[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]
THE ANNUAL TESTIMONY OF THE SECRETARY
OF THE TREASURY ON THE STATE
OF THE INTERNATIONAL FINANCIAL SYSTEM
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTEENTH CONGRESS
FIRST SESSION
__________
JULY 27, 2017
__________
Printed for the use of the Committee on Financial Services
Serial No. 115-36
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
U.S. GOVERNMENT PUBLISHING OFFICE
29-455 PDF WASHINGTON : 2018
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
STEVAN PEARCE, New Mexico GREGORY W. MEEKS, New York
BILL POSEY, Florida MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin DAVID SCOTT, Georgia
STEVE STIVERS, Ohio AL GREEN, Texas
RANDY HULTGREN, Illinois EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina KEITH ELLISON, Minnesota
ANN WAGNER, Missouri ED PERLMUTTER, Colorado
ANDY BARR, Kentucky JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania BILL FOSTER, Illinois
LUKE MESSER, Indiana DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine JOYCE BEATTY, Ohio
MIA LOVE, Utah DENNY HECK, Washington
FRENCH HILL, Arkansas JUAN VARGAS, California
TOM EMMER, Minnesota JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana
Kirsten Sutton Mork, Staff Director
C O N T E N T S
----------
Page
Hearing held on:
July 27, 2017................................................ 1
Appendix:
July 27, 2017................................................ 60
WITNESSES
Thursday, July 27, 2017
Mnuchin, Hon. Steven, Secretary, U.S. Department of the Treasury. 6
APPENDIX
Prepared statements:
Mnuchin, Hon. Steven......................................... 60
Additional Material Submitted for the Record
Beatty, Hon. Joyce:
``Trump Treasury pick Mnuchin misled Senate on foreclosures,
Ohio cases show,'' dated January 29, 2017, The Columbus
Dispatch................................................... 63
Ellison, Hon. Keith:
``Here's Why Treasury Nominee Steve Mnuchin Has Been Called
the `Foreclosure King','' dated January 19, 2017, TIME..... 68
``In its Rush to Foreclose on Homeowners, Steve Mnuchin's
Bank Allegedly Broke the Law,'' dated January 4, 2017,
Think Progress............................................. 70
``Treasury Nominee Steve Mnuchin's Bank Accused of
`Widespread Misconduct' in Leaked Memo,'' dated January 3,
2017, The Intercept........................................ 73
``Treasury Secretary Steve Mnuchin Denies It, But Victims
Describe His Bank as a Foreclosure Machine,'' dated January
19, 2017, The Intercept.................................... 81
Consent Order from The Office of Thrift Supervision on the
matter of OneWest Bank, FSB................................ 84
Stipulation and Consent to Issuance of a Consent Order from
The Office of Thrift Supervision on the matter of OneWest
Bank, FSB.................................................. 108
``Trump's Treasury Pick Has a $230 Million Blemish on His
Record,'' dated December 13, 2016, Bloomberg............... 113
``Steve Mnuchin's Old Company Just Settled for $89 Million
for Ripping Off the Government on Dodgy Loans,'' dated May
16, 2017, The Intercept.................................... 117
``After 2-year foreclosure battle, she owns Minneapolis
home,'' dated August 23, 2011, Minneapolis Star Tribune.... 120
Statement by Colleen Ison-Hodroff............................ 122
Fact Sheet: CFPB Complaint Data Reveals OneWest's Track
Record Against Seniors..................................... 123
Heck, Hon. Denny:
``China's Technology Transfer Strategy: How Chinese
Investments in Emerging Technology Enable A Strategic
Competitor to Access the Crown Jewels of U.S. Innovation,''
dated February 2017, Defense Innovation Unit Experimental.. 130
Luetkemeyer, Hon. Blaine:
Chart: Cyber Security........................................ 178
Perlmutter, Hon. Ed:
``The Future of Banking,'' dated July 23, 2017, LinkedIn,
Pulse...................................................... 179
Mnuchin, Hon. Steven:
Written responses to questions for the record submitted by
Representatives Beatty, Ellison, Emmer, Hill, Hultgren,
Kustoff, Loudermilk, Ross, Sherman, and Waters............. 183
THE ANNUAL TESTIMONY OF THE
SECRETARY OF THE TREASURY
ON THE STATE OF THE
INTERNATIONAL FINANCIAL SYSTEM
----------
Thursday, July 27, 2017
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling
[chairman of the committee] presiding.
