are 
issues they are working their way through.
    Remember, we are just beginning this practice.
    Mr. Ross. Oh, I agree.
    Secretary Lew. --we have to work our way through to make 
sure we--at a Federal level we do the job appropriately, and we 
do it in a way that doesn't unduly disrupt--
    Mr. Ross. And, again, just some assurance for--because 
ultimately it is the consumer who is going to have to pay for 
this. Because the cost of compliance is one of the largest--in 
fact compliance officers are one of the fastest growing 
occupations in this country, thanks in large part to the 
regulatory environment that we have here.
    But I guess my concern is that we know what is coming. We 
know that there is going to be a time when an insurance company 
may have to make a decision as whether they can accommodate the 
regulatory scheme of accounting principles, and in order to do 
so, their cost is going to have to be passed on to somebody.
    And I guess I am just looking for some assurance that may 
not have to happen.
    Secretary Lew. Congressman, I can assure you that the 
regulators are looking carefully at how to do this in a way 
that works for the economy and for the industry.
    Mr. Ross. I am very hopeful about that.
    Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from Florida, Mr. 
Murphy, for 5 minutes.
    Mr. Murphy. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here.
    Back to the Volcker Rule, there has obviously been a lot of 
discussion about that today. We started to hear a few 
questions--Mr. McHenry brought this up, and didn't really give 
you a chance to answer. Would you mind taking a minute to talk 
about how the regulators are going to split up their 
responsibilities in regulating Volcker?
    Secretary Lew. The regulators regulate different entities 
based on their characteristics. So depending on where 
institutions are currently supervised, that will flow through 
into the Volcker Rule, depending on who their primary regulator 
is, and what products they are engaged in.
    So I don't think the Volcker Rule actually creates new 
lines. The reason there are five agencies is we have a 
regulatory structure that divides up responsibilities for 
different institutions and different products. The Volcker Rule 
is just an extension of that.
    Mr. Murphy. Will there be a clear head of those functions?
    Secretary Lew. I think the clarity that each of the 
agencies issued the same rule, they went through a process 
where they worked hard to simplify it.
    It is not a long rule. It is about 70 pages long. It leaves 
some space for supervisors to engage with the entities that 
they supervise to work through some detail.
    And I know that the intent is to have clarity that there is 
one set of rules. And now, it will be implemented through a 
regulatory structure that sometimes does create some shades of 
difference between entities based on what regulator has 
jurisdiction over them and what the characteristics of the 
entity are.
    So, I think there is an underlying issue in our regulatory 
system, that it is a complicated system which divides up 
responsibility amongst many different regulatory authorities.
    I think actually, in the case of the Volcker Rule, the fact 
that they were able to agree on common rule text is a step 
forward. It is, I think, unprecedented to have had five 
agencies act on the same day, on the same rule text.
    And that should give some encouragement that there is 
really a goal here of doing it in a sensible way.
    If I could just take one moment, earlier I was asked about 
whether other countries have a form of the Volcker Rule. And, 
while I said the Volcker Rule is unique, it is, in fact, the 
case that France and Germany have their own form of rules here. 
So we are not the only country to be dealing with this issue of 
proprietary trading.
    Mr. Murphy. So you are not worried that this will, in fact, 
set American companies back, put us at a disadvantage?
    Secretary Lew. I'm sorry? Could you--
    Mr. Murphy. You are not worried that this will, in fact, 
set American companies back?
    Secretary Lew. I believe that the American financial system 
is sounder and America's financial services companies are 
sounder because of all the steps we have taken since 2009.
    I don't think that it served our industry or our economy 
well to go through the financial crisis that we did in 2008 and 
2009.
    So, if one balances kind of short-term and long-term 
issues, I think we are leaving the industry safer and sounder 
than it was, and that is a good thing.
    Mr. Murphy. Another question, shifting gears a little bit: 
I wonder if you can put a number on what the dysfunction in 
this institution has cost the American taxpayer? Whether it is 
the shutdown, the sequester instead of the smart spending cuts, 
continuing resolutions, if you can put a number on that?
    Secretary Lew. It is hard to put one number. I believe 
deeply that the uncertainty and anxiety caused by the repeated 
financial crises, fiscal crises that were manufactured because 
of this process have hurt the economy. I think we see 
businesses holding back because they are uncertain about what 
the next 6 months will bring.
    I think today is actually a step in the right direction. 
Small as the budget agreement is compared to the grand bargain 
people talked about, it backs out some short-term discretionary 
cuts that were hurting the economy, replaces them with longer-
term structural savings, and it provides clarity, so that for 
the next couple of years, Congress can hopefully avoid the kind 
of dysfunction you described.
    Mr. Murphy. Let's hope so. I have 1 minute--
    Secretary Lew. But I would just underscore that it is 
important to extend the debt limit in the same way.
    Mr. Murphy. Thank you.
    I want to ask about FSOC and their process of designating 
institutions as systematically important.
    Recently, there have been some reports saying that large 
asset managers will be designated as SIFIs. I wonder if you can 
talk briefly about that decision and if you are going to be 
relying on the Office of Financial Research's (OFRs) recent 
report on asset managers to make that determination.
    Secretary Lew. Congressman, first of all, the Office of 
Financial Research study is a piece of research. It is not a 
decision by FSOC. It is just one of the pieces of analysis that 
will be considered. And it will be part of it. OFR was created 
in order to provide FSOC with that kind of research.
    I think the important thing is we can't be afraid to ask 
questions. And it doesn't mean you know the answer when you ask 
the questions. We have to follow the data and the analysis 
where it takes us. And we have to do it in an open-minded way.
    Mr. Murphy. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, for 5 minutes.
    Mr. Barr. Mr. Secretary, welcome to the committee.
    Is the mission of the Export-Import Bank to support U.S. 
exports and jobs for U.S. workers?
    Secretary Lew. It is to promote opportunities for U.S. 
export, which is good for the U.S. economy and for creating 
U.S. jobs.
    Mr. Barr. And is the mission of the Export-Import Bank to 
pick winners and losers among U.S. industries?
    Secretary Lew. It is to level the playing field in the 
world so U.S. industry has the ability to compete in a fair 
way.
    Mr. Barr. The reason why I ask those questions is because I 
am from Kentucky, and like Chairwoman Capito, from a coal-
producing State, and so I share her concern about Treasury 
directives and policies with respect to the coal industry.
    We want to see a future for the coal industry and the 
vitality of the American coal industry.
    Kentucky is the third largest coal-producing State in the 
country. And so, my questions really are directed on behalf of 
the 6,200 coal miners in my State who have lost their jobs, 
with all respect, because of the anti-coal policies of this 
Administration over the last couple of years.
