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


                     THE DODD-FRANK ACT FIVE YEARS
                       LATER: ARE WE MORE STABLE?

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

                                 HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 9, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-39
                           
                           
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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:
    July 9, 2015.................................................     1
Appendix:
    July 9, 2015.................................................    69

                               WITNESSES
                         Thursday, July 9, 2015

Atkins, Hon. Paul S., Chief Executive Officer, Patomak Global 
  Partners LLC; and former Commissioner, U.S. Securities and 
  Exchange Commission............................................     6
Calabria, Mark A., Director, Financial Regulation Studies, Cato 
  Institute......................................................     7
Silvers, Damon A., Director of Policy and Special Counsel, 
  American Federation of Labor--Congress of Industrial 
  Organizations (AFL-CIO)........................................    10
Zywicki, Todd J., Foundation Professor of Law and Executive 
  Director of the Law and Economics Center, George Mason 
  University School of Law.......................................    11

                                APPENDIX

Prepared statements:
    Beatty, Hon. Joyce...........................................    70
    Atkins, Hon. Paul S..........................................    74
    Calabria, Mark A.............................................    87
    Silvers, Damon A.............................................   104
    Zywicki, Todd J..............................................   111

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    Forbes article entitled, ``The Highest-Paid CEOs Are The 
      Worst Performers, New Study Says,'' dated June 16, 2014....   119
Himes, Hon. James:
    Chart entitled, ``The Five Years Since Dodd-Frank''..........   122
Messer, Hon. Luke:
    American Action Forum article entitled, ``From Free Checking 
      to the Financial Fringe: A Tale of Two Regulations and Low-
      Income Families,'' July 8, 2015............................   123
    Written responses to questions for the record submitted to 
      Todd Zywicki...............................................   128
Stivers, Hon. Steve:
    Written statement of the Association for Corporate Growth....   130

 
                     THE DODD-FRANK ACT FIVE YEARS
                       LATER: ARE WE MORE STABLE?

                              ----------                              


                         Thursday, July 9, 2015

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 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, McHenry, Pearce, Posey, Fitzpatrick, 
Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, 
Fincher, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, 
Barr, Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, 
Poliquin, Love, Hill, Emmer; Waters, Maloney, Velazquez, 
Sherman, Meeks, Capuano, Clay, Lynch, Scott, Green, Cleaver, 
Moore, Ellison, Himes, Carney, Sewell, Foster, Kildee, Murphy, 
Delaney, Sinema, 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.
    Today's hearing is entitled, ``The Dodd-Frank Act Five 
Years Later: Are We More Stable?''
    Before proceeding, I wish to yield to the gentleman from 
Indiana for a very special introduction. The gentleman is 
recognized.
    Mr. Messer. Thank you, Mr. Chairman. This is unanticipated, 
but I would like everybody here to meet my son Hudson Messer--
stand up, Hudson--who is joining us today. It is his first time 
at a Financial Services Committee hearing. Thank you.
    [applause]
    Chairman Hensarling. Welcome, Hudson. Take very careful 
notes. We are not always sure your father does.
    Mr. Messer. He was watching the debt clock, though. He was 
very impressed by that.
    [laughter]
    Chairman Hensarling. He will have to pay for it. I now 
recognize myself for 3 minutes to give an opening statement.
    Five years ago this month, Dodd-Frank was signed into law. 
Undoubtedly, it is the most sweeping and dramatic rewrite of 
banking and capital markets laws since the New Deal. Weighing 
in at 2,300 pages, with 400 new rules, it is clearly, clearly 
dramatic.
    Whether fan or detractor, this committee would be negligent 
if we weren't vigilant in our oversight of both the impact and 
the implementation of Dodd-Frank. Negligent we will not be.
    So today marks the first of three hearings to be held on 
the Dodd-Frank bill, posing three different questions. Five 
years after Dodd-Frank, are we more prosperous? Five years 
after Dodd-Frank, are we more free? And the focus of today's 
hearing, five years after Dodd-Frank, are we more stable?
    I frankly believe it remains an open question as to whether 
we have achieved greater stability. I fear the answer is 
``no,'' but were the answer to be ``yes,'' when you look at the 
damage Dodd-Frank has done to our economic growth, to family 
finances and to consumer freedom, I am rather doubtful it would 
be worth the cost.
    Clearly, balance sheets have improved post-Dodd-Frank and 
banks have delevered. This is a necessary and good thing, and I 
strongly suspect that market forces would have brought about 
these actions regardless of Dodd-Frank.
    Regulators already possess the powers to have set more 
prudent capital and leverage standards. Still, Dodd-Frank very 
well may have been helpful in this regard.
    What is undebatable is the fact that since the passage of 
Dodd-Frank, the big banks are now bigger, and the small banks 
are now fewer. In other words, even more banking assets are now 
concentrated in the so-called too-big-to-fail firms. Pray tell, 
how does this improve financial stability?
    Dodd-Frank has codified too-big-to-fail into law and 
provided a taxpayer-funded bailout system in Title I and Title 
II of the Act. This simply leads to even greater moral hazard 
and to greater instability.
    According to the Richmond Federal Reserve, the explicit 
Federal guarantees of financial sector liabilities have 
increased to a whopping 60 percent post-Dodd-Frank. When 
private investors and depositors and counterparties expect a 
bailout, their incentives to monitor risk clearly wane.
    Regulatory micromanagement is no substitute for market 
discipline. By this measure, Dodd-Frank has clearly made our 
financial system riskier.
    Part of the extension of the Federal backstop has been the 
creation of a whole new class of too-big-to-fail institutions, 
namely centralized clearinghouses for derivatives. Here, Dodd-
Frank didn't lessen risk. It just centralized it and placed it 
on a taxpayer balance sheet.
    Next, Dodd-Frank's Volcker Rule, along with the Basel 
accords, have caused a massive drop in corporate bonds 
inventories. Many economists now believe the next financial 
crisis could very well result from the illiquidity and 
volatility in our bond market.
    Senator Dodd of Dodd-Frank said, ``No one will know until 
this is actually in place how it works.'' Five years later, we 
have a clue, and we are learning that our financial system may 
very well be less stable under Dodd-Frank.
    I now yield 5 minutes to the ranking member for an opening 
statement.
    Ms. Waters. Thank you, Mr. Chairman. Today's hearing is the 
first of two scheduled in recognition of the fifth anniversary 
of the Dodd-Frank Wall Street Reform Act.
    It is important to remember that the 2008 financial crisis 
was not a natural disaster. Instead, it was the result of 
deliberate choices, choices on the part of some on Wall Street 
who put their own short-term interests ahead of the long-term 
economic health of our Nation's investors and consumers.
    As a result of choices on the part of some of our 
regulators, we failed to respond as vulnerabilities and 
illegalities in our financial system emerged. These choices had 
tremendously damaging consequences. Our Nation became plagued 
by small business closures, large drops in the stock market, 
stunning job losses, rising foreclosures, and fears of a 
looming repeat of the Great Depression.
    In the 6 months before President Obama took office, our 
economy hemorrhaged nearly 4 million private sector jobs, an 
average of 650,000 per month. Nearly $16 trillion in household 
wealth simply disappeared. The retirement accounts of many 
hardworking Americans were swept away.
    Around 9 million individuals were displaced from their 
homes, many of whom may never again have the opportunity for 
home ownership.
    Once the economy was stabilized, Democrats worked 
diligently on legislation to restore responsibility and 
accountability to our financial system and instill confidence 
that we have the tools in place to protect Americans from 
another crisis.
    Since Dodd-Frank was enacted 5 years ago, the American 
economy has added nearly 13 million private-sector jobs and 
unemployment has fallen by 4.7 percent points, its lowest level 
since September 2008. The housing market is recovering, with 
home prices rising, negative equity falling, and measures of 
mortgage distress improving.
    Retirees' investments are recovering as well. The S&P 500 
has risen more than 250 percent since February 2009, and the 
average 401(k) balance has reached a record high in 2014.
    But even as we celebrate our success at avoiding a second 
Great Depression, it is important to recognize that the events 
of 2008 have cast a long shadow over our Nation's growth and 
prosperity, one which has not been shared equally by all.
    Research from Cornell University found that the foreclosure 
crisis has resulted in an increasing level of resegregation in 
many urban areas. Several institutions confirm the foreclosure 
crisis likely had substantial negative impacts on child well-
being, with multiple moves and marital discord leading to 
anxiety, depression, and poor performance in school.
    The crisis also exacerbated what was already an 
unacceptably large wealth gap between white and minority 
households. The Pew Research Center found that the current 
wealth gap between African-Americans and whites has reached its 
highest point since 1989. The current white-to-Hispanic wealth 
ratio has reached a level not seen since 2001.
    We must go further to address these lingering challenges. 
But make no mistake, we made progress. Most notably, in Dodd-
Frank we created a Consumer Financial Protection Bureau that in 
just a few years has already returned $5.3 billion to 15 
million consumers who have been subjected to unfair and 
deceptive practices.
    We have worked with the Bureau to create rules of the road 
to make sure predatory mortgages never again strip wealth from 
American families and endanger our economy.
    And we worked with regulators to institute rules to protect 
retirees and other investors from the practices that wreaked 
havoc on savings in 2008.
    But Mr. Chairman, too much time has been wasted in Congress 
by the majority bent on austerity policies that leave workers, 
retirees, and minority communities behind, while ignoring the 
substantial progress we have made toward deficit reduction.
    Too much energy has been spent trying to re-litigate the 
causes of the 2008 crisis, which at this point everyone should 
recognize is settled.
    Finally, far too much effort has been spent by the 
Republicans to weaken our regulatory apparatus, whether through 
underfunding our regulators, relentlessly pursuing or 
pressuring them to go soft on rules, or injecting unrelated 
Wall Street giveaways into must-pass government funding bills.
    I am tired of the Republicans' death-by-1,000-cuts strategy 
to roll back the significant gains we have made since Dodd-
Frank enactment. Five years later, I urge my colleagues to take 
stock of where we were and how far we have come.
    And I suggest they recognize that much like the recent 
Supreme Court decisions to uphold the Affordable Care Act, and 
the disparate impact standard to prevent discrimination in 
housing, Dodd-Frank is settled law.
    Thank you, and I yield back the balance of my time.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from Wisconsin, Mr. Duffy, chairman of our Oversight and 
Investigations Subcommittee, for 2 minutes.
    Mr. Duffy. Thank you, Mr. Chairman. When Dodd-Frank was 
enacted 5 years ago this month, Senator Elizabeth Warren and 
President Obama promised Americans that this law would lift the 
economy, that their hard-earned money would be safer, that 
markets would be more stable and that no one institution would 
threaten the safety and soundness of the global financial 
system.
    As we have seen this law implemented, it has left much to 
be desired. In large part, the 2008 financial crisis was a 
result of Federal financial regulators failing to do their job, 
and their inability to anticipate the looming issues in the 
subprime mortgage market.
    Dodd-Frank rewarded incompetency with more responsibility. 
The law has created new areas of risk concentration, enshrined 
too-big-to-fail institutions, made it more difficult for small 
banks to compete, and done damage to the economy that is still 
too difficult to quantify.
    The law of unintended consequences has never been more 
apparent than when we look at Dodd-Frank. The pursuit of 
financial stability has come at a cost. While the goal may be 
worthy, we must look at the collateral damage along the way and 
ask ourselves if we are going down the right path.
    Compliance burdens are crushing small institutions. And 
though banks may be better capitalized, we are now seeing 
negative market impacts stemming from these new regulations.
    The FSOC and Treasury Secretary Lew don't really want to 
admit that Dodd-Frank may be at the center of illiquidity that 
was seen in the bond market. With banks having to hold on to 
more capital and pulling out of market-making activities, these 
markets are left withering in the wake of Dodd-Frank and other 
international regulations.
    Another product of Dodd-Frank is the Consumer Financial 
Protection Bureau, the CFPB, which was tasked with protecting 
consumers of financial products and services from 
discrimination. Ironically, it has the worst track record of 
all Federal financial agencies of EEO complaints, proving the 
agency is inept at best, or negligent at worst, at protecting 
its own employees from discrimination and retaliation.
    Further, sources of small dollar credit products that 
millions of Americans rely upon are now in the crosshairs of 
the Bureau. The government-knows-best mentality, the nanny-
state mentality, has gone too far. Americans are capable of 
choosing products and making decisions that they know are in 
their best financial interests.
    The CFPB is eliminating consumer freedom and imposing 
political agendas that I just don't think work, Mr. Chairman. 
This is the Gruber mentality, along with--well, I will go there 
later. I will yield back.
    Chairman Hensarling. Notwithstanding the fact the gentleman 
was on a roll, the time of the gentleman has expired.
    [laughter]
    Today, we welcome the testimony of our distinguished panel. 
I will introduce them at this time.
    First, Mr. Paul Atkins is the CEO of Patomak Global 
Partners. He is a former Commissioner of the U.S. Securities 
and Exchange Commission, appointed by President George W. Bush. 
I also note that he is a fellow member of the TARP Oversight 
Panel.
    Before his appointment to the Securities and Exchange 
Commission, he served on the staff of two SEC Chairmen, and 
worked as an attorney in private practice. He is a graduate of 
the Vanderbilt University School of Law, and Wofford College.
    Dr. Mark Calabria is the director of financial regulation 
studies at the CATO Institute. Before serving at CATO, he 
served on the staff of the Senate Banking Committee, and as 
Deputy Assistant Secretary for Regulatory Affairs at the U.S. 
Department of Housing and Urban Development. He owns a 
doctorate in economics from George Mason University.
    Mr. Damon Silvers is director of policy and special counsel 
at the AFL-CIO where he has advised on a range of financial 
services matters before the Treasury Department, the SEOC, and 
the PCAOB. I also note he served as the Deputy Chair of the 
Congressional Oversight Panel, another fellow alum. I think we 
are maybe two shy of a full reunion. At this time, we might 
leave it that way.
    Professor Todd Zywicki is a foundation professor of law and 
an executive director of the Law and Economics Center at George 
Mason University. He was previously an attorney in private 
practice, and a law clerk for Judge Jerry Smith, U.S. Court of 
Appeals for the 5th Circuit. He is a graduate of the University 
of Virginia Law School, Clemson University, and Dartmouth 
College.
    Each one of you gentlemen, I know, has testified before our 
committee. So I trust you do not need a remedial tutorial on 
our lighting system of red, yellow, and green.
    Each of you will be recognized for 5 minutes to give an 
oral presentation of your testimony. And without objection, 
each of your written statements will be made a part of the 
record.
    Mr. Atkins, you are now recognized for 5 minutes to 
summarize your testimony.

  STATEMENT OF THE HONORABLE PAUL S. ATKINS, CHIEF EXECUTIVE 
OFFICER, PATOMAK GLOBAL PARTNERS LLC; AND FORMER COMMISSIONER, 
            U.S. SECURITIES AND EXCHANGE COMMISSION

    Mr. Atkins. Thank you, Mr. Chairman. Good morning, Chairman 
Hensarling, Ranking Member Waters, and members of the 
committee, and thank you very much for inviting me to appear at 
the hearing today.
    Given my background, I am going to focus my remarks on the 
impact of Dodd-Frank on the U.S. capital markets. I think the 
single largest problem of the Act is Title I, titled 
``Financial Stability.''
    The conceit of the authors of Dodd-Frank is that if you get 
enough smart people in a room with enough data, they can bring 
stability to the marketplace. But just as human beings cannot 
be counted on to be predictable and stable, those of us who 
spend a lifetime engaged with the capital markets know that 
they also are not always stable because human beings with other 
foibles make up markets.
    Ultimately, though, the freedom of individuals to make 
their own decisions is not a curse, but a benefit.
    A little over a year ago, I testified before this committee 
on the FSOC's embarking on a misguided effort to apply bank 
prudential regulation to the capital markets by designating 
asset managers as systemically important financial 
institutions, or SIFIs.
    After much pushback, including by many of you on this 
committee from both sides of the aisle, both the FSOC and the 
International Organization of Securities Commissions now 
indicate that they are moving away from designating asset 
managers as SIFIs. But that decision is not carved in stone.
    Take the Financial Stability Board, which seems not to have 
changed its course to designate funds and asset managers as 
global SIFIs, even though the only funds and managers that meet 
their materiality threshold are American. That raises serious 
competitive implications for the United States just as the 
European Union embarks on an initiative to encourage Pan-
European capital markets.
    In short, the story of attempted prudentialization of 
capital markets is not going away. I fear that the U.S. capital 
markets, which have been the driver of economic growth and job 
creation in this country for decades, will be the collateral 
damage in the elusive quest for, as I say, stability ``uber 
alles.''
    Another Dodd-Frank provision that is emblematic of a flawed 
legislative process is the Volcker Rule. Despite not being 
included in either the House or the Senate bill, and without 
any substantive hearing to consider the specific language of 
the Rule, potential effects or unintended consequences of the 
provision, the Volcker Rule became law.
    Basically, the Volcker Rule is aimed at banning proprietary 
trading in commercial banks. Because it is easier to blame Wall 
Street in excessive risk taking for the financial crisis than 
the Federal Government's own housing policies, many have 
trumpeted the Volcker Rule as the best reform of Dodd-Frank.
    But even former Chairman Volcker himself has acknowledged 
that, ``proprietary trading in commercial banks was not central 
to the crisis.'' Yet, the statute and implementing regulations 
turned regulators into amateur psychologists. They might as 
well have a Ouija board to determine intent under the rule.
    Rather than risking running afoul with regulations, banks 
have reduced their market-making activities. Combining the 
Volcker Rule with higher capital requirements at home and 
abroad has literally sucked essential working capital out of 
the market-making activities of banks.
    Banks no longer act as principals in trading any more, but 
as agents. That decreases market liquidity on a daily basis.
    Even though Secretary Lew--who by the way does not have a 
financial background--refuses to acknowledge it, the Volcker 
Rule is the needless regulation that has caused and will 
continue to cause harm to issuers and investors.
    As the chairman quoted at the outset, former Senator Dodd 
famously said, ``No one will know until this is actually in 
place how it works.'' Five years later, the full effects of 
Dodd-Frank are still unknown. But the costs certainly have been 
borne not just by Wall Street but by ordinary investors and 
businesses of all shapes and sizes who are no safer today than 
they were in 2008.
    Indeed, small investors will suffer more pain if the 
Administration goes through with the proposed changes to the 
ambit of fiduciary duty under ERISA. To say nothing of the 
myriad special interest provisions in Dodd-Frank that had 
absolutely nothing to do with the financial crisis such as 
conflict minerals certification, mineral extraction disclosure, 
and the CEO pay disclosure.
    Moreover, until Congress claims some of the authority that 
it gave regulators under Dodd-Frank, particularly the authority 
given the FSOC and the Federal Reserve under Titles I and II, 
the greatest risk to the U.S. capital markets remains that 
government, and not the markets, will ultimately choose winners 
and losers.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Atkins can be found on page 
74 of the appendix.]
    Chairman Hensarling. Thank you.
    Dr. Calabria, you are now recognized for your testimony.

