    [House Hearing, 114 Congress]
    [From the U.S. Government Publishing Office]

                       THE ANNUAL REPORT OF THE FINANCIAL

                          STABILITY OVERSIGHT COUNCIL

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

                                    HEARING

                                   BEFORE THE

                        COMMITTEE ON FINANCIAL SERVICES

                         U.S. HOUSE OF REPRESENTATIVES

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 SECOND SESSION

                                   __________

                               SEPTEMBER 22, 2016

                                   __________

           Printed for the use of the Committee on Financial Services

                               Serial No. 114-103

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                     HOUSE COMMITTEE ON FINANCIAL SERVICES

                        JEB HENSARLING, Texas, Chairman

    PATRICK T. McHENRY, North Carolina,  MAXINE WATERS, California, Ranking
        Vice Chairman                        Member
    PETER T. KING, New York              CAROLYN B. MALONEY, New York
    EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
    FRANK D. LUCAS, Oklahoma             BRAD SHERMAN, California
    SCOTT GARRETT, New Jersey            GREGORY W. MEEKS, New York
    RANDY NEUGEBAUER, Texas              MICHAEL E. CAPUANO, Massachusetts
    STEVAN PEARCE, New Mexico            RUBEN HINOJOSA, Texas
    BILL POSEY, Florida                  WM. LACY CLAY, Missouri
    MICHAEL G. FITZPATRICK,              STEPHEN F. LYNCH, Massachusetts
        Pennsylvania                     DAVID SCOTT, Georgia
    LYNN A. WESTMORELAND, Georgia        AL GREEN, Texas
    BLAINE LUETKEMEYER, Missouri         EMANUEL CLEAVER, Missouri
    BILL HUIZENGA, Michigan              GWEN MOORE, Wisconsin
    SEAN P. DUFFY, Wisconsin             KEITH ELLISON, Minnesota
    ROBERT HURT, Virginia                ED PERLMUTTER, Colorado
    STEVE STIVERS, Ohio                  JAMES A. HIMES, Connecticut
    STEPHEN LEE FINCHER, Tennessee       JOHN C. CARNEY, Jr., Delaware
    MARLIN A. STUTZMAN, Indiana          TERRI A. SEWELL, Alabama
    MICK MULVANEY, South Carolina        BILL FOSTER, Illinois
    RANDY HULTGREN, Illinois             DANIEL T. KILDEE, Michigan
    DENNIS A. ROSS, Florida              PATRICK MURPHY, Florida
    ROBERT PITTENGER, North Carolina     JOHN K. DELANEY, Maryland
    ANN WAGNER, Missouri                 KYRSTEN SINEMA, Arizona
    ANDY BARR, Kentucky                  JOYCE BEATTY, Ohio
    KEITH J. ROTHFUS, Pennsylvania       DENNY HECK, Washington
    LUKE MESSER, Indiana                 JUAN VARGAS, California
    DAVID SCHWEIKERT, Arizona
    FRANK GUINTA, New Hampshire
    SCOTT TIPTON, Colorado
    ROGER WILLIAMS, Texas
    BRUCE POLIQUIN, Maine
    MIA LOVE, Utah
    FRENCH HILL, Arkansas
    TOM EMMER, Minnesota

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

                                C O N T E N T S

                                  ----------
                                                                       Page
    Hearing held on:
        September 22, 2016...........................................     1
    Appendix:
        September 22, 2016...........................................    59

                                   WITNESSES
                          Thursday, September 22, 2016

    Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury...     5

                                    APPENDIX

    Prepared statements:
        Lew, Hon. Jacob J............................................    60

                  Additional Material Submitted for the Record

    Hensarling, Hon. Jeb:
        Letter from Treasury regarding questions for the record......    68
        Written statement of the Property Casualty Insurers
          Association of America.....................................    69
    Huizenga, Hon. Bill:
        Letter from Representative Huizenga and Representative Moore
          to Dr. Jim Yong Kim, President, World Bank Group,
          expressing alarm over the World Bank's cancelled Uganda
          Transport Sector Development Project, dated July 14, 2016..    77
        Response letter from Dr. Jim Yong Kim, dated August 2, 2016..    79
    Pearce, Hon. Stevan:
        Article entitled, ``A Fed Insider Warns of the Risk of Low
          Rates''....................................................    81
    Rothfus, Hon. Keith:
        Letter to Senator Pat Toomey from Patrick Gallagher,
          Chancellor of the University of Pittsburgh, dated October
          30, 2015...................................................    85
        Letter to Representative Mike Doyle from Rich Fitzgerald,
          County Executive, Allegheny County, Pennsylvania, dated
          December 1, 2015...........................................    87
        Letter to Senator Pat Toomey from David J. Gray, Senior Vice
          President for Finance and Business/Treasurer, The
          Pennsylvania State University, dated December 14, 2015.....    89
        Letter to Senator Robert P. Casey, Jr., from William Peduto,
          Mayor of Pittsburgh, Pennsylvania, dated May 4, 2016.......    90
        Letter to Representative Mike Doyle from John K. Weinstein,
          Treasurer, Allegheny County, Pennsylvania, dated November
          23, 2015...................................................    92
    Waters, Hon. Maxine:
        New York Times editorial entitled, ``The Fake $400 Million
          Iran `Ransom' Story,'' dated August 23, 2016...............    93

                       THE ANNUAL REPORT OF THE FINANCIAL

                          STABILITY OVERSIGHT COUNCIL

                                  ----------

                          Thursday, September 22, 2016

                 U.S. House of Representatives,
                       Committee on Financial Services,
                                                       Washington, D.C.
        The committee met, pursuant to notice, at 10:06 a.m., in
    room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
    [chairman of the committee] presiding.
        Members present: Representatives Hensarling, Royce, Lucas,
    Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Luetkemeyer,
    Huizenga, Duffy, Stutzman, Hultgren, Pittenger, Wagner, Barr,
    Rothfus, Messer, Schweikert, Guinta, Tipton, Williams,
    Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez,
    Sherman, Meeks, Capuano, Hinojosa, Scott, Perlmutter, Carney,
    Sewell, Foster, Kildee, Murphy, Delaney, Beatty, Heck, and
    Vargas.
        Chairman Hensarling. The Financial Services Committee will
    come to order. Without objection, the Chair is authorized to
    declare a recess of the committee at any time.
        This hearing is for the purpose of receiving the annual
    testimony of the Chair of the Financial Stability Oversight
    Council (FSOC). I now recognize myself for 3 minutes to give an
    opening statement.
        With today being the official start of fall, it is
    disappointing that the Financial Stability Oversight Council
    has delivered the equivalent of a summer rerun. Its 2016 annual
    report is basically identical to its 2015 annual report,
    breaking little new ground and adding little new value.
        FSOC, charged with identifying risks to our financial
    stability, continues to mention only in passing the need for
    fundamental housing finance reform. It fails to adequately
    analyze the substantial risk that Fannie Mae and Freddie Mac,
    institutions at the epicenter of the last financial crisis,
    pose for precipitating the next.
        Furthermore, since the advent of the Dodd-Frank Act, we are
    losing, on average, one community financial institution a day
    in America, as they are crushed by a Federal regulatory burden.
    The big banks have only grown bigger. Banking system
    consolidation can clearly contribute to heightened financial
    system risk, yet there is absolutely no mention in FSOC's
    report of Federal regulatory risk brought on by Dodd-Frank, a
    glaring omission.
        But the most scandalous omission remains FSOC's conspiracy
    of silence regarding the existential threat posed by America's
    unsustainable national debt and our staggering unfunded
    obligations. Since President Obama came to office, the national
    debt has increased by a mind-boggling 84 percent. The
    Congressional Budget Office (CBO) noted in a recent report that
    the President's 2017 budget would add nearly $7.5 trillion to
    our publicly held debt, equivalent to $59,609 for every
    American household.
        CBO recently warned that such high and rising amounts of
    debt have, ``serious long-term consequences for the economy and
    would constrain future budget policy.'' On this, again, FSOC
    remains silent, and thus its annual report loses credibility.
        Although FSOC's annual report is disappointing, this
    committee's focus must remain on FSOC's frightening and likely
    unconstitutional powers. FSOC's open-ended and virtually
    standardless SIFI designation process clearly gives Federal
    regulators broad license to concentrate immense economic power
    in their own hands. The designation authority is taking our
    financial system, regrettably, one step closer to a government-
    controlled utility model, a model whereby Washington will
    allocate credit to politically favored classes at the cost of
    our freedom and our prosperity. This must change.
        Finally, FSOC's highly politicized structure and penchant
    for secrecy are emblematic of a shadow regulatory system that
    is antithetical to American democratic principles. That is why
    it is so important that last week this committee favorably
    reported the Financial CHOICE Act. The Financial CHOICE Act
    will help bring about economic growth for all and bailouts for
    none. It will end bailouts once and for all by removing FSOC's
    ability to designate privileged too-big-to-fail firms and it
    replaces bailouts with bankruptcy. It would protect our
    financial system with high levels of loss-absorbing private
    capital and impose the strictest fines and penalties ever on
    those committing financial fraud. It would hold FSOC
    accountable and focus its mission solely on the vital task of
    monitoring emerging threats to our financial system. It is
    undoubtedly a better way forward.
        I now yield 5 minutes to the ranking member for an opening
    statement.
        Ms. Waters. Thank you very much, Mr. Chairman.
        Secretary Lew, thank you for joining us today to discuss
    the Financial Stability Oversight Council's 2016 annual report.
        Last week, the U.S. Census reported that median household
    income increased by more than 5 percent, the largest increase
    in both percentage and dollar terms since the government began
    tracking this data nearly 50 years ago. The Census Bureau also
    reported that the poverty rate declined by 1.3 percentage
    points and that the number of people without health insurance
    in the United States declined by 4 million.
        All told, our progress is rather remarkable compared to
    where we were 8 years ago when, during the last days of the
    Bush Administration, we were shedding more than 700,000 jobs
    per month and millions of people were being displaced from
    their homes.
        But make no mistake, we need to be doing more, especially
    to address the wealth gap, and particularly for African
    American and Hispanic households, whose economic security was
    devastated by the financial crisis.
        Unfortunately however, there is an unnerving sense of
    amnesia from my colleagues on the other side of the aisle about
    the dark days of the crisis. Here we are, 8 years after that
    devastation and more than 6 years after Dodd-Frank became the
    law of the land, considering the same harmful deregulatory
    proposals that would undo the critical progress we have made.
        Just think about this. Two weeks ago, one of the largest
    banks in the United States, which was supposedly one of the
    most well-run, was found to have opened more than 2 million
    unauthorized deposit and credit accounts for unsuspecting
    customers. This is a massive fraud of historic proportions that
    begs the question of what further reforms may be needed. And
    yet, in this committee the answer is deregulation and more
    opportunities for Wall Street to write the rules of the game.
    And like the Consumer Financial Protection Bureau, the FSOC is
    on the front line of those attacks.
        With Wall Street reform, we created the FSOC to look across
    the entire financial system, identifying gaps that may exist
    between regulators and action to prevent another meltdown. No
    longer would we allow banks to shop around for the weakest
    regulator or move money around the globe to escape regulation.
        Earlier this year, we saw just how effective the FSOC can
    be in preventing companies from growing too large or risky as
    to threaten the economy. General Electric Capital voluntarily
    agreed to shrink itself and sell off much of its consumer
    financial business, returning to its roots as an industrial
    company. The firm is now smaller, safer, and less likely to
    cause risk to the rest of the financial system if it becomes
    stressed. In turn, FSOC allowed GE Capital to shed its
    systemically important designation and the higher regulatory
    standards that came with it.
        What this means is that Wall Street reform is working as it
    should. The system is creating incentives for firms to shrink
    themselves and it is ensuring that companies like GE renew
    their focus on creating jobs in the real economy.
        And yet, despite this progress, my colleagues on the
    opposite side of the aisle are intent on dismantling the FSOC.
    Nowhere has this effort been more apparent than the chairman's
    Dodd-Frank repeal bill, which received bipartisan opposition in
    the committee last week. This harmful legislation would strip
    the FSOC of its ability to designate nonbanks for heightened
    supervision, repeal all existing designations for large complex
    firms like AIG, and otherwise limit its ability to operate
    effectively. This bill and others would put Wall Street back in
    the driver's seat and leave consumers and investors to fend for
    themselves.
        Rather than continuing this committee's focus on harmful
    rollbacks, we should be supporting further reform and exploring
    how we can do more to prevent scandals like the one at Wells
    Fargo.
        So I look forward to your testimony, Secretary Lew, on the
    state of our financial markets and what we need to keep doing
    to prevent a repeat of the 2008 financial crisis.
        Thank you, Mr. Chairman, and I yield back the balance of my
    time.
        Chairman Hensarling. The Chair now recognizes the gentlemen
    from Texas, Mr. Neugebauer, chairman of our Financial
    Institutions Subcommittee, for 1 minute.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        The Financial Stability Oversight Council's mission is to
    ensure the stability of the U.S. financial system and to
    identify future risks to the system. It was given authority to
    designate banks and nonbanks alike for heightened regulation. I
    believe, however, it also has the responsibility to ensure that
    the recommendations and designations are appropriately
    calibrated and provide sufficient clarity to the marketplace.
        To date, FSOC has failed to live up to its duty to be a
    responsible Federal agency. First, FSOC has failed to exercise
    its authority under Section 115 of Dodd-Frank to ensure that
    the application of heightened prudential standards is applied
    fairly to the bank holding companies. In the face of analysis
    from the Office of Financial Research that suggests $50 billion
    banks aren't systemically important, FSOC has instead chosen
    arrogance over prudent tailoring.
        Second, the FSOC has failed to implement a fair,
    transparent, and measured process when designating nonbanks as
    systemically important. As the U.S. District Court Judge
    Collyer noted, the determination process is ``fatally flawed.''
    Yet, FSOC has created additional regulatory uncertainty by
    appealing this legal ruling.
        Third and finally, the FSOC's regulatory protectionism has
    failed to identify market concerns like those seen with the
    liquidity constraints in the bond markets.
        I hope today we will finally get to hear substantive
    answers to legitimate policy questions instead of the usual
    Democratic talking points praising Dodd-Frank.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from New Jersey, Mr.
    Garrett, the chairman of our Capital Markets Subcommittee, for
    1 minute.
        Mr. Garrett. Thank you, Mr. Chairman.
        And, Mr. Secretary, it is good to see you again. I
    understand that you are a tough man to nail down to get to this
    hearing today, even though it is the rule of law. But I guess I
    would be too if my job was to come here and try to defend FSOC.
        So we are starting to get at a point of an Administration's
    tenure where people inevitably turn to talking about legacy and
    what you all will be leaving behind. Unfortunately, when it
    comes to FSOC, the Obama Administration's legacy will be
    remembered by what? Secrecy, obfuscation, and a continued
    refusal by the Administration, and especially you, to answer
    the most basic and simple questions to provide transparency to
    either this committee, to Congress, and most importantly, the
    American people.
        And it is not just the legislative branch that notices
    this. The recent court decision invalidating the designation of
    MetLife is a reminder to all of us that we live in a system
    governed by the rule of law, Mr. Secretary, and not by the rule
    of bureaucrats.
        So, Mr. Chairman, I hope the Treasury Secretary finally
    understands this, and I look forward to some of his answers
    today. With that, I yield back.
        Chairman Hensarling. The time of the gentleman has expired.
        Today, we welcome the testimony of the Honorable Jack Lew,
    Secretary of the Treasury. Secretary Lew has previously
    testified before this committee on a number of occasions, so I
    believe he needs no further introduction.
        Mr. Secretary, without objection, your written statement
    will be made a part of the record, and you are now recognized
    for 5 minutes to give an oral presentation of your testimony.
    Thank you.