    And so, with respect to the policies directed to the 
multilateral development banks, most notably the World Bank, 
opposing funding for new coal plants and also the Export-Import 
Bank has adopted at the Administration's direction stringent 
carbon standards that essentially prohibit funding for coal-
fired power plants abroad.
    I noted with optimism the written testimony that you 
presented here today, where you indicated that Treasury has 
worked successfully to secure support from the World Bank and 
the African Development Bank for President Obama's Power Africa 
Initiative, which, as you say, aims to bring energy to half-a-
billion people in sub-Saharan Africa.
    I share your interest in that, because for many parts of 
the world coal-generated electricity is vital, because it 
remains one of the only means to lift people out of darkness, 
literal darkness, into energy diversity and energy prosperity.
    And, in fact, the International Energy Agency estimates 
that over 1.3 billion people on this planet, nearly 20 percent 
of the world's population, live with no access to electricity, 
to say nothing of the 1.7 billion who have very limited access.
    So my question is, the rhetoric in your written testimony 
that we want to deliver energy, diversity, and opportunity to 
people living in poverty in Africa, and the reality of the 
policy which is depriving these impoverished people of access 
to affordable, reliable coal-fired power, how do you reconcile 
the policy, the reality of the policy, and this rhetoric and 
this desire, the rhetorical desire to deliver energy 
opportunities to people in poverty?
    Secretary Lew. Congressman, we believe very much in being 
good partners in helping developing countries gain access to 
electricity. It is key to their economic growth and their 
further development.
    There are a lot of ways to develop electricity for a lot of 
these countries. Renewables and hydro and natural gas are--
    Mr. Barr. But the reason why these countries are in poverty 
and the reason why these people are in poverty is because they 
don't have access to affordable, reliable, baseload power. Coal 
is a proven technology. Why would we discriminate against this 
particular reliable source of energy?
    Secretary Lew. As I tried to explain in my response to 
Congresswoman Capito, we have very strong concerns about 
climate change domestically and internationally. And we are 
trying to balance our concerns while promoting access to energy 
around the world.
    Mr. Barr. I understand. I heard your testimony before.
    Secretary Lew. Our policy is--regards our vote in 
international bodies.
    Mr. Barr. Right.
    Secretary Lew. It does not regard private financing. Nor 
does it in every case--
    Mr. Barr. With respect, to reclaim my time, I would 
encourage Treasury to reconsider. If the goal truly is to 
deliver energy diversity and opportunities to impoverished 
nations, we ought to consider true energy diversity, which 
would include a portfolio of coal-fired power.
    Quickly shifting to the Volcker Rule, I do want to focus on 
the ambiguity and complexity of the Volcker Rule and whether or 
not the rule is capable of consistent enforcement.
    You have heard in recent days after the final issuance of 
the rule, Fed Governor Sarah Bloom Raskin at the Federal 
Reserve talking about how Section 619 of Dodd-Frank certainly 
doesn't specify enforcement standards.
    She indicates that the SEC may bring one perspective in its 
supervision of broker-dealers, and the OCC may bring a 
different perspective.
    Commissioner Gallagher of the SEC says that banking 
agencies can employ discretion, whereas at the SEC, a rule is a 
rule, and they have a different approach.
    So with a 71-page textual rule, no guidance really in the 
statutory language of Section 619, and 882 pages of 
explanation, how are banking and market regulators under your 
purview supposed to enforce this rule? How are the five 
separate regulators supposed to enforce the rule consistently 
when they have such divergent philosophies?
    Secretary Lew. Mr. Chairman, may I take just 30 seconds to 
respond?
    Chairman Hensarling. Brief response, please.
    Secretary Lew. Congressman, I think that we have for 100 
years seen the evolution of our financial regulatory system 
that has worked to create the five bodies. I think that the 
fact that the five agencies agreed to an identical rule text 
and are embarking on supervision and enforcement from a common 
starting point is enormous progress. So, I think we are going 
into this stronger than anyone might have expected.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Maryland, Mr. 
Delaney, for 5 minutes.
    Mr. Delaney. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for joining us here today.
    I was going to frame my question around the issue of asset 
managers being systemically important, which I don't think they 
should be deemed systemically important. But my good friend and 
colleague from Kentucky made me think about another question 
that I want to ask you, kind of a follow up to what you were 
talking about.
    And I would just be interested in your opinion on this 
topic. If you were confronted with the following kind of policy 
question that was being posed to the President, which is that 
we would implement some form of market-driven and market-based 
carbon tax. And if the revenues produced from that form of a 
carbon tax were used entirely to provide a variety of tax 
breaks to individuals and businesses, so that it was a revenue-
neutral proposal. But we actually had a true market-based 
carbon tax, which is something I am in favor of, but that the 
revenues generated from something like that were entirely given 
back to the American population either through individual tax 
breaks or through corporate tax breaks.
    How would you advise the President to think about something 
like that? What would be your directional view on a step like 
that?
    Secretary Lew. Congressman, this has obviously been debated 
over many decades. I was part of an Administration that 
proposed a BTU tax and was unsuccessful because it had such 
resistance in the 1990s. I think these are questions we have to 
look at. But the right context is in terms of comprehensive tax 
reform where you are looking overall at our tax system and how 
to make it more conducive to a growing, efficient economy.
    And the Administration has not made any proposals--
    Mr. Delaney. Right. I agree with you. Obviously, the best 
way to do tax reform is in a comprehensive manner, both for 
individual and corporate. And I say this respectfully, I am not 
trying to pin you down, but if you were just presented with the 
option that I have described, which--so I am not going to allow 
you to defer to comprehensive reform because I agree with 
comprehensive reform. But just directionally, I am trying to 
get a sense as to how you weigh these things.
    Because politically, when we think about a carbon tax, 
again a market-based carbon tax which allows the private 
markets to do what I think we oftentimes try to have regulators 
do too much of. I would much rather see the private market 
adjust behavior in a way that I think is in the best interests 
of us across the long term, as opposed to trying to regulate 
that behavior.
    But if we were to have a real market-driven carbon tax, and 
the only way that could be done politically was by taking those 
tax revenues and giving them back to individuals and 
corporations through a variety of tax reductions, do you think 
directionally, that is something you would be supportive of? Or 
are you not at a point where you could comment on that?
    Secretary Lew. Congressman, I am really not at a point 
where I could comment on it. I haven't looked closely at this 
matter in recent years. I think that it would be a good thing 
if we got deeply into the debate over broad tax reform in a 
context that helps deal with our long-term fiscal challenges. 