 STATEMENT OF MARK A. CALABRIA, DIRECTOR, FINANCIAL REGULATION 
                    STUDIES, CATO INSTITUTE

    Mr. Calabria. Chairman Hensarling, Ranking Member Waters, 
and distinguished members of the committee, thank you for the 
invitation to appear at today's important hearing.
    I will note that it has been almost a year since I appeared 
before the committee, and I was starting to wonder if I had 
worn out my welcome. So, it is a delight to be back, and of 
course an honor to be part of such a distinguished panel.
    The subtitle of today's hearing raises what I believe is 
probably the single most important question in financial 
regulation: Are we more stable? Let me cut the suspense and 
give you my answer. I think it is ``no.'' Now, let me tell you 
why.
    I will note that there have been improvements. And I don't 
think anybody would disagree with that. In my written 
testimony, I talk about the improvements we have seen in bank 
capital. But my own opinion is that the net improvements have 
been outweighed by the net downsides.
    This is also an extremely broad topic. I touch on a number 
of things in my written testimony, which I will be delighted to 
discuss later, but I am only going to focus on a few right now.
    Let me first focus on what I believe is one of the more 
important contributors to financial instability, which is the 
moral hazard created by both implicit and explicit guarantees 
of risk taking.
    The chairman mentioned the Richmond Fed's Bailout 
Barometer. As he noted, this is up to a full 60 percent of our 
financial system liabilities, either explicitly or implicitly 
backed by the Federal Government. I will note this is higher 
than both before Dodd-Frank and before the crisis.
    Part of the measure of the implied too-big-to-fail is the 
too-big-to-fail subsidy of our largest banks. For reasons I 
detail in my written remarks, I do not believe that Dodd-Frank 
has ended too-big-to-fail. I will note that according to recent 
polling, neither does a plurality of the American public 
believe that either.
    Some would claim that Title II's orderly liquidation 
process ends bailouts. I will note that I worked on a similar 
mechanism created under the Housing Economic Recovery Act for 
Fannie Mae and Freddie Mac. And so let us not forget, we had 
the tools to resolve Fannie and Freddie without a dime of cost 
to the taxpayer. Those are on the books. Those were not used.
    So maybe I will characterize my concern this way. The 
ranking member mentioned choices. We are faced with that next 
time.
    Regulators will have the choice whether they resolve an 
institution without relaying to the taxpayer, without taxing 
the rest of the financial services industry, or whether they 
impose losses on creditors. So let me emphasize that while I 
agree that Dodd-Frank's Title II offers a path to imposing 
losses on shareholders and creditors, I could not 
overemphasize, it is a choice.
    One of the reasons I believe that choice will not be taken 
is if you simply compare an institution like Freddie Mac, which 
is smaller and less complex than an institution like Citibank, 
it suggests to me that it is very hard to believe that we would 
actually let Citibank fail.
    There are a number of other institutions that we may let 
fail, but I don't think some of them would work.
    I appreciate and commend the FDIC's attempts towards its 
single point of entry to try and improve upon that process. 
Setting aside its questionable legality, I would also emphasize 
that it is an optional approach. Whether it is actually 
followed or not is an open question.
    Were it credible, markets would price holding company debt 
and subsidiary debt differently. Recent research from the New 
York Federal Reserve shows that this is not happening. So 
apparently, the markets don't even believe the single point of 
entry is going to be effective.
    I will note that a handful of studies have found that 
designating systemic entities as ``systemically important,'' as 
is done under Title I, leads market participants to view these 
entities as too-big-to-fail.
    I will remind the committee that in this very room in 1984, 
when the Comptroller of the Currency told us that the 11 
biggest institutions were too-big-to-fail and they were going 
to be heavily regulated, we still ended up bailing out some of 
those institutions.
    So, it is bad enough that unfortunately the implied 
guarantees of our largest banks have been further backed. We 
also have extended that privilege, as the chairman noted, to 
financial market infrastructure such as clearinghouses.
    Another important driver of instability is monetary policy. 
Years of negative real interest rates incentivize all sorts of 
reckless behavior, such as that which helped inflate the 
housing bubble. I am certain that we are currently massively 
distorting our financial markets with our current monetary 
policy.
    Let me be very clear in my opinion that the Fed's current 
policies will be very painful when they unwind. Most of us 
agree that mortgages play an important role in the crisis.
    Dodd-Frank has indeed attempted to address problems in the 
mortgage market. As I detail in my written testimony, I believe 
these attempts have fallen short, and in many instances have 
done more harm than good.
    I believe the evidence is overwhelming coming from such 
neutral parties as GAO that loan to value and borrower credit 
are the main primary drivers of default, yet these have been 
ignored.
    I remind the committee that Congressman Frank sat at this 
table last year and testified that he clearly meant that 
downpayments should be a part of QM and QRM. The regulators 
have gutted these provisions, making them worse than useless.
    Perhaps worst of all is that Dodd-Frank has helped drive 
almost all of the mortgage risk in the United States on the 
backs of the taxpayer. Fannie, Freddie, and FHA all hold 
essentially zero capital. When the housing market turns, which 
it will, the taxpayer will face a very large bill.
    Even the IMF, no lover of free markets, highlighted earlier 
this week the instability risks from our housing finance 
system. If we continue along this path, I estimate that at 
least a million families will lose their homes in the next 
downturn from the reckless underwriting practices of the FHA 
alone.
    Mr. Chairman, I commend you for calling today's important 
hearing. As we painfully learned over the last decade, 
financial crises are extremely costly and painful, both for the 
economy and for American families.
    Had Dodd-Frank brought more stability to our financial 
system, I would be the first to applaud it. I do believe it has 
not.
    Without sufficient reform, I believe we are almost certain 
to see another painful crisis within the next decade. Sadly, 
the warning signs were ignored before the last crisis.
    I urge Congress not to ignore the warning signs this time 
around.
    [The prepared statement of Dr. Calabria can be found on 
page 87 of the appendix.]
    Chairman Hensarling. Thank you.
    Mr. Silvers, you are now recognized for your testimony.

 STATEMENT OF DAMON A. SILVERS, DIRECTOR OF POLICY AND SPECIAL 
 COUNSEL, AMERICAN FEDERATION OF LABOR--CONGRESS OF INDUSTRIAL 
                    ORGANIZATIONS (AFL-CIO)

    Mr. Silvers. Good morning, Chairman Hensarling, Ranking 
Member Waters, and members of the committee.
    My testimony today is given on behalf of both the AFL-CIO, 
and Americans for Financial Reform, a coalition of over 200 
organizations.
    The Dodd-Frank Act passed in the wake of a financial crisis 
that cost the United States $22 trillion, according to the GAO. 
In the course of that crisis, 10 million families were thrown 
out of their homes and tens of millions lost their jobs. That 
is what we are trying--the statute was seeking to prevent 
occurring again.
    But the Dodd-Frank Act was a compromise. It did not place 
size limits on financial institutions, it did not restore the 
Glass-Steagall Act, and it did not fundamentally change the 
incentives in the executive compensation system of our 
financial firms to take on excessive risk.
    Rather than making these fundamental structural changes, 
the Act gave regulators the possibility of making structural 
change. This goes back to Dr. Calabria's point about choices.
    What Dodd-Frank did do was resurrect fundamental principles 
of financial regulation that had been forgotten in the race to 
deregulate in the 1980s and 1990s. Most of all, the Dodd-Frank 
Act created a clear, workable alternative to the bailout of 
systemically significant institutions.
    The resolutions process, contemplated in Title II, places 
the responsibility for first-hour losses and distress 
situations clearly where it should be, on the too-big-to-fail 
firms, their equity holders, bond holders, and executives. 
However, I would associate myself with Dr. Calabria's comments 
that this requires the regulators to actually choose to use it.
    The U.S. financial regulatory system prior to the Dodd-
Frank Act was a Swiss cheese system, full of holes allowing 
financial actors to evade both capital and transparency 
requirements for the price of a lawyer. The Act closed many, 
but not all, of these loopholes.
    Five years later, among the clear results of these changes 
is a reduction in the credit market's perception that the 
government will bail out the Nation's largest banks if they get 
into trouble. GAO found that while there was a very large 
subsidy--in the credit markets for too-big-to-fail banks in 
2009 and 2010.
    Between 2010 and 2014, that subsidy fell to near zero as 
regulators showed through the progress of living wills, the 
adoption of single point of entry and the refinement of stress 
tests that they were serious about enforcing the provisions of 
Title II.
    But the Dodd-Frank Act was not simply about protecting the 
financial system from itself. Its explicit purpose was to make 
financial markets less of a rigged game from the perspective of 
consumers and investors.
    Here, the track record is impressive and expanding. For 
example, the CFPB has returned $5.3 billion of improperly 
obtained fees and penalties to over 15 million consumers and 
their families. And the Securities and Exchange Commission 
recently has begun using the Act to uncover widespread abuses 
of investors by private equity and hedge fund managers.
    However, the Act necessarily depends on regulators to 
implement and enforce it, and all too often over the last 5 
years regulators have succumbed to political pressures not to, 
particularly in the area of executive compensation.
    And then, there was the recurring impulse in Congress to 
weaken financial regulation, that same impulse that brought us 
to crisis in the first place. We saw this on display in the 
Cromnibus negotiations last winter where Congress worked with 
the Obama Administration to repeal the hard-fought derivatives 
push out provisions and once again relink the derivatives 
market to the deposits of American families.
    Efforts to weaken the Dodd-Frank Act have involved the use 
of a series of spurious arguments, including ``cost benefit 
analyses'' that looked only at the costs and not at the 
benefits. These sorts of arguments only have weight because of 
the political and economic power of the people making them.
    And this brings us back to the issue of too-big-to-fail 
banks. The truth is that because Dodd-Frank was a compromise, 
because it largely left to the regulators the question of 
structural change, it has proven to be vulnerable to the 
continuing political power of the handful of too-big-to-fail 
banks that continue to dominate our financial system and exert 
a disproportionate influence on our politics.
    In this sense, the unfinished agenda of financial reform is 
inextricably intertwined with the ability of the regulatory 
system to effectively implement the Dodd-Frank Act as it is to 
ensure the financial system does its job of efficiently 
transforming savings into investment and to protect the U.S. 
economy and the American public from a costly repeat of the 
financial crisis that began in 2007.
    My answer, Mr. Chairman, to the question posed in the title 
of this hearing, is that the Dodd-Frank Act has definitely 
helped make our financial system more stable, but unless we 
deal with the too-big-to-fail problem more directly, the Dodd-
Frank Act itself is not stable.
    Thank you.
    [The prepared statement of Mr. Silvers can be found on page 
104 of the appendix.]
    Chairman Hensarling. Thank you.
    Professor Zywicki, you are now recognized for your 
testimony.

 STATEMENT OF TODD J. ZYWICKI, FOUNDATION PROFESSOR OF LAW AND 
  EXECUTIVE DIRECTOR OF THE LAW AND ECONOMICS CENTER, GEORGE 
                 MASON UNIVERSITY SCHOOL OF LAW