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

        Secretary Lew. Thank you, Chairman Hensarling, Ranking
    Member Waters, and members of the committee. I appreciate the
    opportunity to testify today regarding the 2016 annual report
    of the Financial Stability Oversight Council.
        We have just passed the eight-year anniversary of the
    collapse of Lehman Brothers. Every autumn this dates provides a
    grim reminder of the most severe financial crisis of our
    lifetimes. But it is also an opportunity to measure the
    tremendous progress we have made to build a safer and more
    resilient financial system that will support long-term economic
    growth.
        Six years ago, we worked together to put in place the most
    far-reaching, comprehensive update of the financial regulatory
    system since the Great Depression. The Dodd-Frank Wall Street
    Reform and Consumer Protection Act addressed serious weaknesses
    that contributed to the crisis, putting in place new consumer,
    investor, and taxpayer protections and effectively restoring
    confidence in our Nation's financial system.
        Today, the success of these reforms continues to be
    reflected in a long and stable economic recovery. We have cut
    the unemployment rate in half. Our economy is more than 10
    percent larger than its pre-recession peak. U.S. businesses
    have added a total of 15.1 million jobs since private sector
    job growth turned positive in early 2010. And our financial
    system is safer and more resilient, providing the critical
    underpinnings for more inclusive long-term growth.
        Recent Census Bureau data demonstrates that significant
    strides have been made. The Nation's poverty rate is down. For
    Hispanics and African Americans, it is at the lowest level in
    more than a decade. Household incomes are rising, with 2015
    seeing the fastest 1-year growth since the Census Bureau began
    reporting on household income in 1967.
        Recent enforcement actions by the OCC and the CFPB also
    remind us of the ongoing need for robust protections and that
    that need is very real. Without a strong consumer watchdog, the
    financial system can be dangerous for consumers and businesses
    alike. Indeed, one of the most important lessons of the crisis
    was the need for a financial regulator dedicated to looking out
    for and protecting consumers.
        The last financial crisis had at its core abusive practices
    that should have been prevented. As the only regulatory agency
    focused solely on consumer financial protection, the CFPB is
    designed to ensure that markets for consumer financial products
    and services are fair, transparent, and competitive, and it has
    been fulfilling this statutory mission actively and well.
        The conduct that led to recent enforcement actions again
    underscores the importance of finalizing strong, sensible
    executive compensation rules, a central component of Wall
    Street reform.
        Moving forward, it is critical that we continue to build
    upon the success of Wall Street reform in creating a framework
    for responding to risks that arise in any part of the financial
    system. Rather than regulating purely in reaction to crises,
    Wall Street reform established a forward-looking approach that
    is focused on regulating and identifying risks presented by
    markets as a whole and by types of activities wherever they are
    conducted.
        The Financial Stability Oversight Council exemplifies this
    approach. Previously, financial regulators too often operated
    in silos, and there was no single agency or group specifically
    charged with collectively monitoring and maintaining financial
    stability.
        For the last 6 years, FSOC has brought the entire financial
    regulatory community together to be on watch for signs of
    vulnerability and to respond to emerging threats to financial
    stability before they turn into crises.
        Today, the Council continues to benefit from the diversity
    of expertise and perspectives of its members, and the Council
    has been open-minded and deliberative in its approach,
    regularly engaging with stakeholders, frequently updating the
    public on its views and actions, and always remaining careful
    to avoid a one-size-fits-all approach to addressing different
    types of risks, and always asking important questions and
    looking to data and analysis for answers.
        Before I discuss the Council's finding in its sixth annual
    report, it is worth noting the report's significance. The
    Council's annual report serves as a key mechanism for public
    accountability and transparency, setting a marker for action,
    and outlining the Council's priorities and a roadmap for the
    year ahead. It is the product of extensive collaboration and
    data-driven analysis, capturing the consensus of the Council's
    members on key risk areas, as well as recommendations to
    mitigate those risks. Importantly, the report includes a
    statement signed by each of the Council's 10 voting members
    that affirms that all of the issues and recommendations in the
    report should be fully addressed.
        The Council's 2016 annual report focuses on 12 key areas
    that have been the topic of Council discussions over the past
    year. These areas include cybersecurity, risks associated with
    asset management products and activities, reforms to wholesale
    funding markets, and global, economic, and financial
    developments. For each area the report cites progress made and,
    if necessary, the need for further action on the part of
    Council members and member agencies.
        Cybersecurity remains a key area of focus for the Council.
    In response to increasing threats presented by cyber attacks,
    the U.S. financial sector has stepped up efforts to improve
    security across the system. Efforts include incident response
    planning, greater information sharing and analysis, and
    establishing private sector best practices for assessing risk.
        The report makes several recommendations for building on
    this important work. The Administration remains committed to
    staying ahead of this issue, and we look forward to working
    with both the Council and Congress as we continue to address
    it.
        The Council is focused on potential risks to financial
    stability posed by asset management products and activities. As
    these products and activities represent an increasingly
    important part of the U.S. financial sector, the Council will
    continue to evaluate their implications for financial
    stability.
        To that end, in April of this year we published an update
    regarding the Council's review of potential risks in this area,
    in particular focusing on liquidity, redemption, and leverage
    risks. This update was the result of nearly 2 years of data-
    driven analysis and engagement with key stakeholders and
    reflects the Council's focus on asking tough questions to help
    inform its views. Our work in this area is ongoing, and we plan
    to provide timely public updates as our analysis continues.
        Let me close by saying that in the years ahead, it is vital
    that we remain vigilant to ensure that we do not return to the
    pre-crisis way of doing things, looking narrowly at
    jurisdictional lines dictated by the kind of charter a firm has
    selected and reacting to old problems instead of identifying
    and addressing the threats that lie ahead. The old approach did
    not work, and regulators did not respond in time to prevent a
    crisis. We cannot go back.
        That means we must not only remain steadfast in opposing
    efforts to roll back reform, but also that we must continue to
    build on the progress that we have made. The work of the
    Council has been critical to this progress, and it is important
    that the Council continue to have the tools necessary to
    respond to future threats as they emerge.
        I want to thank the other members of the Council and all
    the staff involved in the development of the 2016 annual report
    for their hard work and commitment. I would encourage the
    committee to work with the Council to build on the progress
    that we have discussed today.
        The recent news of consumer fraud by a large firm should
    strengthen our collective resolve to work together to build on
    Wall Street reform, rather than advancing legislation that
    would return us to the days when we had broad regulatory gaps
    and weak consumer protections.
        Going forward, I am confident that the progress we have
    made over the past 6 years will continue to promote the
    strength and stability of the U.S. financial system for many
    years to come.
        Thank you, Mr. Chairman. I appreciate your accommodating my
    schedule by adjourning at 1 p.m., and I will do my best to keep
    my responses brief so we can get in as many questions as
    possible.
        [The prepared statement of Secretary Lew can be found on
    page 60 of the appendix.]
        Chairman Hensarling. The Chair now recognizes himself for 5
    minutes for questions.
        Mr. Secretary, one of the emerging threats listed in the
    FSOC report is the possibility of a destructive cyber attack.
    As I believe you recall, it wasn't 6 months ago that seven
    Iranians linked to the Iranian Revolutionary Guard were
    indicted for a coordinated cyber attack on major U.S. financial
    institutions. Attorney General Loretta Lynch said at the time,
    ``These attacks were relentless, they were systematic, and they
    were widespread.''
        So I have a couple of questions about the recent $1.7
    billion in payments the Administration recently made to Iran,
    payments that we now know were made in cash, made in secret,
    and $400 million of which we know coincided with the release of
    American hostages.
        Secretary Kerry, your fellow Cabinet member, said of
    related sanctions relief under the JCPOA, ``I think that some
    of it will end up in the hands of the Iranian Revolutionary
    Guard Corps or other entities, some of which are labeled
    terrorists.''
        So isn't it true, Mr. Secretary, that since the $1.7
    billion was paid in cash, we have no way of tracing the money,
    and you have no way of assuring us that it will not be used for
    terrorist purposes?
        Secretary Lew. Well, Mr. Chairman, the payments that you
    are referring to are payments related to the Hague Tribunal
    settlement. President Obama--
        Chairman Hensarling. I understand that, but the question
    is, can you trace it, and can you guarantee us that it will not
    be used for terrorism?
        Secretary Lew. We have laid out the facts related to this
    transfer in a letter sent to this committee. The payments
    complied with U.S. sanctions--
        Chairman Hensarling. I understand that, Mr. Secretary, but
    it is a yes-or-no question. Can you guarantee us that it will
    not be used for terrorist purposes? Because I don't believe you
    can trace it.
        Secretary Lew. Mr. Chairman, if you would just give me a
    minute, I will answer your question, just give me a minute.
        Chairman Hensarling. Well, if you would answer the
    question, I would allow you to give the context.
        Secretary Lew. Mr. Chairman, you in your question
    characterized this incorrectly. It was not ransom. It was
    settlement of a contractual dispute.
        Chairman Hensarling. I didn't use the word ``ransom,'' Mr.
    Secretary. I said it--
        Secretary Lew. You did.
        Chairman Hensarling. No, I didn't. You could read the
    record. I said it coincided with the release of American
    hostages.
        Secretary Lew. You have asked a specific question about
    where the money goes. The payment went to the Central Bank of
    Iran. We do a lot of work to monitor the support that Iran
    gives to terrorist organizations. We have not seen--
        Chairman Hensarling. What I asked, Mr. Secretary, was,
    could you trace the money? Can you trace the money?
        Secretary Lew. We have not seen an increase in terrorist
    funding by Iran.
        Chairman Hensarling. Okay. I think we will move on, Mr.
    Secretary, because I am not getting an answer. But I want to
    know--and we have pursued this line of questioning before--who
    authorized the cash payment? We know that cash has been called
    the currency of terrorism. You have an entire office at
    Treasury devoted to terrorism and financial intelligence.
    According to press reports, senior officials at the Justice
    Department indicated objections.
        Did you object to the payment or were you the one who
    authorized the cash payment?
        Secretary Lew. Mr. Chairman, the President spoke clearly to
    the facts of this on January 17th. We have given you the
    details in a letter. This was a settlement of a contract claim
    where the United States Government and the American taxpayer
    was exposed to potentially $5 billion to $10 billion of
    additional damages--
        Chairman Hensarling. It was the settlement of a contract.
    The question is, Mr. Secretary--you are avoiding the question--
    who authorized the cash payment?
        Secretary Lew. The method of payment is a technicality. The
    agreement to settle a contract dispute was a substantive issue.
        Chairman Hensarling. It is not a technicality to those who
    are on the receiving end of Hezbollah missiles in Israel.
        Secretary Lew. The payments were consistent with our
    sanctions laws. They were consistent--
        Chairman Hensarling. Did you authorize the cash payment,
    yes or no?
        Secretary Lew. The method of payment was worked through a
    process that we outlined in a letter that we provided to this
    committee.
        Chairman Hensarling. Okay. Mr. Secretary, isn't it true
    that under 31 U.S.C. 1304, you must personally certify payments
    for the Judgment Fund? So these funds could not have been
    released except on your signature?
        Secretary Lew. Mr. Chairman, I am telling you the payments
    were properly made. I was aware of them. I was cognizant that
    it was happening. It was an appropriate settlement of a
    contract dispute that saved the American taxpayer billions of
    dollars.
        Chairman Hensarling. If you won't tell us who authorized
    the cash payment, what we do know is on multiple occasions, the
    Administration said that you had no choice but to use cash,
    and, in fact, your State Department spokesman on August 3rd
    said, ``It couldn't be done over wire transfers.'' The
    President himself on the very next day said, ``We could not
    wire the money.'' Yet, a Treasury Department spokesman
    acknowledged that on at least two occasions, the U.S. did make
    payments via wire transfer, in July 2015 or April 2016.
        So did Politico get it wrong, did your spokesperson get it
    wrong, or did the President get it wrong? Why were we misled?
        Secretary Lew. Mr. Chairman, the President got it right.
    You weren't misled. The payments were made as described--
        Chairman Hensarling. There were two wire transfers made,
    one in July 2015 and one in April 2016.
        Secretary Lew. Mr. Chairman, I am happy to answer your
    question, but you have to stop interrupting me every time I
    start.
        Chairman Hensarling. Well, if we would get answers, then I
    wouldn't have to interrupt.
        Secretary Lew. I am happy to answer your question, but you
    have to let me speak.
        Chairman Hensarling. Okay. I would like to listen.
        Secretary Lew. All right. We have done a very effective job
    cutting Iran off from the international financial system. The
    payment that was made by wire to Iran was not for a billion
    dollars, and not for a million dollars. It was for $900,000. It
    went to a foreign bank account that Iran had. And it was a
    difficult process to get the money, as it has been difficult
    for Iran to get access to its own money under the JCPOA,
    because we have been so effective in isolating Iran from the
    international financial system.
        The method of payment--
        Chairman Hensarling. The wire transfers were made.
        Secretary Lew. The method of payment--
        Chairman Hensarling. That is correct?
        Secretary Lew. The method of payment is a technical detail.
    The agreement was that this settlement would go to the Central
    Bank of Iran, and it was done in a way that was consistent with
    the agreement.
        Chairman Hensarling. You are confirming that at least two
    wire transfers went to Iran, correct?
        Secretary Lew. Mr. Chairman, I am telling you that before
    the transaction that we are discussing, the transfer we are
    discussing, one had gone. The other was subsequent. It was for
    $900,000. And it was a difficult process because, as it has
    been hard under the JPOA and the JCPOA, it has taken Iran a lot
    of time to get access to its own money that it is entitled to
    under the agreement.
        I am not saying--
        Chairman Hensarling. Thank you, Mr. Secretary. I believe
    that the President did get it wrong.
        My time has expired.
        Secretary Lew. No. You are totally incorrect. I just
    disagreed with you, Mr. Chairman.
        Chairman Hensarling. The Chair now recognizes the ranking
    member for 5 minutes.
        Ms. Waters. Mr. Chairman, I would like unanimous consent to
    enter into the record from the opinion pages of The New York
    Times an editorial entitled, ``The Fake $100 Million Iran
    Ransom Story.''
        Chairman Hensarling. Without objection, it is so ordered.
        Ms. Waters. I think it is perhaps incumbent upon us to help
    debunk the distortion of what took place with Iran.
        Let me just say, it is not simply about the so-called
    ransom story that has been made up by my colleagues. Every
    attempt that my colleagues on the opposite side of the aisle
    have made to discredit the Iran agreement, to try to dismantle
    the Iran agreement, has been made.
        Just yesterday, we were on the floor with a bill that
    simply said that my Republican colleagues wanted to identify
    and list, I don't know, a whole array of the leadership of Iran
    and expose them for their assets, where they came from, what
    they are doing with it. They have been told over and over again
    that even that action did nothing but signal harassment and a
    conclusion by Iran of a bad faith effort by the United States.
        I don't know why they continue it. As a matter of fact, I
    have said over and over again that this country needs the
    support of the Congress of the United States as our President
    takes the rightful leadership to act on behalf of this country
    and to negotiate deals and to do the business of the
    Presidency. But what we find is an undermining of this
    President at every turn, and it has been absolutely shameful
    what has been happening with this Iranian agreement.
        And so this conversation that just took place is just one
    more effort for my colleagues to send a message across the
    world that our President cannot count on the Congress of the
    United States, that we negotiate in bad faith, and that somehow
    what is going on in the United States is bad for the rest of
    our allies who have supported us.
        This ties in to what the Presidential candidate Mr. Trump
    is doing. He has a theme about making America great again. Some
    of us think America is already great to begin with. And his
    alliance with Putin, his friend that he may be doing business
    deals with, all of this ties in together.
        What are we doing? In the name of trying to acquire the
    Presidency and align themselves with Trump, are they continuing
    to try and dismantle the leadership of this country, to
    undermine us, talk about how bad we are, how crippled we are,
    how Mr. Trump knows better than our generals, on and on and on
    again?
        It needs to stop. You should not have to suffer this today.
    This is a continuing of a political effort, I guess to align
    with the theme of America not being so good, not so great, and
    what they are doing somehow with Mr. Trump is going to make it
    better. This is absolutely outrageous.
        I had some other things that I wanted to talk with you
    about today, but let's just put it on the line. What we have
    here is the opposite side of the aisle, the Republican Party
    and Mr. Trump, who are not only not supportive of the
    President, they just don't think this country is much good.
    They just don't think that the generals know what they are
    talking about. They just think Putin is our friend. They just
    think somehow this country has gone to the dogs, I suppose, and
    they have to do everything that they can to prove it by proving
    that somehow this Iranian deal that is going to help keep the
    world safe, and certainly the Middle East safe, that somehow it
    is wrong, it is no good, and it should be undermined, be damned
    our allies who joined in with us in this deal to help reduce
    Iran's ability to have the kind of nuclear capability that
    could cause a holocaust.
        And so I just want to tell you, Mr. Secretary, I am sorry
    that you have to endure this. This should not be a place where
    this kind of politics is placed, put before you. It is
    happening. I would hope that you would refrain from even trying
    to answer some of these questions that are being raised.
        This is a great country. The Iranian deal was a great deal.
    The President provided great leadership. We don't have to be
    ashamed of it. Shame on them.
        I yield back the balance of my time.
        Chairman Hensarling. The Chair now recognizes the gentleman
    from Texas, Mr. Neugebauer, chairman of our Financial
    Institutions Subcommittee.
        Mr. Neugebauer. Thank you, Mr. Chairman.
        Before I get to my FSOC question, I just want one follow-up
    question from Chairman Hensarling, and this is just a yes or
    no. Did we record the serial numbers on the cash that was
    delivered to the Iranians?
        Secretary Lew. Congressman, I would have to check--
        Mr. Neugebauer. Could you check on that? I think that was
    the chairman's question. I just want to know if we have some
    traceability there.
        My question applies to your capacity as Treasury Secretary
    and chairman of the FSOC. As you are probably aware, the
    Federal banking agencies submitted a required report on
    investment activities of banks required under Section 620 of
    the Dodd-Frank Act. This month the report was delivered to
    Congress and to FSOC, and the Federal Reserve Board made a
    recommendation to Congress to repeal the merchant banking
    authority for banks.
        As you know, Gramm-Leach-Bliley gives the joint rulemaking
    authority both to the Federal Reserve and to the Treasury to
    issue regulations implementing merchant banking authority and
    limitations. In fact, they did so in 2001.
        Before the submission of the 620 report, did the Federal
    Reserve consult the Treasury Department regarding its
    recommendations on repealing the merchant banking provision?
        Secretary Lew. Congressman, it was a report prepared by the
    regulators independently. We obviously are familiar with the
    issue, but we were not involved in the preparation of that
    report.
        Mr. Neugebauer. So I guess since Congress gave the
    authority to, and the Treasury has joint rulemaking authority
    with the Federal Reserve--
        Secretary Lew. I believe the report was under a different
    authority than the joint rulemaking. There were two different
    pieces of work that were involved.
        Mr. Neugebauer. It was a recommendation?
        Secretary Lew. Yes.
        Mr. Neugebauer. Do you agree with the recommendation?
        Secretary Lew. So, look, we are looking at the report and
    would be happy to work with this committee as we review it to
    respond more fully. We just received the report as well.
        Mr. Neugebauer. So does the Treasury believe it has the
    appropriate tools to analyze the risk from merchant banking
    activities?