It is not enough to be revenue-neutral. It has to help solve 
the fiscal challenges we face. And we haven't gotten deeply 
into that discussion--
    Mr. Delaney. But if it were just revenue-neutral, do you 
think it is compelling enough to take this step towards 
behavior that, in my opinion, would change climate change?
    Secretary Lew. I appreciate that you are asking the 
question for a third time, but I am just going to have to say I 
would have to look at it and get back to you.
    Mr. Delaney. Do you think climate change is a big economic 
risk to the United States?
    Secretary Lew. I do.
    Mr. Delaney. Do you think corporate tax rates are too high?
    Secretary Lew. I think that, as we have made clear, we 
think that it is important that we do business tax reform so we 
lower the statutory rate, being more competitive, and flatten 
out some of the system so that it doesn't distort economic 
decision-making.
    Mr. Delaney. Okay. Thank you, sir.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus, for 5 minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Thank you, Mr. Secretary, for being here today.
    I would like to touch a little bit on the coal-fired power 
generation guidelines that have recently come out, following up 
on Congressman Barr and Congresswoman Capito.
    Did the Administration consult with other countries and 
develop these new policies as a result of multilateral 
negotiations at the boards of these institutions?
    Secretary Lew. We have had discussions. I would have to 
check whether they were discussions that would rise to a level 
of negotiations.
    Mr. Rothfus. I would be interested in hearing if they were, 
so if you could please follow up with us in writing to see who 
was involved with those.
    My concern is that this is essentially a unilateral 
political decision that was made at the White House without 
consulting our friends and allies.
    Secretary Lew. We have had conversations with our friends 
and allies about it. So it is obviously our view, but it is not 
something that we have just done without talking to our friends 
and allies.
    Mr. Rothfus. Can you tell us whether the countries that 
will be made ineligible for development bank funding for coal-
fired power plants agree with this new U.S. policy?
    Secretary Lew. I think you can see from the facilities 
proposals that are moving through that there are plans that 
continue to be presented for funding.
    Mr. Rothfus. Yes, we hear a lot about China doing a lot of 
investing in Africa. Won't countries just start buying Chinese 
coal-fired power plants that are less durable and that do not 
have the same rigorous standards that we have in the United 
States?
    Secretary Lew. I think that relates to a separate question, 
which is that China is increasingly looking for ways to 
increase its participation in multilateral--in international--
    Mr. Rothfus. Is China adopting the same regulations or the 
same guidelines that you--
    Secretary Lew. I don't believe so.
    Mr. Rothfus. Is it fair--
    Secretary Lew. I will say this, that China--
    Mr. Rothfus. Is it fair, Mr. Secretary, to deny 
underdeveloped countries the opportunity to grow their economy 
with low-cost energy the way the United States has?
    Secretary Lew. Congressman, we are trying to help 
underdeveloped countries gain access to bountiful and, in many 
cases, renewable energy sources.
    Mr. Rothfus. How many people have been lifted out of 
poverty because of solar power?
    Secretary Lew. Hydro is a big factor in many underdeveloped 
countries. And I think solar and renewable have potential. I 
would say this about China, China is confronting climate change 
in a very real way because they are dealing with a public 
health problem in their own country which they--
    Mr. Rothfus. Has China suspended the construction of coal-
fired power plants?
    Secretary Lew. They haven't suspended, but they are very 
much focused on how they can reduce carbon emissions.
    Mr. Rothfus. I would like to switch gears a little bit. In 
a recent article that appeared in the pages of The Wall Street 
Journal, it was reported that the number of banking 
institutions in the United States has fallen to its lowest 
level since the Great Depression, down from a peak of more than 
18,000 institutions to below 7,000.
    This significant decline has come almost entirely in the 
form of exits by banks with less than $100 million in assets, 
in other words, our community banks. Rising regulatory cost is 
cited as a major reason why these numbers are declining. Over 
the past year, this committee has heard from a number of 
witnesses about these rising regulatory costs and how they 
acutely burden small financial institutions, both community 
banks and credit unions.
    Mr. Secretary, are you concerned about these bank closures 
and consolidation within the financial services industry?
    Secretary Lew. Congressman, I think community banks play a 
very important role in our economy. I have met with community 
bank representatives on quite a number of occasions. I have met 
with regulators and I have shared my concerns with them.
    I think that if you look at the actions taken by 
regulators, it shows a great deal of attention to trying to 
carve out rules that treat community banks appropriately, even 
the Volcker Rule that was finalized this week. So I think we 
are concerned with the health of community banks and are trying 
to balance the responsibilities we have to ensure safety and 
soundness in the financial system with a good opportunity for 
community banks to be healthy.
    Mr. Rothfus. In a recent speech that you delivered at the 
Pew Charitable Trusts, you heralded the work of the Consumer 
Financial Protection Bureau, particularly its implementation of 
the new qualified mortgage standards which will go into effect 
in a couple of weeks. You also criticized the work of this 
committee to institute much-needed reforms at the CFPB to make 
the Bureau more transparent and accountable to the American 
people.
    Just a few weeks ago, before you delivered that speech, 
Chairwoman Capito and I held a roundtable back in Pittsburgh 
where we heard firsthand from banks, credit unions, housing 
advocates, and community development organizations about how 
the Q.M. rule as currently written will cause significant harm 
to the economy and housing market and will make it more 
difficult for working families in western Pennsylvania and 
around the Nation to buy homes.
    As the Chairman of FSOC, you have some oversight authority 
over CFPB rulemaking, including QM. So I would like to hear 
your response to these concerns.
    Secretary Lew. Congressman, I think that as Director 
Cordray has indicated, they are working through the final 
details, and I believe that many of those concerns can be 
addressed. And when the institutions understand better--
    Mr. Rothfus. Those concerns--I would encourage you to 
listen to the advocates for the low- to moderate-income 
borrowers.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Ohio, Mrs. 
Beatty, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    And thank you, Mr. Secretary, for being here.
    First, let me start by saying thank you to all of the 
Assistant Secretaries, Assistant Chiefs of staff or Assistant 
Legislative Directors for their scholarship and their hard work 
because I am sure much of what you are getting today has been 
scribed, signed, and sent from some assistant.
    So I guess my question to you would be, in your selection 
of assistant secretaries, would you say, yes or no, that some 
of them in their complex specialty areas are as talented or 
even more talented than you?
    Secretary Lew. I am thankful every day that I work with 
people who know much more about many of the things that I work 
on than I do. I think that is a requirement in any of these 
positions that we have. We make the Federal service attractive 
to people who come with technical knowledge and the ability to 
help support decision-making by policymakers like myself.