    Mr. Zywicki. Thank you, Chairman Hensarling, Ranking Member 
Waters, and members of the committee. I am a scholar of 
consumer credit, a former FTC senior staffer, and as a result, 
I was especially disappointed that Dodd-Frank had squandered an 
opportunity to modernize our financial consumer protection 
system, to a regime that would promote competition, consumer 
choice, and innovation.
    If you look back at the record over the past 5 years, 
instead Dodd-Frank has substituted the judgment of Washington 
bureaucrats for American families with respect to the financial 
products that will make their lives better; thrown a blanket of 
uniformity over the consumer credit market, strangling 
innovation and crushing community banks; raised prices; and 
reduced consumer choice with respect to financial services.
    And by reducing access to financial services, and because 
many small businesses use personal credit in their own 
businesses, it has dampened the economic growth and recovery. 
And I think most tragic of all, Dodd-Frank has done little to 
increase consumer protection for American families, but by 
driving millions of consumers out of the mainstream financial 
system, and into the hands of payday lenders, check cashers, 
pawn brokers, and all of the other alternative financial 
providers, it has actually made life worse for the most 
vulnerable members of society.
    At the heart of Dodd-Frank was the Consumer Financial 
Protection Bureau, which is both the most powerful and 
unaccountable bureaucracy in American history, with the ability 
to regulate virtually every consumer credit product under vague 
and poorly defined standards.
    If we look at the track record of the CFPB, and the way in 
which Dodd-Frank has been implemented, we see a sweeping amount 
of damage to American families as a result of this law.
    First, Dodd-Frank has destroyed free checking for millions 
of Americans. Prior to Dodd-Frank, 76 percent of Americans had 
access to free checking; since Dodd-Frank was enacted, that 
number has fallen to 38 percent. Bank fees have doubled as a 
result of Dodd-Frank, driving approximately a million, if not 
more, consumers out of bank accounts and into the alternative 
financial sector.
    With respect to credit cards, by interfering with the 
ability of credit card issuers to accurately price their risk, 
it is estimated that 275 million credit card accounts were 
closed, and $1.7 trillion in credit lines were eliminated, and 
again, those who bore the brunt of this were the lowest income 
consumers. According to the Federal Reserve, the number of--
lowest quintile households with credit cards fell by 11 
percentage points in the period since Dodd-Frank was enacted, 
taking credit cards out of the hands of American families, and 
forcing them to turn to payday loans and other alternatives to 
try to pay the rent, and to try to prevent eviction.
    With respect to mortgages, Dodd-Frank has raised the cost 
and risk of lending, and continued to slow the housing recovery 
and access to mortgages.
    Yet by doing nothing about downpayments and many of the 
other factors that led to the financial crisis, Dodd-Frank is 
doing little to prevent the next financial crisis.
    Perhaps most notably, Dodd-Frank's rules, by throwing this 
blanket of uniformity and bureaucratic underwriting over the 
mortgage market, have driven community banks out of the 
mortgage market. According to a Mercatus study, for instance, 
64 percent of community banks have changed their mortgage 
offerings as a result of Dodd-Frank and the CFPB, and by 
creating this new de facto plain vanilla rule, they have 
eliminated the ability of community banks to compete on what 
they do best, which is relationship lending.
    One other area I would like to flag is this extraordinary 
data mining operation that the CFPB has undertaken with respect 
with consumer data. While--and perhaps this evidence is best, 
the dangers of creating a super unaccountable bureaucracy like 
the CFPB that--and the sort of egregious behavior that this 
leads to. For those not familiar with this, it is estimated 
that the CFPB is routinely scooping up 600 million credit card 
accounts, 22 million mortgages, and 5\1/2\ million student 
loans, all without the knowledge and consent of American 
consumers.
    And that is still not enough. They want 95 percent of 
credit card accounts. According to one estimate, this is 70,000 
percent more data than the CFPB needs in order to effectuate 
its regulatory purposes. This is especially worrisome in light 
of the fact that the Director of the CFPB himself has admitted 
that this data could be reverse engineered in the light of 
recent data breaches at the IRS, OPM, and elsewhere.
    Thank you.
    [The prepared statement of Mr. Zywicki can be found on page 
111 of the appendix.]
    Chairman Hensarling. Thank you.
    The Chair now yields himself 5 minutes for questions.
    Mr. Atkins, in your testimony, on page 8, you posit one 
undisputed effect of the Volcker Rule has been a reduction in 
corporate bond inventories of primary dealers. Next time you 
posit that, I might suggest that you offer the caveat, ``unless 
you are an economist employed by the Federal Reserve or the 
Financial Stability Oversight Council.'' They seem to be the 
only ones in the world who can't connect the Volcker Rule with 
this undisputed reduction.
    Even the Financial Stability Board, as you point out in 
your testimony--Governor Mark Carney of the Bank of England 
warned that the Volcker Rule ``could reduce global financial 
resilience rather than increase it.''
    So you cited in your testimony, I believe it was a 77 
percent drop in primary dealer inventories of corporate bonds 
since the crisis. Can you expound on your views of how this 
could create greater instability in our markets?
    Mr. Atkins. Thank you, Mr. Chairman.
    Basically, because of the regulatory apparatus and the 
uncertainty that the Volcker Rule has created with respect to 
banks operating as--with their own money in the marketplace as 
market makers, banks have tended to back away from doing any 
propriety trading, because they feel that is only going to get 
them in trouble.
    And so, because of that, that just means on a day to day 
basis, there is that much less participation by the banks in 
the marketplace. So that creates a question with respect to 
liquidity and a decrease of that on a day to day basis.
    Chairman Hensarling. On page 4 of your testimony, you speak 
of the potential for asset fund managers to be designated as 
systemically important financial institutions under the Dodd-
Frank regime, and you question what this could do to risk 
management or liquidity in the market.
    If that takes place and fund managers are found to be 
SIFIs, or in deference to you, SCIFIs--
    Mr. Atkins. Right.
    Chairman Hensarling. --give me your views about how this 
impacts market stability?
    Mr. Atkins. The real fear is the extension of prudential 
bank-type regulation into the capital markets. Prudential 
regulation grew up by the banking regulators, because their 
mission is safety and soundness of the banking system. Whereas, 
on the capital market side, we have created the goose that lays 
the golden egg here in the United States where innovation and 
competition really has made a very dynamic marketplace that 
truly is the envy of the world.
    Not too long ago, I was at dinner with the head of a 
multilateral international lending operation, a government type 
of lending operation. And he told me he could not believe what 
the United States is doing to its capital markets, which, he 
said, of course, with Asia and Europe, is truly the envy of the 
world.
    So that is really the ultimate worry, is that, because of 
the Fed and the FSOC began able to have prudential regulatory 
authority over the capital markets, that there will be less 
activity there, and they will ultimately be able to direct--
either tell people not to trade or to acquire certain 
securities.
    Chairman Hensarling. Dr. Calabria, you mentioned this in 
your testimony, and Professor Zywicki spoke about our housing 
markets.
    On page 15 of your testimony, you mentioned that Dodd-Frank 
could very well result in an increase in the level of mortgage 
defaults during the next housing bust. So, we have just have 
come off a rather painful housing bust.
    Could you expound on your views of how Dodd-Frank might 
just bring us full circle?
    Mr. Calabria. Sure, I would be happy to. Let me set aside 
issues that might reduce defaults and talk about some of those 
in the legislation that might increase defaults.
    A number of scholars have found that the longer you delay 
the foreclosure process, for instance, the more people who end 
up in delinquency. And of course, a number of provisions in 
Dodd-Frank extend the length of the foreclosure process, and of 
course, things like letting borrowers know that they--if you 
are in a non-recourse State, that they could walk away. If it 
had any effect at all, it will be to encourage those borrowers 
to walk away.
    So there are a number of provisions that, to me, will drag 
out the foreclosure process, resulting in larger foreclosures. 
I would hope that one of the lessons we would take away from 
the crisis, and for instance, if you compared judicial to non-
judicial foreclosure States, is that if you make it very hard 
to foreclose, you get more foreclosures, in terms of the 
reaction of borrowers.
    Chairman Hensarling. In attempting to set precedent, I will 
not go over my time.
    The Chair now yields 5 minutes to the ranking member.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Before I get to one of the main questions, I would like to 
ask, I think it is Mr. Atkins, do you agree that the Consumer 
Financial Protection Bureau has returned $5.3 billion to 15 
million consumers who have been subjected to unfair and 
subjective practices?
    Mr. Atkins. I don't know the exact number, but from the 
paper, they are even having trouble identifying supposedly who 
has been harmed in some of those cases. So they collect money 
from their settlements where people feel over the barrel that 
they have to pay to get the regulator off of their back, but 
the query is, who is being harmed, and how do you show who is 
being harmed?
    Ms. Waters. Mr. Silvers, as Deputy Chair of the 
Congressional Oversight Panel created in order to oversee the 
Troubled Asset Relief Program (TARP), you had a front-row seat 
to our government's response to the crisis, starting with the 
Bush Administration placing Fannie and Freddie into 
conservatorship, and continuing with then-Treasury Secretary 
Hank Paulsen injecting billions of dollars of capital into our 
Nation's largest banks in order to forestall economic chaos.
    Can you take us back to that time, and again, you have done 
some of this in your testimony, but remind the committee just 
how bad the economy was during the depths of the crisis. And 
can you again remind us what was happening to American workers 
in terms of home foreclosures, small businesses closures, and 
401(k) plans being decimated?
    Mr. Silvers. Ranking Member Waters, I am happy to do that. 
It gives me a moment also to recall the time that I spent with 
the chairman in that work, and to reflect on a lot of the 
bipartisan things we did together, which I think is all too 
rare in our time.
    The story you asked me to tell is one that we don't have 
time for the full horror of, but just a few anecdotes. I 
remember then-Deputy Treasury Secretary Bob Steele, in the fall 
of 2007, saying to me, we are going to have a big problem. We 
might have as many as a million foreclosures. This is the 
number that Dr. Calabria is worried about.
    Of course by the time we were done, we had 10 million. That 
is 40 million people set out in the street. The median net 
worth in the course of that process of African-American 
families fell from $18,000 to $6,000. It has never recovered.
    We had as many as 25 million Americans out of work. We had 
the economy contracting in the fall of 2009, according to Paul 
Volcker, at a rate greater than it was contracting during the 
depths of the Great Depression.
    We put several hundred billion dollars into the Nation's 
largest banks, being told at the time by the Treasury 
Department that they were all solvent.
    And it is my belief that--it has become quite clear that at 
least two of them, CitiGroup and Bank of America, were 
certainly insolvent at the time that they were given the money. 
And it is unclear that if the money had not been given, that 
any of them were solvent. We provided the money on terms that 
were only 60 cents on the dollar to the American public.
    Later, Treasury Secretary Geithner asserted that we got our 
money back, but that statement assumed that the listener was 
extraordinarily naive. We propped the banks up and then we 
didn't get the upside. That is what those numbers meant. The 
upside went to the people who caused the problem in the first 
place.
    I think we need to recognize in looking through this 
history a couple of things. One of them is that had nothing 
been done, we would certainly have been in a prolonged 
situation like the Great Depression, and that--this will seem 
like a strange thing for me to say, but the Bush Administration 
and the Democratic Congress, and in particular Hank Paulsen, 
deserve great credit for acting. But the failure then to 
restructure our banks, the failure to restructure home mortgage 
debt devastated our economy.
    And although my fellow witness, Mr. Atkins, feels that our 
capital markets are the envy of the world, and they may well be 
now, at that time they were widely seen as having initiated--
our capital markets were widely seen as having initiated a 
global financial crisis that cost the world economy $60 
trillion and destabilized democratic societies around the 
world. That is a heavy indictment.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from Michigan, 
Mr. Huizenga, the chairman of our Monetary Policy and Trade 
Subcommittee.
    Mr. Huizenga. Thank you, Mr. Chairman. I appreciate that.
    And gentlemen, it is good to see you all again. Mr. 
Silvers, we have something that we agree on. I heard you say 
that the Dodd-Frank bill was a compromise piece of legislation, 
and by that I assume you mean a compromise between Senator Dodd 
and Representative Frank, because there weren't any Republican 
votes for that during that time.
    But I do want to touch on a couple of quick issues that Mr. 
Atkins had touched on, and I am going to go in a little 
different direction because of some of the work that we have 
been doing on the committee.
    The first one is pay ratio. The rule is expected to come 
out, I believe next month, from the SEC. I had an opportunity 
to question Chair White back in March of this year, and her 
quote from an October 2013 speech was that seeking to improve 
safety of--I'm sorry, it is my next question.
    The pay ratio rulemaking, really the SEC didn't have any 
experience or expertise in this. At the time, it seemed the SEC 
doesn't know exactly where it is going, whether it is going to 
include part-time employees, contract employees which may be 
temporary workers, it may be the cleaning crew who comes in, 
who gets hired to come in, much less overseas employees.
    So if you would maybe quickly touch base on that pay ratio 
provision that is required, and what you expect as a former SEC 
Commissioner, what might happen.
    Mr. Atkins. I think it is an unfortunate diversion, 
frankly, from what the SEC should really be focused on. It was 
a sop to special interests who have their own ax to grind in 
that regard.
    And then as you touched on definitionally, it is very 
difficult to implement. So I know the staff at the SEC is 
struggling with how exactly to put this thing together, and I 
expect that will be yet another divided vote.
    Up until the time I left the SEC in 2008, I don't think 
during my time there was any rulemaking divided vote upon 
partisan lines. And unfortunately, that number has 
skyrocketed--
    Mr. Huizenga. And that has been very common, correct?
    Mr. Atkins. Exactly. Under this Administration, it has been 
very common.
    Mr. Huizenga. I do want to quickly move on to something 
else that has had great impact on manufacturers like Watts in 
Michigan. I am very tied to the automotive industry. We have a 
tremendous number of tier 1, tier 2, and tier 3 automotive 
suppliers that are dependent on rare earths for their products 
and products that are put in.
    This is where in an October 2013 speech Chair White had 
said, ``I may wholeheartedly may share some of the compelling 
objectives as a citizen, but as Chair of the SEC I must 
question as a policy matter the use of Federal securities laws 
and the SEC's power of mandatory disclosure to accomplish these 
goals.'' She is talking about the conflict minerals.
    I had an opportunity just yesterday to meet with the 
Rwandan Ambassador, Mathilde Mukantabana, minister of mines, 
Mr. Imena, and a mine owner, Emery Rubagenga, who came to my 
office expressing grave concern. The $20 million that the 
government of Rwanda spends on its mining operations, $2 
million of that is spent for exploration and surveying, $5 
million to $6 million of that is spent on trying to comply with 
Dodd-Frank conflict mineral rules.
    And my fear is that there is a huge impact on our 
manufacturers while other manufacturers throughout the world 
are not subject to the same rules, and it is having little or 
no positive effect on those it was intended to help.
    This committee had a subcommittee hearing, I guess a term 
or two ago, where we had some folks from the Democratic 
Republic of Congo in, expressing that exact same thing.
    I think it is imperative upon us--again, I would agree with 
Chair White. Very laudable goals and objectives are missing the 
mark because they are not truly helping those who are trying to 
escape that conflict. And they are certainly not helping the 
United States and our manufacturers as we are trying to compete 
in the world economy.
    Mr. Atkins, you had touched on that, so maybe a couple of 
seconds on that?
    Mr. Atkins. Yes, I agree. I think it is really unfortunate 
that Congress foists on the SEC these disclosure provisions 
that have nothing to do with materiality with respect to public 
issuers. That is the basis of the 1934 Act, the Securities and 
Exchange Act.
    And to go off and to try to do social engineering through 
the securities laws and disclosure, I think is really 
unfortunate.
    Mr. Huizenga. Thank you, and I will mention that her 
response to a letter is, the SEC has spent over 21,000 hours 
and approximately $2.7 million on that particular provision, 
and to what end?
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, the ranking member of our Capital Markets 
Subcommittee.
    Mrs. Maloney. Thank you, Mr. Chairman, Ranking Member 
Waters, and all of the panelists for your testimony today.
    We need to remember that Dodd-Frank was a sweeping overhaul 
of our entire financial regulatory system that was brought on 
by the largest financial disaster in our history, where we 
lost, according to the GAO, independent, $22 trillion.
    Tens of millions of people lost their jobs. Millions were 
out of work, and the economists who testified before this 
committee and others said that this had economic shocks that 
were 3 to 5 times stronger than the Great Depression, and it 
was caused by mismanagement of the financial system. And it was 
the only financial crisis that was totally self-inflicted.
    I don't want to go through it again, so I am proud of any 
effort to stop any type of financial abuse. But one of the 
principal goals of Dodd-Frank was to improve the safety and 
soundness of our core banking system, and it was a response to 
a crisis which showed that many of our largest banks did not 
have nearly enough capital or nearly enough liquidity.
    So it is important to point out that 5 years later, the 
biggest banks have more than doubled the amount of capital they 
hold. In fact, they now hold more than $1.1 trillion in 
capital, and the biggest banks have also nearly doubled their 
liquidity since the crisis, and they go through now a required 
annual stress test by the Federal Reserve that the IMF calls 
state-of-the-art.
    So I believe that Dodd-Frank has successfully achieved its 
goal of shoring up safety and soundness of our banking system 
that serves our people and serves our country, making it 
stronger and more resilient. And this will make future 
financial crises less likely. And I am proud of that 
achievement.
    Now I would like to ask Mr. Silvers about an important 
financial reform that we passed before the crisis--during that 
crisis--that I authored, and worked on for 4 years.
    It was called the Credit Cardholders' Bill of Rights. Now, 
some on the panel have claimed that it harmed consumers. But 
there were two important studies. And I would like to put them 
into the record. I don't have them with me today. One was done 
by the Pew Foundation, which said this bill alone saved the 
American consumers $10 billion a year.
    A joint report from New York University, Columbia and 
another university claimed it saved a whopping $20 billion a 
year. I call it the ``Maloney Stimulus Package'' because I for 
one would like to keep that money in the hands of consumers and 
not in institutions that by all accounts were performing--not 
all of them--unfair, deceptive, abusive, and anti-competitive 
practices.
    So I would hear stories. It was hard to walk 2 feet without 
hearing a credit card story. One man was promised $8,000 on 
your interest. You can buy a car. He bought a car. Two months 
later, the financial institution raised his interest rate to 30 
percent a year--30 percent. He was trapped in debt.
    He paid off the car 2 or 3 times. He couldn't get out of 
debt. And so the Credit Card Bill of Rights cut out lies, cut 
out abusive practices, and made it fair. Now, banks tell me and 
the Consumer Financial Protection Bureau that they get very few 
complaints on credit cards.
    People are not complaining because they are fair and that 
is what we want. We want fair practices in our financial 
system. So I don't--I would like to ask Mr. Silvers about the 
CARD Act. By the way, Rahm Emanuel told me that it continues to 
poll better than anything the Administration ever did because 
it touched every consumer in this country.
    And I would say that this was a bill that passed with 
support from both sides of the aisle overwhelmingly.
    Do you think the Credit Card Bill of Rights is abusive to 
American consumers? Do you think keeping their money in their 
hands is an abusive practice? I would like you to expand on 
this, if you would, Mr. Silvers.
    Mr. Silvers. I have 17 seconds to do so.
    Mrs. Maloney. We can take your written testimony.
    Mr. Silvers. I will just say this, what I think it is not 
as important as what people who have done peer-reviewed 
academic research think. And what they--and what the premier 
study in this area, done by a team at the University of 
Singapore and the University of Chicago--found that for lower 
income credit cardholders, those with FICO Scores with credit 
ratings under 600, the Act and the banning of the tricks and 
traps you were talking about reduced credit card cost by 5.3 
percent of balances, a very big number, and did so without 
impairing access to credit in any way they could detect.
    Chairman Hensarling. The time of the gentlelady has 
expired. The Chair now recognizes the gentleman from North 
Carolina, Mr. McHenry, vice chairman of the committee.
    Mr. McHenry. Well, happy anniversary. America has been 
saved. We are just living with the consequences of that savior, 
Dodd-Frank. And the consequences of that are lower growth, and 
impaired lending for community institutions and large 
institutions as well.
    It means we have less job creation than we otherwise would 
have. And historically, Dodd-Frank is an anomaly in how 
Congress is legislated. And so, Dr. Calabria, I want to ask a 
little bit about this.
    If you look at the last major crisis that my Democrat 
colleagues point to and say that this was an analogous 
situation we have lived through and that is the Great 
Depression. So out of the Great Depression, you have the Pecora 
Commission that reviewed the finite causes of what they were 
experiencing.
    You had Congress in a bipartisan way--did they not write 
securities law, but the 1933 and 1934 Acts, right? These were 
not partisan endeavors as a result of that great crisis. Is 
there some context you could provide to that, Dr. Calabria?
    Mr. Calabria. I appreciate the gentleman's point. First, 
let me respond to an earlier point. We all agree the crisis was 
bad. I don't think anybody here disagrees with that, certainly 
not on the panel. I think we all agree we would like to avoid 
future crises. I don't think there is any disagreement on that.
    I think we all agree that in the crisis we should have done 
something. The question is, what should it have been? I would 
have preferred debt to equity swaps that would have imposed 
losses on creditors to recapitalize the banks very quickly.
    I will not--we certainly didn't do nothing during the Great 
Depression. Lots of things were done, many things in my opinion 
that made it a longer, while we do not know what the counter 
factual would have been had we done other things, I am always 
puzzled by the argument of, it was really bad, so I am glad we 
did this. Well, maybe it wouldn't have been so bad if we 
hadn't.
    Personally, I think and again this is not a partisan issue 
because I think when a Republican President and a Republican 
Treasury Secretary go on TV and say, ``If you don't pass `X' by 
Monday, we won't have an economy.'' If that doesn't cause 
panic, I don't know what will.
    So, again, I think we need to get away from the keeping 
score. I think it is unfortunate to me. Certainly, you go back 
and S&L crisis, things like FDICIA and FIRREA passed with large 
bipartisan numbers.
    I do think it was possible to get a very good bill that 
would have gotten say 80 votes in the Senate. It would have 
been very bipartisan here if we had gone that path. I think 
that was doable. It would look very different. Some of the 
things that to me don't have to do with the crisis like the pay 
ratio are--there is literally more discussion in Dodd-Frank 
about payday lenders than there is about Fannie Mae.
    Who thinks payday lenders caused the crisis? Whatever you 
think about them, really? Okay. Thank you. My point is, I think 
we could have done this in a better way. It would have been 
narrower. I think there are a number of things that are still 
off the table.
    But again, this is not about wanting to relive--nobody 
wants to relive this again. It is really a question of, did we 
do something that was effective? Let me end with saying, I 
worked on the Housing Economic Recovery Act, and I'm proud of 
my efforts on it.
    We failed to avoid the failures of Fannie and Freddie in 
that Act. I will own up to we didn't get that bill done right. 
Too little, too late. I am willing to lay that on the table. I 
think if we could all own up to the mistakes we made, I will 
actually to anybody who looks at it. I have done a couple of 
blog posts on mistakes I made. So I am willing--
    Mr. McHenry. All right. Regarding--okay. I am reclaiming my 
time, Dr. Calabria. Although, you are rolling, I am sorry to 
interrupt. But I do want to get to a couple of other points, 
which is Dodd-Frank didn't eliminate risk in the financial 
system. It moved risk. The claim is that it mitigated risk, but 
there was movement into a different array of new risky 
institutions.
    So financial market utilities, very important--even more 
important post-crisis than pre-crisis. And there is a grave 
concern that there is--there is a new group that will need a 
bailout going--in the event of another crisis. So in that 
regard, Dr. Calabria, not to interrupt your train of thought, 
but the concerns there that we have global clearinghouses that 
are so important here. What does that look like?
    Mr. Calabria. I very much fear that we will have to provide 