        Secretary Lew. Yes, I think we have the ability to
    understand merchant banking. It is not new to us that there are
    issues regarding merchant banking. You are asking about a
    specific report that came about a week ago.
        Mr. Neugebauer. So with the tools that you have and the
    activities that you had in the past, have you found that
    merchant banking is too risky, or you haven't been able to
    mitigate it, or what would be your response on merchant
    banking?
        Secretary Lew. Look, I think that the issue regarding
    merchant banking is really an issue that has arisen out of the
    fact that in the original legislation, Dodd-Frank legislation,
    distinctions were made between different kinds of activities so
    that private equity is treated one way, merchant banking is
    treated another way. And I think we are going to need to take a
    look at whether there are inconsistencies there that do require
    attention, and I would be happy to get back to you.
        Mr. Neugebauer. So I think basically there is probably
    approximately $26.7 billion in merchant banking investments
    held by banks. If the vote was to eliminate merchant banking
    activities, who is going to take up that slack?
        Secretary Lew. Well, I think it would require legislative
    action. As I understand the recommendation that the regulators
    made, was they proposed legislative action to remove a
    provision that exempts merchant banking from the rules. So it
    would require this body to act.
        Mr. Neugebauer. So that recommendation was made to FSOC,
    and FSOC has not acted on that recommendation?
        Secretary Lew. We just got the recommendation very
    recently. We haven't had a meeting since we got the report. I
    am not aware of administrative authority that exists to do
    that. But I would be happy to check and get back to you.
        Mr. Neugebauer. So you weren't consulted, and you have just
    received the report. Is that what you are saying?
        Secretary Lew. The report came to us, I forget if it was a
    week or 10 days ago, and it was done by the regulators
    independently.
        Mr. Neugebauer. But you didn't have any prior knowledge--
        Secretary Lew. No, no.
        Mr. Neugebauer. --that that was going to be the
    recommendation?
        Secretary Lew. I don't believe so. I am happy to check.
        Mr. Neugebauer. So what will be the process moving forward?
    When will FSOC take up discussions on that particular
    recommendation?
        Secretary Lew. I will have to get back to you, Congressman.
    We haven't had an FSOC meeting since that report came in, and I
    am not in a position to respond until we have had a chance to
    look at it and discuss it.
        Mr. Neugebauer. So will FSOC report its findings to
    Congress?
        Secretary Lew. We are happy to work with this committee
    going forward as we review it and as you review it. We got the
    recommendations, as I point out, just very recently.
        Mr. Neugebauer. Thank you.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentlelady from New York, Ms.
    Velazquez.
        Ms. Velazquez. Thank you, Mr. Chairman.
        Mr. Secretary, last week the majority passed legislation
    that will severely hobble the CFPB by subjecting it to a
    politicized Congressional appropriation process, repealing the
    single director structure and putting up significant roadblocks
    to its ability to create rules and enforce them. More
    shockingly, it will remove the Bureau's authority to bring
    enforcement cases against abusive products and services.
        In light of what we know about the impact of predatory
    products leading up to the financial crisis and the recent
    evidence that Wells Fargo was trying to extract profit in
    deceptive ways, what will these changes to the CFPB do to
    Americans' economic security?
        Secretary Lew. Congresswoman, I think that if you look at
    the financial crisis, it is undeniable that at the heart of it
    was a practice of mortgage lending that was abusive and that
    when it became a part of our financial system through complex
    financial instruments, ended up triggering a financial crisis.
    So we know that abusive practices are not just unfair and bad
    in terms of the individuals who are affected, but if left
    unchecked, can become a real threat to financial stability.
        I think the recent actions taken by the CFPB and the OCC
    reflect the ongoing need for tough consumer protection, for
    independent consumer protection, and for an agency set up in a
    way that is workable, which is what we have now in the CFPB. I
    think it is a good thing that there was a place for those
    issues to go for them to be addressed. It was the largest fine
    that the CFPB has made.
        I am not saying that every issue becomes an issue of
    financial stability. I actually think it is important to
    address things, even if it is just a question of abusing
    millions of consumers. But we also know that when these kinds
    of abuses occur, it can accumulate into financial stability
    risk.
        So for both reasons, I think it is critical that the CFPB
    maintain the ability to operate, and I believe it has operated
    very well. And if you go around to the industries that are
    affected by the CFPB, there actually are many who say the same
    thing, that they have done their job very well.
        Ms. Velazquez. Thank you. And then we wonder why there is
    so much anger among working people in this country. So here we
    have regulations to prevent the same crisis that we saw from
    happening again, and yet people continue to use deceptive ways
    to get people and to exploit working families in this country.
        I hope that the Department of Justice looks into this and
    brings justice, not only for the families that are impacted and
    the consumers that were impacted, or even for those workers
    that were tricked into going into behavior that was not the
    right behavior just because of the pressure coming from the top
    at the bank.
        Mr. Secretary, you are well aware that Puerto Rico is
    currently facing a severe financial crisis. The median
    household income is $18,000, just one-third of the national
    average. Forty-six percent of the population lives below the
    poverty line.
        On top of these challenges, the island is still struggling
    with the Zika virus, which has infected now 20,000 people on
    the island, including 1,500 pregnant women. And just yesterday,
    a massive power outage left the island without electricity.
    Half a million people in the island today have no water.
        I know we passed PROMESA that was signed into law in June.
    It will provide for a control board and a restructuring
    mechanism for the island's $70 billion debt.
        My question to you is, PROMESA did not include any proposal
    to reinvigorate the island's economy for the long term. The
    U.S. Government has a colony in the Caribbean. It is Puerto
    Rico. We have a moral responsibility.
        So given the situation that I just described, what is your
    view of what is needed to happen in Puerto Rico? Should we in
    Congress revisit what we did and come out with--
        Chairman Hensarling. The time of the gentlelady has
    expired. If the Secretary could give a brief answer, please.
        Secretary Lew. Thanks, Mr. Chairman.
        I would just say briefly, PROMESA was extremely important.
    It will provide the basis for Puerto Rico to have a fiscal plan
    that leads to debt restructuring and financial stability. But
    as we have always said, alone it is not enough. There needs to
    be more action.
        We have proposed that Puerto Rico be treated as States are
    treated for the purpose of Medicaid reimbursement and for the
    earned income tax credit, things that really would stimulate
    the economy, and we look forward to working with this Congress
    to take additional steps to make sure that there is a long-term
    economic plan for Puerto Rico.
        Chairman Hensarling. Again, the time of the gentlelady has
    expired.
        The Chair now recognizes the gentleman from New Jersey, Mr.
    Garrett, chairman of our Capital Markets Subcommittee.
        Mr. Garrett. Thank you, Mr. Chairman.
        Mr. Secretary, I think it is fair to say that all of us in
    Congress, myself included, are outraged at the activity that
    occurred over at Wells Fargo, that I know you are very familiar
    with, over a number of years. The entire incident now has a
    number of people clamoring for regulators to be tough when they
    finalize the incentive compensation rules under Section 965 of
    Dodd-Frank, which I am sure you are familiar with.
        The current proposal is intended to limit compensation of
    financial firms and includes a provision that would require
    something called clawbacks of compensation for certain high-
    level executives that could go back as far as 7 years. But like
    a lot of things for the other side of the aisle, it depends on
    just what executives we are talking about here when this
    happens.
        And so let me give you one example: you, Mr. Secretary. You
    joined Citigroup back in 2006, and by 2008, you became the
    chief operating officer of the Citigroup Alternative
    Investments unit, which at that time managed $54.3 billion.
    Then the Alternative Investments group began to do what?
    Hemorrhage money that year. And by the end of 2008, Citigroup
    had laid off more than 50,000 employees. The stock price
    dropped by 75 percent. And then, of course, they were bailed
    out by who? The American taxpayers, to the tune of $45 billion.
        Then, to add insult to injury, last year the SEC announced
    that two Citigroup affiliates, including the one where you were
    the chief operating officer, agreed to pay $180 million to do
    what? To settle charges that your unit defrauded investors.
        So you were the senior officer at the Citigroup unit which
    lost money, that contributed to the bank's near collapse, and
    which later was charged with defrauding investors. Talk about a
    legacy. Was any of your compensation at Citigroup ever clawed
    back? That is a yes or no.
        Secretary Lew. Congressman, I am proud of my record
    implementing financial reform, pushing hard for--
        Mr. Garrett. So was any of--
        Secretary Lew. --pushing hard for the executive comp rule.
        Mr. Garrett. I am not asking that, Mr. Secretary. Let's
    just get to the question. I saw how you did not answer the
    chairman's question.
        Simple question: Was any of your money, your seven-figure
    compensation package, ever clawed back for the time that you
    were the chief operating officer?
        Secretary Lew. The issues regarding my compensation have
    been well worked over.
        Mr. Garrett. So then it is an easy answer, Mr. Secretary.
        Secretary Lew. I have answered many questions. I was paid
    in a way that is well-understood and disclosed. I am telling
    you that my services in this role--
        Mr. Garrett. Mr. Secretary, please answer the question.
        Secretary Lew. --have been to make sure that we put rules
    in place that work going forward.
        Mr. Garrett. Mr. Secretary, simple question. You were paid.
    Your unit was defrauded.
        Secretary Lew. Congressman, I--
        Mr. Garrett. Was any of your money ever clawed back?
        Secretary Lew. I was not subject to any action of any kind
    because--
        Mr. Garrett. Okay.
        Secretary Lew. --no one has ever asked any questions that
    led to that, nor will they.
        Mr. Garrett. See, Mr. Secretary, simple. The answer is no.
    None of your money was--
        Secretary Lew. And let's remember what my role was when I
    was there.
        Mr. Garrett. Yes, you were the chief operating officer
    involved--
        Secretary Lew. Yes, I was responsible for administrative
    activities, not for designing risk products. So let's just
    remember what my role was.
        Mr. Garrett. Mr. Secretary, you were a senior executive.
        Would the proposed incentive compensation rules capture or
    impact any of your compensation if those rules were in place
    back then?
        Secretary Lew. I am not aware of anything that relates to
    me personally, but I also am not directly involved in writing
    the rules, so I can't tell you exactly where they are. I have
    urged the regulators to have broad such rule.
        Mr. Garrett. Should the rules be such that senior
    executives--and Elizabeth Warren doesn't make differentiation
    between COOs and CEOs. She says all senior executives should
    have clawbacks. Is she wrong?
        Secretary Lew. I think that the questions that have been
    asked in designing these rules have been, how do you align
    incentives for risk taking?
        Mr. Garrett. That is not the question.
        Secretary Lew. No, but that is what the driving issue is.
    How do you make sure that there is not an incentive in the
    compensation to take risk--
        Mr. Garrett. Here is one--okay, let me ask you this then.
    Here is an alignment.
        Secretary Lew. And that is the right question. That is what
    we have been pushing.
        Mr. Garrett. Mr. Secretary, thanks. Here is one on the
    alignment. When you left there, despite all the hemorrhaging
    and the taxpayer bailout, you received something called a
    bureaucratic parachute. You had a promise in your contract that
    you would be paid $944,000 if you took a high-level position in
    the U.S. Government. Hey, I guess you got that, didn't you?
        Was that a payment contingent upon you doing and your unit
    doing a good job? Was that contingent upon the fact of whether
    or not there was any fraud in your unit? Or did you just get
    paid regardless?
        Secretary Lew. Congressman, my compensation was based on my
    performance at the job. The only thing that that provision said
    was I didn't lose my last year's pay.
        Mr. Garrett. The performance of your job? The company lost
    75 percent stock. It went down.
        Secretary Lew. Congressman, you don't know what my job was.
        Mr. Garrett. Well, yes, I do. It is in this disclosure as
    to what you are. You were the coordinator for all the units,
    oversee coordination between operations, technology, human
    resources, legal, financial, regional departments. Seems like
    you had your finger on every single aspect of the company. I
    guess you are telling us that you are not responsible for
    anything.
        So, Mr. Chairman, I will end with this. I want to make it
    clear for the record that so long as you are a high-ranking
    Democratic official you can make allthe money that you want on
    Wall Street, but if you are not one of them, then you have to
    play by the rules if the company collapses.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from California, Mr.
    Sherman.
        Mr. Sherman. Mr. Secretary, let me spend the first couple
    of minutes on stuff so noncontroversial that I don't think
    anybody in the room will disagree, because you deserve at least
    a couple of minutes.
        Secretary Lew. I don't need any time. I am fine.
        Mr. Sherman. Oh, I know. But you deserve it anyway.
        First, thank you for the Treasury Department announcement
    and clarification that I asked for last time you were here. So
    the 8,000 people from my district who had to evacuate for
    months due to the world's largest methane leak can clearly
    understand that they are not going to be taxable on the money
    they got to reimburse them for their expenses when they were
    living outside their home.
        Second, last time you were here, back in March, I brought
    up the issue of a U.S.-Armenia tax treaty. I know we have told
    your staff, so I am not blindsiding you here, that I would
    bring this up again. And the answer I have gotten from your
    staff is, hey, it would be wonderful if we did it, but it is a
    matter of prioritizing our resources. So I want to review with
    you why I think it is a priority.
        Canada, whose Treasury Department analog has maybe a tenth
    of your resources, negotiated a treaty with Armenia. Your
    Department has negotiated treaties with Luxembourg and Malta
    and with dozens of other countries. But what I think your staff
    may be losing track of is they are looking at everything
    through solely an economic lens, and they also need to look
    from a geopolitical and foreign policy lens.
        And I am asking your Department to just have one tax lawyer
    spend a few months to do something, and I want to describe how
    important it is from the standpoint of the Congress and the
    standpoint of the executive branch, State Department, foreign
    policy, Defense Department.
        We in Congress have provided a billion dollars of aid to
    Armenia over the last 25 years. The executive branch has a
    policy of getting the Newly Independent States that became
    independent from the Soviet Union, to wean them from Moscow.
    And that is so important that not only have you done tax
    treaties with Estonia, Latvia, and Lithuania, but we have put
    our lives on the line. We admitted Estonia into NATO. We could
    be at war with Russia. We could lose soldiers in the field.
        Now, I am not asking anybody in the Treasury Department to
    put their life on the line. Just asking to do something that
    should be rather easy because I have persuaded--well, I have
    talked with the Armenians. They will start with your model
    treaty.
        Given that the Congress has provided a billion for this
    objective, given that our soldiers are ready to die for this
    objective, can you spare a tax lawyer for a few months?
        Secretary Lew. So, Congressman, I understand the strategic
    significance of Armenia and appreciate the source of your
    concern. We obviously look at these tax treaties through an
    economic tax policy lens, and the basic question that we ask
    is, can we avoid the kind of double taxation that treaties are
    meant to avoid? We don't have any evidence that there is double
    taxation.
        Mr. Sherman. That was the answer you gave last time. It is
    a chicken and egg. There is no investments because there is no
    tax treaty. There is no tax treaty because there is no
    investment.
        I have done my best to persuade you on this, and I have
    just a minute to go on to something, and that is, too big to
    fail is too big to exist. You and FSOC have the right to break
    them up. People on this committee could cosponsor the Sanders-
    Sherman bill and break them up.
        We know that they are so big, they are too-big-to-fail. We
    know that if they get in trouble, they will be bailed. The
    chairman says, well, don't list them, and they won't be bailed.
    We were all here--many of us here in 2008. If they are about to
    go under, this Congress will pass new laws to bail them out.
        So we are talking about fail. We are talking about bail. We
    are also talking about jail, because the Attorney General
    announced that he would be reluctant to criminally indict them,
    these institutions, because of the effect it would have on the
    economy.
        But Wells Fargo has given us two more reasons, one
    Democrat, one Republican. It appears as if Wells Fargo, for
    example, was too big to manage. Here you had, they hired 5,300
    good people. They established a system that caused those people
    to commit 2 million felonies. They didn't monitor. They didn't
    notice. That is too big to manage and, and, finally, too big to
    regulate, because all the regulators at Wells Fargo missed this
    too.
        Too big to fail. Too big to jail. Too big to regulate. Too
    big to manage. Please break them up.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Missouri, Mr.
    Luetkemeyer, chairman of our Housing and Insurance
    Subcommittee.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Good morning, Mr. Secretary. I would like to have my
    questions in the areas of SIFI designations and community
    banking, so let me start out with the SIFI designation stuff.
        Dodd-Frank calls for the automatic designation of any bank
    with more than $50 billion in assets to be a SIFI. Mr.
    Secretary, we have had Barney Frank, the author of the Dodd-
    Frank bill, in this committee, sitting in that chair, who has
    testified in this committee that he told us that the $50
    billion threshold is arbitrary and that we should look at
    alternative methods for determination. We have also heard from
    other regulators, such as Chair Yellen, Governor Tarullo, also
    on this issue, and they support a different approach as well.
        Would you agree that size should not be the only thing to
    determine what a systemically important financial institution
    is?
        Secretary Lew. Congressman, I think ultimately the real
    issue is risk, and size is one indicia of risk.
        Mr. Luetkemeyer. Do you agree then it is not just size?
        Secretary Lew. I think part of the challenge is that when
    people talk about what size bank is a big bank, the
    conversation is often unconnected to where the banks fall in
    terms of size. There aren't that many banks over 50, and when
    you talk about numbers like the piece of legislation did last
    year of drawing the line at 500, you are talking about only a
    very few institutions. Some of the largest institutions are in
    between.
        Mr. Luetkemeyer. Mr. Secretary, I have just a few minutes
    here please.
        My piece of legislation takes away all of the size
    definitions. Size is only one issue. As you can see there is on
    the board here--you probably can't see it from where you are
    sitting.
        Secretary Lew. I can't read it from here.
        Mr. Luetkemeyer. Behind you is a copy of a chart from the
    Office of Financial Research Brief Series dated April 13, 2016,
    and this is how globally systemic important banks are
    determined. And as you can see, there are five separate things,
    and those separate criteria are exactly the five criteria that
    I have in my bill: size, interconnectedness, suitability,
    complexity, cross-jurisdictional activity.
        If those are good enough to determine a G-SII, should they
    not be good enough to determine what a SIFI is here in the
    United States?
        Secretary Lew. I think the challenge is that the
    designation process is a very cumbersome one, and if you were
    to require the decisions firm by firm for every single firm, it
    would require a much more massive structure than we currently
    have.
        Mr. Luetkemeyer. A minute ago, though, you said that
    complexity is something we need to take a look at. Yet now you
    are going back to size. If you do that, we are looking at an
    institution that is $50 billion at the bottom end of this
    versus the larger banks that are $2 trillion. That is 40 times
    difference in size.
        Secretary Lew. Yes, I totally agree that there is a
    difference.
        Mr. Luetkemeyer. How can a bank that is $50 billion--
        Secretary Lew. We have tried in every way that we can to
    use regulatory flexibility and keep looking for new regulatory
    flexibilities and to treat firms differently based on what is
    appropriate to their risk level.
        Mr. Luetkemeyer. The way to treat them more equitably and
    more fairly and more flexibly is to support my bill from the
    standpoint that suddenly we have different criteria that you as
    a regulator can use. This is something that even the Office of
    Financial Research says is a way to go about it. So it is a
    little frustration on my part.
        Can you tell me, sir, what the cost is to designate a SIFI?
        Secretary Lew. I would have to get back to you on what the
    cost. It is a long process.
        Mr. Luetkemeyer. Okay. What is the cost to de- designate?
    And you have already got--
        Secretary Lew. I am sorry. I couldn't hear you.
        Mr. Luetkemeyer. What is the cost to de-designate? You have
    already got all the information. Your examiners are in the