    Mrs. Beatty. Thank you.
    We have heard the word ``radical'' used to describe 
President Obama's response to our financial crises. So hearing 
it used with so much disdain, I decided that I would do some 
research on radical responses and plans from Presidents.
    And President Bush came up repeatedly. Let me just share 
with you: President Bush outlines radical plan to part-
nationalize banks. And he said this in a press conference from 
the White House as he authorized hundreds and hundreds of 
billions of dollars with banks to shore up the financial crises 
in 2008.
    And in his televised statement, he said, it was essential, 
although it was unprecedented, it was necessary to be 
aggressive to address the financial crises.
    So would you say sometimes, when you are a real leader, it 
takes radical actions--and that is not said with disdain--
whether it is climate preparedness, whether it is health care, 
whether it is the debt ceiling, that real leaders sometimes 
must take aggressive, radical actions?
    Secretary Lew. I will leave to others whether the word 
``radical'' is the right word to describe it. But taking 
decisive and effective action is a mark of leadership. And it 
is one that I am proud that we have tried to follow in the work 
I have been describing today.
    Mrs. Beatty. Thank you.
    Now to something a little more related to financial 
services.
    For almost 11 months, I have served on the Financial 
Services Committee. And certainly, we have heard, as you have 
heard, a lot about oversight and regulation. Is it too hot, is 
it too warm, where should we be in between with it?
    So my first question to you is, is there a broadly 
comparable market segment of what we call small or mid-sized 
banks in places like Europe or China?
    Secretary Lew. The banking systems overseas tend to be very 
concentrated. And they have a real challenge in many countries 
opening up lines of capital that get into small and medium-
sized enterprises.
    So I think the variety, the diversity of the U.S. system 
serves us well. And I think we have the deepest and most liquid 
financial markets in the world. Part of that is due to the fact 
that we have a variety of different kinds of institutions 
serving different needs.
    Mrs. Beatty. Okay. Would applying the same banking 
regulations, let's say covering a $2 trillion bank, be 
appropriate for, let's say, a $40 billion bank?
    Secretary Lew. We have tried, as I noted a few moments ago, 
at every level to be sensitive to the fact that our rules have 
to treat differently firms that present different 
characteristics and that they have to be designed to meet the 
needs of ensuring financial stability.
    And that is why there are special provisions that provide a 
different kind of treatment for smaller banks than larger 
banks. It is why we have supplemental requirements on the very 
largest banks, ranging from the living wills to supplementary 
capital requirements. So we can't have a one-size-fits-all 
system, and we don't.
    Mrs. Beatty. Then lastly, generally speaking, is there any 
reason, based on that answer, to believe that the average, 
small or mid-sized bank is actively participating in global 
financial activities?
    Secretary Lew. I think every bank has its own unique book 
of business, but I think most of your smaller banks are dealing 
with pretty much local business.
    Mrs. Beatty. Okay.
    Thank you very much. I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, the chairman of the House Foreign Affairs Committee, for 
5 minutes.
    Mr. Royce. Thank you, Mr. Chairman.
    Mr. Secretary, I want to thank you for your comments to Mr. 
Neugebauer earlier today regarding the Federal Insurance Office 
Modernization Report. And that report was originally introduced 
to Dodd-Frank through an amendment that I co-sponsored with 
another Member here on this committee.
    One of the goals for a long time on insurance modernization 
has been this concept of trying to create more uniformity, 
first of all, hopefully less government price and product 
control, but instead more competition infused into the system.
    We have sort of moved in the other direction in some ways 
in recent years because now we have layered regulation at the 
Federal Reserve on top of a tangled web of State bureaucracy 
and a lot of duplicative regulations.
    So I think it is more important than ever that we restart 
this conversation on how to best serve the insurance consumer 
in this country. And it appears the report apparently is off 
the printer, and it is on to the binder.
    And so my hope was that you could shed some more light on 
what we should expect, and will that report include specific 
language on recommendations to improve the uniformity of 
insurance regulation in the country, or even our ability to 
deal with international regulatory issues where we are out of 
compliance and so forth?
    Secretary Lew. Congressman, I don't want to jump too far 
ahead of the report being released so that you can read it and 
make an evaluation of it on your own in its entirety.
    But I would say this, that in the work that has been done 
in preparing it, there has been a lot of focus on the fact that 
we have a history of State regulation of insurance in this 
country. We have cross-cutting national concerns; finding a way 
to balance that even better than we have in the past is 
important. And that means cueing up important questions for 
further scrutiny.
    I think that is what the report really tries to do, to 
focus on the issues that we need to deal with together, to 
answer the questions that you are posing. I don't think you 
will find that the report is conclusory in all of these areas.
    Mr. Royce. We did have that previous Treasury blueprint, 
which did lay out recommendations for legislative action. My 
hope was that it would be decisive enough to at least 
delineate.
    Secretary Lew. I think that you will find ample food for 
thought in the report when it comes out. And I would look 
forward to following up, once we can talk through the details.
    Mr. Royce. I will look forward, Mr. Secretary, to meeting 
with you on that.
    I wanted to jump over to Iran sanctions and a specific 
question I had on the $4.2 billion in oil sales over the next 6 
months that the interim agreement stated that we are going to 
allow Iran to access.
    And the other aspect of that is there is also language in 
the agreement where it sort of puts a pause on this concept of 
nations having to significantly reduce their purchases.
    But going to that first point, nowhere in the law does it 
explicitly allow for a limited release of these funds. And so 
if they are going to access this $4.2 billion in currency, 
under what specific authority will you allow that repatriation?
    How would that work in terms of the hard currency coming 
into the Iranian regime? Are you going to invoke a waiver to do 
that or--
    Secretary Lew. Congressman, if I can get back to you on the 
specific legal authority, I would be happy to do that. Let me 
just address the economic issue and try to put it in a bit of 
perspective.
    We have immobilized roughly $100 billion of Iranian assets. 
So, the relief of $4.2 billion is a small fraction of the 
assets that we have immobilized.
    Mr. Royce. I understand that.
    Secretary Lew. And even during the 6-month period of the 
interim agreement, there will be an additional $30 billion of 
foregone oil sales because of the sanctions.
    Mr. Royce. Because of the existing sanctions.
    Secretary Lew. Yes. So we are continuing to keep the 
pressure on Iran in a very serious way.
    Mr. Royce. But I would--we are a little off-topic here in 
terms of the authority. I would like to get an answer on that. 
But I will say this, sanctions are largely psychological, not 
just legal. So when you pick up The Wall Street Journal and a 
headline says, ``Businesses Rushing To Iran To Do Business.'' 