assistance, if not actually have to bail out a clearinghouse. 
As we know, Dodd-Frank allows access to the Federal Reserve 
discount window for clearinghouses.
    It is important to keep in mind that there are essentially 
two risks: the instrument risk; and the counterparty risk in 
derivatives. What we essentially did was centralize that 
counterparty risk. It did not go away. It didn't go ``poof.'' 
It just went all in one place. Again, I would say we should 
learn from the lessons of Fannie and Freddie, when you 
concentrate all the risks in a few nodes, you really do make 
systemic risk greater, not less.
    Mr. McHenry. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. And I want to also 
thank Ranking Member Waters. Professor Zywicki, in your 
testimony you stated that the CFPB was to blame for a decline 
in new business starts.
    Are you aware that the Small Business Administration is on 
track this year to having the highest record of small business 
lending since Dodd-Frank was enacted? And also, the NFYV in the 
latest report of small businesses shows that the optimism index 
is the highest since Dodd-Frank was enacted.
    You even cited a report by the Brookings Institution, and I 
have it here. I read that report and there is no mention, sir, 
of the CFPB as a cause for that decline. In fact, the authors 
say that allowing more highly skilled immigrants into the 
United States may reverse this downward trend.
    By the way, I should tell Mr. Donald Trump that he should 
read this document and get the story since he said the Latinos 
are going to love him because he is going to be the President 
creating jobs. Well, this is the answer to creating jobs.
    Instead of dismantling the one Federal agency that looks 
out for consumers and has refunded them $5.3 billion, don't you 
think we should instead focus on immigration reform to help 
spur small business revival as the authors actually stated? 
Since you brought up this study, I think it is a fair question.
    Mr. Zywicki. I would focus on immigration reform as well as 
fixing Dodd-Frank. And I totally agree with the idea of more 
immigration. Legal immigration for highly skilled workers is 
undeniably, in my view, a boon to the American economy, in my 
own personal opinion.
    Ms. Velazquez. Right. So that is the central point of this 
study. It wasn't that Dodd-Frank and the CFPB was the cause.
    Mr. Zywicki. What the study shows--what we know about it--
according to a paper in, I think 2009, by Tom Durkin, a former 
Federal Reserve economist, he documents the number of small 
businesses that rely on personal credit in order to start and 
grow their businesses--credit cards, home equity loans, and 
even in my own research auto title loans, things like that.
    And that people rely on these--for these kitchen table 
businesses, landscaping businesses, handyman businesses. They 
use their own personal credit to do this and he--and I don't 
remember the exact estimate, but he documented the fact that 
drying up access to personal credit would damage small business 
growth and creation.
    The Brookings study that I point to notes that for, I think 
it was 2 years ago for the first time in American history, more 
businesses were destroyed than were created. That is what that 
Brookings study shows and a lack of access of consumer credit 
for small businesses I think is undeniably a contributor to 
that.
    Ms. Velazquez. Well, sir, there is no mention of the CFPB 
in this study.
    Mr. Silvers, as you know, the Dodd-Frank Act was a complex 
framework to shore up the financial sectors to prevent future 
economic collapse.
    Five years later, can you tell us what work remains in 
terms of fulfilling the original intent of Dodd-Frank?
    Mr. Silvers. Congresswoman, there are significant 
regulatory steps that remain to be taken. In my view, one of 
the most significant is the Federal Reserve issuing the rules 
around executive compensation and excessive risk taking within 
financial institutions that have been delayed since 2011.
    And similarly, the SEC issuing the executive pay ratio rule 
to median employees which is an important source of information 
and check on excessive executive pay in public companies has 
been mandated by Congress and not issued.
    On the statutory side, as my testimony went through, there 
are a series of structural changes that are necessary if we 
want our financial system to do its job, including to provide 
credit to small business.
    The key ones that have been identified over and over again 
by financial regulatory experts are the separation of 
investment, of stock market activities and derivatives from 
federally insured commercial banking, essentially the 
restoration of a modern Glass-Steagall Act, a more aggressive 
approach to regulatory capital on a size basis and a financial 
transactions tax.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    Ms. Velazquez. Thank you.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Jersey, Mr. Garrett, the chairman of our Capital 
Markets Subcommittee.
    Mr. Garrett. I thank the chairman for holding this very 
important hearing. The ranking member started out by saying the 
crisis of 2008 was not a natural disaster, and I agree that it 
was inflicted--as a matter of fact, the ranking member of the 
Capital Markets Subcommittee said it was self-inflicted, which 
I tend to agree with as well. But who was doing the infliction, 
is the question.
    Mr. Silvers, you indicate that there was a failure of 
regulation and failure by the regulators. And I would agree 
with that. But you also said that they did not have the 
authority to prevent the crisis. That is factually incorrect 
based upon the multiple hearings that we had in this room.
    Seven years ago, after 2008, Chairman Barney Frank at the 
time had multiple hearings, brought in the regulators at the 
time and I and others specifically asked each and every 
regulator, ``Knowing now what happened, did you have the 
authority in your area?'' They all said, ``Yes, we did.''
    ``Did you actually have personnel stationed in the banks 
that failed?'' ``Yes, we did.'' So they had people, staff 
members working in these very banks that failed, that involved 
themselves in these risky trades and what have you, but they 
had the authority, at least they testified it to us repeatedly 
at that time.
    Now, back to that period of time, my predecessor as 
chairman at that time was Paul Kanjorski, a Democrat from 
Pennsylvania. He said what we really needed was to--and he said 
this many times--have greater market discipline.
    I don't know, I see some nodding heads by the panel here 
that that would have been a good thing then, and I see nodding 
heads that it would probably be a good thing now. The question 
is, how do you go about getting that?
    Let's see, do you get more market discipline by increased 
regulation? Again, Mr. Silvers, you told us in your testimony 
just now that the regulators are still not doing their jobs. I 
will just throw a question out. Mr. Atkins, which 
Administration appointed the current SEC Chair?
    Mr. Atkins. The current Administration.
    Mr. Garrett. Which Administration appointed the current 
Federal Reserve Chair?
    Mr. Atkins. The current Administration.
    Mr. Garrett. Which Administration appointed the head of the 
CFTC currently?
    Mr. Atkins. The current Administration.
    Mr. Garrett. And how about the CFPB?
    Mr. Atkins. The same.
    Mr. Garrett. So if Mr. Silvers is correct that the current 
regulators are not doing their job, which Administration is 
responsible for appointing all of those regulators?
    Mr. Atkins. The current one.
    Mr. Garrett. Oh, okay. So the solution then perhaps is not 
looking to this Administration for additional regulation or 
additional regulators; of course, as Mr. Silvers pointed out, 
they are not doing their jobs still.
    And if Mr. Kanjorski is correct that additional market 
discipline is the answer--I will throw this out to Mr. Atkins--
additional regulations, is that the solution or is it 
additional market discipline?
    Mr. Atkins. Yes, I think, I agree with you, additional 
market discipline. I think it is really not correct to say that 
there was no regulation or deregulation, especially in the wake 
of Sarbanes-Oxley and that sort of thing.
    Mr. Garrett. Okay.
    Mr. Atkins. There is enough to fill a big rulebook.
    Mr. Garrett. That is true because the ranking member also 
started out her testimony by saying, ``It was death by a 
thousand cuts'' what is happening now, she is asserting. Would 
you suggest that the reason we have the doldrums in the economy 
and the fact that we are in a morass as far as job creation and 
the rest is actually death by thousands of pages of regulation?
    Mr. Atkins. Yes. That is true. It is costly to comply.
    Mr. Garrett. And does anyone--I will throw this out to the 
panel as well, does anyone actually know the total cost of all 
these regulations based upon the testimony that we have heard 
in this hearing previously?
    And does anyone actually know the implications of the 
overlap capital requirements of these regulations? I will throw 
out to Mr. Calabria or Mr. Atkins, I guess.
    Mr. Atkins. Well, I will say one thing really quickly is 
that it is not just the out-of-pocket expense to comply, but it 
is also the uncertainty and all the latitude that the 
regulators have to second-guess.
    Mr. Garrett. Right. We had hearings on this. We asked the 
head of the Fed. We asked the head of the Treasury Department, 
do they actually know the cost? And Secretary Lew's response 
was, ``No.'' And he said it was our job to figure that out.
    But I will close on this in 29 seconds. Mr. Atkins then, 
since even the people, the regulators whom we are told are not 
doing their jobs, and even though they tell us they can't 
compile the total cost to the economy of Dodd-Frank, are you 
able to make an assessment of whether it is a positive or a 
negative impact?
    Mr. Atkins. Oh, I completely think that Dodd-Frank has a 
negative impact.
    Mr. Garrett. And it is a negative impact on liquidity, 
credit availability, and job creation?
    Mr. Atkins. All of those, yes.
    Mr. Garrett. I yield back.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from New York, Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman. And thank you, Ranking 
Member Waters. I get confused sometimes, but I think I heard 
Mr. Calabria say that he agreed that we did have a crisis in 
this country. Is that correct?
    Mr. Calabria. Yes. I am not sure anybody disagrees with 
that.
    Mr. Meeks. Because I want to make sure, does anybody 
disagree with the fact that there was a major crisis in this 
country? Okay. So when we had this crisis, we who are Members 
of Congress represent this country. We take an oath to try to 
do the best that we can in this country. So something should be 
done when you had this crisis because we were in freefall.
    If I recall--I can recall individuals coming to tell me 
that if we didn't do something and do it quickly, our whole 
financial structure would be in failure, and as a result of 
that, not only would we be devastated, but the financial 
institutions across the world would be devastated.
    That is how bad it was. In fact, I can recall that we first 
voted to do nothing and then we had to come back because--we 
hear the stock market fell about 800 points and everything was 
going in and it was panic. And so--and at that time it wasn't, 
I heard some people say, well, under President Obama, President 
Obama wasn't here yet. So he didn't cause this crisis. Can we 
all agree on that?
    Mr. Calabria. Nobody here is blaming the crisis on 
President Obama.
    Mr. Meeks. Okay. So this crisis happened. Things were done 
and at that time, the regulations that you are talking about 
that are costing a lot of money now, we didn't have anything in 
place then.
    And so, that was--things were starting to fall and we are 
going down. Now, we passed Dodd-Frank. And I am the first to 
say that I don't know since I have been in Congress now close 
to 18 years. I don't know of any perfect bill, so I am not 
claiming that Dodd-Frank is a perfect bill. But I do know that 
as we put things in place in regards to Dodd-Frank and I do 
know that there were some Republican ideas.
    Maybe we didn't get a single Republican vote, but I do know 
that Mr. Frank worked across lines and got Republican ideas and 
put those ideas into the Dodd-Frank legislation.
    So it was, in fact, not just Democrat ideas in Dodd-Frank. 
It was both Democrat and Republican ideas in Dodd-Frank, but 
politics dictated that no Republican vote for it.
    But it was a fact when you look at the document itself. So 
here we are now 5 years later, and I look at the title of this 
hearing, ``Dodd-Frank Act Five Years Later: Are We More 
Stable?'' And from what I am hearing from all of you where we 
were then, we were not stable at all. We were headed downhill 
into catastrophic areas. So I think that just by the very logic 
of the hearing itself that any logical person would have to say 
5 years later, we are more stable with Dodd-Frank than we were 
without Dodd-Frank because Dodd-Frank didn't exist 5 years ago 
and we were in bad shape.
    And we are in better shape now, so there is no question 
that we are more stable now than we were then. And in fact, 
from what I hear, especially with private sector jobs, I 
understand that the private sector has created over 12.8 
million new jobs over 64 consecutive months of job growth.
    And I know before then we were losing 400,000 to 500,000 
jobs per month. So we have to be in better shape now and more 
stable now than we were then just based upon sheer numbers. 
Normal household net worth has grown by about $30 trillion 
exceeding the pre-crisis levels.
    So you may have your issues with Dodd-Frank, but you can't 
tell me Dodd-Frank is what caused some--we have problems 
because of Dodd-Frank, because without it we were in 
catastrophic problems.
    With it, we are moving in a better direction and yes, I 
will grant to you, it is not a perfect bill and maybe there 
need to be some fixes we can work together on, but to say as I 
have heard from some, ``Let's do away with Dodd-Frank,'' to me 
that says, ``Let's go back to 2008,'' and that we cannot do.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Financial Institutions 
Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Zywicki, you spent quite a bit of your time on your 
academic research on consumer credit issues, and I have a bill, 
H.R. 1266, which would take the CFPB from a single director to 
a five-person commission, which I think would make that a more 
stable and sustainable organization. Could you elaborate on how 
that would help make it a more consistent and stable 
organization, if it was a five-person commission?
    Mr. Zywicki. I would strongly endorse that legislation, 
which is that the fundamental problems of the CFPB go back to 
this fundamental defect in the way in which it is structured, 
which is no budgetary appropriations, a single director 
supposedly removable only for a cause. We have decades of 
academic studies on bureaucracies and how bureaucracies behave 
when they are not subject to Democratic accountability and the 
CFPB is basically a poster child for how that operates.
    So I think over time we have learned that there are two 
ways that we can structure agencies, as an executive agency 
like a department accountable to the President through the 
democratic process, or a bipartisan agency. And I think for an 
entity like this, the Federal Trade Commission is exactly the 
model we need. The Federal Trade Commission has been around for 
100 years. It is a bipartisan agency, on budget, and it does 
more or less exactly the same thing as the CFPB.
    And I think that the FTC has proven the test of time as an 
agency that is responsive, that takes into account the impact 
on the economy, questions like competition and consumer choice 
with respect to any product. And I think that is not only a 
good idea for this agency, but really the only way that we are 
going to get this agency back on track and really looking out 
for the American consumers rather than their own narrow 
bureaucratic empire-building.
    Mr. Neugebauer. Well, the--
    Mr. Calabria. I was going to just simply remind the 
committee that the original proposal for the CFPB introduced by 
Senator Kennedy, written by Elizabeth Warren, was a five-member 
bipartisan position in the appropriations process. So, you go 
back and look at that bill, it is not some radical free market 
proposal.
    Mr. Neugebauer. Yes. And I think when we--the purpose of 
this hearing is to talk about, are we more stable. And one of 
the things that when you look at consumer credit, that, how you 
design consumer credit or restrict or enhance consumer credit 
has long-term replications, doesn't it, for the economy in the 
long term?
    Mr. Zywicki. Absolutely. It is the engine for the economy 
first. But more important to me, it is the engine by which 
people make their lives better. It is the way--if you need--you 
cannot wish away the need for credit. If you need $500 to fix 
your transmission to get to work on Monday or you lose your 
job, you need $500 regardless of whether you have it in the 
bank or not.
    People use consumer credit to make their lives better. And 
when we shut off access to consumer credit, when we take credit 
cards out of people's hands, when we take bank accounts out of 
people's hands, when we take mortgages out of people's hands, 
we are making their lives worse. And I think that is a real 
tragedy not only for the economy at large but for every single 
American family.
    Mr. Neugebauer. Mr. Atkins, you served on the SEC, which is 
a commission. Did you find that was a productive organizational 
structure?
    Mr. Atkins. There are benefits and detriments to it. But I 
think the problem with the CFPB is, of course you can work on 
procedure and organization, but you also have to look at other 
aspects of it. I think the current construct of it has 
constitutional problems. The appointments cause issues, 
separation of powers issues and those sorts of things.
    And then also just the substance of the statutes, Dodd-
Frank that empowers it and has sort of vague statutory 
provisions like abusive practices and how that is defined. I 
think those substantive aspects are important as well.
    Mr. Neugebauer. In that interaction with really, and 
sometimes different political viewpoints, different opinions, 
you didn't always get things the way you wanted, it looks like 
it promoted dialogue and some negotiation, whereas in the 
current structure there is no negotiation.
    Mr. Zywicki. Right. As I mentioned before, back when I was 
doing the work, I don't think there were any divided bipartisan 
lines on rulemaking. And that just shows that I think there was 
a lot of give-and-take between the different sides.
    Mr. Neugebauer. Mr. Silvers, is the AFL-CIO governed by an 
executive committee?
    Mr. Silvers. The AFL-CIO has a president who has day-to-day 
management authority.
    Mr. Neugebauer. But is he responsible to a board of 
directors?
    Mr. Silvers. Yes, he is responsible to the executive 
council of the federation, which meets twice a year.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
Chair now recognizes the gentleman from Massachusetts, Mr. 
Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. Mr. Chairman, I have 
heard a lot of interesting philosophical talking points this 
morning, but I have heard them before and I am sure I will hear 
them again and again and again and again. But I haven't heard 
too many figures. From the panel, it was one statistic, which 
is that there are fewer people with free checking than there 
used to be. My God, what a terrible crisis that is. People have 
to pay for a service. That is complete ruination to our system.
    Yet some other statistics I have show some things from the 
day of Dodd-Frank, July 21, 2010. The Dow Jones was at 
10,120.53. As of yesterday, it was 17,776.91, and today it is 
up a little more. That is a 76 percent increase and that is 
true about all the markets, Dow just being one, but it is true 
about S&P, NASDAQ, and all of them, all of them are.
    The unemployment rate in July 2010 was 9.4 percent. The 
most recent one in June was 5.3 percent, the lowest it has been 
since before the crash. The average house price in July 2010 
was $252,100. Today, as of May 2015, it is $337,000. That is 
$84,900 more, a 34 percent increase. The GDP in July 2010 was 
$14,784,000,000. Today, it is $16,288,000,000, a trillion five 
increase, a 10 percent increase.
    Housing starts. In July 2010, there was 604,000 in calendar 
year 2014. It was 1,046--I am sorry--1,046,000, 442,000 more, 
73 percent increase in housing starts. Total construction value 
also a 19 percent increase and on and on and on.
    Could Dodd-Frank be better? Yes. As a matter of fact, I 
have a proposal, because I agree with some of my friends that 
too-big-to-fail, I think we did some good work, but I think we 
didn't go far enough. I would love some of my colleagues on the 
other side to join me in reinstituting Glass-Steagall. I voted 
against the repeal of Glass-Steagall. Join us. Bring it back. 
If you don't want to do that, join us in trying to deal with 
other issues.
    I have a proposal, H.R. 888, that not a single Republican 
will join, yet it is supported by the community bankers, the 
people you say you care about. They are looking for a 
Republican co-sponsor. We can't find one.
    And, by the way, it is not my idea. I simply took the idea 
of an economics professor from Boston University and a scholar 
at AEI who happened to be the former Chief Counsel to Ronald 
Reagan. Not my idea, but yet can't do it, can't touch it. We 
can only talk about repealing Dodd-Frank and how bad certain 
sections of it are.
    Why don't we get to fixing the problems we have. I have had 
my fights with the CFPB. I have certainly had my fights with 
the SEC and the Fed. Mr. Garrett and I have a bill to deal with 
some of the issues we have with the Fed. Now, if Scott Garrett 
and I could agree on an issue, we can find common ground with 
everybody over there. But yet, it can't be done. Why? Because 
if you actually try to fix the problems you identify as opposed 
to pontificate about them, you don't get any points with the 
outside groups.
    Fixing a problem is a problem in and of itself. We are here 
to pontificate and we do a heck of a good job. So for me, all 
very interesting, but numbers don't lie. The numbers are almost 
all good. Are there a few bad ones? Yes. Can we do better? 
Sure, we can. Are we going to do better by simply nitpicking at 
everything? Now, nitpicking is not a bad thing, but nitpicking 
is what you do once you have fixed your other problems. There 
has not been one substantive proposal to deal with too-big-to-
fail from the other side, not one, yet we still love to 
complain about it.
    With that, Mr. Chairman, I yield back. I actually thought I 
wouldn't take the whole 5 minutes, but I am glad I did.
    Chairman Hensarling. The gentleman yields back. The Chair 
now recognizes the gentleman from Missouri, Mr. Luetkemeyer, 
chairman of our Housing and Insurance Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    One of the things I want to talk about is the Financial 
Stability Oversight Council (FSOC.) We are talking about, are 
we more stable as a result of Dodd-Frank?
    FSOC was a creation of Dodd-Frank that was supposed to 
judge the stability of our economy and how we are doing. And 
one of the things that they were empowered to do was to 
identify different risks within the financial system, in 
particular banks and non-bank, non-financial institutions if 
they are systemically important.
    At this point, FSOC has evaluated and designated three 
insurance companies and one finance company as systemically 
important, such that if it goes down, the entire economy goes 
down.
    Dr. Calabria, would you like to comment on that? Is that 
possible?
    Mr. Calabria. First of all, let me say, I think often we 
are given, to me, the false choice of bailout or liquidate. 
Many of these institutions can be restructured, can be 
reorganized.
    Again, my proposal during the crisis was to do a debt 
equity swap as a recap that wouldn't have cost the taxpayer. So 
I am of the view that no one institution is so special that we 
need to put taxpayer money in and can't be resolved without a 
reasonable bankruptcy framework.
    That said, insurance companies are very different than 
banks. They don't have short run runable--some of the analysis 
you see, particularly the MetLife case, is just ridiculous.
    For instance, the FSOC asserts that because State 
regulators can place stays on policyholder redemptions, the 
State regulatory system for insurance is itself a source of 
systemic risk.
    So it seems like if you go back and read these 
justifications, quite frankly, they all look like they are made 
up. And if I could channel the good gentlemen who left the 
room, no numbers, no statistics, all just opinion.
    Mr. Luetkemeyer. Yesterday, we had a hearing with regard to 
systemically important financial institutions that we are 
looking at, the mid-sized and regional banks. And it is 
interesting because there are a lot of folks in order to be 
able to--I have a bill to try and define that rather than have 
criteria for it versus a strict threshold. And it is 
interesting because they are trying to redefine what supposedly 
was in Dodd-Frank, which was to define those entities that 
would be able to bring down the entire system, and other trying 
to redefine it as something that would happen on a regional 
basis or whatever.
    So, it really strikes to me at the heart of the ability of 
FSOC and other entities within this to be able to adequately 
point out risk. And I would ask along that line, we had 
Secretary Lew here a couple of weeks ago. He gave us the 
official report, the 2015 annual report of FSOC. And there are 
11 different risks that he pointed out. They were important to 
be able to be aware of and watch and take very special note of.
    And one of them that was noted that very same day that he 
presented this report to us was the CBO came out with a 
scathing report that talked about our debt. Could you believe 
that debt was not even listed as a risk to our economy? It 
strikes at the very heart of what I believe is the credibility 
of FSOC to be able to even analyze what is wrong with our 
economy.
    Professor Zywicki, would you like to comment on that?
    Mr. Zywicki. I don't think I have anything to add other 
than it seems obvious to me that you are correct.
    Mr. Luetkemeyer. Director Calabria?
    Mr. Calabria. If I could add, while I have some skepticism 
about the Office of Financial Research (OFR), if we are going 
to have it, it should be independent of Treasury. I have read 
these reports and they are very dismissive of concerns about 
the treasury market. And ultimately, the OFR has essentially 
been set up to be a political research outfit for the Treasury 
Department, which by its very nature is a political animal.
    Mr. Luetkemeyer. Okay.
    Mr. Calabria. We want independent research of the financial 
system. It needs to be independent of politics.
    Mr. Luetkemeyer. Along the lines of what I was talking 
about with regard to the credibility of the FSOC and some of 
the concerns with regard to debt, Dr. Calabria, in your 
testimony a while ago, you talked about the explicit and 
implicit guarantees and extreme amount of liabilities that our 
government has as a result of the Richmond Fed study. Would you 
elaborate just a bit on that very quickly--I have about 30 
seconds left here--about how important it is to have all of 
this data and look at the big picture of what kind of risk in 
system and actual stability we have with regards to all that?
    Mr. Calabria. Absolutely, sir. And, first, I will direct 
anybody if you are curious to go to the Richmond Fed's website 
whether a bailout barometer is there. And what they try to 
measure is the explicit guarantees we know about such as the 
expense and deposit and service.