Members present: Representatives Hensarling, Royce, Lucas,
Pearce, Posey, Luetkemeyer, Huizenga, Duffy, Hultgren, Ross,
Pittenger, Wagner, Barr, Rothfus, Tipton, Williams, Poliquin,
Love, Hill, Emmer, Zeldin, Trott, Loudermilk, Mooney,
MacArthur, Davidson, Budd, Kustoff, Tenney, Waters, Maloney,
Velazquez, Sherman, Meeks, Capuano, Clay, Lynch, Scott, Green,
Cleaver, Moore, Ellison, Perlmutter, Himes, Foster, Kildee,
Delaney, Sinema, Beatty, Heck, Vargas, Gottheimer, Gonzalez,
and Kihuen.
Chairman Hensarling. The committee will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time, and members will have 5
legislative days within which to submit extraneous materials to
the chair for inclusion in the record. The hearing is for the
purpose of receiving the secretary of Treasury's annual report
on the State of the international finance system.
But before proceeding to that report, I will give you a
report on the Hollingsworth family of Indiana. I would like to
share with you some very good news that Joseph Albert
Hollingsworth, IV arrived this morning at 1:38 a.m., weighing
in at 7 pounds, 15 ounces. Mother and baby are doing well.
Husband and father is a total wreck, but congratulations to our
colleague, Trey Hollingsworth.
We will give him an excused absence from this morning's
hearing.
The chair now recognizes himself for 3 minutes for an
opening statement. Again, this morning, the committee welcomes
Treasury Secretary Steven Mnuchin for his testimony on the
state of the international financial system. As we all know, it
is a system that rests heavily upon our U.S. financial system,
and that system clearly needs improvement.
Fortunately, President Trump has outlined a bold forward-
looking plan to tackle the serious problems facing hard-working
American families who have seen their paychecks stagnate, their
savings shrink and their dreams diminish over the last decade.
The fact is, this economy isn't close to reaching its
potential. Nearly 8 years after the last recession ended,
Americans remain stuck in the slowest recovery in generations.
Our economy grew at a measly 1.6 percent last year, when
our historic norm is twice that. Over 300,000 manufacturing
jobs have disappeared during the last 8 years. Clearly, 8 years
of Obamanomics has clearly taken a toll.
One place it has taken a toll is the competitiveness of our
capital markets. We simply cannot afford to lose our status as
the global leader for capital markets. Yet the United States
has dropped to 17th in a recent world ranking of economic
freedom, a historic low for our Nation. This is based upon
levels of business freedom, investment freedom, and financial
freedom.
While U.S. economic freedom has declined, the economic
freedom of a number of our international competitors has
actually grown. I have faith in our U.S. capital markets and
the spirit of American entrepreneurs and businesses to take
necessary risk and grow.
But to do so, the unaccountable Washington bureaucracy must
finally be held accountable. We must address the regulatory
cost of doing business in the U.S. under Dodd-Frank. We must
work to level the playing field for American companies to
prosper, and as a result, our economy will grow healthier for
all. For these reasons, the President's executive order
establishing the core principles for regulating the U.S.
financial system is vitally important to us all.
As the report notes, for too long, we have not empowered
Americans to make independent financial decisions and informed
choices in the marketplace, save for retirement, or build
individual wealth. We have not enabled American companies to be
competitive with foreign firms in domestic and foreign markets.
I could not agree more.
Mr. Secretary, as you know, your first report, issued last
month, closely mirrors key foundational principles and policies
that are contained within the House-passed Financial CHOICE
Act. From helping end bank bailouts, to making the destructive
CFPB accountable, to tailoring regulations for our community
banks and credit unions, your recommendations will clearly help
craft a more sensible, less burdensome, healthier regulatory
system.
Please know that the actions that you and this
administration are taking to ensure the competitiveness of the
U.S. financial system are a welcome change, and one that I
fully support.
Thank you for being here and the committee looks forward to
working with you.
I now yield 4 minutes to the ranking member for an opening
statement.