    banks. They live there. You have all the information at hand.
    What additional costs are there to de-designate? Or would there
    be additional costs?
        Secretary Lew. Which institutions are you talking about
    right now, Congressman?
        Mr. Luetkemeyer. The ones that are designated SIFIs.
        Secretary Lew. The ones that FSOC has designated?
        Mr. Luetkemeyer. Yes, the ones that are designated--
        Secretary Lew. The largest firms?
        Mr. Luetkemeyer. Yes, the ones that are designated by the
    $50 billion threshold.
        Secretary Lew. So there are two different issues. We have
    designated 12 institutions that are large nonbank institutions
    for insurance companies--
        Mr. Luetkemeyer. Yes, but the ones that are over $50
    billion, sir, also have to pay fees, have to be under the same
    regime, regulatory regime, as the big guys.
        Secretary Lew. That is not an FSOC determination. They are
    covered under Dodd-Frank for oversight and supervision.
        Mr. Luetkemeyer. Okay. Okay.
        Secretary Lew. We don't make the designation.
        Mr. Luetkemeyer. But my question is, you already have the
    information to designate them, what additional costs are there
    to de-designate? I am just asking a question about cost, not
    whether you can or not. I am just asking about cost.
        Secretary Lew. I think the process of determining whether
    they are covered now is a fairly simple one, because it is
    based on a review of information that is available on size. If
    you had an individual firm-by-firm review to see whether you
    meet multiple criteria, it is a very different process than the
    current one. So for me to answer the question in the current
    versus--
        Mr. Luetkemeyer. Okay. One more quick question. One more
    quick question. My time is totally expired here.
        In my home State of Missouri, we have 44 banks less than
    $50 billion at the end of 2015. Twenty-six of them lost money.
    Those are all targets for merger. In fact, one in my district
    30 miles away from me was merged on Monday morning. This is all
    due to the complexity and the increased cost of compliance.
    What are you going to do about that? Does concern you at all?
        Secretary Lew. I agree with you that small financial
    institutions, community banks, and regional banks play an
    important part in our financial landscape. They meet important
    needs. We are continuing to look for how we can craft
    flexibilities that are appropriate so that we can make sure
    that the risks are visible but not overly burdensome. And we
    look forward to working together to find ways to do that.
        Mr. Luetkemeyer. Thank you, Mr. Chairman.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from New York, Mr.
    Meeks.
        Instead, the Chair recognizes the gentleman from Texas, Mr.
    Hinojosa.
        Mr. Hinojosa. Thank you, Mr. Chairman. And thank you, my
    good friend, Greg Meeks. Thank you.
        Mr. Secretary, thank you for your testimony today. We
    appreciate your efforts as chairman of the Financial Stability
    Oversight Council to identify the risks to our financial
    stability and to respond to emerging threats and
    vulnerabilities in our financial system.
        The chairman's Dodd-Frank repeal bill, which received
    bipartisan opposition in the committee this past week, would
    provide a so-called off-ramp for Dodd-Frank and Basel III's
    capital and liquidity requirements and it would replace those
    safeguards with an insufficient leverage ratio that fails to
    contain the guardrails in other proposals. For example, while
    the chairman has attempted to conflate this bill with proposals
    from people like FDIC Vice Chair Thomas Hoenig, the chairman's
    proposal doesn't include the same limits on derivatives
    activity in order to receive regulatory relief.
        So, Mr. Secretary, my question is: Can you discuss how
    replacing more complex risk weights along with other Dodd-Frank
    measures might make sense for community banks engaged in
    traditional banking activities but is wholly insufficient when
    it comes to global mega banks?
        Secretary Lew. Yes. Congressman, that is a very good
    question. I think we should be looking for ways to simplify
    reporting, where appropriate, for small banks that don't engage
    in a lot of risky activities. We have to always be aware that
    even small banks are in the business of making risk decisions.
    That is what banks do. And we have seen in the past that in the
    accumulated activity, small institutions can create a financial
    risk that is significant, but it is different than the
    activities of large global financial institutions. And we
    should be trying to distinguish.
        For the largest financial institutions, I think if you look
    at what we have done in financial reform and Wall Street reform
    that has made the system safer, we have gotten much more
    transparency. We see what they are doing. We see what they are
    holding. We understand how it is connected to the financial
    system. They have capital buffers internally. So when they take
    risks, we know how much of the risk that they are taking they
    can absorb before they have to look outside for any kind of
    help.
        I think if we were to roll that back, it would be terrible.
    It would be--we have done it, a lot of other major economies
    have done it. If you look at how the global financial system
    responds to shocks nowadays, we could just look back to the
    week after the vote in the United Kingdom on Brexit. There was
    a sense of confidence in financial institutions that just
    wouldn't have existed without financial reform.
        Mr. Hinojosa. Thank you for that clarification. So what
    impact would H.R. 5983, the chairman's Dodd-Frank repeal bill,
    have on financial stability and international confidence in the
    U.S. banking system and capital markets if it were enacted?
        Secretary Lew. Look, I believe that if we were to roll back
    some of the protections in Wall Street reform that that
    legislation would roll back, it would bring back concerns about
    the stability of the U.S. financial system the next time there
    is a bump in the road. Bumps in the road happen. They are
    either geopolitical or economic. You want a financial system
    that can withstand those kinds of shocks. We are in a much
    stronger place now, and I think it is a mistake to go back.
        And if I could just add, there is some things we still need
    to do. From the back and forth a few minutes ago, you wouldn't
    know it. We are pressing very hard for executive compensation
    rules to be finalized by the regulatory bodies so that we can
    align risk-taking incentives and compensation in a better way.
        Mr. Hinojosa. I agree that we have come a long way in
    recovery. So let me ask a question on the economic recovery of
    our country. Much more progress needs to be made in order for
    us to climb out of that hole created by the 2008 Great
    Recession, which was spurred by an historic Wall Street-created
    financial crisis. Tell us, to what extent would our progress
    have been even more remarkable had the Republicans in Congress
    not been so committed to fiscal austerity?
        Secretary Lew. Congressman, I believe that the early
    imposition of tight fiscal controls was actually something that
    held back our recovery here in the United States. We would have
    grown faster if we had put longer term deficit reduction in
    place, not slammed on the brakes so quickly.
        Mr. Hinojosa. Would GDP be higher today?
        Secretary Lew. I believe it would. And we have seen, since
    we have more sensible policies through two budget agreements
    putting in place longer term savings and freeing up short-term
    spending, the economy has actually done better.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Michigan, Mr.
    Huizenga, chairman of our Monetary Policy and Trade
    Subcommittee.
        Mr. Huizenga. Thank you, Mr. Chairman. So many issues, so
    little time.
        I do want to say, first of all, congratulations, Mr. Lew.
    Oftentimes, depending on who is sitting in there, you get a
    Jekyll or Hyde performance on the other side of the aisle.
    Quite honestly, I am waiting for the outrage of the other side
    with vaunted claims of how the economy has benefited Hispanics
    and African Americans that you just spoke about in your
    testimony. A robust economy is needed for all. Unfortunately,
    this Administration has not provided that. Wall Street is doing
    just fine. Main Street is not. And intercity Main Street is
    even doing worse. And I just--it is, I guess, going to the dogs
    characterization depends on who is sitting in the seat. So they
    like who is saying it, just not what is being said.
        I got just teed up. Now I had a question at the end of
    this, but I got teed up by my colleague from Texas about this.
    You testified as well that Dodd-Frank and the Council have
    ``made the financial system safer.'' However, former Treasury
    Secretary and Harvard president Lawrence Summers says that
    ``major financial institutions don't look any safer than they
    were before Dodd-Frank and may even be more risky.'' He also
    flagged Dodd-Frank's myriad of regulatory restrictions as a
    prime suspect for this duplicity. So I am going to follow up
    with that in a written question. But I am going to give you
    literally 20 seconds here to address that.
        Secretary Lew. I don't think that paper in any way called
    for rolling back Wall Street reform.
        Mr. Huizenga. But it said it didn't work.
        Secretary Lew. I think what it did was it looked at one
    indication, market evaluations, and used that to do some
    analysis. We have seen markets get things wrong. They didn't
    predict the subprime crisis because of what was going on in the
    financial sector. It didn't predict the outcome of the vote in
    the United Kingdom. So I would be careful to just assume that
    one thing--you have to look at the whole picture.
        Mr. Huizenga. While we are on the United Kingdom, obviously
    we saw that European unity was something that has been called
    for as Greece has been bailed out before. We have had this
    personal conversation. I have contacted Treasury Department
    well over a year regarding further IMF financial participation
    in a Greek bailout, and I am urging you to oppose that. Even
    former executive director of the fund who voted for the first
    bailout has come out against a third one.
        Since you last appeared before us, the IMF's evaluation
    office released a scathing report on the fund's involvement in
    Greece, blasting its debt sustainability analysis and
    concluding, ``that the best governance was not practiced, as
    the board was poorly informed and too late in several
    instances, and as a result the decision-making and supervisory
    roles of the executive board were undermined.''
        At some point, we have to acknowledge the damage the IMF's
    credibility has been immense. And you have stated that it was
    important for European unity. We have seen elections, the
    Brexit in England. We just--recent elections in Germany that I
    am sure have many of your colleagues over there very concerned.
        My next issue is the World Bank. And, Mr. Chairman, I would
    like to submit for the record a couple of letters to the record
    that were sent by Ms. Moore, my ranking member, and myself. We
    wrote a letter to President Kim--
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Huizenga. --expressing our alarm over a failed
    transportation project in Uganda. This project was linked to
    the sexual exploitation of children, among other appalling
    consequences. Moreover, the bank's new safeguards have been
    criticized for ignoring human rights, even as they protect, and
    this is not a joke, the rights of farm animals. Given all this,
    I hope we can work together so that the ongoing IDA
    negotiations result in realistic commitments as well as true
    reforms at the bank.
        Thank you.
        And finally, just kind of rounding off, going back to the
    chairman's questioning on Iran. There was a letter to Senator
    Marco Rubio in June that Thomas Maloney, the senior at
    Legislative Affairs, said: The Administration has not been and
    is not planning to grant Iran access to the financial system.
    To be clear, until Iran has addressed other concerns we have
    with its behavior outside the nuclear file, the U.S. financial
    system, including the branches of U.S. financial institutions
    abroad, will remain off limits to Iran, and U.S. persons will
    not be able to provide financial services or products to Iran
    without explicit authorization.
        Iran's behavior is outside of the nuclear profile.
    Terrorism remains unchanged. You even said that earlier. You
    said it hasn't gotten worse. That means it hasn't gotten better
    either. Just yesterday, you announced the authorization of U.S.
    financial institutions to finance aircraft sales. Doesn't this
    contradict your written assurances to Congress?
        Secretary Lew. No, Congressman. The licenses that were
    issued yesterday for aircraft were something that were
    negotiated in the Joint Comprehensive Plan of Action, and they
    were consistent with it. It goes only to entities that do not
    engage in terrorism and it cannot be used--
        Mr. Huizenga. The $1.4 billion in cash was consistent with
    it too, but it doesn't make it right.
        Secretary Lew. The U.S. financial system remains closed,
    except for very specific purposes. And this I don't believe--I
    am not aware of a transaction through a U.S. financial system
    that will support it. But a licensed activity is the only
    exception.
        Mr. Huizenga. My time has expired.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from New York, Mr.
    Meeks.
        Mr. Meeks. Thank you, Mr. Chairman.
        And let me first welcome you, Secretary Lew. It is coming
    another way, but as a member of this committee and a member of
    the Foreign Affairs Committee, I think that I want to--this
    piece talking about the settlement payment to Iran, as I see
    what they put up on the board and I have heard the questions by
    the chairman when I was listening in my office, it just seems
    to me that my colleagues on the other side of the aisle are
    using as fodder for a convenient political spin. They are
    playing politics this election year. And the majority have
    quickly turned to these talking points about the
    Administration's settlement being a ransom payment. This
    despite the fact that the Obama Administration had, in fact,
    briefed Congress in advance, I say that again, it had been said
    before, Congress was briefed in advance of the $1.7 billion
    settlement of a longstanding claim with the Government of Iran.
    You did brief Congress. Is that not correct?
        Secretary Lew. It was fully described by the President at
    the time, and we briefed Congress at the time.
        Mr. Meeks. And it is not the first time, nor is it unusual
    that--in fact, I think that it was a smart thing using leverage
    when conducting diplomatic negotiations. That is a common and
    smart strategy that is utilized not only by this Administration
    but has been done by past ones also. Is that not correct?
        Secretary Lew. I believe that settling something for $1.7
    billion when you were exposed to $5 to $10 billion of risk is
    the right outcome.
        Mr. Meeks. In fact, that is right. Because isn't it true,
    Mr. Secretary, that had the Administration not negotiated the
    Hague settlement, we would have ended up ultimately paying much
    higher for the 1979 failed arms sale?
        Secretary Lew. I believe that we resolved it in a way that
    saved the United States and U.S. taxpayers substantial
    exposure.
        Mr. Meeks. And on top of that, for the record, on top of
    that, since the establishment of the U.S.-Iran Claims Tribunal,
    all U.S. citizens' claims against Iran that were registered
    under the Algiers Accords have also been resolved, and
    Americans, as a result, by us doing that, have gotten about--
    what is it? About $2.5 billion in payments?
        Secretary Lew. Yes. I don't know the total, but to my
    knowledge, they have all been paid.
        Mr. Meeks. So let me--and the record should be clear about
    that, that this was a smart deal done utilizing leverage that
    you had. You have leverage, you don't give it up, you utilize
    it. That was done by the Administration. And the fact of the
    matter is, I would like to say that it was something that
    nobody else did, it was unique, your thought, but other
    Administrations have done the same thing. Democrats and
    Republicans. Is that not correct?
        Secretary Lew. Settling outstanding claims?
        Mr. Meeks. That is right.
        Secretary Lew. Yes. It is not a new phenomenon. It
    obviously is a new conversation. For decades, we haven't had an
    ability to have a conversation with Iran to settle this. And we
    faced the possibility of an enormous judgment against the
    United States.
        Mr. Meeks. So let me go back to what we were talking about,
    in the time that I have left, and that is dealing--which is
    FSOC. Because FSOC, which was created by Dodd-Frank Act, is
    something that I believe is an absolute necessity as a
    framework so that we can deal with the complex multisector
    interconnected financial risks in our financial markets. And I
    encourage FSOC to further embrace greater transparency in its
    designation process and in how designated entities would be
    regulated. Because it is key, I strongly believe that we should
    emphasize and focus on working with the designated firms so
    that they can de-risk, if we work with them, and they no longer
    become risky, it is much better to eliminate systemic risk as
    opposed to supervising it. Is that not correct?
        Secretary Lew. Yes. Congressman, I actually think that the
    process the GE went through demonstrates that it is a two-way
    street. GE, for its own business reasons, changed its focus to
    go back to being an industrial as opposed to a financial firm.
    It came and made the showing that it was no longer engaged in
    the activities that caused it to be designated, and we quickly
    responded by de-designating. And we have not--for the debate
    about designation, you would think that hundreds of firms have
    been designated. It is four nonbanks and eight utilities. We
    are not out going aggressively to designate firms. We
    identified firms with a high level of risk. And if another firm
    were to appear that presented risk, we should go forward.
        But we always lay out the basis for designation so that
    they know what it is that is making them be designated. And it
    is a business decision whether they want to be in the form they
    are with some additional oversight or change their business
    structure. It is not like being designated stops you from doing
    your business. It just means we have more visibility so we can
    see what is going on.
        Mr. Meeks. Thank you. I had another question, but I think I
    am out of time and I don't want to hear that gavel from the
    chairman.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Wisconsin, Mr.
    Duffy, chairman of our Oversight and Investigations
    Subcommittee.
        Mr. Duffy. Thank you, Mr. Chairman.
        And welcome, Mr. Lew. I want to go back to your Iran deal.
    I think you testified that wire transfer payments were made to
    Iran before the $1.7 billion cash payment and--
        Secretary Lew. I testified that one $900,000--
        Mr. Duffy. Went before.
        Secretary Lew. Yes.
        Mr. Duffy. And--
        Secretary Lew. Sometime before.
        Mr. Duffy. That is my recollection too. And a wire transfer
    also went to Iran after the cash payment. Is that correct?
        Secretary Lew. Yes.
        Mr. Duffy. So the fact is, per your testimony, that wire
    transfers to Iran are possible. I will take that at face value.
        Secretary Lew. No. Congressman, it is very important.
        Mr. Duffy. No, no, no, no.
        Secretary Lew. The wire transfer--you have to understand
    what a wire transfer does.
        Mr. Duffy. I am--my time. Let me get to my question,
    though.
        Secretary Lew. What you stated was incorrect.
        Mr. Duffy. I am going to repeat my question.
        Secretary Lew. So I just want to make it clear what you
    stated was incorrect.
        Mr. Duffy. Now, you made a wire transfer before the cash
    payment, you made a wire transfer after the cash payment. And
    the President told the American people that we could not wire
    the money. So it leads me to believe that the Administration
    has not been truthful--
        Secretary Lew. No, Congressman.
        Mr. Duffy. --with the American people, based on your
    testimony today, because wire transfers could take place.
        Secretary Lew. Indulge me to answer your question. The wire
    transfer goes to an account in a foreign bank. A European bank,
    say. It doesn't go to the Central Bank of Iran directly. The
    question is, if you have a contract settlement with a party
    that you have no trust, they don't trust us, we don't trust
    them, they are not asking can you get the money to an account
    that they may or may not be able to get access to. It was part
    of the negotiation to get the money to the Central Bank of
    Iran.
        Mr. Duffy. Okay. So but wire transfers can take place. And
    the wire transfer before the $1.7 billion and the wire transfer
    after the $1.7 billion, were those also converted to cash?
        Secretary Lew. Just as a factual matter, Congressman, it
    was quite--
        Mr. Duffy. Yes or no.
        Secretary Lew. --it was quite challenging for Iran--
        Mr. Duffy. Were those converted to cash?
        Secretary Lew. --to get access to that money. It was quite
    challenging.
        Mr. Duffy. There's a reason for that. Right? They are the
    lead sponsor of terror. We have rules in place so they can't
    access cash.
        Secretary Lew. I enforced those rules. Yes, I understand
    those rules.
        Mr. Duffy. So let's talk about the rules. In the Code of
    Federal Regulation, you can't load up a plane full of cash in
    the U.S. and fly it to Iran lawfully. So to get around that
    rule, what did you do? You wired the money to Europe and then
    had it converted to cash and sent to Iran so you didn't violate
    the law. So, yes, you complied with the law, but you got around
    the spirit of the law. Right?
        Secretary Lew. Congressman, we have successfully cut Iran
    off from the U.S. financial system. When we agreed--
        Mr. Duffy. I agree.
        Secretary Lew. --to settle a legal claim with Iran, part of
    that agreement is you make payment. The way you make payment is
    you wire money to their account or you--
        Mr. Duffy. Convert it to cash?
        Secretary Lew. The question was, how do they get access to
    the payment of the settlement? And we worked through foreign
    banks, and they wanted access--
        Mr. Duffy. Mr. Lew, the problem--
        Secretary Lew. --which was not unreasonable, given that it
    was a negotiated settlement.
        Mr. Duffy. It is unreasonable because this is a bad deal.
        Secretary Lew. No, Congressman.
        Mr. Duffy. No, Mr. Lew. They are the lead sponsor of terror
    in the world.
        Secretary Lew. Let's go back to the deal.
        Mr. Duffy. We have cut them--no, no. We have cut them off
    from cash because cash is the currency of terror.
        Secretary Lew. Yes.
        Mr. Duffy. And so when you make payments, yes, you are
    going to make it to a foreign bank. And they are restricted in
    how they might use that money. And they want to access the cash
    because the cash is untraceable and they can use it for
    nefarious things that we object to. And you made the payment
    anyway in cash.