    I mentioned in my testimony that we have $2 trillion more 
in insured deposits than we did before Dodd-Frank without 
expansion. And they also try to estimate the implied 
guarantees. And, of course, we have no way of knowing the exact 
number, but these are the potential guarantees that the 
taxpayer is on the hook.
    And as was mentioned in the chairman's opening statement as 
well as in mine, about 60 percent of financial liabilities in 
the financial sector are either explicitly or implied to be 
backed by the taxpayer.
    Mr. Luetkemeyer. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, the ranking member of our Financial Institutions 
Subcommittee.
    Mr. Clay. Thank you, Mr. Chairman. And I thank the ranking 
member for calling this hearing today to celebrate the fifth 
anniversary of Dodd-Frank.
    Let me start with Dr. Calabria about the housing crisis. 
You say in your testimony that you don't believe we have 
sufficiently addressed the distortions in the housing industry.
    Let me ask you about mortgage modifications. Do you think 
that will help our economy--how do we help those homeowners who 
are underwater and give them hope--homeowners who, for the most 
part, were steered into high-cost predatory loans. Do you have 
any--
    Mr. Calabria. First of all, the first thing to do about 
trying to help underwater homeowners is not to get them 
underwater in the first place.
    So for instance, historically, one in four FHA borrowers 
left the closing table underwater. If that is not reckless, I 
don't know what is.
    And as Congressman Frank said here last year at this very 
table, he intended for downpayments to be part of the Qualified 
Mortgage (QM) Rule.
    As I mentioned in my testimony, regulators completely 
gutted that provision, so that the two factors that matter most 
in terms of keeping a household out of foreclosure, which is 
the downpayment, which gives you a cushion when prices fall, 
and of course trying to make sure borrowers are actually ready, 
by us and not getting people with very low FICO scores, who are 
not ready to go into homeownership.
    I think we need to be a little more responsible. But that 
said, first, try not to get into that problem in the first 
place.
    If you are in the problem, that is a different issue, and 
so, let's talk about that, because I know that is the more 
immediate concern. The immediate concern would be, how do we 
address the triggers that get you in that problem?
    One of the things we know, and there is tons of data on 
this, is that the primary reason that somebody cannot pay their 
mortgage is because they have lost their job.
    Congressman Frank, during his last year here, I believe, 
had a proposal that would have provided assistance in the 
mortgage modifications if people have lost their job.
    So I think we need clear thinking about what are the 
drivers here, address those drivers directly, obviously a 
growing economy that creates jobs that goes with that as well.
    Mr. Clay. Let me share with you a situation in my district 
for instance, in Missouri, where we have entire communities who 
were steered into these high-cost loans when normally they 
would have qualified for conventional mortgages.
    Do we write down principal--or how do we address that to 
help these homeowners to keep them from foreclosing, to keep 
them in their homes, and to keep neighborhoods together? How do 
we do that?
    Mr. Calabria. Again, it is hard for me to speak to any 
individual case without looking at the case--where people were 
defrauded, they need to be made whole by the people who 
defrauded them; which in my opinion, the taxpayer did not 
defraud, they need to be made whole by the institutions that 
defrauded them.
    Mr. Clay. Sure.
    Mr. Calabria. So that is number one.
    I would remind us that there is nothing specifically about 
being underwater that triggers a foreclosure. There is nothing 
in the mortgage documents that says, oh, you are underwater, so 
we can come and take your home. In fact, it is quite the 
opposite. They don't want your home if it is underwater, if 
anything.
    So we do need to think clearly about what are the factors--
as I had mentioned, again, unemployment is a big driver. There 
might be unexplained healthcare expenses. We will see whether 
healthcare fixes that or not. But you have to deal with the 
life events that cause this sort of foreclosures. All that 
being underwater does is change your incentive, whether to walk 
away or not. And quite frankly, I don't think we should reward 
that.
    Mr. Clay. Let me ask Mr. Silvers, can you share any 
solutions to the housing crisis and how we get people whole who 
happen to be underwater in their mortgages? Have you all 
addressed it?
    Mr. Silvers. Yes, Congressman Clay, you are pointing to 
the--one of the critical problems in the way in which we 
addressed the housing crisis which led--which slowed down our 
economic recovery and led the cost of the recovery to be borne 
by the people who could least afford to do so with devastating 
social impact.
    The failure to write--the failure to restructure debt in 
the housing market and to instead insist that poor people pay 
the banks a hundred cents on the dollar when every American 
businessperson in commercial real-estate in a similar situation 
never does, right, is how we gutted the median net wealth of 
African-American households from $18,000 to $6,000.
    The solution is simple. It is to restructure those loans 
around what the real value of that property was. If we had done 
so, and as my colleague, Dr. Calabria, has said, if we had done 
so and forced the banks to restructure their capital at the 
same time, we would not have a too-big-to-fail problem. We 
would have a healthy housing market and a healthy small 
business consumer credit market.
    Mr. Clay. Thank you. My time is up.
    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. I just want to make a 
quick comment in regard to one of the championed agencies of 
Dodd-Frank, the Consumer Financial Protection Bureau. I am not 
sure if any of the witnesses are aware of a hearing we had a 
couple of weeks ago, which was a takeoff of a hearing that we 
had a year ago in regard to racism and sexism at the CFPB.
    Angela Martin testified a year ago, and a couple of weeks 
ago, Florine Williams testified. We have had a pretty robust 
debate about racism in America over the past several months. 
And I have to tell you, I am astounded that Barack Obama hasn't 
said anything about racism and sexism at the CFPB.
    That Richard Cordray still has his position at the CFPB is 
amazing to me. That Senator Elizabeth Warren, who is the 
champion of this agency that brought Richard Cordray in, his 
protege--that she is saying nothing about racism and sexism.
    Their silence is deafening, stunning. But that's a side 
note.
    I want to talk about the crisis--I think my friends across 
the aisle want to talk about markets and market failure. But if 
we look at the root causes of the crisis, wasn't there an issue 
with subprime mortgages?
    Wasn't there an issue with Fannie and Freddie, Mr. Atkins?
    Mr. Atkins. Absolutely. And you have to remember that I 
think the figure of $22 trillion was thrown around as far as 
losses in the financial crisis. I don't know if that is correct 
or not. But you have to remember it was a bubble. It was a 
bubble created by Federal housing policies, so most of that 
stuff was illusory.
    Mr. Duffy. Federal housing policy by Fannie and Freddie, 
right?
    Mr. Atkins. Right. Among others.
    Mr. Duffy. Among others. And did we deal in the--in your 
review of Dodd-Frank, did we deal with Fannie and Freddie 
reform in Dodd-Frank?
    Mr. Atkins. Not at all.
    Mr. Duffy. So one of the root causes of the crisis isn't 
even addressed in the Dodd-Frank Act. And we note that 
regulators were on the beat and they didn't see this looming 
crisis. And so instead of faulting regulators, we have given 
regulators more power and authority.
    They didn't get it right in 2008. What makes us think they 
are going to get it right in the next crisis?
    I would also just note that as Dodd-Frank, as I watched on 
the sidelines as this bill was passed 5 years ago, there was a 
lot of conversation about the fact that we have to end too-big-
to-fail. It has to go away. We have to protect the American 
taxpayer.
    But I don't know if you have noticed there has been a 
change of tone from my friends across the aisle because now 
they say, ``We actually haven't ended too-big-to-fail.'' 
Sweeping, massive Dodd-Frank reform, right, and too-big-to-fail 
still exists.
    Actually, Elizabeth Warren just came out with a new bill to 
say, guess what, sweeping industry reform and you still haven't 
addressed too-big-to-fail. So now, she has new legislation, am 
I right, Mr. Atkins?
    Mr. Atkins. That is being introduced, yes.
    Mr. Duffy. Yes. They admit that with all of this massive 
reform, they didn't get it right.
    There is still more to do.
    But I do want to move to the lack of liquidity, fixed 
income markets, the Volcker Rule regulation. You see that as a 
problem, yes?
    Mr. Atkins. Absolutely. Yes.
    Mr. Duffy. Do you think the cause of the crisis or the 
cause of the lack of liquidity is the Volcker Rule?
    Mr. Atkins. Up to a large part, the Volcker Rule and other 
associated regulations, and increased capital requirements 
also.
    Mr. Duffy. And does that lack of liquidity create more risk 
in the market?
    Mr. Atkins. Yes, it means there is less cushion there and 
less information as far as pricing.
    Mr. Duffy. So, do smaller shocks have bigger impacts when 
there is less liquidity, Mr. Calabria?
    Mr. Calabria. Absolutely. And I would note that even though 
the authors of Dodd-Frank recognized the liquidity constraints 
by purposely exempting treasuries and agencies from the 
provisions of the Volcker Rule, let's not forget that a number 
of institutions in history have done themselves in by bad bets 
on the treasury market.
    Mr. Duffy. Does time heal this issue? If you see banks 
because of Volcker getting out of their market-making game, is 
someone else going to step in and take that role? Do we just 
have to wait a little bit longer? How does this play out, Mr. 
Calabria or Mr. Atkins, either one of you?
    Mr. Atkins. There is a lot of capital we--asset managers 
and just basic everyday people who are investing money in the 
markets are there, so these fixed-income products are being 
held. It is just a question of, what is the market, what is the 
everyday liquidity of the marketplace?
    Mr. Duffy. I yield back.
    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. I want to thank the 
panelists as well. You have all been very helpful with the 
committee.
    I do want to just respond to my friend, the gentleman from 
North Carolina, who said earlier in this hearing that, and I 
will quote him, ``Dodd-Frank is an anomaly,'' an anomaly, of 
course, being something that deviates from what is regular or 
expected or what is standard.
    The only reason that Dodd-Frank seems like an anomaly is 
because that is the last time Congress did anything, passed 
anything significant. And so, if you are in an environment that 
is inertia, a do-nothing Congress, and you look at something 
that actually moved, that seems like an anomaly. But it is just 
the illusion that motion causes when you are standing still.
    I want to talk about--if we are going to go back to the 
crisis and sort of do some of this analysis on what went right 
and what went wrong, I actually opposed the bailout, the $700 
billion in bailout we gave to the banks.
    About 25 percent of people in my district don't even have 
bank accounts. I have a very diverse district. And so, we went 
and took their money, their tax money, and gave it to these 
banks, $700 billion.
    And, it just--if we are going to go back and look what at 
we did, why don't we go back and look at that? Why don't we go 
back--and I am not just saying--I am not saying that some folks 
on Wall Street should go to jail; I will leave that to a judge 
and jury.
    But some of their conduct seemed criminal, it really did. 
And we ended up taking taxpayer money, $700 billion, giving to 
the banks and like in the case of AIG I remember $9 billion 
of--we gave them $70 billion to help out AIG. But the $9 
billion that we gave, the taxpayer money, was directly to 
satisfy the debt obligations that were held by Goldman Sachs.
    So, it was just a pass through. It went right in one door 
of AIG and then right to Goldman Sachs--$9 billion. And it paid 
bonuses to a lot of people who were at the heart of this, like 
I said, I am not saying they should go to jail but I would say 
we should be revisiting the bonuses that we paid to folks who 
caused a lot of this mess.
    And we are not talking about any of that. We are talking 
about dismantling Dodd-Frank. We are talking about dismantling 
the one and only consumer protection agency that we created. 
So, we have all these agencies out there, we have one, the 
CFPB, the only agency that we have created to protect the 
consumer.
    And we look back at the problem of the crisis and we say, 
my God, the thing we have to do is get rid of that CFPB, the 
one agency that is actually protecting the consumer. It 
astounds me that is how we view this problem in retrospect.
    I think that we would better serve the people whom we 
represent if we try to figure out ways to help them. And, sure, 
the CFPB is not perfect. It needs tweaking. We need to help it 
to be more effective and we need to address some of the 
concerns that the gentleman just raised regarding their 
treatment of employees and the disparate impact of some of 
their policies.
    But, Mr. Silvers, in this last minute that I have, would 
you think that there are other priorities that we could focus 
on in terms of really trying to get at the root of what 
originally caused the--oh, the other thing that strikes me is 
getting rid of the Volcker Rule--allowing the banks to go back 
and do what they were doing before they got us into this whole 
mess, trading on their book of business, it doesn't make sense.
    But, Mr. Silvers, if you have any other suggestions on how 
we might re-establish priorities here that would actually help 
the American consumer and the American people, I would love to 
hear them.
    Mr. Silvers. Congressman, I think that for starters, you 
have to stop telling lies about what happened in the past.
    Mr. Lynch. Right.
    Mr. Silvers. And the notion, for example, that insurance 
companies had nothing to do with this--my memory is that AIG 
was an insurance company, right? The notion that Fannie and 
Freddie caused this crisis? They contributed to it.
    What caused it was the very thing that Mr. Garrett was 
referring to earlier, which was that the Federal Reserve had 
the power to act and let subprime providers of mortgages funded 
by our largest banks destroy our communities and then hand us 
the bill.
    Until we stop telling lies, I don't see how we can move 
forward.
    Chairman Hensarling. The time of the gentleman has expired.
    Mr. Lynch. Thank you very much. Thank you, Mr. Chairman.
    Chairman Hensarling. The Chair now recognizes the gentleman 
from New Mexico, Mr. Pearce.
    Mr. Pearce. Thank you, Mr. Chairman. I appreciate the 
lively discussion going on here. If we were to pursue this last 
thought here that the subprime lenders are the ones that 
destroyed the communities, I would kind of like to investigate 
that--Mr. Capuano said we ought to be digging a little deeper 
into it. And Mr. Lynch had some good points about looking at 
the situation.
    So, Mr. Atkins, you said in response to Mr. Duffy that 
Fannie and Freddie had something to do with it, among others. 
Who might the among others be?
    Mr. Atkins. Well, you had a long history of both Congress 
and--
    Mr. Pearce. Anybody close to this room, because Congress 
itself--
    Mr. Atkins. Congress itself.
    Mr. Pearce. --Congress itself was expressing a tremendous 
desire that everyone should own a home, that homeownership was 
not a responsibility but a right. Is that somewhat correct? I 
am sensitive to what Mr. Silvers said, that we shouldn't be 
telling lies here.
    So, did Congress led by Mr. Frank himself, suggest that the 
agencies led by Fannie and Freddie should loosen the standards 
by which they repurchased on the secondary market, wasn't that 
occurring?
    Mr. Atkins. Oh, that was Federal policy.
    Mr. Pearce. So, would it be a truth that the financial 
institutions could not have continued to lend to borrowers who 
could not afford it, they couldn't have done the liar loans, 
they couldn't have done the no-doc loans, if those loans hadn't 
been repurchased into the secondary market, is that more or 
less correct, Dr. Calabria? Would you like to comment on that?
    Mr. Calabria. Let me first as an aside say that none of 
this would have happened without essentially a Federal Reserve-
driven bubble--the amount of liquidity the Fed just pushed into 
the system in the mid-2000s was simply nothing short of insane.
    And so, prices drove a lot of this. But to get back to the 
point of we know during the crisis for instance that at the top 
of the market Fannie and Freddie bought about 40 percent of the 
private label mortgage-backed securities in subprime. And to 
echo what my friend Damon said, they were a contributor. I 
don't--I would never say that they were the sole cause by any 
extent of the imagination.
    Mr. Pearce. Could the subprime lenders have done much 
without the secondary market, and could the rest of the 
secondary market have dropped its underwriting standards 
without Fannie and Freddie dropping theirs?
    Mr. Calabria. They could have not have.
    Mr. Pearce. So, at the end of the day, Fannie and Freddie 
weren't just kind of innocent bystanders or bystanders I 
think--that was not a correct characterization of Mr. Silvers' 
comments, but they were more central than any of our friends on 
the other side are willing to say.
    The description is that the problem--and, again, I think 
that as Mr. Capuano said, if we don't analyze exactly why the 
problem came up, we are not going to get the right answer. And 
one of the fundamental things was that the underwriting 
standards by which the secondary market operated took bad loans 
away from the banks. They weren't given any incentive then to 
make the loans good, and that just seems like a very 
fundamental problem. Is that more or less correct?
    Mr. Calabria. That is absolutely correct.
    Mr. Pearce. Okay. Mr. Silvers, would you like to comment on 
that?
    Mr. Silvers. Yes. Thank you for the opportunity. There is a 
subtlety to this that the conversation is missing. The subprime 
loans that triggered the crisis were largely in the private 
market and were largely securitized through private offerings.
    That created competitive pressure on Fannie and Freddie 
that had been privatized and whose executives wanted to hit the 
profit margins that would inflate their pay packages.
    Mr. Pearce. You are saying the competitive pressure--with 
all due respect, sir, didn't the head of Fannie Mae, Mr. 
Johnson, take about $100 million? Wasn't he beginning to change 
the standards of accounting? Didn't Franklin Raines take a $29 
million bonus out of that?
    That feels like they were driving the process themselves. 
In fact, if you read the book where Mr. Johnson was coming in 
here lobbying this group in order to change the rules and 
change the laws to where he could go ahead and make more--could 
bring more of the product in to his market, that seems far 
different than kind of a nuance.
    Mr. Silvers. No, the nuance is not the fact that the 
executives of those companies sought to make a lot of money in 
disreputable ways. I fully agree with you. The nuance is is 
that they were latecomers to the crisis. Fannie and Freddie 
bought bad securities at the very end that had been issued in 
the private markets. That is how they bankrupted themselves.
    Mr. Pearce. If that is correct--we are running out of 
time--how did Mr. Johnson make his $100 million? He was way 
ahead of the time. And Mr. Raines was in that period.
    I yield back, Mr. Chairman. Thanks for your--
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, ranking member of our Housing and Insurance 
Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    No matter what our ideology is, political affiliation or 
fussiness, facts tend to be extremely obstinate. They just are 
finicky like that. They just want to remain what they are. And 
so, in this environment up on this Hill, we have become in a 
sense a fact-free environment.
    Or in other words, if the facts don't fit, then bit by bit 
we refit the facts. It is so frustrating when you think about 
how the CFPB has returned $5.3 billion to 15 million victims of 
unfair and deceptive practices.
    Dr. Calabria, do you believe that is a fact?
    Mr. Calabria. To the best of my knowledge. I haven't 
verified the number so it sounds about right.
    Mr. Cleaver. In Missouri, the number is about almost 4,000, 
I think, and which is a fact incidentally. And I am a little 
concerned, for example, I Chair the Congressional Black Caucus, 
and I receive complaints almost every single day from every 
agency in the Federal Government, from the Capitol Police to 
the people who work for the Forest Service.
    I would have done nothing as the Chair but talk about 
discrimination if I had tried to just pour it out every day and 
so, the President can't--if the President says I have a black 
suit on, he is going to be criticized in a few hours of 
bringing out the race card, if he says Black Sunday, black 
market, anything.
    And so, I think we need to really be careful on this whole 
issue of who attacks bigotry because there are problems in 
every single agency. I am speaking experientially.
    Now, one of the things I wanted to ask you, Mr. Calabria, 
is do you believe that the CFPB has in fact been responsive and 
flexible?
    Mr. Calabria. Maybe the satisfactory answer is, it depends. 
It certainly seems like they have listened to a lot of people 
in the industry on some subjects. So, have they necessarily 
beat up on Goldman Sachs, not that I can tell.
    Have they gone after Main Street lenders? It looks that 
way. So, again, I think it is important to keep in mind it is 
not all one homogenous response. It has been different by 
industry.
    I do want to bring up a point. And first of all, let me 
very clearly say consumers who are defrauded should be made 
whole by the people who defrauded them. No debate about that. 
And we should be aggressive about that.
    The question over whether certain products should be 
available, that is a whole different matter. But I also think 
it is important to keep in mind whether somebody was taken 
advantage of by a debt collector can be a bad thing, you should 
deal with it.
    It is not at all clear how that is necessarily connected to 
the massive housing boom we had. So, you can have a fairer 
society that is less stable. You can have a fairer society that 
is more stable. They are connected but they are not necessarily 
the same thing.
    Mr. Cleaver. So, a fact, was there a Federal agency that 
was responding to consumer concerns and complaints and offenses 
against consumers?
    Mr. Calabria. In the finance world before--
    Mr. Cleaver. Before Dodd-Frank.
    Mr. Calabria. The financial rate--first of all, as a former 
staffer for the Banking Committee, I had a lot of complaints 
and helped a lot of people. I am very proud of that. And--
    Mr. Cleaver. No, sir. That is not the question I asked of 
you.
    Mr. Calabria. --the Federal Reserve, the OCC, HUD, I ran 
the RESPA office at HUD and we spent a lot of time--
    Mr. Cleaver. That is not the--
    Mr. Calabria. Oh, yes, were there--okay, there were 
agencies. If the question is, is consolidating these things a 
good thing, that may well be, depending on how you look at it.
    Mr. Cleaver. I know you are answering your question that 
you want me to ask.
    Mr. Calabria. My apologies.
    Mr. Cleaver. My time has run out. You wouldn't answer my 
question. You are a nice person though. I am not mad at you.
    Chairman Hensarling. The time of both nice gentlemen has 
expired.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you very much, Mr. Chairman. As we examine 
the Dodd-Frank Act 5 years later and if I were to go down a 
checklist with the panel here, too-big-to-fail continues. In 
fact, Dodd-Frank institutionalized it.
    Our secondary mortgage market remains in limbo with Fannie 
Mae and Freddie Mac CEOs set to make $4 million salaries on the 
backs of the American taxpayers who had bailed out Fannie Mae 
and Freddie Mac.
    Insurance regulation remains fragmented. Securities 
regulatory arbitrage is still possible, but with the SEC and 
the CFTC as competing regulators. So, I think the answer to the 
question, is our financial system more stable, as Dr. Calabria 
succinctly put it, I think the answer to that is ``no.''
    Dodd-Frank abolished one failed regulator, the OTS, and 
gave us three more--the CFPB, the OFR, and the FSOC. So, the 
Office of Financial Research was set up to look around corners 
and identify potential systemic risks, to improve 
standardization of financial data and fill gaps in data 
collection, and support the FSOC in its work. That was the 
concept.
    And, Mr. Atkins, as you know, the OFR performed an analysis 
of the asset management industry at the request of the FSOC in 
order to determine whether asset management firms should be 
designated as SIFIs and subjected to oversight by the Federal 
Reserve.
    The OFR's conclusions were described by SEC Commissioner 
Gallagher as, in his words, ``fundamentally flawed.'' And the 
inevitable results of the OFR not only inaccurately defining 
and describing the activities and participants in the asset 
management business but also ``analyzing the purported risk 
posed by asset managers in a vacuum instead of in the context 
of the broader financial markets.''
    Mr. Atkins, do you think the work of the OFR was flawed?
    Mr. Atkins. Absolutely. I thought it was a travesty 
actually of--I couldn't even describe it as scholarship; it was 
riddled with errors.
    Mr. Royce. Last year, Congressman Murphy and I put forward 
a bipartisan bill, the Office of Financial Research 
Accountability Act. Members of this committee on both sides of 
the aisle have heard constant criticism about the quality of 
research at the OFR and the lack of real coordination between 
the Office and Federal financial regulators.
    The bill would address these issues, I think in a very 
thoughtful way. The bill as drafted would require the OFR to 
submit for public notice and comment an annual report that 
details the Office's work for the upcoming year.
    Additionally, the bill would require the OFR to coordinate 
with financial regulators when they conduct future studies, and 
I would ask you--I know you and I both might want to go further 
on reforms of the OFR but would you support these balanced 
bipartisan reforms to the Office?
    Mr. Atkins. Yes. That is a great start.
    Mr. Royce. And I will ask Mr. Calabria this same question.
    Mr. Calabria. I would say that I have been here too long to 
think anything other than the devil is in the details. So let 
me say, conceptually it sounds good, but without having read 
the bill, I would want to take a look at it before I would say 
anything stronger.
    Mr. Royce. I appreciate your support at least for the 
conceptual concept behind it. And I will yield back the balance 
of my time to the Chair. Thank you, Mr. Chairman. And thank 
you, panel.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentlelady from Wisconsin, Ms. 
Moore, ranking member of our Monetary Policy and Trade 
Subcommittee.
    Ms. Moore. Thank you so much, Mr. Chairman. And I want to 
thank the witnesses for coming here and bringing their 
tremendous expertise to this committee.
    I guess I will start out with the Honorable Paul Atkins and 
talk to you a little bit about your testimony and your role at 
the SEC. In your testimony, I think you make a lot of excellent 
points with regard to some of the misaligned incentives that 