And you have read the articles about oil and gas queuing up 
because of the anticipation, of course is that once you start 
down this road, sanctions start to unravel.
    So I am not sure that the impact is going to be as slight 
as you think it is. Already you see their currency rebounding, 
going up 30 percent. It is partly the result of reversing 
course.
    Secretary Lew. Mr. Chairman, if I could just respond 
briefly.
    Chairman Hensarling. Briefly, Mr. Secretary.
    Secretary Lew. Iran's economy has shrunk by 5 percent over 
the last year because of sanctions. The relief that we are 
talking about is roughly 1 percent of their economy. There is 
still going to be more pain put on their economy. Whatever is 
driving Iran to change its views and negotiate in an interim 
context will continue to force them to continue to make 
concessions to get real relief, which is the only way they will 
get real relief is if they forego their nuclear program.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    I am grateful to my colleague from Kentucky for having 
asked about the Export-Import Bank because it reminded me of a 
question I have been wanting to ask for some time.
    As you know, Mr. Secretary, the Export-Import Bank is 
scheduled to expire next October 1st. As you also well know, 
the Export-Import Bank transferred to you $1.057 billion about 
6 weeks ago in what otherwise would be called profits. And as 
you know, the Export-Import Bank has been independently 
assessed to have created by virtue of its activity 
approximately a quarter of a million jobs.
    But my question to you, sir, is if we were to allow the 
Export-Import Bank to expire, the Bank which has never used one 
red cent of Federal Treasury or tax dollars, would that render 
the United States of America the only developed nation on the 
face of the globe without an entity something like the Export-
Import Bank?
    Secretary Lew. Congressman, I have to do a little research 
to answer whether it would be the only one. But we certainly 
would find ourselves facing an unlevel playing field because so 
many countries have programs like this.
    Mr. Heck. Thank you. Now, I want to return to the subject 
of my opening statement.
    I noted that it prompted a chuckle or two when I asked you 
about the role of the Department of the Treasury in providing 
access to banking services to otherwise legally constituted 
marijuana businesses in well-regulated States. In Washington 
State and Colorado last year, the voters approved adult use of 
marijuana. The Department of Justice said if the State is well-
regulated, they will stand down on enforcement of criminal 
activity and prosecution. But these businesses still do not 
have access to banking services. And in Washington State, it 
has been forecast by fairly reputable work that it will be 
about a $1 billion a year sector of the economy.
    This is a serious question. A billion dollars in cash 
floating around an economy where the businesses which otherwise 
legally operate cannot access depository services, can't issue 
checks, can't receive credit card payments. In fact, all cash. 
It is, in fact, sir, an open invitation--it is setting out the 
welcome mat to organized crime and disorganized crime.
    It is setting out the welcome mat for tax avoidance. It is 
an open invitation to all sorts of activities which will render 
us and our communities and our neighborhoods less safe.
    Now, the context is today, right now as we speak, the Bank 
Secrecy Act Advisory Group is meeting. The Financial Crimes 
Enforcement Network (FinCEN), a division of the Treasury, is 
with them. I suspect they are talking about some guidelines to 
parallel the Department of Justice's efforts to allow access to 
bank services. My question to you, sir, is: Given all of this, 
do you recognize, do you understand, and will you acknowledge 
the threats to public safety if these businesses, otherwise 
legally constituted, do not have access to bank services?
    Secretary Lew. Congressman, I recognize the serious 
challenges that are attendant to this, and obviously when there 
are State laws and Federal laws that are not consistent, it 
creates complicated decisions that have to be made. I look 
forward to seeing the work that comes out of these meetings 
that you are describing and will evaluate them when they are 
presented to me.
    Mr. Heck. Would you commit, even in a general sense, to a 
timeline of action, keeping in mind that in both Colorado and 
Washington State, these businesses go live in a matter of a few 
weeks from now?
    Secretary Lew. Congressman, I can't commit to a timeline 
until I see the results of the work that is done here, but I am 
happy to follow up on the matter with you.
    Mr. Heck. You understand the urgency?
    Secretary Lew. I understand the external timeline quite 
well. And when informed of the recommendations, I would be 
happy to follow up.
    Mr. Heck. Finally, in the very brief amount of time 
remaining, I want to commend you for the work that your agency 
and you yourself personally undertook to lead the adoption of 
the Volcker Rule. We are all aware that there are lawsuits 
pending and that, according to news reports, several more are 
possible.
    My question to you, and again a brief answer: What would be 
your general statement about the risk associated to the 
progress that you have deemed earlier here and a speech last 
week that the combination of this rulemaking has provided 
toward the objective of safety and soundness of our financial 
institutions and our economy if those suits, some or all of 
them, are successful?
    Secretary Lew. Obviously, I have spoken to how important I 
think the rule is. I know that the foundation for it is strong. 
And I would think that it would be a much better thing if it 
just goes forward as is.
    Mr. Heck. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentleman from California, Mr. 
Miller, our vice chairman, for 5 minutes.
    Mr. Miller. Thank you, Mr. Chairman.
    Welcome. It is good to have you here this afternoon. I know 
it was this morning a few minutes ago, but there has been a 
great deal of discussion.
    Secretary Lew. It seems to happen.
    [laughter]
    Mr. Miller. Pardon me?
    Secretary Lew. It seems to happen--
    Mr. Miller. I know. It goes quickly.
    There has been discussion regarding what would result if 
bank asset standards were applied to insurance companies. I 
know that has been touched on a little bit during the hearing 
today.
    But during your confirmation hearing, Sarah Bloom Raskin 
said, ``A one-size-fits-all approach is not going to work here. 
Insurance companies have a very different set of asset and 
liability structure than do banks, and to regulate them in 
terms of a one-size-fits-all approach is not going to be an 
effective form of supervision or regulation.''
    Do you concur and agree with this?
    Secretary Lew. I tried to indicate in response to several 
other members of the committee that I think it is important 
that the regulators look at what it requires to regulate 
insurance companies appropriately, to look at the discretion 
they have within their authorities to make distinctions. And 
that we are going to work together on this going forward to 
make sure we do it right.
    But the objective of the review that the Financial 
Stability Oversight Council made was to determine whether or 
not there was systemic risk. The job of tailoring the 
regulatory approaches is really in the hands of each of the 
respective supervisory regulatory agencies. And I know they are 
all focused on trying to do this effectively.
    Mr. Miller. Yes, but my concern is the timing. Treasury's 
position has been that no statutory change should be made to 
Dodd-Frank until implementation is complete, which is late, as 
far as I am concerned, yet the Federal Reserve has previously 
expressed a few that Section 171 of Dodd-Frank, the Collins 
amendment provision, constrains their ability to tailor 
standards to non-bank business models such as insurance. And 
Chairman Bernanke confirmed that when he was here--several 
times.