        Secretary Lew. Congressman, the Joint Comprehensive Plan of
    Action gives Iran access to its own money in international
    banks.
        Mr. Duffy. I don't have much time left.
        Secretary Lew. No. Let me answer your question,
    Congressman.
        Mr. Duffy. Hurry up.
        Secretary Lew. This is a very important question. Part of
    the agreement that caused Iran to dismantle its nuclear program
    and increase their--make it take 12-plus months, not 3 months,
    to develop a nuclear weapon--which they dismantled their
    nuclear program. We had to keep our part of the deal, which was
    to give them access to their own money.
        Mr. Duffy. In cash, right.
        Secretary Lew. They have been having a hard time. And I am
    not going to apologize for saying we need to keep our deal.
    They need to get access to that cash.
        Mr. Duffy. I am going to reclaim my time. I heard you--
        Secretary Lew. And in the case of settling a contract--
        Mr. Duffy. We can have a disagreement on--this is my time,
    though.
        Mr. Lew, I have--
        Secretary Lew. Mr. Chairman, can the Congressman get a few
    more seconds so I can answer his question? We shouldn't have to
    talk over each other. This is a very important matter.
        Chairman Hensarling. Without objection, but the time
    belongs to the gentleman from Wisconsin.
        Mr. Duffy. If I could have unanimous consent for another 30
    seconds?
        Chairman Hensarling. Without objection, the gentleman is
    accorded an extra 30 seconds.
        Secretary Lew. I respect the question. And I don't want to
    be talking over each other. I would like to explain it.
        A deal is a deal. When you have a country dismantle its
    nuclear program and you give them access to their money, that
    means they are going to get money. It is going to go to the
    Central Bank. We knew that. We said all along we are going to
    make sure that we keep our eye on what they do in terms of
    nefarious activities and use our other authorities to stop
    that.
        Mr. Duffy. I have given you the time, but I only have now
    30 seconds. But I know, I wish I had more time. I wish I did,
    but maybe we will talk over coffee one day.
        Secretary Lew. But the other half of my comment actually is
    very important.
        Mr. Duffy. Can you guarantee--Mr. Lew, you say you cut a
    good deal, you are proud of the deal. Can you guarantee the
    American people that that $1.7 billion in cash will not be used
    to fund terror?
        Secretary Lew. Look, Congressman, I have said--
        Mr. Duffy. I will take that as a no. Yes or no.
        Secretary Lew. These are not yes or no questions.
        Mr. Duffy. They are yes or no questions.
        Secretary Lew. Be serious, Congressman.
        Mr. Duffy. I am very serious.
        Secretary Lew. All right. Then give me a chance to answer
    your question.
        Mr. Duffy. This is a serious issue.
        This is a yes or no. I have a few more moments. So in
    regard--
        Secretary Lew. Congressman, if I have the time, I will
    answer your question. If not, let's be serious.
        Mr. Duffy. It is a yes or no. So I have one more question
    for you. We have unfrozen assets. Right? Whether it is $100
    billion or they had payments, that is only $40 billion. Do you
    know if any of that money has also been allowed to go to Iran
    in cash or gold or any other--
        Secretary Lew. Congressman, people are coming up with all
    kinds of--
        Mr. Duffy. You are the Treasury Secretary. That is why I am
    ask you.
        Secretary Lew. I have seen things--
        Mr. Duffy. I am asking the Treasury secretary.
        Secretary Lew. We have--we gave--
        Mr. Duffy. Yes or no.
        Secretary Lew. Mr. Chairman, may I answer the question?
        Congressman, you--
        Chairman Hensarling. Please answer the question.
        Secretary Lew. --have a letter that our department sent you
    describing the transfer of cash. We have laid it out clearly.
    We have come up and given classified briefings. We continue to.
        Mr. Duffy. My question for you that you wanted to answer,
    and I guess if he could answer the question. He has asked for
    it, Mr. Chairman, and I ask unanimous consent to allow that.
        I am now talking about the $100 million of unfrozen assets
    that might only be $40 billion. Not even $100 billion. Any of
    that money that you are aware of as the Treasury Secretary, not
    rumors, but you as the secretary, do you know if any of that
    money has been allowed to go to Iran, of those unfrozen assets,
    in cash or gold or any other kind of currency payment?
        Secretary Lew. Congressman, the--
        Mr. Duffy. Yes or no.
        Secretary Lew. Congressman, the money is Iran's money. And
    when it comes to the Central Bank of Iran, one way or another,
    it gets turned into cash that they can use. So you are only
    talking about what mode of transfer.
        Mr. Duffy. Because you--
        Secretary Lew. I am not aware of cash transfers.
        Mr. Duffy. You have allowed it to happen, sir.
        I yield back.
        Chairman Hensarling. The time of the gentleman has long
    since expired.
        The Chair now recognizes the gentlelady from New York, Mrs.
    Maloney, ranking member of our Capital Markets Subcommittee.
        Mrs. Maloney. Thank you, Mr. Chairman.
        And welcome, Secretary Lew. I want to ask you about
    cybersecurity. And as you know, there have been several
    reported examples where hackers have successfully stolen banks'
    credentials for the SWIFT system that banks use for
    international payments, and then used these stolen credentials
    to initiate fraudulent funds transfers. In one case, hackers
    were able to steal $81 million from the Bangladesh Central
    Bank's account at the New York Fed.
        And I am concerned, and I want to know are you concerned,
    that repeated instances of fraudulent transfers through the
    SWIFT system will undermine the confidence, and I would say,
    the safety and soundness of international payments, and do you
    believe that this poses a systemic risk?
        Secretary Lew. Congresswoman, obviously we are aware of the
    reported intrusions into the SWIFT system. And I would have to
    refer you to SWIFT for detailed responses on that.
        We do have confidence in the integrity of the global
    financial system, but we are also very much aware of the risks
    that the threat of cyber attack presents to every part of our
    financial system, and really every part of our electronic
    lives. It is true about utilities. It is true about virtually
    every system that we deal with.
        That is why the Presidenthas been so clear that we need to
    take the strongest action to have a coordinated approach to
    both putting best practices in place, sharing information,
    removing the stigma of being attacked. Because whether you are
    a business, a government, or an individual, you didn't
    necessarily do something wrong that you were attacked. We have
    to stay a step ahead of the bad actors. That means that the
    more you know about how attacks are made, the more you can
    build systems to protect against them. You know that the
    attackers are going to come up with something new. It is not
    like they will stop where they are. We need to make sure that
    systems are updated so that you have the right equipment as
    well as the right software approaches.
        I think this is going to be a part of our lives for some
    time to come. We have to make sure it doesn't become a threat
    to financial stability. I actually think the financial system
    is a step ahead of most other sectors. But that gives me little
    comfort, because the financial system requires electricity, it
    requires all of the other things that are part of our broader
    infrastructure that we all depend on. This is a serious,
    serious challenge throughout our economy and the world.
        Mrs. Maloney. Thank you. I would also like to ask you about
    Brexit. And just 2 days after the FSOC published its annual
    report, the U.K. Voted to leave the European Union. And the day
    after that vote, the FSOC held an emergency meeting that was
    reported to discuss the financial stability and implications of
    the Brexit vote.
        Now that you have had time to reflect and to study this and
    to consider various scenarios for how the U.K. Will manage its
    exit, do you see any real risks to the financial stability of
    the United States coming from the Brexit initiative? And if the
    U.K. And the EU fail to reach a deal on financial services
    before the U.K. Leaves, could that pose a systemic risk to our
    financial system?
        Secretary Lew. Congresswoman, I think in the period right
    around the vote and after, there was very good preparation by
    central banks and by finance ministries to make it clear that
    there were sufficient resources in place to prevent what was a
    very volatile period from spilling over into a period of real
    loss of confidence. I think it was actually a measure of the
    success of financial reform that there was enough confidence in
    financial institutions because we knew what their balance
    sheets looked like, we knew what their capital was. And it gave
    central banks the ability to respond as decisively as they did.
        Mrs. Maloney. And lastly--my time is almost over, and I
    want to talk about you de-designated GE Capital. It was the
    first de-designation in the council's history. And this came
    after GE Capital made significant changes to its business model
    and divested nearly $300 billion of assets. Now, some critics
    of the FSOC have claimed that GE Capital only escaped after
    they sold off virtually all of their financial businesses, and
    that therefore FSOC requires companies to gut themselves in
    order to be redesignated. Is that true? Is the only way for a
    company to get de-designated is to really divest? Or was GE
    Capital a unique case?
        Secretary Lew. Each designation is a unique case. It is
    based on the facts that are presented and the analysis of the
    company and the risk that it presents. In the case of GE, they
    made a business decision that, from my conversations with the
    company, had less to do with designation and more to do with
    their strategic vision of where the company should go. It had
    the effect of changing the analysis in a material way. And they
    were de-designated.
        Every company knows why they were designated. They all
    understand what their strategic business plans are. And they
    have the basis for making the decisions for themselves.
        Mrs. Maloney. Thank you very much for your service.
        Chairman Hensarling. The time of the gentlelady has
    expired.
        The Chair now recognizes the gentleman from New Mexico, Mr.
    Pearce.
        Mr. Pearce. How are you doing, Mr. Secretary? Nice to have
    you here today.
        Secretary Lew. Always a pleasure.
        Mr. Pearce. I could tell.
        When the FSOC was created, basically you were charged with
    three statutory mandates, and the first being to identify the
    risk to the financial stability of the United States. So that
    is pretty well-established.
        Now, in your report today, you say that for the first time
    ever we can identify and respond to emerging threats to the
    U.S. financial stability. And then you go on to say that the
    council, the FSOC council, convenes regularly to monitor market
    developments and take action when needed to protect the
    American people. And then you continue on even further to say
    that the FSOC is supposed to report on recommendations for
    specific actions to mitigate the risks.
        For over 6 years, the Fed has kept interest rates extremely
    low. In fact, near the zero level. Mostly, the inflation doves
    in the Fed have downplayed the effect on the market. Now, just
    last week, you had the head of the Boston Fed, President
    Rosengren, he has been one of the biggest doves saying that
    there is no connection here. He came out and made a statement
    that says that he is concerned that easy money could be letting
    markets get out of hand as they were before the crisis. That
    sent the markets into turmoil.
        And so a market that hadn't changed barely 1 percent in the
    previous month and a half suddenly was changing tremendously in
    the next 3 or 4 days. So the market is indicating some concerns
    that it might be true.
        So I guess my question--I would like to also submit that
    article for the record, Mr. Chairman.
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Pearce. And then you have also Veritude saying that
    they are not going to trade in the bond market because it is
    just too hard to price. It is too unstable.
        Now, to me, those are things that in my small town New
    Mexico way seem like they could be impacts on the stability--
    the financial stability of the United States. But I was kind of
    surprised because I am just thumbing through, I haven't read
    the whole thing, but I am looking at your report, not just what
    you said here today, and I don't see much about monetary policy
    affecting the markets the way that they seem to be.
        So I guess my question is, when you are ever sitting around
    talking to Janet Yellen, do you ever kind of look away from the
    TV cameras and say: We ought to be talking about this. It has a
    little effect maybe? Do you ever bring that up?
        Secretary Lew. Congressman, obviously, like all of our
    predecessors, the Chair of the Fed and I talk to each other,
    both in meetings and out of meetings, and I would hope that
    that remains true, because as the two senior economic--
        Mr. Pearce. Okay. You are just now talking, sir. And with
    all respect, I am not trying to interrupt if you were really
    getting in saying: Yes, we have talked about it and stuff. But
    you are saying you want the conversation to be friendly and
    continue, and my time is escaping. And so I am not going to
    bother you anymore. I am just going to continue to make the
    points. Because I think that you are not looking at the
    financial instability at all that is coming up.
        When I am talking a look here, the Wall Street Journal of
    May 20 says that it is not China, not the U.K. It is the lack
    of liquidity in the markets that is going to be a big problem.
    When I take a look at Bloomberg, they talk about today's
    postcrisis regulations intended to make banks safer and
    discourage risk taking are eroding profits and forcing dealers
    to rethink their business model. These changes have created a
    vacuum in the bond market making trading much riskier. And then
    they go on in the same report to say that all of this matters
    because the $100 trillion global bond market is an essential
    part of the machinery that keeps the world economy going. And
    it is not even being referred to in your report.
        And finally, then where it all comes down to hit the road,
    is September 21st, a $1.9 trillion shortfall in the United
    States State and local pension fund is poised to grow as near a
    record low bond yields and global stock market turmoil reduce
    investment gains, that they are expecting 7 percent rate of
    return and they are getting 1 percent. And none of this is in
    your report, which leads me to think that you are not dealing
    with the financial instability of the U.S. at all.
        I yield back, Mr. Chairman. Thank you.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Massachusetts,
    Mr. Lynch.
        Mr. Lynch. Thank you, Mr. Chairman.
        Welcome, Mr. Secretary. And I have to say, I think that--
    well, first of all, thank you for your service to your country.
    And I think my predecessor, Joe Moakley, would be very proud of
    the job that you are doing.
        Secretary Lew. I am proud to have been connected to him.
        Mr. Lynch. Yes. Good man. We miss him.
        I do want to revisit the issue raised by the gentlelady
    from New York, Mrs. Maloney, around the SWIFT. That system was
    compromised. She is absolutely correct. $81 million.
    Apparently, a transfer from the Bangladesh Central Bank, but
    the payment was authorized to the New York Fed, and then the
    money ended up in the Philippines, and there we lost track of
    it.
        And so given the size, the volume of transactions between
    central banks and commercial banks on that SWIFT network, it
    does raise some concerns. And I was wondering--I did read a
    story in Reuters that we are in informal discussions with the
    Philippines. They would like to be part of TPP. Now, I am
    against TPP, but as long as you are having these discussions,
    one of the gaps in that whole theft of $81 million was that the
    Philippines have created an exemption for their casinos under
    the antimoney laundering protocols that we have at FATF. And I
    am just wondering, in those discussions, if we could persuade,
    no matter where TPP goes, if we could persuade the Philippines
    to get in compliance with that antimoney laundering protocol
    that we have--with a lot of the FATF countries, that might be a
    good use of our time.
        Secretary Lew. Congressman, I think in general, the more we
    bring other countries up to high standards of being able to
    stop illicit financial activity, to see money laundering, the
    better able we will be to take actions, not just in response to
    cybercrime, but in terms of funding of terrorism and other
    things of the like. I think the challenge of making sure our
    computer systems are safe is one that, as I was saying to
    Congresswoman Maloney, we deal with every day. Every CEO in the
    world deals with it every day. And it is going to be an ongoing
    challenge.
        I know SWIFT is taking very seriously the breaches that
    have been reported. And it is going to require action kind of
    broadly through the financial system to stay ahead of these
    cyber attacks.
        Mr. Lynch. All right. Chairman Hensarling has set up a
    terrorist financing task force here that I share with Mr.
    Fitzpatrick. And we are just very concerned. In the
    Philippines, Abu Sayyaf is very active there. So God knows
    where this $81 million went. But that would certainly be a
    problem.
        I want to revisit the SIFI designation process a little
    bit. I know that the courts rejected the application of SIFI to
    MetLife. And I am just curious how that has changed your
    analysis. And I know you have sort of a three-stage review
    there. How is that going? Do you think MetLife is a risk
    because they have been declassified, I guess, de-designated?
        Secretary Lew. To be clear, a lower court has ruled in
    favor. We have appealed that. We believe we have the legal case
    to prevail on appeal. So we don't believe that the end of the
    MetLife case will be to de-designate, but that is obviously up
    for the courts to decide.
        I think the process we went through was a rigorous one. The
    record supports the decision that we made. And I think some of
    the basis for the court's decision is very flawed. I have made
    that clear. That is something that our appeal makes clear.
        Mr. Lynch. Yes.
        Secretary Lew. I think going forward, the point I made
    earlier is, I think, very important to keep in mind. We have
    not designated 500 institutions.
        Mr. Lynch. Well, I know that.
        Secretary Lew. We have designated 12.
        Mr. Lynch. You said previously there are a very, very small
    number of companies and utilities.
        Secretary Lew. And they are--for a reason. Because they are
    so--
        Mr. Lynch. But let me--I just want to--my time is running
    out. So--okay. So there is this process that I hear from some
    of the companies and banks that might be affected that--and it
    was cited in the lower court's decision, that there is not
    enough flexibility for them to adjust their structure in a
    timely fashion to avoid SIFI designation. Is that something you
    are working on or--is that part of your response?
        Secretary Lew. I think that the process of consultation in
    the designation process has been very good. It has gotten
    better over time, but it has been very good all along. I
    think--
        Mr. Lynch. That is according to you, just so you know. Some
    people don't feel that way. But I agree with you.
        Secretary Lew. I think that it is not because there is a
    misunderstanding. It is because of basic issues of what
    businesses are doing, what they are about. And it is not that
    it--we obviously think that if decisions are made to reduce
    risk, that is a good thing. But if you are going to maintain a
    business organization that presents a high degree of risk,
    having oversight is important. It doesn't put anyone out of
    business.
        Mr. Lynch. Okay. Thank you for your indulgence, Mr.
    Chairman. I yield back.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from California, Mr.
    Royce, chairman of the House Foreign Affairs Committee.
        Mr. Royce. Thank you, Mr. Chairman.
        Mr. Lew, welcome.
        Secretary Lew. It's good to be with you.
        Mr. Royce. We are glad you are here. I know that back in
    1986, you sat next to Tip O'Neill back when he and Ronald
    Reagan were working on the 1986 Tax Act. And I was wondering
    what advice you might give maybe the next Administration in
    terms of how the Speaker and how the President could work on
    the compromises that would get us to a result, in my view, like
    that one. I think you are somewhat optimistic about the
    consequences of the economic growth that we saw after the 1986
    act as well.
        So I wanted just to speak for a second to this issue you
    mentioned about this bipartisan widespread agreement that our
    current business tax rate is stifling economic growth and that
    it is making us uncompetitive. And there is an agreement, I
    think, on the need to eliminate loopholes. And I think also
    some of us who agree we should be taking tax revenue from money
    parked overseas to pay for infrastructure projects here, there
    is perhaps that element too that could help move this through.
        There seems to be some disagreement on whether to include
    small businesses that file on the individual side to include
    the passthrough companies. And I have followed your thinking
    through the years. I know early on, you thought it should all
    be done at once, and last month, I think you mentioned it
    needed to be broken up in terms of how it was handled. But I
    thought I would ask you that question, and especially in terms
    of how we were able to achieve that result in 1986.
        Secretary Lew. Congressman, it is a great question. It is
    actually something I have given a lot of thought to. I think we
    have made a lot of progress in the discussions on a bipartisan
    basis on business tax reform. I think in terms of how we should
    close loopholes, how we should lower rates, how we should deal
    with international income, have a minimum tax, I think that we
    have an emerging consensus that has the ability to get
    bipartisan support. I think you put your finger on something
    that has been an issue. And I think it is a misunderstood
    issue. And if I could take just a minute, I would like to
    explain why.
        You can do business tax reform on the corporate side and
    provide a lot of benefit to small businesses by letting them
    deduct everything that they spend on investment by giving them
    simplified procedures. Real small businesses would benefit from
    where the emerging consensus for business tax reform is. The
    institutions that wouldn't--the businesses that wouldn't
    benefit are not small businesses. They are LLCs that organized
    after the last tax reforms to go from being corporations to
    being passthroughs. It is interstate pipeline companies, it is
    large financial firms like hedge funds.
        I think that if we look at the impact on real small