people have just generally in financial markets.
    And then you go on and on and on to indict various 
provisions of the Dodd-Frank Act up to and including the fact 
that Dodd-Frank is 2,319 pages long.
    The bill that we got from Mr. Paulsen was like 4 pages 
long, asking us for $700 billion, I just want to remind you of 
that. But I guess the question that I have is that I agree with 
a lot of points you make here and I am going to commit to 
really reading this in some depth.
    But I guess what I feel confused about is, or I have a 
question about is, while you seem to indict the free market, 
just laissez-faire, you don't really give us any prescription 
of what you would have done to prevent this crisis other than 
to just indict the ``housing market,'' the purchasers of homes.
    People purchase their homes; it is like a one-time event 
for most people. And you don't seem to have much criticism for 
all of the guys in the fancy suits, the appraisers, the 
underwriters, the credit rating agencies, the private label 
mortgage originators, Lehman Brothers, Countrywide.
    And so I am interested in hearing how you square that with 
housing policy. Countrywide and Lehman Brothers, for example, 
were not subject to CRA and bowers that came in were--as I said 
people who do this once in their lives, they were not the 
appraisers, they were not the underwriters.
    Mr. Atkins. Thank you. Clearly, there were a lot, there is 
not just one thing that led to the financial crisis and you 
have to remember a lot of the foreclosures had to do with 
speculators who were buying houses to flip them and that was 
all encouraged by regulatory policy and other things as well.
    But I will point to one thing that when I was at the SEC, I 
pushed for a number of years, and that was reform of the credit 
rating agency aspect. And I think that was one of the big 
drivers frankly of the crisis because people put way too much 
store in the AAA ratings and all of that from those rating 
agencies.
    And back in 2006, Senator Shelby pushed through a bill 
that, of course, was enacted, the Credit Ratings Agency Reform 
Act. And so, that was at least a start. But the real problem 
was at the SEC where there was no real process to allow for 
competition among credit rating agencies, and basically the big 
three, their word was taken as gospel and that was a real 
fundamental problem that--
    Ms. Moore. And a misalignment of incentives. People had to 
pay the credit rating agencies so they would give them a good 
credit rating and nobody is going to jail. I know people in my 
district who have gone to jail for writing bad checks for 
$1,000 and yet these people are still walking around.
    Let me ask you Mr. Zywicki, you say that Dodd-Frank has 
pushed consumers into payday lending and other non-traditional 
financial services? I guess I am not familiar with the data 
which indicate that is the case.
    I am not in love with non-traditional financial providers 
myself, but I wonder if that means that you welcome the 
activity of the CFPB to protect these consumers? I think my 
good friend, Mr. Cleaver, indicated that the CFPB has returned 
about $5 billion to 15 million consumers. And so, I am 
wondering how you think the free market would do a better job 
of protecting these financial consumers than the CFPB?
    Mr. Zywicki. What we know is that you can't wish away the 
need for credit. We have known that forever. But we have tried 
that in the past where we tried usury ceilings, that sort of 
thing, and we know how that ends.
    So in the 1970s or in 1968, the United States Senate did a 
report and they found that the second largest revenue source of 
the Mafia was loan sharking.
    When Anthony ``Fat Tony'' Salerno, the head of the Genovese 
crime family was indicted for loan sharking and breaking 
people's legs in 1973, he was running $80 million a day on the 
streets of New York City. Why? Because we had a regulatory 
regime that pretended like people didn't need credit.
    We are reliving this in fast motion really. We have taken 
away credit cards. We have taken away bank accounts. People 
still need money. They are going to check cashers, they are 
going to payday lenders, and of course, the next thing we see 
in the sights are they going after the payday lenders.
    And we know what happens when we take away payday loans, 
people bounce checks, people get evicted, people get their 
utilities terminated.
    Mr. Huizenga [presiding]. Excuse me, Mr. Zywicki, the time 
of the gentlelady has expired. As entertaining as ``Fat Tony'' 
is, the time has expired.
    Mr. Zywicki. Thank you, sir.
    Mr. Huizenga. And we do need to move along. So, with that, 
the Chair recognizes the gentleman from Florida, Mr. Ross, for 
5 minutes.
    Mr. Ross. Thank you, Mr. Chairman, and witnesses, I 
appreciate you being here, specifically Commissioner Atkins. 
You addressed something that I think is very important when we 
talk about systemically important financial institutions, 
especially as it relates to asset managers.
    I think what is even more compelling is that your 
pronunciation of the acronym for systemically important 
financial institutions as ``sci-fi'' is just that when it comes 
to asset managers--science fiction. And I think that this is an 
unintended consequence of Dodd-Frank. What risk do asset 
managers have?
    They are essentially agents, they are not leveraged, and 
yet here we are looking at making them a systemically important 
financial institution as I understand it in your testimony 
would then make that asset manager as a SIFI or sci-fi jointly 
and separately liable for any other SIFI or sci-fi that might 
have a need for liquidity, is that correct?
    Mr. Atkins. Yes, under Dodd-Frank--even for the bailout 
fund.
    Mr. Ross. Yes, exactly. And what you have here is you have 
a non-leveraged asset manager now responsible, which really is 
not him, it is his investors who are responsible. And who makes 
up those investors? Mutual fund holders, pension funds, grandma 
and grandpas, people living on fixed incomes.
    So I guess what I am getting at is here we are trying to 
find out if too-big-to-fail is really something that has been 
put to an end with Dodd-Frank, but in fact it hasn't, and not 
only has it not, but it has given an incentive for another 
source of liquidity to bail out those that are deemed 
systemically important financial institutions, would you agree?
    Mr. Atkins. You can certainly ascribe.
    Mr. Ross. And now, would you believe that just a couple of 
weeks ago our Secretary of the Treasury, Jack Lew, was sitting 
there, and I asked him the question of whether a SIFI would be 
jointly and severally liable for other SIFIs if they were 
deemed so, and he denied that.
    He looked back at his staff and denied it. And so, I give 
you credit in your opening statement to not only recognize that 
as a plain anomaly, if you will, of Dodd-Frank, but also to 
cite the fact that it is found in 12 USC Section 5390.
    Mr. Calabria, let's talk about insurance just for a quick 
second. Now, we have in place probably one of the best systems 
of regulatory environment for insurance companies, and that is 
our State-regulated systems, would you not agree?
    Mr. Calabria. Absolutely.
    Mr. Ross. And now, you have FSOC coming in there and saying 
that there might be some gaps, we need them, we have a Federal 
Insurance Office. It doesn't have any regulatory control, but, 
yes, we want to make sure everything is in sync.
    Would you have an opinion as to where there are some gaps 
there that would require a system better than what we have in 
place on behalf of our consumers?
    Mr. Calabria. Certainly, you can make some improvements in 
the State-based system. I don't think anybody would argue with 
that. I do worry that labeling these institutions as 
systemically important will create really bad incentives.
    So, let's give you a contrast where, say, JPMorgan's 
balance sheet is 40 percent long-term debt, MetLife's is only 
about 4 or 5 percent, and we know that being labeled 
systemically important unfortunately seems to send signals to 
the debt markets that you will be rescued and it encourages you 
to be more highly leveraged.
    So, to me, I think by putting insurance companies under 
this framework, we risk making them actually more leveraged and 
more dangerous.
    Mr. Ross. More leveraged, greater capital requirements, 
more detriment to the consumer or to the insured, which also 
gives unfair competitive advantage maybe even to those 
internationally in the insurance markets. Which leads me to my 
next point with the the International Association of Insurance 
Suppliers (IAIS). Do you feel the FSB is making enough effort 
as an advocate to protect our interest in those negotiations?
    Mr. Calabria. I don't think they are, and I think the 
suggestion that some have offered that our representatives, the 
U.S. representatives should not declare any institution 
systemic until FSOC has already acted to me is the right 
approach rather than trying to back the FSOC into a corner.
    Let me say that one of the problems is the argument that 
somehow we need to subject asset managers or insurance 
companies to bank-like regulation assumes that bank-like 
regulation works well.
    Mr. Ross. Well put, and it would work well in an industry 
that is not bank-like. So, Mr. Zywicki, quickly, since the 
recession in 2008, have we seen a great deal of capital 
reformation?
    Mr. Zywicki. Not that I have seen, but these gentleman may 
know better than I.
    Mr. Ross. Could somebody answer that? Have we not seen a 
greater increase in capital with the formation of capital?
    Mr. Atkins. With a zero interest environment, you would 
expect I think--
    Mr. Ross. And have we seen since in the last 5 years any 
greater access to that capital?
    Mr. Silvers. I think, sir, that you are asking a question 
about whether or not our banking system is doing its job 
since--
    Mr. Ross. Or our capital markets.
    Mr. Silvers. Our capital markets and our banking system are 
somewhat different questions.
    Mr. Ross. But what we are doing is we are seeing more and 
more private capital being formed, but we are not seeing access 
to that capital being allowed to the consumers as a result of 
Dodd-Frank.
    Mr. Silvers. No, well essentially, I think you are pointing 
to the wrong cause. We didn't restructure our banks so our 
banks didn't do their job.
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Ross. Thank you.
    Mr. Huizenga. With that, the Chair recognizes the gentleman 
from California, Mr. Sherman, for 5 minutes.
    Mr. Sherman. Thank you. I am one of those who was here when 
Dodd-Frank was written. I am here to report that it was written 
in this room, not on Mount Sinai, nor was it written by 
Beelzebub in the nether regions.
    It is not sacrosanct but that does not mean it should be 
discarded. We need to improve it, not dismantle it. And in 
spite of its great length, it lacks a whole lot of specificity.
    It gives tremendous power to the regulators. And God forbid 
if we get an Administration of the other party, we will see 
just how much discretion it is; a well-drafted statue means the 
same thing whether you elect a Democrat to administer the law 
or a Republican to administer the law.
    I think if we ever get a Republican Administration, heaven 
forbid, we will find out how much latitude there is in that 
statute and how Congress should have been more specific.
    As to SIFIs, I join with the gentleman from Florida who 
should be praised at length except he is not here anymore about 
designating money and mutual fund managers as SIFIs, as I bored 
some of my colleagues with before Lehman Brothers didn't cause 
a problem because it had too many assets.
    If you are trying to determine whether an entity is a 
problem, you say, what are its liabilities, who loses if it 
doesn't pay its debts? And a mutual fund doesn't have any debts 
in almost every case.
    So the idea that we would designate mutual funds as SIFIs 
because Countrywide made bad mortgages seems rather extreme. 
Mr. Atkins, I want to focus with you on these credit rating 
agencies.
    You put forward the idea that the fault is the people who 
pay attention to the credit rating agencies, who rely on the 
credit rating agencies.
    Let's say you are an ordinary consumer, you have $50,000 to 
invest, and you are trying to compare the Vanguard bond fund 
with the T Rowe Price bond fund.
    And they both have the exact same portfolio in ratings, 20 
percent AAA, 30 percent AA, 40 percent, exactly the same and 
one is yielding 10 basis points more than the other. How would 
you, knowing that you have $50,000 to invest, which means you 
can't hire Deloitte and Touche to give you a report. How would 
you decide to forego the extra point 1 percent of return when 
you see the only way you have of evaluating those two bond 
portfolios is how the individual bonds are rated by the credit 
rating agencies? How would you take your own advice and not 
rely too much on the credit rating agency?
    Mr. Atkins. You make a good point, but what I was trying to 
refer to before was to government regulators who actually 
should have known better. And to the SEC where--
    Mr. Sherman. We all should have known better when they gave 
AAA to alt-A, when they gave the highest rating to liars' 
loans.
    But how are they ever going to stop doing that when they 
are selected and paid by the issuer? We dealt with that in the 
Frank and Sherman amendment to Dodd-Frank, but it went into 
conference, and it got diluted just enough that the SEC could 
wiggle its way around it and issue a report saying they don't 
want to do anything.
    And so now, we have pretty much the same system we had 
before. That is to say, you can make a million bucks by giving 
somebody a good grade. And if you give them a good grade, 
somebody else will hire you to give them a good grade.
    I don't think that it will be mortgage debt which causes 
the next crisis, or at least not in the next few years, because 
we have some sort of memory, slightly longer than goldfish. And 
we won't let that mistake happen right away.
    But whether it is corporate bonds, whether it is sovereign 
debt, there are so many opportunities people have--put together 
a package of debt, buy a good rating, sell it, and then you as 
an investor almost have to buy it.
    And the money--and imagine yourself working for T Rowe 
Price or working for Vanguard, would you put together the bond 
portfolio that had 10 basis points less yield but had the same 
ratings as your competitor knowing that you as the investor 
would choose not to invest in your fund?
    I would say the credit rating agencies cannot be ignored. 
They are not ignored by investors. They cannot be ignored by 
money managers. And as long as they are selected by the issuer, 
we are just waiting for the next crisis. I yield back.
    Mr. Huizenga. The gentleman's time has expired. With that, 
the Chair recognizes the gentleman from North Carolina, Mr. 
Pittenger, for 5 minutes.
    Mr. Pittenger. Thank you, Mr. Chairman. I would like to 
respond to Mr. Capuano's references earlier. He was lauding the 
merits of the Dodd-Frank Act and attributes of it and what it 
had done on behalf of our economy and our housing market.
    I am from Charlotte. Charlotte is one of the better 
economic regions of the country. According to a Metro Study, 
which is a nationwide data company, in 2006 we had 24,415 
housing starts. In 2014, we had 9,238 housing starts.
    We are up 40 percent from where we were. And I think stats 
are relative. You can convey a stat in whatever way that you 
want to make them sound good, and I would compliment 
Representative Cleaver that we need the facts and those are the 
facts.
    So while I always appreciate the enthusiasm of Mr. Capuano, 
I think we need to be clear that we have not seen the return in 
the market, in the housing market which my former company was 
involved in for 25 years in, throughout the country.
    Access to capital is critical, and it is not there. The 
impediments in getting that capital are clear. These developers 
had to go outside. They had to go private equity and other 
firms that are much more costly.
    So for clarification, I felt that was prudent.
    Dr. Calabria, as you know, the insurance companies are 
under extensive supervision by the States. State laws or 
regulations are designed to do three things: stop serious 
financial distress in an insurance company from ever 
developing; redress material financial distress when it occurs; 
and limit the scope and impact of a stress event by 
facilitating interstate coordination and remedial action.
    Do you believe that there exist gaps and regulation of 
insurers than have made FSOC designation of insurers necessary?
    Mr. Calabria. I do not.
    Mr. Pittenger. Well, if no gaps exist, why do you believe 
FSOC has moved forward with the designation of insurers--
    Mr. Calabria. What I would submit and this has been a 
really consistent theme under both Republican and Democrat 
treasuries is there has long been a suspicion of the State 
insurance regulatory system, one of the few things that for 
instance Treasury Secretary Paulsen did before the crisis was 
issue a report on how bad the State insurance system was.
    And so Treasury has long had this viewpoint of, we need to 
get rid of State regulation of insurance. I don't think they 
have been shy about it and I think FSOC has largely followed 
it.
    Let me also say you have raised a very important point in 
regard to Congressman Capuano's points, which is, of course, is 
that what we should be doing is comparing this recovery to 
previous recoveries.
    The argument that if we had not done Dodd-Frank or the 
stimulus of this, that we would have been stuck in a hole and 
people would stop going to work and living in caves or 
whatever, that is not the case; economies recover.
    Mr. Pittenger. Thank you. Are you concerned that firm-
specific non-bank designations of insurance companies could 
create competitive imbalances in the insurance market?
    Mr. Calabria. Yes. As I mentioned in my earlier remarks 
about, to me, I worry that the designation would encourage 
insurance companies to look more like banks.
    And in my opinion, the largest insurers are far more better 
capitalized and in far better shape than the typical larger 
bank. So, I don't want MetLife to look like Citi; I think that 
would be a gross mistake.
    Mr. Pittenger. Professor Zywicki, do you have a comment on 
that?
    Mr. Zywicki. I don't have anything more to add than what 
Mark said.
    Mr. Pittenger. Very good. Mr. Atkins?
    Mr. Atkins. Yes. I agree with that, and I think you have to 
look no further than the President's own appointed insurance 
expert on FSOC, who completely slammed not only in really harsh 
terms frankly, not only the designation of Pru, but also the 
designation of MetLife as being--he said that was unfounded 
basically.
    Mr. Pittenger. Thank you. I yield back.
    Mr. Huizenga. The gentleman yields back. Just to let our 
Members know, there has been a motion to adjourn, a vote call. 
It is a 15-minute vote. So with that, we are going to continue 
with some questioning here, but if it is all right with our 
panel, I believe we will shortly take a break to go vote and 
then reconvene.
    The Chair recognizes Mr. Ellison of Minnesota for 5 
minutes.
    Mr. Ellison. I want to thank the Chair and the ranking 
member and also the panel. Mr. Silvers, one of the requirements 
of Dodd-Frank was publicizing the ratio of CEO pay to median 
worker for publicly traded firms.
    I just want to point out that back in 1980 when I was a 
sophomore in high school, the ratio was about 42:1. In 2014, 
CEOs received about 373 times the average employee.
    I guess my question to you is, why is this important 
knowledge for investors, and how does this knowledge further 
our discussion of addressing economic stability and even 
equity?
    Mr. Silvers. There is--what that information is about 
obviously is internal equity within the firm, and there is a 
substantial body of research most recently developed and 
focusing on retail stores which suggests that there is a 
correlation between essentially internal equity within the firm 
and long-term firm performance.
    Contrary to what my colleague on the panel, Mr. Atkins, 
suggests, the securities laws from their very inception were 
designed to ensure that the public had material information 
about the management of public corporations. It is very clear, 
the public would very much like to know this, what this ratio 
is and know it accurately for all public companies. But the 
more fundamental question is, it is the law of the land. 
Congress passed that statute and the public is entitled to have 
it enforced, which it hasn't been so far.
    In terms of the larger issue of economic stability, 
underneath the economic crisis that began in 2007 was a 
generation of wage stagnation. It created the political and 
economic circumstances in which a wide variety of people in 
both parties were tempted to substitute credit for wages.
    I think if you listen closely to my colleague Professor 
Zywicki's testimony, he is in favor of that kind of 
substitution; I am not. I think that substitution profoundly 
destabilized our economy and threatened not just our long term 
prosperity, but it threatens us with repeated and increasing 
severity of financial crises.
    The pay ratio rule is designed to put valuable information 
in the hands of both investors and the public that is relevant 
to that problem.
    Mr. Ellison. Mr. Chairman, I also want to ask for unanimous 
consent to introduce into the record an article from Forbes 
dated June 16, 2014, which says, ``The Highest Paid CEOs are 
the Worst Performers.''
    Mr. Huizenga. Without objection, it is so ordered.
    Mr. Ellison. Yes, so there you go.
    I would also like to point out, just for the record too, 
that the reality about mortgage loans made during the financial 
crisis and prior to it, is that about 66 percent of the loans 
are equity stripping refinances. And these were cash-out 
refinancing of homeowners with substantial equity. Too often, 
loans on predatory terms. I just want to point that out as 
well.
    And Mr. Zywicki, I wonder if I could ask you a question, 
sir. In your testimony you complained, or you pointed out that 
the CFPB is engaged in a massive data mining program. You said 
it collects data from hundreds of millions of consumers and 
credit records, which ``far exceed any reasonable regulatory 
purpose.''
    And then you cite Mr. Newt Gingrich in a footnote to 
support your claim. Are you aware that Mr. Gingrich is on 
retainer from the U.S. Consumer Coalition?
    Mr. Zywicki. I cited that because--
    Mr. Ellison. Are you aware?
    Mr. Zywicki. No. I wasn't aware, but--
    Mr. Ellison. Are you aware that is a 501(c)(4) 
organization, which according to its founder Brian Wise is 
dedicated to trying to undermine the CFPB? Did you know that?
    Mr. Zywicki. I am not aware of that.
    Mr. Ellison. So you cited a source and you don't know the 
terms upon which that citation was made?
    Mr. Zywicki. I do know the terms because I know those data 
are accurate, because I have seen similar numbers elsewhere and 
I just cited that as the most immediate data on hand.
    Mr. Ellison. You cited Gingrich. You didn't mention that he 
was paid by the U.S. Consumer Coalition. Did you?
    Mr. Zywicki. No. I didn't know that.
    Mr. Ellison. You didn't mention he was compensated for his 
advocacy?
    Mr. Zywicki. No.
    Mr. Ellison. You didn't mention that?
    Mr. Zywicki. No. But the data is out there and the data has 
been reported elsewhere. That was just the most recent source.
    Mr. Ellison. So a compensated source to advocate a 
particular line of argument, you don't think it was worth the 
public's time to know that? No, you don't.
    Okay, my time is over.
    Mr. Huizenga. The gentleman's time has expired.
    Mr. Ellison. I have no further questions for this witness.
    Mr. Huizenga. The gentleman's time has expired.
    With that, we are going to go to our last questioner before 
we take a brief recess.
    And the Chair recognizes Mr. Rothfus of Pennsylvania for 5 
minutes.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Mr. Huizenga. Sorry, we won't start the clock yet, but just 
so that everybody is clear, the game plan will be that we will 
recess briefly, go and vote, and return immediately and 
continue with the hearing.
    And with that, Mr. Rothfus?
    Mr. Rothfus. Thank you, Mr. Chairman. And I thank our panel 
for being here this afternoon.
    It is always good to take stock on anniversaries. So we are 
at 5 years now for Dodd-Frank. I would like to go back though 7 
years before Dodd-Frank, just to set the record straight. We 
have heard a lot about Fannie and Freddie. I want to remind 
people what was going on in the early 2000s, an attempt to 
reform what was going on at Fannie and Freddie.
    Indeed, this committee held a hearing on September 25, 
2003, on whether there needed to be some reforms with the way 
things were being done at Fannie and Freddie. Regarding these 
entities and its regulator, Barney Frank made a number of 
really striking statements, including this one, ``I do think I 
do not want the same kind of focus on safety and soundness that 
we have in the Office of the Comptroller of the Currency or the 
Office of Thrift Supervision for the Fannie and Freddie 
regulator. I want to roll the dice a little bit more on this 
situation toward subsidized housing.''
    Dr. Calabria, any reaction to rolling the dice?
    Mr. Calabria. I guess, first of all, I note that the OCC 
was the primary regulator of Citibank, so even OCC level of 
regulation apparently wasn't very good.
    But that said--let me, if I can, and certainly not--
personal push back a little bit, lots of people across the 
aisle were wrong on Fannie and Freddie, and so I do think that 
is worth remembering.
    I think if we could put aside--
    Mr. Rothfus. But they are wrong on Fannie and Freddie.
    Mr. Calabria. They are wrong on Fannie and Freddie. A 
number of people were--
    Mr. Rothfus. And it was a big contributing factor to what 
we saw?
    Mr. Calabria. Absolutely.
    Mr. Rothfus. With Dodd-Frank. Now let's--I want to talk a 
little bit about Dodd-Frank and how it was marketed as a way to 
end too-big-to-fail.
    Prior to its passage, then-Secretary Geithner claimed the 
law would end too-big-to-fail. And yet at the signing ceremony 
for the Dodd-Frank Act, President Obama proclaimed the 
following, ``After taking office, I proposed a set of reforms 
to empower consumers and investors to bring the shadowy deals 
that caused this crisis into the light of day, and to put a 
stop to taxpayer bailouts once and for all. Today, those 
reforms will become the law of the land.''
    Of course, we know that Secretary Geithner backtracked from 
his suggestion that this would end too-big-to-fail. In 2014 the 
question came up, and he said, ``Of course, it didn't end too-
big-to-fail.''
    Dr. Calabria, I would like to go through the list that the 
President talked about and get your thoughts on whether the 
reforms that the President claimed have in fact been achieved. 
Specifically, has Dodd-Frank empowered consumers and investors, 
or has it resulted in fewer and more expensive choices for 
consumers, and reduced upward mobility, particularly for those 
economically disadvantaged groups who have historically had the 
most difficulty accessing credit?
    Mr. Calabria. I think the numbers are fairly obvious that 
it has been a burden in that regard.
    Mr. Rothfus. Has Dodd-Frank eliminated shadow lenders, or 
has the avalanche of regulations that is imposed on our 
financial institutions actually led consumers to less regulated 
areas?
    Mr. Calabria. That certainly seems to be the case.
    Mr. Rothfus. And finally, did Dodd-Frank put an end to 
taxpayer bailouts once and for all, or did it rather enshrine 
too-big-to-fail into law, resulting in an expansion of the 
Federal safety net and increasing the probability of future 
crises and bailouts?