    So my concern is that even though it is acknowledged that 
there is a problem and it won't work, the Treasury position is 
that we are not going to do anything until after the 
implementation is complete, and my position is that it is too 
late at that point in time. And I think it is a matter of 
timing. But are you willing to work to help solve this problem 
in your roles at Treasury and FSOC?
    Secretary Lew. Congressman, I believe that each of the 
regulatory agencies is looking at what discretion they have 
within their current statutes. I don't know that they have 
reached final judgments in every case. I don't believe they 
have. I think there are some differences of view as to how much 
flexibility they have. And I think we will need to continue 
looking at this and working together if there is an issue.
    Mr. Miller. But if there is an acknowledgment--and I am not 
arguing with you. We have a tough job ahead. But if there is an 
acknowledgement that there is a problem, and yet the agency 
that is going to move forward with the implementation 
acknowledging that there is a problem, and allow that 
implementation to occur, saying that we will somewhat fix it 
later like the Feds say, it seems like we should step back and 
say, ``We know there is a problem here, we know this is not 
going to work, so why don't we take care of it in a normal 
process instead of after the fact?''
    Secretary Lew. Obviously, each of the issues that comes up 
under Dodd-Frank has somewhat different character. Many of the 
issues where we have taken the view that it is premature were 
issues where agencies were still in the process of making 
judgments and the legislation was jumping ahead of it.
    Mr. Miller. I understand that, but--
    Secretary Lew. And this is one that I believe is more 
complicated. I think that--
    Mr. Miller. Especially for insurance companies.
    Secretary Lew. I think that it is a mistake to conclude 
that the agencies don't have any flexibility here, because I 
know that there is some flexibility that they do have. And 
whether it is enough is the question.
    I think we have to wait and see if it is enough. And I 
would look forward to continuing the conversation, if it turns 
out not to be.
    Mr. Miller. Okay. That is fair.
    On September 30th, Treasury's Office of Financial Research 
(OFR), published a report entitled, ``Asset Management and the 
Financial Stability,'' at the direction of FSOC.
    In the introduction, the report states that, ``the asset 
managers' activities differ in important ways from commercial 
banking and that asset managers act primarily as agents, 
managing assets on behalf of clients as opposed to investing on 
the manager's behalf. Losses are borne by and, again, accrue to 
clients rather than asset management firms.''
    Do you agree with the study that the asset management 
banking firms are different?
    Secretary Lew. I think there is no doubt that they are 
different. And the question is whether or not there are 
systemic risks that rise to the level of designation.
    I would just point out that OFR's study was not a 
regulatory undertaking. It was an analytic study. It is a 
totally separate matter to reach a determination--
    Mr. Miller. But do you see a clear line between the 
functions?
    Secretary Lew. I think that we deal with a complex 
financial system where we have many different players that have 
different functions. They sometimes look more similar in some 
cases than others.
    But to acknowledge that they are different seems to me to 
be necessary to understand each of them.
    And the question as to whether or not there are issues of 
systemic risk has to flow from the character of what each 
organization is, and we can't be afraid to ask the questions.
    Mr. Miller. Thank you. I appreciate it.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    I thank the ranking member. I would like to associate 
myself with the opening comments of the ranking member, and I 
would like to pursue some of what she discussed.
    By the way, I welcome you to the committee, Mr. Secretary.
    I have before me, Mr. Secretary, an article entitled, ``The 
top 25 hedge fund managers earn more than all the 500 top CEOs 
together.''
    The first paragraph reads, ``The best chance of becoming 
super rich is to be one of the highest paid hedge fund managers 
or masters of the universe,'' as it said here.
    ``In 2010, the top 25 hedge fund managers combined earned 
roughly four times,'' some things bear repeating, ``roughly 
four times as much as all of the 500 CEOs at the top of the 500 
giant corporations that make up the S&P 500 Index.''
    And then it indicates that the average pay of these 25 
hedge fund managers was $134 million in 2002, and peaked at 
over $1 billion in 2007.
    Now, we go down to paragraph number seven, quickly. Okay. 
This one I find quite interesting. It talks about the poverty 
among managers of law firms. It reads, ``The poverty in the 
higher ranks of law firm partners is striking. The average 
profit per partner was just $1.6 million in 2010.''
    I would call to your attention 2007, when a hedge fund 
manager made over $3 billion--by the way, I don't begrudge any 
of these people for making the money that they make--and that 
is a lot of money, and it is difficult to get your mind around 
it. That is about $400 per second. It would take a minimum-wage 
worker 198,000 years to make that $3 billion.
    Which brings me to my question: Speculative income is taxed 
at a lower rate than ordinary income. Are there policies that 
we should review such that this type of inequality does not 
continue to expand, because the chasm between the poor partners 
at law firms who are only making $1.6 million and the super 
rich hedge fund managers has to be dealt with.
    What policies could we implement, if you can tell me 
quickly, to deal with this?
    Secretary Lew. Congressman, I think the President spoke at 
great length to this question of inequality just the other day. 
It is a deep, deep problem.
    I don't think, frankly, the poverty of the attorneys you 
are talking about is what he was focusing on, but it was the 
challenges of minimum-wage workers who work full-time but don't 
break through the poverty line and can't support their 
families.
    So I think we have to ask different questions of what can 
we do to provide opportunity for people to rise to the middle-
class, how do we make sure people who work full-time have a 
middle-class income? And things like raising the minimum wage 
are part of that. Things like the action taken at the beginning 
of this year when the top tax rate went back to where it was 
before the tax cuts of 2001, 2003 is part of it.
    But we have a lot more work to do. And we fundamentally 
have to focus on building a growing economy that is creating 
jobs that have good salaries and good middle-class 
opportunities.
    That is where the growth in our country is going to--
    Mr. Green. Let me just quickly intercede. And I appreciate 
your answer. Would you agree that ordinary income is taxed at a 
higher rate than speculative income?
    Secretary Lew. Earned and unearned income are taxed 
differently. And I have over the years thought that we have to 
look at that as a question of whether we have it in the right 
place.
    Raising the top rate was part of it. And, as we go through 
individual tax reform, we ought to be asking these kinds of 
questions.
    Mr. Green. Generally speaking, and this is in a very 
general sense, speculative income is taxed at roughly around 15 
percent. Is that a fair statement?
    Secretary Lew. Correct.
    Mr. Green. And ordinary income, which secretaries make, 
probably you, your ordinary income is at around 35 percent. Is 
that correct?