    businesses, we can get there. And I hope that we can, like,
    break apart where the impact of individual rates really falls.
    It doesn't fall on the small neighborhood business. It is
    falling on these very large firms. And I think it would be a
    shame if that were to be an obstacle to cleaning up a business
    tax code that is profoundly broken. It is causing terrible
    consequences. We see the European commission now reaching into
    our tax base with state aid fines. That is a terrible thing. We
    need to stop it by fixing our Tax Code.
        And you put your finger on what I think brings it together
    so we should be able to get bipartisan consensus, which is
    using the one-time revenue that comes from having a tax apply
    to overseas income, whether it comes home or not, to fund
    infrastructure. That is one-time revenue. It is a perfect use
    for one-time revenue.
        Mr. Royce. Let me ask you another question too. And that is
    on the intersection of domestic and international regulations
    in the area of the Financial Stability Board. I am concerned
    that U.S. regulators, at least in part, rely on FSB
    determinations, yet FSB is not subject to the procedural due
    process. So I think we have an interest here in starting with
    FSOC rather than starting at the other end with European,
    Swiss-based FSB, where we end up without notice and comment or
    prohibitions on arbitrary and capricious actions, and then we
    work to accommodate the Europeans rather than the other way
    around.
        Given the impact that designation can have on a company,
    why utilize a process that lacks some basic protections here?
    Why don't we reverse that process?
        Secretary Lew. Congressman, we do it the way you want us to
    do it. The only designations that we make, we make based on
    U.S. procedures. The FSB is a policy shaping, not an action
    determining body. It is not binding on nations, but it does
    help bring other countries closer to meeting our standards. And
    I think it is good for us to have other countries have higher
    regulatory standards.
        Mr. Royce. Thank you, Mr. Chairman.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Georgia, Mr.
    Scott.
        Mr. Scott. Secretary Lew, I want to go back to the Iranian
    discussion for a moment, but from another perspective. We all
    agree the Iranian agreement is done, it is there, and that it
    is--whether you agree with it or not. But here is my concern.
    We all must agree that as a result, right now, Iran stands
    flush with billions and billions and billions of dollars. And
    as you alluded to, much of their own money. And I respect the
    President. He has tried very hard with this deal. I respect
    that deal. But here is my concern.
        We have an obligation to Israel to make sure that they have
    a memorandum of understanding. But here is the point,
    Secretary. The President recently issued his memorandum of
    understanding, and it is woefully weak. It is about the same
    amount of money as we did in 2008. Because, as you know, in the
    Naval Transfer Vehicle Act of 2008, we established a fact in
    law that the amount of military aid we give to Israel must make
    sure that Israel has the qualitative military edge. There is
    absolutely no way.
        But the President, in his memorandum of understanding,
    giving Israel about the same amount of money that we gave 10
    years ago when we had our foot on Iran's neck, the economyis
    down. Now they are flush with hundreds of billions of dollars
    more. So much so that they are now shipping weapons to Israel's
    enemies up and down and all around the place. As you know, we
    were able to successfully stop three shiploads of weapons going
    to the Houthis, going to Hezbollah, going to Hamas, Syria, all
    of those places.
        My point is this. The President--some of us here in
    Congress want to work with the President. And I want to ask you
    if you could convey to him that David Scott wants to work with
    him. I have served on the NATO Parliament Assembly. I was the
    vice chair--the chairman of our Science and Technology
    Committee. We spent 2 years working on the Iranian agreement. I
    understand that. That is past. But now we got Iran, Israel's
    number one enemy, flush with all this money. And we have an
    obligation in the Naval Transfer Act of 2008 to make sure that
    they have the qualitative military edge. And they don't have it
    with the President offering--Bush offered in 2008, I think it
    was about $3.3 billion a year, and the President is talking
    about like $3.7 billion, when Iran is so far superior in its
    money. It has already put in $19 billion for moneys in weapons
    from China and Russia, and all that.
        So what I wanted to ask you was that if you could convey to
    the President that Congress has a step in this too. Let us work
    together. That memorandum of understanding for Israel, in order
    to make sure they had the qualitative military edge as by law
    we are saying, should be close to $7 billion a year. It is
    Congress that appropriates that money. Give us a seat at the
    table. Let us work with him on it. Could you do that for me?
        Secretary Lew. Congressman, I think just a couple points.
    First, I met yesterday in New York at the U.N. with Israel's
    finance minister who saw the MOU as being very important in
    terms of guaranteeing Israel's both military and financial
    security. So I don't think your view is shared necessarily by
    the Government of Israel.
        Secondly--
        Mr. Scott. But let me tell you something, what my view is.
    I helped write that law in 2008. We made sure that they got the
    qualitative military edge.
        Secretary Lew. Which we have continued to stand by.
        Mr. Scott. And this does not--
        Secretary Lew. We continue to stand by that, yes.
        Mr. Scott. You don't have the qualitative military edge
    giving them the same amount of money.
        Secretary Lew. I will leave the discussion of the military
    issues to our military experts. But this, as a financial
    matter, is a very important commitment between the United
    States and Israel. And I am proud that we were able to do it. I
    don't think--
        Mr. Scott. Congress appropriates the money. Don't you think
    we have a role in that?
        Secretary Lew. Congress always has the right to appropriate
    the money. I won't challenge that.
        If I could just say, though, I think anyone comparing
    Israel's economy and Iran's economy, Iran has a broken economy.
    They have gotten some relief because of taking apart their
    nuclear program. But Israel has a very--
        Mr. Scott. There is not a dime of that goes to the Iron
    Dome or to David Sling or to combat the traffic of weapons
    going to Israel.
        Secretary Lew. And I totally agree with you. We should
    stand with Israel to make sure--
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Florida, Mr.
    Posey.
        Mr. Posey. Thank you very much, Mr. Chairman.
        Secretary Lew, I have an issue that ties in with the
    chairman's question about the role of the Treasury in making
    payments. For 6 years, 6 long tortuous years, I have been
    fighting for a group of former hostages held captive by the
    Revolutionary Armed Forces of Columbia, better known as FARC. I
    know you are familiar with them.
        You see, these men were on a U.S. Government
    counternarcotics mission when they were captured by the FARC.
    One American was executed and the other three were held hostage
    for 5\1/2\ years. They were subject to conditions that neither
    you nor I can even begin to imagine. Horrible.
        After returning home, the former hostages were granted a
    judgment under the Antiterrorism Act for damages against the
    FARC. However, the accounts to fund this judgment have been
    blocked by the Treasury Department since the Office of Foreign
    Assets Control is now designating all FARC accounts as kingpin.
    Congress clearly wanted terrorism victims to be compensated
    when it passed the law to allow them to access the frozen
    assets of terrorists. But the Office of Foreign Assets Control
    has eliminated their ability to do that by designating all FARC
    assets as kingpin. A small change to TRIA would fix this.
        The bill that accomplishes this, H.R. 3394, the Captive
    Act, passed the House unanimously. Totally bipartisan,
    unanimous, in July. Now I am hearing that the Office of Foreign
    Asset Control is blocking the bill in the Senate. In the
    meantime, the FARC peace accord includes reparations for
    Columbian victims of the FARC terrorism, and a $450 million
    appropriation to implement the accord is waiting for
    Congressional passage. However, here we have American victims
    of terrorism who went through years of torture on behalf of the
    United States Government who have still not been compensated.
        My question for you is: Will you please work with me and
    these former hostages who have suffered so much already at the
    hands of FARC so that they don't have to suffer at the hands of
    Congress and bureaucrats in the future, and let's get them
    compensated?
        Secretary Lew. Congressman, I share your concern for
    victims of terrorism. And I understand that it is a very
    complex and heavily litigated issue regarding multiple claims
    to a limited pool of money. As I know you are aware, TRIA
    allows a person who has a judgment to go against blocked
    assets. But currently, the term ``blocked assets,'' as defined
    by TRIA, gives access to funds that are frozen pursuant to two
    statutes, IEEPA and the Trading With the Enemy Act. IEEPA is
    the principal tool that we at Treasury use to sanction
    terrorist organizations and their members as well as victims of
    state sponsors of terrorism.
        The Kingpin Act, as I know you know, is designed
    specifically to create tools to deal with the threat that our
    country faces because of the international narcotics
    trafficking. And amending TRIA to have the definition of
    blocked assets include property frozen under the Kingpin Act
    could very much undermine our efforts on that very important
    mission as well. So we would look forward to working together
    to pursue how we address the concerns that we share in terms of
    victims of terror having access to compensation. But our
    concerns are to protect another, I think, shared goal that we
    be able to take very decisive action to stop narcotics
    trafficking.
        Mr. Posey. I am a little bit confused how giving American
    patriots the same or equal consideration of foreign people who
    have been terrorized would undermine any of our security
    efforts to fight terrorism or narcoterrorism.
        Secretary Lew. So the Kingpin Act is designed to provide
    resources that go against fighting narcotics trafficking.
        Mr. Posey. I understand that. But this is taking resources
    from narcoterrorists and compensating American victims. And, I
    just don't think there is any excuse for any bureaucrat in this
    country to hold up--to willingly, knowingly, willfully hold up
    the compensation of these gentlemen when it could be remedied
    so very easily.
        Chairman Hensarling. The time of the gentleman--
        Mr. Posey. I think there is a special place in hell for
    people that would do that.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from North Carolina,
    Mr. Pittenger.
        Mr. Heck. Mr. Chairman?
        Chairman Hensarling. For what purpose does the gentleman
    from Washington--
        Mr. Heck. I thought the protocol was to alternate between
    political parties. I have not yet had my opportunity.
        Chairman Hensarling. I apologize to the gentleman from
    Washington. The gentleman from Washington is now recognized for
    5 minutes.
        Mr. Heck. Thank you, sir.
        Mr. Secretary, thank you for being here. I thought it might
    be interesting if we return to the ostensible purpose of our
    hearing today, namely the Annual Report of the Financial
    Stability Oversight Council. And I want to direct your
    attention to page 16 and some of the language relating to
    housing reform.
        Among other things, it says, ``The Council recommends that
    regulators and market participants continue to take steps to
    encourage private capital to play a larger role in the housing
    finance system. Further, the council acknowledges that, under
    existing regulatory authorities, Federal and State regulators
    are approaching the limits of their ability to enact reforms
    that foster a vibrant, resilient housing finance system. The
    council therefore reaffirms its view that housing finance
    reform legislation is needed to create a more sustainable
    system.''
        So I am one who believes that it is a far stretch of the
    imagination to believe that conservatorship is a status which
    should exist in perpetuity. That it is implicitly by definition
    something that is temporary. So I would like to see us move
    forward. But yet it is not altogether clear to me what is meant
    and the whys behind these assertions in this report. For
    example, what is inherently unstable about the status quo, as
    much as I would like to see us move forward? I do not
    understand why it is the council believes that what we have is
    not stable as a consequence.
        Secretary Lew. Congressman, we continue to have a housing
    finance system where most mortgages are in one way or another
    government backed, either through FHA or through the GSEs,
    which are in conservatorship. We think a more stable approach
    would be to have private capital taking risk, coming in, and
    having a mortgage market that is not dependent on having a
    backstop of government support.
        Mr. Heck. Why would it be more stable? I understand why it
    would be--arguably, I would understand why it would be more
    vibrant and more dynamic, because if we were to increase
    private sector participation, we might have more innovation.
    But what is inherently unstable about how we do things now?
        Secretary Lew. If ultimately the goal is to attract private
    capital into the housing market, it would be a good thing if we
    had avenues for private capital to have business models to get
    into the housing market and bear the risks that they are taking
    in a way that is not fully dependent on one or another form of
    government backstop. The challenge is how to get legislation
    that would permit the development of the structure that would
    meet those criteria.
        Mr. Heck. I agree with all that, Mr. Secretary, except I
    still don't hear an answer to my question. What is unstable
    about how we are doing it now?
        I agree with everything you said about the importance of
    moving forward with increased private capital participation,
    but the report says that it would be more stable. What is
    unstable about how we are doing it?
        Secretary Lew. If you go back to the period before the
    financial crisis, it was explicitly said that the government
    didn't stand behind the GSEs. Then there was a financial crisis
    and the government had to bail out the GSEs, which is why we
    are in the conservatorship now.
        I don't think that anyone designed a system for permanent
    conservatorship or wanted a system of permanent
    conservatorship, but it requires legislation to move on from
    where we are. To me, as someone who cares deeply in long-term
    access to housing in this country, it would be better if we
    right now had a blueprint in legislation for what the mortgage
    finance of the future looks like.
        Mr. Heck. Do you believe that home ownership, the
    percentage of the population enjoying home ownership, would
    increase if we were to allow for increased private sector
    capital?
        Secretary Lew. I think it certainly could, yes. Obviously,
    it depends how it is done, so I can't answer in an unqualified
    way.
        I think it is important that anyone who is creditworthy
    should have access to a home mortgage. I think right now we
    have a tighter credit box than is necessarily warranted, and we
    have tried through clarifying some of the regulatory issues,
    things like put-back risk, to ease the credit box some. But we
    also saw in the lead-up to the financial crisis that it is not
    a good thing for people who can't afford a mortgage to get in
    over their head.
        So striking that balance right and having risks borne where
    the decisions to take a risk are being made would be a better
    way in the future. Obviously, we are going to do everything we
    can to keep the mortgage market healthy during the period of
    conservatorship.
        Mr. Heck. Thank you, Mr. Secretary.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from North Carolina,
    Mr. Pittenger.
        Mr. Pittenger. Thank you, Mr. Chairman.
        Hello, Mr. Lew. It's good to see you.
        Secretary Lew, did the Office of Terrorism and Financial
    Intelligence, did that office raise any concerns about the
    method of payment to Iran, the hundreds of millions of dollars
    in cash to a State Department-designated sponsor of terrorism?
    Did they raise any concerns?
        Secretary Lew. Congressman, I am obviously not going to get
    into any individual things in this setting.
        Mr. Pittenger. They are under your purview, and I just
    asked you a direct question. Did they raise any concerns?
        Secretary Lew. I would say that the view within the
    Treasury Department is that everything that we did was
    consistent with both good policy and the law.
        Mr. Pittenger. So they didn't raise any concerns?
        Secretary Lew. I am really not going to comment one way or
    the other on what I did or I didn't hear from intelligence
    briefers.
        Mr. Pittenger. This is your Office of Terrorism and
    Financial Intelligence in Treasury.
        Secretary Lew. We have consistently seen analysis and
    shared analysis that shows--
        Mr. Pittenger. Were you apprised of any concerns by that
    office?
        Secretary Lew. Congressman, I was not briefed internally on
    reasons not to proceed with this transaction, but I am not
    going to describe who told me what.
        Mr. Pittenger. Did that office conduct any analysis as to
    the impact of sending ultimately billions of dollars over to
    Iran?
        Secretary Lew. Congressman, we have done extensive analysis
    on what Iran is doing outside of the JCPOA, the Joint
    Comprehensive Plan of Action, and we have tried as best we can,
    and we have some ability to see what is going on, to see what
    the--
        Mr. Pittenger. How many banks operate--Mr. Secretary,
    excuse me, but we have limited time.
        Secretary Lew. But I didn't answer your last question.
        Mr. Pittenger. How many banks operate under the SWIFT
    authority that gives them access to the international financial
    system, how many banks in Iran have that capacity?
        Secretary Lew. I would have to get back to you,
    Congressman.
        Mr. Pittenger. That would be an important thing to know.
        Secretary Lew. If I can just go back, it really is
    important to answer your last question. We have been looking to
    see if, as we said at the time the JCPOA was agreed to, that
    there would not be a substantial increase in funding, and we
    are not seeing the increase in funds available to Iran going to
    the purposes that we all want to stop. If we see it, we will
    stop it. If we see ships going, we will try to stop them.
        Mr. Pittenger. I think going through the financial system,
    through the SWIFT bank authority, has enormous impact.
        Mr. Secretary, Pastor Saeed Abedini, he was one of the
    hostages. I went over and greeted him in Germany when he
    arrived. As he was waiting in Iran to depart from the Swiss
    airline, Swiss-provided aircraft, to go to Germany, he asked
    one of the guards: Why the wait? Why can't we board and leave?
    And Pastor Abedini testified in Congress and also in the media
    that they were waiting for a plane to arrive, and once that
    plane arrived, then they would be able to depart. And, of
    course, we have seen pictures of planes that arrived and bags
    coming off.
        Did it ever really concern you that the reality of paying
    for these hostages, these ransoms, was not just perception, but
    in reality that is what the Iranians believed?
        Secretary Lew. Congressman, I can't speak to what anyone
    else believed, but I can tell you what I understood at the time
    and what I know now. We had three separate negotiations, all of
    which were going on because a window had been opened at the
    same time. We didn't talk to Iran for decades, but with the
    negotiation of the Joint Comprehensive Plan of Action, we had
    the ability to negotiate for the release of Americans being
    held against their will. We had the ability to settle an
    outstanding legal claim. The fact that all those things came
    together is because we were talking to each another.
        Mr. Pittenger. When you see that the three hostages were
    released--
        Secretary Lew. I couldn't hear you. I am sorry.
        Mr. Pittenger. In fact, it became very offensive to Pastor
    Abedini. He said: What is going to happen now is we have
    exacerbated the problem, and we are going to see a dollar
    amount put on every hostage.
        Secretary Lew. But, Congressman, there is a fundamental
    difference between ransom, which is when you give your money to
    another party, than having separate transactions where you give
    a party its own money.
        Mr. Pittenger. It all happened at the same time.
        Secretary Lew. And that is all this was.
        Mr. Pittenger. One last question I would like to ask you,
    20 seconds. Mr. Secretary, have we ever paid cash in large sums
    to any other government before?
        Secretary Lew. I would have to go back and check the
    history. We do a lot of business in a lot of ways. I know your
    time is almost up, Congressman. I know this has been a very
    difficult week in your city, and I just want to express my own
    personal sympathies to the families that have been injured and
    suffered a loss.
        Mr. Pittenger. Thank you. We need the leadership of Martin
    Luther King in my City today. Thank you.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Kentucky, Mr.
    Barr.
        Mr. Barr. Thank you, Mr. Chairman.
        Secretary, welcome back to the committee.
        If I could just follow up on the questions from my
    colleague from North Carolina related to the Administration not
    seeing where the money is going, and I think your testimony was
    you don't see money going to terrorist elements. That kind of
    begs the question, if you are transferring money to the
    Government of Iran in cash, of course you are not going to see
    whether or not, that is the whole point.
        Secretary Lew. We actually tried to keep track of what is
    going on as best we can see it in all ways.
        Mr. Barr. But the question that has been asked and I am
    still looking for an answer is, can you track cash payments to
    Iran and whether or not that ends up in the hands of, say,
    Hezbollah?
        Secretary Lew. So, look, the challenge--and this is an
    issue we dealt with directly when the Joint Comprehensive Plan
    of Action was being debated. I cannot tell you Iran will stop
    doing things we don't want them to do. We are going to do
    everything we can to stop them using those authorities.
        But just as we had agreed in the JCPOA that they would have
    access to their money, we said we will do everything we can to
    stop the flow of money. But once money goes into the Central
    Bank of Iran, the mode of transfer is not the issue. We have
    the same challenge, if you had given them the money through a
    check, we would still have to watch where the money goes
    afterwards. We are doing that. We do not see it going.
        Mr. Barr. Can you tell us in Congress and the American