    Mr. Calabria. So again, to clarify my earlier statements, I 
do believe that Dodd-Frank offers a path to ending bailouts, I 
just note that it is an optional path, and I think it is highly 
unlikely that regulators will ever choose it--and one of the 
reasons I believe so is because there are similar powers that 
were put in place for Fannie and Freddie and they were not used 
at that time.
    So, as long as we have the Tim Geithners or the Hank 
Paulsens at the seat, to me, I think you should bet your money 
on that the creditors are going to get bailed out.
    Mr. Rothfus. Professor Zywicki, earlier this week the IMF 
released its annual review of the U.S. economy. The report 
found that some key vulnerabilities in the U.S. financial 
system have yet to be addressed, notably the housing finance 
system.
    The IMF also found that the Federal Reserve's extraordinary 
loose monetary policy and low interest rates have encouraged 
firms to take on additional risks in search of better returns.
    Finally, the report expressed concern about consolidation 
within the banking sector, particularly that large and 
interconnected banks dominate the system even more than before.
    I find this report to be particularly troubling given that 
it was bad government housing policy and Fed monetary policy 
that helped set off the last financial crisis. Furthermore, 
there is much evidence out there that Dodd-Frank regulations 
and the SIFI designation process is actually encouraging 
additional consolidation rather than eliminating it.
    What do you say to these concerns and those identified by 
the IMF?
    Mr. Zywicki. I agree with all of that, which is, big banks 
are getting bigger, and smaller banks are getting crushed. We 
have done nothing to deal with the incentives that consumers 
have to walk away from homes that are underwater such as 
requiring higher downpayments, doing the State anti-deficiency 
laws. And we are seeing exactly the same phenomenon we saw 
earlier.
    And I don't want to overlook something that Dr. Calabria 
mentioned early, which is, the fuel that drove this fire was 
the Federal Reserve's crazy monetary policy from 2001 to 2004 
and thereabouts. And we are doing exactly the same thing now 
and we are inflating another bubble probably in the housing 
market in a lot of areas.
    Mr. Rothfus. Thank you, Mr. Chairman. I yield back.
    Mr. Huizenga. The gentleman yields back.
    And just so that everybody is aware, we have 2 minutes and 
40 seconds left in this 15-minute vote, and so we will recess 
at this time, and until immediately after votes, when we will 
return. Thank you.
    [recess]
    Chairman Hensarling. The committee will come to order.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes, for 5 minutes.
    Mr. Himes. Thank you, Mr. Chairman. And thank you to the 
panel.
    I really appreciate this opportunity to reflect after 5 
years on the effectiveness of Dodd-Frank. I was here when it 
was put together and I participated in the many discussions 
around its creation. And I remember the extravagant, not to say 
apocalyptic warnings about how this was going to be what 
everything else, the Democrats proposed at that time, a job-
killing bill.
    That it would represent--what has generated some echoes 
here today, a lack of freedom for consumers, and all sorts of 
other things. And of course--and this caught my attention, it 
was to devastate, and again, the language was beyond 
apocalyptic. It was to devastate a key American competitive 
advantage, our capital markets.
    A lot of that criticism has begun to fade such that we hear 
echoes of it today. It is hard to call all that stuff job 
killing when you have been through 12 million new jobs created 
in on average 250,000 jobs added per month. It takes some sting 
out of that accusation.
    The question of the capital markets, though, caught my 
attention. I have the privilege and sometimes challenge of 
representing a district which is very, very dense with people 
who work in the financial services industry. And I am the first 
to recognize that there was both individual and institutional 
crazy, if not to say criminal, behavior in the industry.
    But it is also true that these capital markets are 
essential to Main Street, to borrowing for mortgages and 
student loans and consumer lending, and of course for our 
businesses. So I thought I might just take a look at the facts 
around what has occurred in the capital markets in these last 5 
years and just together some facts which are displayed there.
    And I would ask the Chair for unanimous consent to make 
this a part of the record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Himes. Businesses and people borrow and access capital. 
On the upper left there, you see the commercial and industrial 
loans since Dodd-Frank, a very strong rise up 60 percent.
    Small businesses, its access venture capital--in the upper 
right, you see venture capital investments up over 100 percent. 
People and companies benefit from the stock market.
    At the lower left, you see the behavior of the Standard & 
Poor's 500, up almost 100 percent in the 5 years since Dodd-
Frank. That is a pretty darn nice return for some people who 
got badly hurt in the crisis and of course represents, if 
nothing else a real vote of confidence for those capital 
markets that we were promised would be devastated by Dodd-
Frank.
    Lower right, what about people, consumer credit. Again, we 
have been hearing a lot today about a reduction in freedom in 
terms of the products that are available to consumers. The 
graph in the lower right would suggests that if even if there 
is a reduction in freedom there and a reduced reduction in 
choices there has certainly not been reduced consumption of 
consumer credit.
    So I think it is fair to say that the facts demonstrate 
that Dodd-Frank, far from having a catastrophic effect on the 
capital markets, actually contributed to the restoration of 
those markets and something that we consider a key competitive 
advantage.
    We now hear the criticisms reduced to the abstract and 
academic notion that those things could have been better. If 
only others had been in charge we would have had a more robust 
economy or perhaps those charts, which are pretty dramatically 
in their north-easterly direction, would be somehow more 
northerly in their direction.
    But those facts are important. And they are important 
because we see efforts to eliminate an awful lot of the 
protections which I would argue would perhaps turn those graphs 
around.
    I did want to make that point, and that reflection at this 
5-year anniversary, but I do have a question. Again, 
representing as I do the district for whom the financial 
markets are pretty important, I have always recognized that 
while a very important and good step forward, Dodd-Frank is far 
from perfect. And there are in fact changes that should be 
made. So in the very limited time I have left, I would just 
love to get from each of you, very quickly, if you could make 
one change, the change that would draw agreement on the part of 
peer-reviewed academics and others, if you could make one 
change to Dodd-Frank, what would it be?
    Let me just quickly go from left to right.
    Mr. Atkins. It is hard to pick out of all 15 titles, but I 
would start with Title I, for sure. And address the potential 
of the FSOC and the Fed bringing in bank regulated.
    Mr. Himes. Thank you.
    Mr. Calabria?
    Mr. Calabria. I reiterate that there is a lot to choose 
from, but if you want to talk where there is most robust 
agreement, I think most of the academic literature does suggest 
that Title I of designating entities sends the wrong signal to 
the marketplace.
    Mr. Himes. Thank you.
    Mr. Silvers?
    Mr. Silvers. I would restore Glass-Steagall.
    Mr. Himes. Restore Glass-Steagall, meaning force a 
separation of commercial banking activity from brokerages?
    Mr. Silvers. And obviously I wouldn't literally take the 
words of Glass-Steagall. I would try to enforce that concept in 
modern context.
    Mr. Himes. Thank you.
    Mr. Zywicki?
    Mr. Zywicki. I would make the CFPB into a bipartisan 
commission and put it on budget, and remove its role in safety 
and soundness checks.
    Mr. Himes. Okay. So two Title I's, one CFPB, and Glass-
Steagall. Thank you. I appreciate it.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Messer.
    Mr. Messer. Thank you, Mr. Chairman.
    I would like to start with Mr. Calabria, and talk a little 
bit about some of the unintended consequences of Dodd-Frank. As 
you heard from our colleagues on the other side of the aisle 
today apologists for Dodd-Frank are fond of saying that the law 
struck a direct blow against Wall Street, remade the financial 
systems so that those firms no longer enjoy the privileges that 
made them too-big-to-fail, and gave rise to the taxpayer 
bailouts of 2008 and 2009.
    In reality though, the biggest Wall Street firms are the 
beneficiaries, not the victims, of Dodd-Frank, both because the 
law cements them as too-big-to-fail, and because the massive 
regulatory dragnet they cast over the financial system makes it 
difficult for smaller firms to compete.
    There is no mystery to this. Goldman Sachs CEO Lloyd 
Blankfein and JPMorgan Chase CEO James Dimon have both said 
that Dodd-Frank gives them some competitive advantages because 
of the broad scope of regulatory cost associated with the law.
    Harvard University released a study recently that confirms 
this. And just anecdotally, we all know you can count on the 
fingers of one hand, the number of new banks that have been 
chartered since Dodd-Frank was enacted.
    So, Mr. Calabria, whom should we believe? Our colleagues on 
the other side of the aisle and the Obama Administration who 
loudly proclaim Dodd-Frank administers harsh medicine to Wall 
Street or the CEOs of those same firms who tell us they are 
actually the competitive beneficiaries of this law?
    Mr. Calabria. Certainly, I think the evidence is pretty 
overwhelming that concentration has increased since both the 
crisis and since Dodd-Frank. I would be the first to say lots 
of causes go in there just as there are lots of causes with the 
market going up, I would, for instance, suggest that maybe 6 
years of negative real short-term rates might have actually 
inflated the equity markets a little bit. And we will see what 
happens when those things turn around.
    But I think absolutely there is no doubt in my mind that 
you have seen growing concentration both on the commercial 
banker side and on the broker-dealer side.
    Mr. Messer. Mr. Zywicki, you are nodding?
    Mr. Zywicki. I agree completely which is we have known for 
decades that regulatory structures fall harder as small 
businesses. What we have done is created this monolith, this 
huge regulatory structure then imposed at our community banks 
who obviously didn't cause the problem here.
    And just the regulatory compliance cost is killing these 
businesses, not to mention, as I said, on products such as 
mortgages. It has gotten rid of their competitive advantage, 
which is relationship lending and sort of knowing about their 
customers. And so it is absolutely, in my view, accelerated 
consolidation of financial industry and further destabilized 
the financial system.
    Mr. Messer. Thanks.
    Really quickly, Mr. Atkins, we would like to raise with you 
an issue that is actually beyond the scope of Dodd-Frank and 
deals with the liquidity coverage ratios under Basel III.
    It came to my attention, and you are probably well aware, 
that Federal banking regulators have excluded all American 
municipal bonds from being treated as highly liquid assets 
under the LCR rule, which creates a remarkable situation where 
certain German bonds qualify as these sorts of assets when most 
American municipal bonds don't--all American municipal bonds 
don't--that it obviously disincentivizes banks from investing 
in those assets and potentially raises borrowing costs.
    We all know that aside from U.S. treasuries for America 
municipal bonds, securities are some of the safest investments 
available with State and local governments having about a zero 
default rate.
    To help ensure that we change that, I have authored, with 
Congresswoman Maloney from New York, legislation that would 
essentially direct the FDIC, the Federal Reserve, and the OCC 
to classify investment-grade American municipal bonds as level 
2A securities and highly liquid assets.
    Everyone that I have talked to tells me that these 
investments are some of the safest in the world. Can you help 
me understand why it would make sense to allow German bonds to 
qualify as that kind of asset and not allow American municipal 
bonds?
    Mr. Atkins. Yes. The problem with Basels I, II, and III 
basically is that they categorize these various investments in 
buckets. And there is always an incentive then to choose the 
riskiest, therefore the highest yielding ones, in each of those 
buckets and not to have a real market-based type of valuation 
to it.
    It is really the regulators choosing winners and losers, if 
you will. So, I think there is a fundamental flaw in all of 
that design.
    Mr. Messer. Just a simple question: Do you think if a bank 
needed to sell investment grade municipal bonds, they could do 
that, and could they find buyers if we were at a time of 
financial stress?
    Mr. Atkins. For a bank to--
    Mr. Messer. Yes.
    Mr. Atkins. Yes, I would think so.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. Green, 
ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman. And I thank you for 
your service on this committee as well.
    It is my understanding that some of the Members today have 
opened the door to talking about invidious discrimination, and 
while we are talking about Dodd-Frank, I think that it is 
appropriate that we mention some aspects of invidious 
discrimination, because there are some things that Dodd-Frank 
does not do to the extent that I think that it should. So, I 
agree with those who contend that Dodd-Frank is an imperfect 
piece of legislation.
    Let's just talk about some of the things that I would like 
to see us impact by way of the work of the committee.
    I have a statement here indicating that minority business 
owners paid interest rates that were 32 percent higher than 
what whites paid for loans in 2012. This is by way of the 
Federal Reserve, by the way. This is what the Fed says. Dodd-
Frank doesn't do enough to address this kind of invidious 
discrimination. I am pleased that someone brought it up today. 
Otherwise, I might not have put this on the record.
    According to The Wall Street Journal, in 2013 only 4.8 
percent of loans made to buy homes were made to blacks. 
However, blacks comprised 13.2 percent of the total population 
in 2013. Now I know that we can rationalize that and say, 
blacks don't make as much, they probably don't have the credit 
history, there are all kinds of ways to rationalize it. But one 
of the best things that we can do is investigate and find out 
why blacks are at this number.
    In 2013, only 7.3 percent of loans made to buy homes were 
made to Latinos. However, Latinos comprised 17.15 percent of 
total population in 2013. Dodd-Frank doesn't do enough to help 
us, and I hope that the committee will.
    According to CNN, 2013 HMDA data, the conventional mortgage 
load denial rate was 10.4 percent for whites; by comparison, 
however, the denial rate stood at 27.6 percent of blacks, 21.9 
percent for Hispanics, and 13.3 percent for Asians.
    The information goes on and on and on but I will move now 
to the Washington Post. Between 2004 and 2008, black borrowers 
were 54 percent more likely to have a high interest rate 
mortgage, black borrowers. Latino borrowers, 45 percent more 
likely to have a high interest rate than similar white 
Borrowers, I might add, and Asian-American borrowers were 7 
percent more likely.
    Now, these are things that we can investigate, things that 
I think the committee should investigate. I think that on the 
heels of what we have just seen in South Carolina, where we are 
eliminating symbolism, it seems to me that we have an 
opportunity to actually get into the invidious discrimination 
that still takes place. And my hope is that we will look after 
these things at the committee level. We are currently examining 
the CFPB, and of course until 1968, we were known as the 
Banking Committee.
    These lenders bear a look being taken at them. My hope is 
that we will do it because we tell people to pull themselves up 
by their bootstraps.
    These loans, these mortgages are bootstraps. In my last 9 
seconds, I appeal to the committee to please, it is an appeal, 
let's look into this. I thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton.
    Mr. Tipton. Thank you, Mr. Chairman. I appreciate the 
panel's time for being able to be here as we listen to our 
colleagues' comments from the other side of the aisle. They 
want to be able to interpret that Dodd-Frank has helped bring 
the economy back.
    I think it is worthy to note that we have the lowest labor 
participation rate in 4 decades. For the first time, I think 
you have mentioned this, the Brookings Institution report 
coming out saying we have more small businesses shutting down 
than there are new business startups in this country. We are 
suffering under two trillion dollars worth of regulatory costs 
which is driving up cost, if you care about people who are on 
fixed incomes, young families who are trying to be able to get 
a start, increasing their cost by inhibiting their ability to 
have access to capital.
    We have talked about Dodd-Frank today and too-big-to-fail. 
Unfortunately, it has become apparent both anecdotally and 
empirically that the legislation has failed to be able to live 
up to its goals. Banks in my district and across the country 
have told me time and again that the compliance costs brought 
on by one-size-fits-all regulatory schemes made it impossible 
for them to be able to lend to creditworthy Main Street 
businesses.
    Instead of working with the community, small banks and 
credit unions are working to comply with rules and regulations 
that were intended to curb Wall Street banks. Delta Bank in 
Delta, Colorado, told me that they don't know how much longer 
they are going to do it because they feel that they are no 
longer working as a bank, they are working for the Federal 
Government and for regulators.
    Large banks do have the economy of scale to be able to deal 
with additional compliance costs but smaller banks simply 
cannot compete. Instead of promoting healthy growth in the 
financial system, the rate of decline in community banks' 
market share has doubled since Dodd-Frank was enacted. For this 
reason, I introduced the Taylor Act of 2015, legislation that 
directs Federal regulators to consider the risk profile and 
business model of an institution promulgating regulations.
    Regulations will be tailored in order to be able to limit 
compliance costs when the regulation is considered not 
necessary or appropriate for the institution. This piece of 
legislation which has the support of over 55 State banking and 
credit union associations is a crucial step toward limiting the 
regulatory burden for those banks and credit unions that are 
struggling to be able to operate in our Main Street communities 
because of the burdens placed on them by Dodd-Frank.
    Mr. Zywicki, you had commented several times during your 
testimony about the destruction of the relationship between 
community banks and the customers that they were designed to 
serve. Can community banks survive in this new regulatory 
framework if they can no longer rely on that traditional 
banking relationship?
    Mr. Zywicki. It is hard to see how and it isn't just that 
they are exiting the mortgage market, as I said, 64 percent of 
community banks said they have changed their mortgages because 
of Dodd-Frank, 15 percent said they completely exited or are 
considering exiting the market, and 70-plus percent have said 
that the cost and everything has changed the way that they do 
business.
    I don't see how in the current regime they can possibly 
survive under that sort of regime, and I think it was perfectly 
summarized by the bank you reference which is that their 
customer now is the Federal Government, not their customers.
    They are looking over their shoulder constantly rather than 
looking at the person across the desk from them and I think 
that is terrible. I will add one other thing, it is not just 
mortgages, it is also, according to the Kennedy study, 
agriculture loans.
    These big banks aren't going out to rural communities and 
making agricultural loans and that sort of thing. These 
community banks serve an important function in the American 
banking ecosystem, a lot of consumers prefer it, and I think it 
is a shame that they are being competed out of the market not 
because they can't--because they just aren't allowed to compete 
on a fair footing because of the regulatory cost.
    Mr. Tipton. You just spoke to two things that are near and 
dear to my heart. I represent a rural district in Colorado, 
agricultural interests and small businesses. Are we inherently 
seeing, because of Dodd-Frank, small businesses, small banks 
literally now being almost forced into a position where they 
are going to have to be able to merge, be bought up by a larger 
institution and that the impacts that is obviously going to 
have in terms of that relationship?
    Mr. Zywicki. That is obviously what we are seeing, that 
they are being forced to--they are either disappearing or being 
forced to merge and it is an unbelievably ironic consequence of 
Dodd-Frank that the big banks are getting bigger. That we are 
getting more consolidation of the banking system when the whole 
idea was to get rid of too-big-to-fail. The big banks are 
getting bigger.
    Mr. Tipton. And so we are just codifying too-big-to-fail as 
we continue to pursue an overzealous regulatory regime that is 
impacting us at the local level.
    I think it is important. Oftentimes, we talk about the 
rules, regulations, the laws that are passed, but what you are 
speaking to is something that I believe we need to be focusing 
on. These are the people at home. The Hopscotch Bakery in 
Pueblo, Colorado, is a very small bakery. The owner came to me 
and she said that the big issue for her was access to capital 
with a local community bank who wanted to be able to make the 
loan, but regulatorily was not going to be able to make that 
loan. Do we need to focus more on the outcome of the law and 
how it is impacting Americans?
    Mr. Zywicki. Absolutely. And we hear those stories from all 
over the country.
    Mr. Tipton. Thank you.
    Chairman Hensarling. The time of the gentleman has expired. 
The Chair now recognizes the gentleman from Texas, Mr. 
Williams.
    Mr. Williams. Thank you, Mr. Chairman, for holding this 
hearing today, and I want to thank all of you for being here.
    I wanted to switch gears a little bit and discuss how the 
CFPB under Dodd-Frank has continued to expand its influence 
into areas where it has no authority. That is something even 
Director Cordray told me himself that the law doesn't address. 
Of course, I am talking about the auto industry. I am a car 
dealer. I am one of them. Okay.
    So Mr. Zywicki, I would like to ask you about the CFPB 
settlement with Allied Financial in which CFPB got Allied to 
pay $98 million by accusing the company of discrimination 
against car buyers based on disparate impact statistics.
    I have said this in previous hearings but I think it is 
worth repeating today, as a car dealer myself, the idea that I 
would charge different prices to my customers based on race, 
religion or the color of one's skin is offensive not only to me 
but to my industry. In fact, if I was doing that, I don't think 
I would be very successful.
    So, it has been a year-and-a-half since the Allied 
settlement. Do you know if the CFPB has paid any of the $98 
million to consumers whom the CFPB said were discriminated 
against?
    Mr. Zywicki. Thank you, Congressman Williams, because I 
think this example of what they are doing with the auto dealers 
is one of the most egregious examples of regulatory empire 
building I have ever seen.
    Dodd-Frank makes it very clear that they can't regulate 
auto dealers, and so instead what they have done is essentially 
strong-armed indirect auto lenders and they essentially forced 
them to become arms of the Federal Government to enforce this 
agenda. What is this agenda? It is an agenda that has been 
written about extensively which is sort of disparate impact on 
steroids.
    There is an amazing study that the American Financial 
Services Association published by Marsha Courchane which uses 
as Bayesian Improved Surname Geocoding and whatever the term is 
to try to identify the so called plaintiffs and it is a joke. 
It has no verifiability in doing it. They finally entered into 
this settlement for Allied under who knows what conditions and 
they don't have any real--they don't actually have any victims.
    They have statistical victims. They have created this claim 
form that seems to be completely on the honor system where 
people don't have to prove they were overcharged, they don't 
have to prove anything, they can just write in and get some 
money.
    And so maybe the CFPB is going to distribute money to 
people, but there is no indication that they are distributing 
to actual victims of discriminatory practices.
    Mr. Williams. With that being said, in fact I had my staff 
pull up the form. This is it right here, that they would have 
discriminated buyers fill out. In my opinion, it is ripe for 
fraud, and you have agreed with me.
    If you look at this form, it basically says if you took out 
a loan that Allied later financed in a certain period of time, 
the CFPB will assume you were discriminated against. I am in 
the business but I have bought two cars and financed them 
through Allied, so I wonder if I should fill this form out and 
send it in.
    Now, Mr. Zywicki, in the interest of time, just a quick 
yes-or-no answer to the following question if you don't mind. 
Do you think the process the CFPB set up that we are talking 
about is designed to determine--
    Chairman Hensarling. Wait, I'm sorry, would the gentleman 
suspend and hold the clock? Apparently, we have one vote on the 
Floor, and might I suggest that the gentleman from South 
Carolina--have you voted on this?
    Mr. Mulvaney. I have not.
    Chairman Hensarling. Perhaps we can avoid a recess if the 
gentleman from South Carolina and the gentleman from Maine 
would quickly go vote and return back to the committee room. 
Perhaps we can avoid a recess here.
    I thank the gentleman for yielding, and we yield back to 
the gentleman from Texas.
    Mr. Williams. Thank you, Mr. Chairman. Do you think the 
process we talked about is designed to determine whether 
borrowers were actually discriminated against?
    Mr. Zywicki. No. I don't see that.
    Mr. Williams. And what about the CFPB restitution form we 
just mentioned? Do you think it prevents fraud?
    Mr. Zywicki. No. I don't see any indication it does.
    Mr. Williams. And do you see anything that would indicate 
that the CFPB is even asking whether borrowers paid a higher 
interest rate than other loans?
    Mr. Zywicki. I don't see that either.
    Mr. Williams. Not on there. Mr. Calabria, for you. Under 
Section 1022 of Dodd-Frank, the CFPB was given a broad 
authority to exempt financial services providers from its rules 
based on asset size, volume, et cetera.
    As you know, the CFPB has used this authority sparingly, 
often creating an exemption so small that it doesn't actually 
help those credit unions or community banks that are hurting 
because of over-regulation. I am saying this really quick 
because I am working on a proposal that would exempt community 
banks and credit unions under $10 billion in assets from CFPB 
rules, going forward.
    Effectively, it turns the exemption on its head and forces 
the CFPB to consider the impact on smaller financial 
institutions and make an affirmative finding that community 
banks and credit unions are indeed the intended targets of 