    Secretary Lew. Correct.
    Mr. Green. So these minimum-wage workers who work full time 
and live below the poverty line, something has to be done, Mr. 
Lew. And I appreciate your--
    Secretary Lew. I think we have to have a tax system that 
encourages investment. We have to have a tax system that 
encourages people to work. And I think we have a lot more work 
to do.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for your service, and for being 
here today.
    Mr. Secretary, during the October Government shutdown, the 
Treasury Department and the Administration declared that there 
were about 90 percent of the Treasury's 15,009 IRS employees 
deemed to be nonessential, including nearly every staffer of 
the Financial Crimes Enforcement Network (FinCEN) and the 
Office of Foreign Asset Control (OFAC).
    The Treasury put out a statement bemoaning the state of 
affairs. It said, ``This massively reduced staffing impairs 
OFAC's ability to execute terrorism, financial intelligence, 
broader efforts to combat money laundering and illicit finance, 
protect the integrity of the U.S. financial system, and disrupt 
the financial underpinnings of our adversaries.''
    Let me read some statements put out by the Treasury, one on 
September 27th. It says that the Treasury ``assures the public 
that in the unfortunate case of the lapse in appropriations, it 
will continue to provide certain critical functions, among them 
terrorism and financial offices will continue collection, 
analysis, and reporting of intelligence as well as the 
administration of the specially designated nationals.''
    A little bit later, you put out another statement that 
said, ``The Office of Foreign Asset Control, which implements 
the U.S. Government's financial sanctions, has had to furlough 
nearly all of its staff due to the lapse in congressional 
funding, and it is unable to sustain its core functions.''
    According to this press guidance, this massively reduced 
staffing for TFI offices ``undermines the efforts to combat 
money laundering and illicit finance, protect the integrity of 
the U.S. financial system, and disrupt the financial 
underpinnings of our adversaries.''
    Mr. Secretary, the Treasury kept top political appointees 
on the job during this time and declared them to be essential. 
At the same time, they furloughed almost every professional who 
is tasked with stopping the funding of terror and stopping 
people doing business with Iran's rogue regime.
    By that decision, those jobs were deemed nonessential. That 
troubles me deeply and leads to a few questions.
    First, how is preventing a terror attack on the United 
States and preventing Iran from developing a nuclear weapon 
nonessential?
    And what sort of jobs were more important than that?
    Secretary Lew. Congressman, going back to October, I 
believed deeply then, and I believe deeply now, that there were 
many bad consequences that came from the fact that there was 
that kind of brinksmanship, and important things weren't 
happening because the Government shut down.
    So, that is just a consequence of shutting down the 
government.
    There were guidelines put out by the Office of Management 
and Budget that we adhered to in making the judgments. There 
are categories of employees, who, because of their status, fall 
on one side of the line or the other.
    I can tell you that we brought back the staff who were 
needed to support the negotiations that were going on with 
regard to Iran. We had the capacity to do that.
    But there are consequences to shutting down the government. 
And you can't keep the whole government open when the 
government shuts down.
    So--
    Mr. Pittenger. Mr. Secretary, let me ask you this, though. 
You made the statement on September the 27th in the lapse of 
appropriations that these important functions related to the 
Department regarding collecting analysis and reporting 
intelligence would continue in the midst of the shutdown.
    What happened between the time of that statement and the 
subsequent statement that says that you would have massively 
reduced staffing?
    Secretary Lew. Congressman, during the days of the 
shutdown, at the beginning of the shutdown, there was not even 
a flow of intelligence information coming in because our 
intelligence operation was in the same position that our 
threat-financing--
    Mr. Pittenger. Mr. Secretary, with all due respect, it is 
clear that you kept political appointees intact. It is clear 
that you eliminated jobs of professionals whose assignment it 
is to protect this country. And I think it is not clear to the 
American people why you would make that type of decision.
    Secretary Lew. Congressman, we followed the guidelines of 
the Office of Management and Budget. We followed the rules and 
the law regarding these determinations. And the problem, when 
you have the kind of confrontation that shuts down the 
government--
    Mr. Pittenger. Mr. Secretary, my time is up. But what I 
will say is you have two different statements here, one, that 
you would continue to fund it and and that later you did not.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair announces to all Members that under the agreed-upon 
schedule with the Secretary, we have an opportunity for 2 more 
Members to question him.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman, for 5 minutes.
    Mr. Sherman. Thank you.
    Secretary Lew, I want to commend you and Secretary Cohen 
for the effective and hard work to enforce existing sanctions, 
laws, particularly your new announcement today.
    Secretary Kerry testified before the Foreign Affairs 
Committee yesterday that we were going to move forward in 
force, and you have proved him right.
    The Chair made an opening statement focusing on bailouts. 
We have worked hard together, the Chair and I and many others, 
to prevent statutes from providing pre-existing bailout 
authority.
    But I would point out that we didn't have pre-existing 
bailout authority in 2008. That is why we changed the statute. 
We adopted TARP. He and I opposed that at the time. But I hope 
he will join me in co-sponsoring the bill to say that too-big-
to-fail is too-big-to-exist.
    Because I will tell you now, if Goldman Sachs is going 
under, you and I may be working against a bailout. Who knows? 
Maybe we won't be. But in any case, I don't think we are going 
to have a different result.
    Too-big-to-fail is too-big-to-exist. And I know the 
Secretary, along with the other regulators, has the authority 
under Dodd-Frank to break up the too-big-to-fail, but I am not 
sure he is going to do it until you and I pass a law requiring 
it.
    Mrs. Maloney made an excellent opening statement focusing 
on the need for a stable housing finance system. I would add 
that the higher conforming loan limit that we have in her city 
and mine and 10 other high-cost areas actually makes money for 
Fannie Mae and Freddie Mac and thus for the Federal Government.
    And we would increase the national debt if we cut that 
back.
    Mr. Campbell focused on the $63 billion change of status at 
the IMF. He pointed out a number of things Congress would want 
to see on any bill authorizing that.
    I will add one more, speaking only for myself, and that is 
there should be a requirement that the IMF, prior to us dealing 
with that $63 billion, suspend Iran and that Iran be ineligible 
for any transactions with the IMF until such time as by an 80 
percent majority the IMF board determined that they had, 
indeed, abandoned their nuclear weapons program.
    Mr. Green pointed out the focus on the unfairness in tax 
rates. Even if you believe--and I will point out the capital 
gains rate is, in effect, 23.8 percent, not quite as bad as 15 
percent, but still, less than ordinary working people are 
paying.