    people today that the $1.7 million that was transferred in cash
    is not funding terrorism?
        Secretary Lew. Look, I understand that you are focused on
    the cash, but we are looking at how much money is going to
    support regional--
        Mr. Barr. That is a no. I interpret what you are saying as
    a no.
        Secretary Lew. Congressman, don't interpret me. I will
    speak for myself. I will speak for myself.
        Mr. Barr. We all know you can't tell us whether or not that
    money is not going to be used--
        Secretary Lew. Congressman, can you show me, contrary to
    our analysis, that we have seen--
        Mr. Barr. The point is it was your testimony that you don't
    see it going to terrorism, but that is why you don't see it
    going to terrorism, because it is in cash.
        Secretary Lew. No, Congressman, that is not why. That is
    not why.
        Mr. Barr. Let me switch to another topic. Let me switch to
    another topic.
        Secretary Lew. I can't in this setting describe to you
    everything that we know and see, but that is not correct.
        Mr. Barr. This is evidence why the Iran deal is bad for
    America. It is bad for Israel. It is bad for our allies. And it
    is bad in terms of preventing terrorism.
        Let me switch to another topic. Let me switch to another
    topic.
        Secretary Lew. But, Congressman, you just got to the core--
    you just got to the core issue, which we disagree on.
        Mr. Barr. The time is mine, Mr. Secretary. Let me switch to
    another topic.
        Do small community banks and credit unions represent
    competition to large institutions like Wells Fargo?
        Secretary Lew. I am going to go back and answer your last
    point
        Mr. Barr. No, I really want to move on.
        Secretary Lew. I really want to answer the last question.
        Mr. Barr. You can send me a letter. We can visit
    afterwards. I really do want to move on to the issue of Wells
    Fargo. I would like to move on to the issue of Wells Fargo.
        Secretary Lew. I think the world is safer with nuclear
    weapons not being 3 months away from development in Iran. That
    is a fundamental disagreement.
        Mr. Barr. Mr. Secretary, can I ask you another question?
        Chairman Hensarling. The time belongs to the gentleman from
    Kentucky
        Mr. Barr. Mr. Secretary, do small community banks and
    credit unions represent competition to large institutions such
    as Wells Fargo?
        Secretary Lew. I think that there should be competition at
    all levels of the banking structure.
        Mr. Barr. Do they represent competition to large
    institutions like Wells Fargo?
        Secretary Lew. In some of their business they do.
        Mr. Barr. According to the FDIC, at year end 2010, the year
    that the Dodd-Frank Act became law, there were 7,657 banks. By
    the end of 2015, the number had declined to 6,182. The number
    of community banks had declined by 14 percent, double the rate
    of that in the period leading up to Dodd-Frank. Credit unions,
    we have lost 1,500 credit unions in this country since Dodd-
    Frank.
        So since the enactment of Dodd-Frank, the number of new
    bank charters can be counted on the fingers of one hand. You
    have few new charters, you have much fewer banks, and you have
    1,500 fewer credit unions. You have less competition. Not a
    very good record for enhancing financial stability. And, I
    would add, eliminating the competition to large banks like
    Wells Fargo.
        If I was a defrauded customer of Wells Fargo, I would be
    angry at the institution, no doubt about it. But I also would
    be angry that the promises from the politicians that Dodd-Frank
    was going to protect me are hollow promises and that maybe why
    that is the case is that large banks like Wells Fargo have less
    competition today.
        Secretary Lew. Congressman, I think if I was injured by a
    financial institution, I would be glad that there is a CFPB out
    there to protect me
        Mr. Barr. Let's talk about that, because the CFPB was
    around in 2011 when these alleged activities began, and it
    wasn't, in the timeline that I have seen, it wasn't until 2015
    that the OCC got the CFPB involved. It looks to me like a case
    of regulatory incompetence.
        Secretary Lew. I think if you look at how the facts
    unrolled here, the action that was taken this week reflected
    the OCC and the CFPB taking action, and there would have been
    no CFPB if it weren't for Dodd-Frank.
        Mr. Barr. You know what? Far from an argument for enhancing
    the power of the CFPB, I think what the Wells Fargo scandal
    says is that we need to reform the CFPB so it actually focuses
    on its mission of protecting consumers instead of taking away
    choices from consumers.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Pennsylvania,
    Mr. Rothfus.
        Mr. Rothfus. Thank you, Mr. Chairman.
        Secretary Lew, over the last 7 years the spirit of
    Washington has been to never let a crisis go to waste, and the
    result of that attitude has been the crafting of rules that
    systematically take a wrecking ball to one industry after
    another.
        Cambria-Rower Business College in Johnstown, Pennsylvania,
    for example, closed its doors this summer, after serving its
    community for over 100 years, because of the Department of
    Education's crackdown on higher education providers, thousands
    of coal miners have been laid off in my district and across the
    country as their employers have been bankrupted by Washington
    regulations, and millions have had their health insurance
    wrecked. As I have noted many times in this room, community
    banks are closing or consolidating in a desperate effort to
    stay viable in the face of a swarm of new rules and
    regulations.
        And now, unfortunately, the Federal Government's wrecking
    ball has another target: money market funds. As you know, the
    July 2014 amendments to Rule 2(a)7, which go into effect next
    month, on October 14, require stable value institutional,
    prime, and tax-exempt money market funds to be offered only
    with a floating net asset value, or NAV. The FSOC annual report
    touches on money market funds, and I want to add some context
    here.
        Many institutions face legal constraints or have policies
    that prohibit them from investing in cash pools that fluctuate
    in value. In fact, for them the stable NAV is an intrinsically
    valuable feature of money market funds.
        In anticipation of this rule, we have seen nearly $1
    trillion rush out of prime and tax-exempt funds. Prime funds, a
    key source of funding for corporations and banks, have dropped
    by 48 percent. Tax-exempt funds, which buy approximately 70
    percent of the short-term debt issued by municipalities,
    universities, and hospitals, have dropped 42 percent.
        And on that, Mr. Chairman, I would like to offer into the
    record letters to Senator Pat Toomey from the officers at Penn
    State and the University of Pittsburgh expressing concern about
    what is happening in this industry and support for Senator
    Toomey's legislation to address this.
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Rothfus. And also letters from the Allegheny County
    executive, the Allegheny County treasurer, and the mayor of
    Pittsburgh to my colleague, Congressman Doyle, expressing
    similar concerns.
        Chairman Hensarling. Without objection, it is so ordered.
        Mr. Rothfus. This has caused borrowing costs for firms,
    municipalities, hospitals, and schools to spike at a time when
    they need access to affordable capital, and much of the money
    that has moved out of prime and tax-exempt funds has gone into
    Treasury and government funds. In other words, the effect of
    the rule has been to stifle investor demand for commercial
    paper and debt issued by municipalities and important
    institutions in our communities and to stimulate demand for
    debt issued by the Federal Government and the GSEs.
        This rule effectively subsidizes Fannie, Freddie, and the
    Federal Government at the expense of the private market and
    borrowers. This thwarts investor preference by forcing
    investors into government funds to get the stable NAV.
        With all of this distortion and disruption and the tilting
    of the playing field, I don't think we can say that this rule
    is necessary or helpful. Money market funds have a long history
    of stability and security through the financial crisis, and I
    worry that this wrecking ball will take out an important and
    necessary part of our financial system.
        Are you aware of the exodus of funds from prime and tax-
    free money market funds and the subsequent flow into government
    funds?
        Secretary Lew. Congressman, we have been monitoring flow of
    funds. I don't think that the impact that we have seen is as
    dramatic as what you are describing, and I think--
        Mr. Rothfus. I would encourage you to listen to the
    municipalities and the universities that are out there and to
    gauge what they are seeing.
        Secretary Lew. So, Congressman, I think we have to--I am
    sorry?
        Mr. Rothfus. Go ahead. You were going to say?
        Secretary Lew. No, we have to remember that during the
    financial crisis there was a real concern about the stability
    of money market funds. There was a very careful, measured
    action taken by the SEC to try and put in place rules that
    would govern, which I think are going to enhance financial
    stability. We are not seeing dislocations in the marketplace on
    a broad basis--
        Mr. Rothfus. You haven't seen a trillion dollars move out
    of these funds?
        Secretary Lew. I am not saying money hasn't--
        Mr. Rothfus. Isn't that a significant dislocation?
        Secretary Lew. I think that we are not seeing problems
    arising in the market where funding needs can't be met. And
    that is the metric that we look at. Is there liquidity in the
    market? Are markets working? And markets are working.
        Mr. Rothfus. Would you agree that this has tilted the
    playing field? If you need a stable NAV and your only option is
    to go to a fund that has Fannie paper or Freddie paper or
    Treasuries, that that is going to have a preference over
    municipals and AAA corporate bonds?
        Secretary Lew. I think you have to look at the whole
    picture, Congressman. We had a situation during the financial
    crisis where the risk that money market funds were going to
    break the buck? Almost took what was the worst recession since
    the Great Depression and throw a switch to make it a depression
    itself.
        There was a serious issue here. I don't think the action
    taken has caused disruptions that to date have raised serious
    concerns. But we will look at it. Obviously, we will continue
    to look at it.
        Mr. Rothfus. Again, I think you want to talk to the
    universities, talk to the municipalities, because this is a big
    issue for them.
        I yield back.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Arizona, Mr.
    Schweikert
        Mr. Schweikert. Thank you, Mr. Chairman.
        It's always an interesting time when you get to come hang
    out with us, right?
        Secretary Lew. It is never boring.
        Mr. Schweikert. Can I do just an idiosyncrasy, but I am
    interested in this. And I ran over here, so I didn't have
    enough time, so I am doing part of this from memory. In, I
    think, April there is something, I think it is referred to as
    the 387 rule. It is how taxes or how you value if you have
    taken a stock interest in a loan.
        Secretary Lew. 385
        Mr. Schweikert. 385, that is it. Sorry. Thank you for
    correcting me.
        If I remember just the preamble on the rule proposal was
    what, 75 pages? So the preamble trying to describe the proposed
    rule was actually longer than the rule itself.
        Where do you see that? I know a number of organizations, a
    number of folks from Arizona, where we are a State that is very
    entrepreneurial and trying to desperately bring in capital and
    are worried about sort of the tax treatments underlying. And I
    know I am getting a little technical. But, first, where do you
    see those rule mechanics?
        Secretary Lew. So, Congressman, we issued the 385 rule as
    part of our effort to make it harder for U.S. companies to
    invert, to take U.S. companies and change the address and avoid
    U.S. tax liability.
        The reason the preamble was a bit lengthy is we raised a
    number of questions that we wanted to get comments on. So we
    weren't surprised that issues were raised. We raised the issues
    ourselves in the preamble.
        While we got hundreds of comments, it all comes down to six
    issues, which we have been working hard at addressing, and I am
    pretty comfortable that we are going to be able to have a final
    rule that resolves many of the concerns that have been raised
    but that won't damage the principal purpose of the rule, which
    was to stop inversions and to stop earning stripping and taking
    unfair advantage of the tax system.
        Mr. Schweikert. Those are two very different things,
    though. On one side, I will use--I despise the term earning
    stripping, I mean, between merged organizations or affiliated
    organizations and the recognition of do you consider this a
    stock holding or is it really a debt pledged with stock or
    convertible to preferred. That is different than the inversion
    debate.
        So you could see from my view of the world as sort of
    someone that sees the world as an accountant, are we sort of
    conflating some of the different issues.
        Look, it is a hard read. I accept that.
        Secretary Lew. We have said all along that the best way to
    deal with inversions is through tax reform and legislation. We
    have limited administrative tools, and we use Section 385,
    which in its simplest way has broader impact than you need. We
    are working to address the consequences that are not central.
        Mr. Schweikert. But do you think as you are sort of
    addressing towards the final rule, there is that--I am
    reaching--279, it is the tax treatment, where you can't
    recognize the interest costs between the organizations? I think
    that was also within the rule set.
        Secretary Lew. Are you talking about the financial
    transactions between foreign subsidiaries of a U.S. firm?
        Mr. Schweikert. Actually I think it is within an
    acquisition and the costs in between.
        Secretary Lew. I am going to have to follow up and get the
    specific question.
        What I can tell you about the way we have handled this
    rulemaking is we have done it by the book, by the
    Administrative Procedures Act. We have gotten comments. We have
    taken meetings, hundreds of conversations. We have talked to
    committees of Congress of jurisdiction. And I think we are
    going to be able to put final rules out that address many of
    the concerns that have been raised.
        Mr. Schweikert. I had one other question I have always
    wanted to ask you. If we would do tax reform, particularly if
    we would clean up our territorial tax system, solution?
        Secretary Lew. I think what we have proposed and what I
    think there is bipartisan support for is something that is a
    bit of a hybrid system. We think that there should be a minimum
    tax on U.S. income overseas.
        Mr. Schweikert. No, no, no, I remember that, but truly if
    we developed a true--
        Secretary Lew. I think the hybrid approach is better
    myself.
        Mr. Schweikert. Okay, be preferred. But I am a territorial
    tax system person, but it would solve--
        Secretary Lew. But that is why I think there is a--in
    answer to Chairman Royce's question--I think there is the basis
    for a bipartisan compromise here. We have worked very hard to
    build that.
        Mr. Schweikert. Okay, because you saw Chairman Brady a
    couple of months ago did sort of put out an outline, and within
    that was some territorial tax--
        Secretary Lew. And Chairman Camp before him put out
    proposals that overlapped considerably with the proposals that
    we have put forward. I think that this is something tax writers
    should be able to work through early next year.
        Mr. Schweikert. Okay. Just wonderful.
        Can I steal 15 seconds?
        Chairman Hensarling. Fifteen seconds.
        Mr. Schweikert. We have our demographic crisis. You in a
    previous life did some great writings in talking about what is
    about to happen debt-wise. Can I beg of your organization to at
    least do a solicitation of the appetite for long-term U.S.
    sovereign debt to see if we could maybe do some of our
    financing over the demographic bubble?
        Secretary Lew. Congressman, we remain open-minded to new
    approaches, but we have done a lot to lengthen the weighted
    average of maturities.
        Mr. Schweikert. Outside the current WAM, I am talking 45,
    65, 100s.
        Secretary Lew. I am happy to have a longer conversation. I
    can't with the gavel going.
        Mr. Schweikert. Thank you, Mr. Chairman, for your
    tolerance.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Maine, Mr.
    Poliquin.
        Mr. Poliquin. Thank you, Mr. Chairman, very much.
        Mr. Lew, thank you very much for being here. I noted that
    when you walked in you indicated very clearly to me that you
    had not taken your Maine summer vacation. I want to let you
    know that Maine is a wonderful place to have a fall vacation,
    and I am sure your wife would greatly appreciate it, and we
    would appreciate it.
        Secretary Lew. If only I got a fall vacation.
        Mr. Poliquin. Yes, really.
        Sir, Americans are very alarmed and very frightened about
    an increasing number of terrorist attacks here at home and
    abroad. Do you agree with the State Department's assessment
    that the country of Iran is a primary state sponsor of
    terrorism, yes or no?
        Secretary Lew. We have implemented all of the rules on
    terrorism.
        Mr. Poliquin. Do you agree that Iran is a state sponsor of
    terrorism, yes or no?
        Secretary Lew. I have--
        Mr. Poliquin. Mr. Lew, you are really good about not
    answering questions.
        Secretary Lew. We have made that designation.
        Mr. Poliquin. Do you agree that Iran is a state sponsor of
    terrorism, yes or not? Do you agree with the State Department?
        Secretary Lew. I obviously agree that they are a state
    sponsor of terrorism.
        Mr. Poliquin. Okay. You agree. I got it. Do you also agree
    that untraceable cash is the currency of terrorism?
        Secretary Lew. I do believe that cash in the private
    economy is a big problem because you can't track it.
        Mr. Poliquin. Great. Okay. So now let's go beyond. Okay, we
    agree on those two things. Thank you very much.
        Secretary Lew. Congressman, just to be clear--
        Mr. Poliquin. It is my time, not yours, my time, not yours,
    sir.
        Now, you authorized the cash being flown into Iran. Now for
    whatever reason you authorized it, that is fine. That is your
    decision. I think it was a mistake, but you did it.
        Now, my question is the following. I know that the United
    States Government owed Iran this money. How about if we had
    instead put pressure on them to abandon their support of
    terrorism and disavowed their goal in their public statements
    about destroying Israel? What if we just had not transferred,
    you had not authorized the transfer of cash to Iran until they
    gave up their goal of destroying Israel and stopped sponsoring
    terrorism? Wouldn't that have been a good idea?
        Secretary Lew. As a simple matter, Congressman, we wouldn't
    have been able to resolve the dispute that left America at risk
    of having a $10 billion settlement.
        Mr. Poliquin. That is not the point, sir. That is not my
    point.
        Secretary Lew. That is precisely the point.
        Mr. Poliquin. Why in the world wouldn't you just--
        Secretary Lew. We have done--
        Mr. Poliquin. I am asking the question, sir. Why wouldn't
    you continue to withhold those payments until they stopped
    sponsoring terrorism? Why wouldn't you do that?
        Secretary Lew. Congressman, I think you are mixing a bunch
    of things up. We are taking action. We have taken dozens of
    actions to designate entities that support terrorism. We are
    continuing to take our sanctions responsibilities very
    seriously to stop Iranian activity supporting terrorism.
        Mr. Poliquin. Let's move on. Let's move on. You are not
    going to answer the question, Mr. Lew.
        Mr. Lew. I am answering the question.
        Mr. Poliquin. You are really good about not answering the
    question.
        Secretary Lew. If you would give me the time, I am happy
    to.
        Mr. Poliquin. Last year your Administration, or the
    Administration of which you are a part, floated a horrible
    idea, which was to tax college savings plans. Do you agree that
    was a very bad idea?
        Secretary Lew. Congressman, that was withdrawn before it
    was even dry ink.
        Mr. Poliquin. I know it was. And the reason it was
    withdrawn, Mr. Lew, is because there were so many of us that
    made such a stink that it is a bad idea to tax college savings
    plans to make it more difficult for kids in Maine.
        Secretary Lew. We have done an awful lot to expand
    opportunity for college education in this country.
        Mr. Poliquin. Okay, let's move on. So you walked it back,
    your Administration walked it back.
        Secretary Lew. And I am very proud of our record, and I
    would love to talk about it.
        Mr. Poliquin. And I thank you very much, Mr. Lew, for
    agreeing with everybody that was a horrible idea.
        Now, here is my next question to you.
        Secretary Lew. I hope you will agree that expanding Pell
    grants and student loans has been a good thing.
        Mr. Poliquin. Here is my next question to you. Here is my
    next question, Mr. Lew.
        There is about--I may not have this number exactly right--
    there is roughly 24 trillion of private pension savings out
    there, retirement savings, folks that are trying to build up
    nest eggs to augment their Social Security payments when they
    retire.
        Do you think it is a good idea to tax retirement savings,
    like your Administration thought it was a good idea to tax
    college savings plans? Do you think it is a good idea to tax--
        Secretary Lew. I am not sure I understand your question.
        Mr. Poliquin. Do you think it is a good idea to tax
    retirement savings?
        Secretary Lew. We have promoted retirement savings
    through--
        Mr. Poliquin. Do you think it is a good idea--
        Secretary Lew. What proposal are you asking me to comment
    on?
        Mr. Poliquin. Because your Administration thought it was a
    great idea to tax college savings plans until you folks walked
    it back. Do you think it is a good idea--
        Secretary Lew. If it is your proposal, I am happy to look
    at it. We haven't made that proposal.
        Mr. Poliquin. It is not a proposal. I do not advocate for
    that. So you don't either.
        Secretary Lew. I thought you were proposing it.
        Mr. Poliquin. No, of course I am not. You know better than
    that, Mr. Lew.
        Secretary Lew. I would tell you I don't think it is a good
    idea.
        Mr. Poliquin. Great. Then we agree on something. You think
    it is a bad idea--you think it is a bad idea to tax retirement
    savings.
        Secretary Lew. We have IRAs. We have 401(k)'s. We have all
    kinds of tax-protected savings for retirement.
        Mr. Poliquin. Then do I get your commitment and will you
    speak to the American people right now that if the
    Administration sends out a proposal to tax retirement plans,
    you will stand up against it, sir?
        Secretary Lew. I think I can safely say that in the next 4
    months we are not going to be sending a new proposal.