these rules. So, my question to you is this, do you think 
Section 1022 B of the law is clear?
    Mr. Calabria. Absolutely. Yes.
    Mr. Williams. Thank you. And shouldn't the CFPB be doing 
analysis and affirm that smaller financial institutions 
actually need or don't need to be included in the rules they 
are writing?
    Mr. Calabria. Yes. I think they would be better allocating 
their resources on larger entities.
    Mr. Williams. Mr. Chairman, I yield back. Thank you very 
much.
    Chairman Hensarling. Sorry, the gentleman yields back, 
since we are trying to kill a little time here before the other 
gentlemen return from the House Floor. At this time, we yield 
to the gentleman from Kentucky, Mr. Barr, whom I trust will 
take his full 5 minutes.
    Mr. Barr. Yes, Mr. Chairman, I would like to take even more 
with this great panel. But I appreciate the recognition, and I 
thank the panel for your testimony.
    This has been a fascinating hearing as we examine the 
impact of the Dodd-Frank law 5 years since its enactment. And 
let me start with Professor Zywicki. I am particularly 
concerned about the impact that the Consumer Financial 
Protection Bureau is having on access to consumer credit. For 
many of my constituents in central and eastern Kentucky, and I 
too have heard that, the unfortunate stories of creditworthy 
borrowers who are no longer able to access a mortgage or get a 
credit card or an auto loan or maybe short term credit.
    The example that you gave about the gentleman who needs a 
$500 transmission change just to get to work but no longer has 
access to short-term credit or a payday loan really does have a 
negative impact not just on the broader economy but on these 
families. And it is really sad.
    But let me ask you a follow-up to Chairman Neugebauer's 
proposal, which was a proposal to reform the Bureau to a 
commission structure, a bipartisan commission structure. I also 
have a reform bill called the Taking Account of Bureaucrats' 
Spending Act (TABS).
    This would place the Bureau under the appropriations 
process like many other regulators in the Federal Government. 
What impact would that have in terms of effectuating the 
Congress' power of the purse in holding the Bureau accountable?
    Mr. Zywicki. I think that would definitely increase the 
responsiveness and the ability of the CFPB to do its job. Which 
is, too much independence, just bureaucrats left to their own 
devices, do their thing, right? What we have learned over time 
is that checks and balances actually work, that Congress' role 
in being able to control the power of the purse and actually 
supervise with some strength over executive agencies, makes the 
agencies better for the consumers.
    Mr. Barr. Now, let me ask you an out-of-the-box question 
because we have these reform ideas that are actually consistent 
with the original design of the Bureau. But I was interested in 
your testimony and your former service at the Federal Trade 
Commission and its focus on the mission of promoting 
competition and choice as a core of consumer protection.
    My question to you is, would it be something that you would 
entertain as a positive idea to actually fold into the mission 
of the Federal Trade Commission the functions of the Bureau, if 
the Bureau continues to fail the American people?
    Mr. Zywicki. I agree completely, which is I actually agree 
with the idea of having one agency that would regulate consumer 
credit.
    I don't think the old system did work. I thought we could 
have just given it to the FTC, if we don't, we should model it 
after the FTC, and I have written a long law review article 
where I urge exactly what you are suggesting, Congressman Barr, 
which is combining a mission of competition and consumer 
protection and understand the consumer's benefits not just from 
consumer protection narrowly defined but also from innovation, 
competition, choice, lower prices and all those sort of things.
    Mr. Barr. I want to read your law review article because I 
totally agree that competition, choice, and innovation is the 
best consumer protection.
    Let me turn to Mr. Atkins, and I appreciate your service 
and your expertise. Secretary Lew testified in front of this 
committee a few weeks ago and we talked about changes in the 
capital markets after Dodd-Frank. Some of the illiquidity that 
we are seeing in the fixed-income markets as a result of the 
Volcker Rule in particular--and I appreciate your testimony 
about the concerns you have with the Volcker Rule, especially 
since proprietary trading really wasn't the cause of the 
financial crisis.
    My question to you is, when Secretary Lew was asked about 
illiquidity, he disclaimed responsibility from regulations in 
Volcker, and his answer was that he thought changes in market 
structure were to blame for the liquidity problems. And Dr. 
Calabria, I think you mentioned that there could be some 
changes in fixed-income market structure.
    And he also mentioned high frequency trading. My question 
to you is, could you comment on Secretary Lew's refusal to 
assign any blame whatsoever to Volcker and other regulatory 
pressures?
    Mr. Atkins. I don't know exactly what he said then, but to 
ascribe everything to market structure changes, or you know, 
some people have said to increased transparency in the market 
has led to that, I think that is not accurate. I think you have 
to lay blame at the Volcker Rule because basically, you have to 
have people trading in the markets to set price.
    Mr. Barr. As I mentioned, the Volcker Rule is forcing banks 
to divest of AAA paper that hasn't defaulted in 20 years, and 
there was really not much response from the Secretary on that.
    Finally, let me conclude with Dr. Calabria, we talked about 
consolidation and SIFI designation in OLA, and this new safety 
net as contributing as opposed to detracting from too-big-to-
fail. Can you comment on what--those factors, is Dodd-Frank, 
the cause of these large six megabanks, Wall Street banks 
getting bigger? And I understand economies of scale and the 
need for large institutions to service complex customers, but 
could you briefly comment on that?
    Mr. Calabria. Let me say, rather than cause, I think it is 
best to think of that as a contributor.
    Mr. Barr. Yes, thank you. I yield back.
    Chairman Hensarling. The Chair wishes to inform Members 
that the Chair did not know there were two votes on the Floor 
as opposed to one. I am going to yield to the gentleman from 
New Hampshire, Mr. Guinta for 5 minutes, at which point he will 
recess the hearing until after the completion of the second 
vote.
    Again, we appreciate the indulgence and patience of the 
panel. The Chair recognizes the gentleman from New Hampshire.
    Mr. Guinta [presiding]. Thank you, Mr. Chairman, and thank 
you for your indulgence relative to our voting schedule this 
afternoon.
    I first want to thank the panel for being here. It is clear 
to me and there has certainly been debate about this, but I 
have clearly seen the harmful effects of Dodd-Frank and the 
effects that it has had on community financial institutions, 
and most importantly, those consumers and users of those 
products.
    The Mercatus Center of George Mason University recently 
released a paper, actually back in February 2014, which showed 
that small bank have eliminated or are planning to discontinue 
certain products or services as a result of Dodd-Frank, that is 
indisputable fact.
    Nearly 64 percent of the banks surveyed anticipate making 
changes to the nature or assortment and volume of mortgage 
products and services as a result of this new regulatory 
action. The study also showed that roughly 10 percent 
anticipate discontinuing residential mortgages due to Dodd-
Frank. And approximately 5 percent have already done so. 
Residential mortgages or mortgage servicing, home equity lines, 
credit, and overdraft protection are among the most likely 
products and services to be cut.
    In New Hampshire, where I represent, we have about 30 
community banks that offer a wide array of products and 
services to Granite Staters. However, due to severe 
regulations, I continue to hear from my community banks that 
they have had to limit products. They have had to limit loans 
and services to my constituents, to their customers and 
consumers. I personally do not see that as a favorable response 
to Dodd-Frank; maybe others disagree.
    But I wanted to ask Professor Zywicki, would you agree that 
consumer choice in products and services is important for 
overall well-being for consumers? Or do you think that more 
choice in products and services harms those very consumers?
    Mr. Zywicki. I think--
    Mr. Guinta. It's a very simple and straightforward 
question.
    Mr. Zywicki. I think American families are a much better 
judge of what financial products are appropriate for their 
lives than Washington bureaucrats. And I think that consumers 
unquestionably benefit when they get to choose the institution 
or the products that they think will make them better off.
    Mr. Guinta. Do you think that Dodd-Frank regulatory changes 
negatively affected community financial institutions' ability 
to offer products and services to consumers more than it 
affected larger institutions?
    Mr. Zywicki. Absolutely. Yes, as we have mentioned, we do 
see community banks shrinking, we see community banks 
retrenching in the products that they are offering. Some 
leaving very important--completely leaving very important 
market such as mortgages, simply because they can't deal with 
the regulatory costs associated with Dodd-Frank.
    Mr. Guinta. And since Dodd-Frank has been implemented, has 
consumer choice increased or decreased in products or services?
    Mr. Zywicki. Consumer choices unquestionably decreased, and 
I must disagree with the Congressman from Massachusetts, 
Congressman Capuano, who started to ridicule the idea that 
consumers are now paying--the consumers who have lost access to 
free checking are paying higher bank fees.
    We are talking about a million people who lost bank 
accounts because now they have to pay for bank accounts that 
used to be free. Those are the poorest, the most vulnerable 
Americans who were thrown out of the banking system because 
they couldn't afford to pay the higher accounts.
    And whether it is higher rates on credit, less access to 
credit cards, less access to mortgages, or less access to home 
equity loans, across-the-board, we have seen consumer choice 
restricted and prices have gone up and consumers have been made 
worse off as a result.
    Mr. Guinta. The gentleman from Massachusetts and I have 
similar districts in terms of some of the characterizations and 
categories of people we represent. I am from Manchester, New 
Hampshire, the State's largest City. I used to be mayor--
110,000, 115,000 people, average median income, family income 
about $54,000.
    You go to the south end of Manchester, and you ask 
somebody, are they happy by paying $5 to $10 per month for the 
privilege of banking with their institution that they had 
banked with for the last 15 years, they would say arguably, no. 
But it is not just that issue, and this is where I think we 
have differences of opinion amongst the panel and the members 
of this committee.
    I look at cost of living, I look at the cost of groceries, 
I look at the cost of home heating oil. I look at the cost to 
do banking. I add those up, and I look to the people I 
represent who are struggling in this economy. It was mentioned 
that there is a 5.3 percent unemployment rate, that is true. 
But the average weekly wage in this country has not increased 
dramatically from 2008 to today--and I see my time has expired. 
I would like to recognize Mr. Mulvaney for 5 minutes.
    Mr. Mulvaney. Do you want to go vote?
    Mr. Guinta. Yes.
    Mr. Mulvaney. Okay. Do you want me to sit over there or are 
you going to do that?
    Mr. Guinta. I would invite you to take over as the Chair.
    Mr. Mulvaney [presiding]. Okay. Gentlemen, thank you very 
much, and I recognize myself for 5 minutes.
    Thank you for doing this, I know it has been a long day, 
and I know at least some of you been here enough to know how 
this works. But for those of you who have not done--I consider 
how often you have been here before. We mean no disrespect by 
our coming and going, I can promise you that. And the questions 
that you get at the end, I hope are just as important as the 
questions you get at the beginning, since Mr. Emmer and I are 
the ones asking them at the end.
    I wish Mr. Meeks was here because he said something earlier 
today that caught my attention about stability and about how he 
was pleased with stability in the financial services markets 
since Dodd-Frank went into place.
    That sort of got my attention, because stability can be a 
really good thing, and then too much stability can be a 
problem. The banks in Greece today are really, really stable 
because they are closed. And my guess is they won't be nearly 
as stable next week if they open again, but stability for the 
sake of stability is not necessarily a good thing but it is 
certainly something to pursue.
    And with that in mind, Dr. Calabria, you and I have talked 
in the past about other ways to get to stability, that if the 
goal of Dodd-Frank was to bring stability to the market to make 
sure banks could not fail or weren't too-big-to-fail, or all 
the rhetoric we have heard, there are other ways to do that, 
which might be much, much simpler. And that would be to simply 
require banks to hold a higher level of capital. Would you like 
to talk to about that for a few minutes, sir?
    Mr. Calabria. Absolutely. I think we can have at the same 
time stronger regulation that is simpler regulation. And 
capital certainly is very much the regard--earlier, some 
comments were made about the Basel system of capital, and I 
would actually suggest that the United States just pull out. I 
think Basel has been a disaster, and the complexity does not 
work very well.
    I will note for the committee that for instance, probably 
Citibank, the most troubled bank during the crisis, its tier 
one risk-weighted capital never fell below 8 percent during the 
crisis. So that tells you that either something is wrong with 
our system of capital or maybe we didn't need the TARP and all 
these things anyhow, or both rather.
    So I do think we need a simpler system and I think simpler 
does not mean weaker. I think that simpler could be stronger. 
And I do think we can get rid of a lot of the unnecessary 
costly regulations while actually having regulations that make 
us stronger.
    Mr. Mulvaney. There were things that discussed with one of 
your predecessors of Cato was this concept of the simpler 
system that will require a much higher level of capital. You 
can opt in or out. If you wanted to operate as a traditional 
bank, you wanted to have proprietary training, you wanted to do 
all the things that the Goldman Sachs of the world do. And if 
you want to maintain your 6 or 10 percent capital, that is 
fine. And that option might be available to you.
    But if you wanted to be a community bank, and you didn't 
want to deal with derivatives and interconnectivity, all you 
wanted to do was lend money so people in your neighborhood 
could buy cars and houses, maybe there could be a different 
system that would be set up for you at a higher level of 
capital. Do you have any thoughts as to what that level might 
be?
    Mr. Calabria. So, and again, I would emphasize the need--I 
think that first of all it cannot be something that is risk-
weighted, because I think that minimizes the transparency, it 
has to be a pure simple leverage ratio. I think something in 
the neighborhood at 15, 17 percent is something that will get 
you a tremendous amount of stability.
    I will emphasize in my opinion the tradeoff should not 
simply be--you hold 15, 17 and you get out of Dodd-Frank, it 
needs to be broader than that. I think there is a tremendous 
amount of costly regulations that predate Dodd-Frank--
    Mr. Mulvaney. But there are certain things that immediately 
will become surplusage if I had 15 percent capital, right? Such 
as what?
    Mr. Calabria. Absolutely. Some of the examination process, 
certainly, you want to make sure the capital is real, but I do 
think you can give some differences for institutions in terms 
of safety and soundness prudential regulations because 
ultimately what we want to have is that the bank's owners have 
their money at risk. And I think that is what we want to 
substitute for.
    Mr. Mulvaney. Fair enough. Mr. Silvers, I am going to take 
advantage of the fact that I am here and nobody else is, which 
is a lot of fun. What do you think of that? It is probably the 
first you have heard of it. What are your thoughts? And again, 
I am committing a cardinal sin here, I am asking a question 
that I don't know the answer to. But I would be curious to know 
what the Democrat witness thinks of, basically that kind of 
idea. I'm not asking you to support it or oppose it, I'm just 
curious as to your thoughts.
    Mr. Silvers. Congressman Mulvaney, I have heard similar 
ideas, but I haven't heard Dr. Calabria's version. I think that 
in general, the basic notion that a straight capital test, that 
is not risk-weighted, it is a very important and good idea. It 
is a real problem in the Basel system that they keep going--
that they keep going back to risk-weighted capital tests that 
allow for game playing in various ways. And that when you look 
at the straight capital test, it is very low.
    Mr. Mulvaney. And for lay people, which includes me, the 
risk weighting bias might for example encourage banks to hold 
sovereign debt versus corporate, is that right?
    Mr. Silvers. It could encourage any number of things you 
might not want to encourage.
    Mr. Mulvaney. Okay.
    Mr. Silvers. And it presumes something that--it has turned 
out not to be true over and over again which is that those 
particular regulators are good at picking what is risky and 
what isn't.
    The question of whether or not you could do that with 
community--it is a kind of--you have heard me before talk about 
Glass-Steagall--you are proposing a kind of Glass-Steagall. 
Meaning that you are proposing a different set of regulations 
and a different set of capital requirements depending on 
whether banks are active in the securities markets, derivatives 
markets, and various other exotic things.
    So I am inherently sympathetic to that. The caveat I would 
offer to you is this, during the subprime bubble, a lot of the 
loans that were made were actually not made by the banks that 
were financing them. They were made by smaller institutions, 
generally non-banks that were conduits.
    The main issue with a different regime for small banks is 
that question, are they going to be conduits for big things, 
that are going to move through without reference to capital. 
And thereby be vehicles for--what I would be concerned about is 
vehicles for exploiting consumers in various ways as turned out 
during the subprime crisis. That is the kind of thing you have 
to watch out for in these types of ideas.
    The notion that we should have banks to do the business of 
providing credit to businesses and consumers, and banks that 
play in secondary markets and they should have different rules 
perhaps different capital requirements, and that it should 
matter what the size is, I agree with all of that.
    Mr. Mulvaney. That is interesting. I wish you were here 
yesterday. We just had a hearing on the SIFI designation of 
bright-line rule of $50 billion, and it would have been 
interesting to have that insight.
    Mr. Silvers. If you don't mind, I would be happy to say 
something about that. A lot of the discussion about SIFIs it 
seems to me, you really don't want--you want the ability to 
look at what--what firms are actually doing. So that for 
example, the discussion that all mutual funds are not 
systemically significant doesn't match what happened in 2008.
    It is very clear that money market mutual funds are 
systemically significant. The same thing is true with insurance 
companies. If you have a pure life insurance company, the odds 
that it is going to be systemically significant may not be very 
great, but on the other hand, if you have an entity on the side 
here that is dealing in derivatives very extensively, that is a 
subsidiary of an insurance holding company which was AIG, that 
can be a very, very dangerous thing, as we learned.
    The $50 billion--in my view, the $50 billion test is--it is 
certainly the case that institutions that have more than 50--
that have $50 billion in assets can, depending on what they are 
doing could be systemically significant.
    Mr. Mulvaney. But the simple fact they are $50 billion 
doesn't make them so.
    Mr. Silvers. I am not convinced that is the right number, 
but I will tell you this, I am definitely convinced that saying 
that by definition mutual funds are or insurance companies are 
not systemically significant, that is a mistake.
    Mr. Mulvaney. Gentlemen, just to show you who actually runs 
the place, I am the only Member of Congress here and I am being 
told by staff on both sides that I have to stop now.
    And I will respect it because it comes from the Democrat 
staff--if it was coming from these folks I would ignore them. 
But I will close by saying this. Dr. Calabria and Mr. Silvers, 
the other gentleman, I am sorry I didn't get a chance to ask 
you gentlemen the same question because I would be curious to 
know what your thoughts are.
    But Mr. Hill, Mr. Schweikert, and I have a bill that at 
least starts to try and begin a conversation about an 
alternative banking system, something that would operate 
outside of Dodd-Frank and be different for different types of 
banks, smaller, simpler banks.
    And don't be surprised if you get something from our 
offices in the next couple of days to ask you to weigh in on 
that because I am very curious to know what a lot of folks 
think about it. So I appreciate your time.
    With that, we are going to recess for a few minutes. The 
second vote has not started yet. So my guess is as soon as the 
second vote starts, you will see people starting to trickle 
back in. I cannot imagine we will be in recess longer than 10 
minutes.
    So if you gentlemen would like to take a break, this is a 
really good time, and we will stay in recess for 
approximately--until, let's call it 2:00. Thanks, gentlemen.
    [recess]
    Chairman Hensarling. The hearing will come to order.
    I recognize the gentleman from Minnesota, Mr. Emmer.
    Mr. Emmer. Thank you, Mr. Chairman, and thanks to the panel 
for your patience in being here. In the short time, there are 
just a couple of areas I want to cover which have been covered 
in some respects today.
    But I just want to make it clear because I have some things 
from my district that I want to share with you. Why don't we 
do--Mr. Zywicki if you would, I think others have already given 
this testimony but could you just confirm? Do you believe that 
Dodd-Frank is actually harming the ability of financial 
institutions to make loans and offer credit to people in 
businesses?
    Mr. Zywicki. Absolutely, yes.
    Mr. Emmer. And does this include minority-owned businesses?
    Mr. Zywicki. Yes.
    Mr. Emmer. In fact, would you agree that Dodd-Frank is 
having a disproportionately negative impact on Americans of 
modest means in minority communities?
    Mr. Zywicki. Absolutely. And we see that especially with 
the disappearance of free checking. Upper-middle-class people, 
for instance, haven't really noticed that. But it is low-income 
people who are the ones who can't afford these fees, who can't 
afford the higher minimum monthly balances to be able to get 
free checking.
    They are the ones who are losing it. It is also these same 
people who have lost access to credit cards over the past 
years. It is the same people who can't get access to mortgages. 
Disproportionately, it is lower income people who are bearing 
the brunt of Dodd-Frank.
    Mr. Emmer. I am going to quote, there are a couple of 
CEOs--the Goldman Sachs CEO has said, ``More intense regulatory 
and technology requirements have raised the barriers to entry 
higher than at any other time in modern history. This is an 
expensive business to be in if you don't have the market share 
in scale. Consider the numbers of business exits that have been 
announced by our peers as they reassessed their competitive 
position and relative returns.''
    And then JPMorgan Chase's CEO has referred to the post-
crisis regulatory regime as creating a ``bigger moat that 
protects his bank and other too-big-to-fail firms from 
competition by new entrance in small firms that cannot 
internalize the cost of the Dodd-Frank regulatory 
requirement.''
    Dr. Calabria, we have met, I apologize for butchering your 
name.
    Do you agree with these CEOs?
    Mr. Calabria. First of all, I think the evidence is pretty 
clear that concentration has increased and I think this always 
has to be a concern, so on one hand, regulation always bears a 
little heavier on smaller institutions.
    But I think it is also important to keep in mind that a lot 
of these regulations are essentially intended to be barriers to 
entry. And so, I do think we have to ask the question, are the 
institutions that are essentially kept out of the market--the 
good or the bad players. So I do think that--I guess, I should 
emphasize too, you will know coming from Econ 101, you reduce 
competition, you have to end up having higher prices for 
consumers.
    Mr. Emmer. Right. And basically, what they are telling us 
is that the bigger guys are able to survive; it is the smaller 
ones who are taking on these increased costs created by this 
extreme regulatory environment are suffering.
    And I am going to give you a couple for the record. In my 
district, this is from a banker who will remain anonymous, ``We 
are a small community bank with three locations, compliance has 
always been a cost. This is just a part of our business.
    ``However, since Dodd-Frank this cost has expanded greatly. 
For example, within the last year, we had to hire a full-time 
compliance director at a cost of $60,000 plus benefits, and 
this is in addition to training two outside compliance firms, 
one assists our staff with deposit compliance and one with the 
loan compliance at an annual cost of about $40,000 per year.
    ``In addition to this, we have several members of our staff 
whose jobs have changed, so that instead spending time on 
revenue-generating activities, they are spending time on 
compliance. Unfortunately, since there is no offsetting revenue 
for this expanding cost, we are forced to consider passing the 
cost on to our customers with additional fees.''
    It is also changing the way they do business. And the 
credit that they can offer to start-up businesses and consumers 
who are trying to buy their first home or buy an automobile.
    In my last couple of seconds, Dr. Calabria, again, the 
Office of Financial Research and the Financial Stability 
Oversight Council are funded through assessments on bank 
holding companies. Effectively, this means that Congress has no 
appropriation mechanism to perform necessary oversight over 
these agencies. Do you think it would be wise for Congress to 
have more oversight of OFR and FSOC?
    Mr. Calabria. Absolutely. I am of the opinion that every 
single Federal agency out there should be part of the 
appropriations process.
    Mr. Emmer. Anybody disagree? Mr. Atkins?
    Mr. Atkins. Not at all. I agree with you 100 percent.
    Mr. Emmer. All right. I see my time has expired. I yield 
back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired. 
Currently, there are no other Members remaining in the queue, 
thus, I would like to thank our witnesses for your testimony 
today. And again, I thank you for your patience with the 
schedule of Floor votes today.
    The Chair notes that some Members may have additional 
questions for this panel, 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 these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing stands adjourned.
    [Whereupon, at 2:15 p.m., the hearing was adjourned.]

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