    And even if you believe that we should have a lower rate 
for money--profits earned on capital risk, the hedge fund 
managers are able to take their earned income and treat it as 
capital gain unless they make it based in the Cayman Islands, 
et cetera, and it is a 0 percent rate.
    Speaking of international taxation, Mr. Secretary, the last 
time you were here, in May, in my questions I focused on the 
California system of apportionment for international taxation, 
known as the California System. And you promised that you would 
look at it. I won't put you on the spot here and ask for a full 
discussion.
    But I wonder if you could commit that we will talk about 
that, to cut the Gordian knot and eliminate the transaction-by-
transaction approach and instead say that if a company is 50 
percent-based in the United States, we ought to tax 50 percent 
of its worldwide income.
    So, can I count on you for further discussions on that?
    Secretary Lew. I am happy to continue the conversation.
    Mr. Sherman. And then I would also add--and this is a 
smaller fix--that we ought to disallow any deduction for 
payment for the use of intellectual property if that 
intellectual property was developed in a high-cost--in a high-
tax country like the United States but has now been transferred 
to a low-cost country, such as the Cayman Islands.
    Your Department and you personally issue a report on 
currency manipulation. The National Association of 
Manufacturers says the renminbi is undervalued by almost 40 
percent. And frankly, if we were able to prevent that 
undervaluation, you would be here testifying about the labor 
shortage in the United States.
    Why have you not reported to us that China is indeed 
manipulating its currency?
    Secretary Lew. Congressman, I have addressed the issue of 
exchange rates a number of times. I believe we have pushed very 
hard on China to move towards a market exchange rate. They have 
appreciated substantially.
    Mr. Sherman. Tariffs would push them a lot harder.
    Secretary Lew. We are going to continue to push them.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Minnesota, 
Mrs. Bachmann, for 5 minutes.
    Mrs. Bachmann. Thank you, Mr. Chairman.
    And thank you, Mr. Secretary, for being here.
    I understand that today the Treasury Department made 
additional designations regarding sanctions of companies, rogue 
companies, front organizations that were dealing with Iran. 
That was a good move. I think that is a positive move that the 
Treasury Department made.
    But it seems that additional sanctions against Iran would 
be exactly what is needed now to let Iran know that the United 
States would do whatever it takes, including a military option, 
to stop Iran from reaching its stated goal of ultimately having 
a nuclear program.
    And what I am wondering--Congress was not aware that the 
Administration was undertaking secret negotiations with Iran 
regarding sanctions relief with its nuclear program for that 
period of time. Were you aware of these secret negotiations 
with Iran?
    Secretary Lew. Congresswoman, I have been aware of many 
things going on with regard to Iran, but I don't think this is 
an appropriate place to discuss that topic.
    Mrs. Bachmann. The reason why I ask that is because a 
report came out on November 8th that, in June, when Mr. Rouhani 
was elected president of Iran, that at that time it appeared, 
from a review of Treasury notices, that there was a distinct 
cutting back on the number of designations that were being made 
against companies.
    That designation, again, was done today. And I--one report 
said that in the 6 weeks prior to the Iranian elections in 
June, Treasury issued 7 notices of designations of sanctions 
violators that included more than 100 new people, companies, 
aircraft, and sea vessels.
    Since June 14th when Hassan Rouhani was elected, the 
Treasury Department only issued 2 designation notices that 
identified 6 people and 4 companies as violating the Iran 
sanctions.
    So it seems like two things have gone on. While the secret 
negotiations were going on between the United States and Iran, 
it seems to me that at the worst possible time in the 
negotiations, beginning last June, the United States 
intentionally chose to weaken our hand and our negotiating 
position with Iran at a crucial time--sending a signal of 
weakness, sending a signal of sanctions reductions, and at the 
same time, it appears that the Obama Administration was 
strengthening Iran's hand in those negotiations.
    It also appears that two things were happening with the 
Obama Administration: cutting back on the number of 
designations; and making it very clear that they were adamantly 
opposed to new sanctions. Both of those would send the signal 
to Iran that we mean business that they will never have a 
nuclear weapon. And it seems that the exact wrong tack was 
taken from the Treasury Department. And it seems that it is 
Treasury more than any other agency that sent the signal to 
Iran that they are going to prevail--
    Secretary Lew. Congresswoman--
    Mrs. Bachmann. --in the negotiations rather than the United 
States.
    Secretary Lew. --I disagree with that characterization 
almost completely. I think that this Administration has pushed 
on an international basis for the toughest sanctions in 
history, which is the only reason that Iran is looking to make 
concessions and the only reason there is any chance that there 
will be a peaceful resolution of this.
    I think Treasury's enforcement of sanctions has been 
consistent. The action taken today, the action taken 
yesterday--a negotiated settlement with the Royal Bank of 
Scotland, these are matters that take months to develop. And we 
are working every day. And I have said to hundreds of CEOs: 
Make no mistake about it, enforcement will continue. We are not 
taking our eye off of the ball at all, and we will not.
    Mrs. Bachmann. There are a number of companies that are 
essentially front organizations for Iran to have--front 
organizations to help the regime to be able to continue to 
proliferate and do the work that they are doing. It seems to me 
that the bottom line with Iran is, will they have the right to 
enrich uranium? It doesn't seem to me that when we are pulling 
back on the number of designations from June, essentially to 
this week, that we have sent a signal of strength. It appears 
that we have sent a signal that America is weak, America is in 
decline. America is pulling back militarily, and we are 
weakening ourselves economically.
    Secretary Lew. I think if you look at Iran's economy, they 
are feeling the pain of these sanctions every day. They are 
feeling the 5 percent decline in GDP, the 40 percent inflation, 
the devaluation of the rial. They are seeing all kinds of pain. 
And that is the only reason--
    Mrs. Bachmann. Which was exactly why we got them to the 
negotiating table. So at the time when we finally have them 
talking, the Obama Administration decided to strengthen their 
hand and weaken our own.
    I yield back. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    We will end questioning at this time.
    Secretary Lew, we appreciate your testimony today. However, 
a number of questions do remain unanswered, as do a number of 
written inquiries from Members on both sides of the aisle. So 
thus, early in the new year, we will take the liberty of 
inviting you back in hopes that these questions can be 
addressed. We trust you will accept our invitation.
    The Chair notes that some Members may have additional 
questions for this witness, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to this witness and to place his responses in the record. Also, 
without objection, Members will have 5 legislative days to 
submit extraneous materials to the Chair for inclusion in the 
record.
    This hearing stands adjourned.
    [Whereupon, at 12:44 p.m., the hearing was adjourned.]


                            A P P E N D I X



                           December 12, 2013


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