        Mr. Poliquin. Will you stand up against it if that idea is
    floated?
        Secretary Lew. Congressman, we are in the last 4 months of
    this Administration, so I think--if this was 2 years ago, it
    would be one thing.
        Mr. Poliquin. Okay. I am assuming, since you think it is a
    bad idea--I am assuming, since you think it is a bad idea--we
    are on the same page, thank you, Mr. Lew--you will stand up
    against any attempt to tax retirement savings. That is what I
    heard? Thank you.
        Secretary Lew. Congressman, don't put words in my mouth. I
    am happy to answer a detailed question.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Pennsylvania,
    Mr. Fitzpatrick, the chairman of our Terrorism Financing Task
    Force
        Mr. Fitzpatrick. Thank you, Mr. Chairman.
        Mr. Secretary, proposed staff reallocations at the
    Treasury's Office of Terrorism and Financial Intelligence, TFI,
    have raised some concerns about how they might affect the
    execution of TFI's various missions, but also raise questions
    about compliance with appropriations language, civil service
    rules, and constraints on the gathering and use of financial
    intelligence data.
        Further, the amount of information on the proposed moves
    supplied to Congress has been minimal, and it appears that TFI
    is proceeding with them at full speed, that despite bipartisan
    staff admonitions to slow the process down until there is
    Congressional buy-in, for fear of creating disruption in this
    critical part of our country's effort to stop the financing of
    terrorism and other financial crimes.
        The fact that the plans are intended to be complete before
    a new President, a new secretary or deputy secretary takes
    office, raises the possibility that they may not agree with the
    realignment, creating more disruption as further moves or
    reversal might have to occur.
        So with that in mind, Mr. Secretary, I have a couple of
    questions. First is what is the purpose and what are the
    specifics of the proposal, if you can share them with us,
    please?
        Secretary Lew. Congressman, TFI is an extraordinary
    organization. I couldn't be more proud of the work that they do
    and the effectiveness they have. It is a new organization. It
    was pulled together, cobbled together from a number of
    different subagencies after 9/11.
        Mr. Fitzpatrick. Can you tell us about the proposal
    specifically?
        Secretary Lew. And one of the things that good management
    requires is that you, particularly with a new organization, try
    and make sure that you get it right.
        I think the current acting under secretary, Adam Szubin,
    who grew up as a career official in TFI--
        Mr. Fitzpatrick. What is the proposal, Mr. Secretary?
        Secretary Lew. I am happy to get back to you on the details
    of the proposal. Frankly, I have deferred considerable latitude
    to the acting under secretary because he is truly expert in all
    of the detailed work that they do.
        Mr. Fitzpatrick. You may not have the answer to the
    question, but if you are agreeing to please get back to us.
        Secretary Lew. No, but what I can answer--
        Mr. Fitzpatrick. Staff has repeatedly asked for the
    information and it has not received any information about it.
        Secretary Lew. We have scheduled a briefing on the Senate
    side. We are happy to schedule a similar conversation on the
    House side.
        The challenge here is to ask, how do you take an
    organization that used to be separate organizations and make
    sure that it is as healthy as possible to do the very important
    work it does? And that is what the acting under secretary has
    been looking at. No final decisions have been made. It is still
    a work in progress.
        Mr. Fitzpatrick. On the work in progress, knowing where it
    is going, because my concern is--and you just in response to
    Mr. Poliquin's question said, sir, this is the end of the
    Administration, don't get us on record. If you are moving
    forward--
        Secretary Lew. He was asking me about a new tax proposal.
        Mr. Fitzpatrick. If you are moving forward with the
    proposal to change the alignment, you need to come to us with
    some specifics. So I would ask, with the specifics that you do
    know, what impact would it have on the Treasury's ability to,
    say, enforce the Bank Secrecy Act?
        Secretary Lew. We obviously take all of the
    responsibilities, including the Bank Secrecy Act, at the
    highest level of seriousness. There is no aspect of TFI's work
    that isn't important. And this is about--
        Mr. Fitzpatrick. Do you have any idea the impact of these
    proposed moves on the Bank Secrecy Act and the enforcement by
    Treasury?
        Secretary Lew. The objective is to make sure that TFI as an
    institution operates more effectively and more efficiently, not
    diminishing any of the activities.
        Mr. Fitzpatrick. You are speaking to all these questions at
    the 30,000-foot level. You don't have any specifics?
        Secretary Lew. I didn't come here today with the plan in
    front of me. We will follow up at the staff level.
        Mr. Fitzpatrick. Okay. I appreciate that.
        Mr. Secretary, are there any declared whistleblowers at the
    agency?
        Secretary Lew. Not that I am aware of. I am looking back to
    see. Yes, my staff is not aware.
        Mr. Fitzpatrick. Not that you are aware of.
        Have any staff at TFI been ordered not to talk to Congress
    about this proposal that I spoke about in my first question?
        Secretary Lew. I know that there are some things that are
    in the clearance process, and we have to go through the
    clearance process internally within the Administration. But it
    is only a normal process, it is not anything specific about
    this.
        Mr. Fitzpatrick. Why can't TFI redirect a portion of its
    anticipated 17 percent growth in FTE in the President's fiscal
    year 2017 budget or what ends up appropriated in a continuing
    resolution?
        Secretary Lew. If I could ask, if you could submit a
    question, I am happy to take it. That is at a level of detail
    that I would have to look at the question in more detail.
        Mr. Fitzpatrick. Mr. Secretary, I appreciate your
    willingness to try to answer the questions. You are not able to
    answer any of the questions here today. I would just--
        Secretary Lew. Congressman, I pay attention to a lot of
    details, but these are pretty small details, and I don't
    understand the question.
        Mr. Fitzpatrick. Sure. But any major realignment, first of
    all, needs to be included so that we understand in the
    appropriations process what our respective--
        Secretary Lew. No, I agree.
        Mr. Fitzpatrick. We will get you the question.
        Secretary Lew. Yes, I am happy to answer the question.
        Mr. Fitzpatrick. How long will it take you to answer these
    types of questions?
        Secretary Lew. If you give me the question today, we will
    get back as soon as we can. I would like to understand the
    question and be able to give you a complete answer.
        Mr. Fitzpatrick. Thank you, Mr. Secretary.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Colorado, Mr.
    Perlmutter.
        Mr. Perlmutter. Mr. Secretary, good to see you. Thank you
    for your service. Thanks for coming in and answering these
    questions even when my friends are kind of pounding away. I
    appreciate the way you handle it, the seriousness of this, but
    also your willingness to have a little bit of give and take
    with my friends.
        So I am going to just talk about a couple of things, first
    to thank you, thank the President. When President Obama took
    office, my district was at about 10 percent unemployment. We
    are on average about 3 percent today, and that is even--so the
    suburbs of Denver--and that is even with oil and gas not doing
    very well in my State, which would put us at about 2 percent
    unemployment.
        But strong economy. Foreclosures, which had been off the
    charts at the beginning of the Obama Administration, now very
    strong housing market, almost too strong. Hopefully supply
    starts catching up with demand. And lots of jobs. Strong
    economy.
        I just want to thank you for your part in doing that,
    because it is been a long, long road. So thanks to you. Thanks
    to this Administration.
        The other thing I want to talk about and say thanks, but we
    certainly aren't there, and since the chairman is here, he
    knows this subject, it is marijuana and banking. And he knows
    it because I always bring it up, because we have to confront
    this and deal with it at some point. At least 25 States have
    some level of marijuana legalization, some kind of a regulatory
    structure in place, either for medical marijuana or
    recreational marijuana. If you add the States that have
    cannabis oil to deal with seizures, that is probably another
    eight States, and there are several that have it on their
    ballots this year.
        And the Federal law, particularly in the banking sector,
    and the State laws, kind of run smack dab into each other. And
    I appreciate the assistance that the Administration and
    Treasury have provided to give banks some potential path to
    allow legitimate businesses to be able to have banking
    services. So thank you for that.
        Now, my question is on this proposed 385 rule on debt
    equity kinds of transactions between subsidiaries or the parent
    and a subsidiary and money going offshore. I know that you all
    are trying to deal with inversions, and I appreciate that. But
    I guess I want to talk to you about it. I want you to tell me
    what you think the 385 is intended to do.
        And I would just ask you all to be looking at those
    transactions that sort of have been in the hopper, and then
    this new rule comes down and it changes the economics of the
    deal in a tremendous way. And I would ask you to consider
    either grandfathering in those deals that are in--haven't yet
    closed or may be closing, and the effects on those particular
    deals.
        So I turn it over to you, sir.
        Secretary Lew. Congressman, the principal objective of the
    rule is to try to shut down inversions and to shut down the use
    of kind of blatant tax-avoidance devices.
        There were a number of issues raised in the preamble to the
    regulation, the draft regulation, saying we know that we took a
    kind of simple approach, that is going to raise concerns, we
    would like to get comment on each of the issues that might not
    be central to the core purpose.
        Not surprisingly, we got a lot of comments. The comments
    kind of circle around a half a dozen issues. We have been
    working on each of those issues to try to come up with policy
    solutions that address what might be peripheral or unintended
    impacts, protecting the core objective of the rule.
        We are making very good progress. I think that the business
    community feels that we have listened to the concerns raised.
    That is certainly what I am hearing. We have listened to the
    members of the tax-writing committees of Congress and many
    other Members of Congress, and we are working to try and
    finalize the rule.
        Critics of the rule quickly asked us to add enough time to
    the comment period so that it would be impossible to do a final
    rule. And we did not want to do that. We want to do a good
    rule. We will only do a good rule. So if we don't finish with a
    good rule, we won't do it. But I think we have time to do a
    good rule.
        Mr. Perlmutter. And I think you do too, and I appreciate
    the fact that you have been taking comments from folks. I guess
    I want you to hear again particularly those instances where
    there is this lookback of 3 years or 36 months, there is the
    potential for a deal that was--and these are big and
    complicated deals--that you take into consideration the fact
    that they were underway as this regulation came into play. So
    please look towards some grandfathering on this.
        Secretary Lew. And thanks for your comments at the
    beginning of your remarks.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentleman from Indiana, Mr.
    Stutzman.
        Mr. Stutzman. Thank you, Mr. Chairman.
        And thank you, Mr. Lew. It is good to see you again, and I
    appreciate your time here.
        I would like to talk about the situation at Wells Fargo
    Bank. I was looking at an article that you have a couple of
    quotes, and I would like to read them. It says that after the
    Senate hearing the other day, that Senator Robert Menendez of
    New Jersey had said they will hold a hearing on the bank's
    aggressive sales tactics next week.
        ``The magnitude of this situation warrants thorough and
    comprehensive review,'' the committee members said in a letter
    on Monday. And now, Treasury Secretary Jack Lew is adding his
    voice to the chorus of criticism.
        ``The pattern of behavior that we have seen here is
    something that needs to stop. It is not acceptable to do things
    that are designed to increase either an individual or firm's
    bottom line by deceiving customers or passing on charges that
    are either invisible or they don't know about.
        ``This is a wake-up call,'' he continued. ``It should
    remind all of us, and firms, that culture and competition make
    a difference. How you reward people, how you motivate people,
    what values you hold people to matter.''
        You said that, correct?
        Secretary Lew. I think a couple words were misquoted there,
    but yes.
        Mr. Stutzman. Well, looking at the timeline--and I will
    talk about the CFPB. I don't think the CFPB is serving the
    American people. This is case number one, proof number one. You
    look at the timeline, that we know that wrongful termination
    lawsuits were filed against Wells Fargo by former employees
    alleging fraudulent accounts back in 2009. Wells Fargo started
    seeing a CFPB presence in the Wells Fargo offices in 2011,
    early 2012. Is that correct?
        Secretary Lew. Congressman, I can't comment on a specific
    regulatory matter. I don't have visibility into all of the
    details, into any of the internal details of regulatory
    actions.
        Mr. Stutzman. Okay. Then, in mid-2013, CFPB apparently
    first hears of the problems at Wells Fargo through
    whistleblower tips.
        The point that I am trying to make to you is CFPB is not
    doing its job.
        Secretary Lew. I don't agree with that, Congressman.
        Mr. Stutzman. When did you know about the situation at
    Wells Fargo?
        Secretary Lew. Congressman, I was not aware of the
    situation in the depth, the scope of it, until the final
    action. Obviously, there had been some news coverage, but the
    full magnitude of it was a matter that regulators were looking
    at. I think but for the CFPB, the penalties would not have been
    in place.
        Mr. Stutzman. That is true, but the greater penalty to
    Wells Fargo is going to come from their customers. I am a Wells
    Fargo customer, and I am mad. I am upset about it. And I am mad
    at them, but I am also mad at the CFPB, I am mad at the
    government, because 5,300 people were fired. This is not just a
    small scam.
        Secretary Lew. Congressman, if you are proposing increasing
    CFPB resources so they can have more people watching, I would
    be happy to work with you.
        Mr. Stutzman. I knew you would say that, because that is
    always the answer from a failed agency, is give us more
    funding, give us more so we can go in and find this.
        They were in Wells Fargo as early as 2011, 2012, and
    approximately 939 employees were fired for improper sales
    practices in 2011. Another 1,000 in 2012. Another 1,250 in
    2013. And then CFPB, who has been there for almost 2 years,
    first hears about it through whistleblower tips. What were they
    doing?
        Secretary Lew. Congressman, I really can't comment on what
    the regulatory actions--I just don't--they properly doing that
    independently.
        What I can tell you is for a brand new organization, the
    CFPB has done an enormous amount of good work to make sure that
    the American consumer, when they get a mortgage, can understand
    what they are getting, to make sure that banks cannot put in
    place the kinds of provisions that led to the subprime crisis
    in 2008. And they have a cop on the beat roll as well, and I
    think it is a good thing they were there to levy a penalty
    against this behavior.
        Mr. Stutzman. I don't see how it could take this long--
    5,300 people were talking somewhere. Somebody had to know
    something. And I don't know how you didn't know about it. When
    did you first hear about it?
        Secretary Lew. Congressman, I don't recall when I first
    heard about it, but I just told you the scope of it was
    obviously quite dramatic in the final regulatory action.
        Mr. Stutzman. Well, I tell you, the American people don't
    trust Washington, and now this has happened. This was supposed
    to prevent big situations like this happening.
        Secretary Lew. Let's agree on what we can agree on. We
    should have tough regulators who are watching to see that
    things that hurt consumers get stopped and don't happen.
        Mr. Stutzman. Then we should fire--
        Secretary Lew. Let's work together on that.
        Mr. Stutzman. Let's fire a bunch of CFPB regulators--
        Secretary Lew. I think you are going in a place that I
    wouldn't go. That is not fair.
        Mr. Stutzman. We are firing them at Wells Fargo.
        Secretary Lew. We can continue this conversation.
        Mr. Stutzman. Thank you, Mr. Chairman.
        Chairman Hensarling. The time of the gentleman has expired.
        The Chair now recognizes the gentlelady from Utah, Mrs.
    Love.
        Mrs. Love. Thank you.
        Secretary Lew, thank you for being here. We are getting
    close to the final moments and you get to head out.
        But I ran across an analysis that was done by the
    Corporation for Enterprise Development and the Institute for
    Policy Studies, and the analysis stated that it would take 228
    years for Black families to amass wealth of White families in
    the United States. Is that something that the Administration is
    concerned about?
        Secretary Lew. Congresswoman, I am not familiar with that
    analysis, but we are very, very concerned about the differences
    in asset accumulation and income-earning capability.
        Mrs. Love. It was really interesting because in your
    opening statement it almost sounded like you thought that we
    were doing okay and that everything was--
        Secretary Lew. We are doing a lot better, but we have
    consistently said that the benefits of growth are not being
    experienced as broadly as they should be and the difference in
    terms of the impact of the housing crisis on the only asset
    that a lot of African American families had, their home, was
    disproportionate. So there is still a lot of work to do.
        Mrs. Love. It also states that it is going in a different
    direction. When we look at all of the industries, we just
    talked about the CFPB, we talked about some of these other
    agencies, that has made it a lot more difficult for Black
    families to get ahead.
        What we are concerned about, and what I see often, is that
    most--a lot of the time--the majority of the time, these are
    agencies that actually hurt the people that they vowed to
    protect. And I was wondering if you were looking into some of
    these policies and if you could see the same things that aren't
    just my opinions, but opinions of people on both sides.
        Secretary Lew. We have done quite a number of things to
    look at financial inclusion, access to the financial system,
    access to credit, to actively promote more inclusive practices,
    both in the private sector and in terms of things that we can
    do.
        I will give you an example. When we have summer jobs, we
    are promoting that summer job programs are linked to opening a
    bank account.
        Mrs. Love. Are you actually looking at the current policies
    that actually are hurting American families, especially the
    poorest among us, and seeing if there is any way that we can
    correct some of those policies? That is what I am asking. I am
    not asking you to do more. I am actually asking if you are
    seeing any areas where we can undo some of the damage that has
    been done.
        Secretary Lew. I don't agree necessarily with what the
    source of the damage is, but I am certainly agreeing with you
    that the result is unacceptable.
        Mrs. Love. I know I have very little time. I just wanted to
    get your opinion on that.
        Secretary Lew. It is an interesting subject I would love to
    spend more time on. It is one of the central topics we have to
    make progress on as a country.
        Mrs. Love. In the next few days my colleagues and I on the
    Subcommittee for Monetary Policy and Trade are scheduled to
    have a hearing to examine the implications of the Financial
    Stability Board for U.S. growth and competitiveness. Since you
    are here today, I wanted to take an opportunity to ask you just
    a few questions about the FSB.
        As you are aware, many of us remain concerned about the
    extent to which U.S. regulators defer to international bodies
    like the FSB when it comes to promulgation of regulations that
    impact the United States institutions and the United States
    economy.
        So another international organization similar to the FSB is
    the Basel Committee on Bank Supervision. The group is currently
    considering changes to the regulatory framework known as Basel
    III. So, as reported last month, European members of the Basel
    Committee are apparently pushing back against the proposed
    changes to how Basel III framework assesses credit,
    operational, market risks, with some European members
    reportedly threatening to reject the proposal.
        It seems that the European regulators are willing to defend
    their rules, their institutions, in such organizations. Why are
    the United States regulators by contrast so willing to defer to
    the agenda of the FSB?
        Secretary Lew. I don't think that is an accurate
    description of how U.S. regulators participate. We have used
    our involvement in the FSB, in the Basel Committee, and all of
    the international bodies to drive an agenda of increasing the
    quality of regulation and making it closer to the United
    States.
        Mrs. Love. Okay. So can you give me a single example in
    which you or your Treasury colleagues have objected or resisted
    an FSB initiative?
        Secretary Lew. The FSB only makes decisions by consensus,
    so it doesn't get to a decision if it is not a consensus. We
    drive that process with our views.
        Mrs. Love. So you have never objected to any--
        Secretary Lew. No, no, I didn't say--
        Mrs. Love. Can you give me some sort of example?
        Secretary Lew. I have 10 seconds left. We are happy to get
    back to you in writing.
        Mrs. Love. Okay. I yield back.
        Chairman Hensarling. The gentlelady yields back.
        There are no other Members in the queue, so I would like to
    thank the Secretary for his testimony today.
        The Chair notes that some Members may have additional
    questions for this witness, which they may wish to submit in
    writing. Without objection, the hearing record will remain open
    for 5 legislative days for Members to submit written questions
    to this witness and to place his responses in the record.
        We would ask, Mr. Secretary, that you respond as promptly
    as you are able.
        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 12:54 p.m., the hearing was adjourned.]

                                A P P E N D I X

                               September 22, 2016

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