Ms. Waters. Thank you very much, Mr. Chairman, and welcome,
Secretary Mnuchin.
Mr. Mnuchin, as secretary of the Treasury, you have a wide
range of responsibilities that are of great importance to our
economy and the well-being of the American people. These range
from safeguarding our financial system to advancing U.S. values
internationally.
One bureau within the Treasury responsible for safeguarding
our financial system is the Financial Crimes Enforcement
Network, or FinCEN, which as you know, collects, analyzes and
disseminates financial intelligence, in addition to suspicious
activity reports, foreign bank and financial account reports,
and other reports. FinCEN has numerous information-sharing
arrangements with foreign financial intelligence units, making
the bureau well-positioned to identify and assist law
enforcement in curtailing illicit activity.
It is critical for the American public to learn the extent
to which President Trump, his immediate family, and his
associates colluded with Russia to influence the outcome of
last year's election.
Serious questions have been raised about their suspicious
financial arrangements and involvement with Russian government
officials, oligarchs, and organized crime leaders.
As the committee of jurisdiction over Treasury and FinCEN,
we, too, have our own share of questions. Fortunately, you, as
secretary of the Treasury, are well-positioned to assist this
committee in fulfilling its oversight responsibilities in
assessing President Trump's financial entanglements with
Russia.
However, even though you have indicated, I think, on more
than one occasion, that you do take requests from Members of
Congress seriously, you did not respond to a May 23rd letter
for me and my Democratic colleagues requesting copies of all
pertinent financial records related to President Trump's
financial transactions with and business ties to Russia, as
well those of his family members and associates.
Now, I understand your staff finally did call yesterday
afternoon, while we were preparing for this hearing. But I am
looking forward to hearing directly from you about this matter
today.
There are also other areas where I have serious concerns.
Indeed, in June, the Treasury released a report with
recommendations that largely mirrored Chairman Hensarling's
``Wrong Choice'' act. You recommended gutting the Consumer
Financial Protection Bureau and rolling back important Dodd-
Frank reforms, including rules in place to ensure the stability
of our financial system, like stress tests and living wills.
These recommendations are deeply harmful and shortsighted,
given the progress we have made since the financial crisis.
I also remain very concerned about the practices that took
place at OneWest under your leadership. Even though OneWest
foreclosed over 36,000 families in California and that--it has
been the subject of numerous investigations, this President has
selected numerous OneWest officials, including you, to fill
government posts.
For example, Joseph Otting, a former OneWest executive, has
been nominated by Trump to lead the Office of the Comptroller
of the Currency, which regulates the largest banks.
Committee Democrats are very concerned about the potential
for conflicts of interest with regard to a recent Department of
Justice settlement with OneWest and any pending investigations
into OneWest for wrongdoing that occurred during your tenure.
So I look forward to hearing from you and what you have to
share with us today. And, I yield back the balance of my time.
Chairman Hensarling. Gentlelady yields back. The chair now
recognizes the gentleman from Kentucky, Mr. Barr, chairman of
our Monetary Policy and Trade Subcommittee, for 2 minutes.
Mr. Barr. Secretary Mnuchin, thank you for your service and
welcome to your first hearing on the state of the international
financial system. As chairman of the Monetary Policy and Trade
Subcommittee, which has jurisdiction over international
financial institutions, sanctions and monetary policy, I think
you are off to a great start.
Two days ago, this committee unanimously passed a bill that
would empower Treasury to encourage much-needed reforms to the
World Bank's International Development Association, and reduced
the IDA18 level by $580 million.
I thank your staff for having worked with us so effectively
on this legislation. We are also looking forward to the
positive impact that you can have at the Financial Stability
Oversight Council.
I would urge you, in your capacity as lead member of FSOC,
to assess the extent to which unconventional monetary policy
and the Fed's $4.5 trillion balance sheet continue to distort
economic decisions and constrain American households and
businesses from enjoying a faster and more complete recovery.
As Dallas Fed President Robert Kaplan recently wrote, ``There
is a cost to excessive accommodation, in terms of limiting
returns to savers, as well as creating distortions and
imbalances in investing, hiring and other business decisions.
Monetary policy accommodation is not costless.''
Perhaps the greatest threat that we face are the threats
from terrorism around the world, and I hope to continue to work
with you on key proposals that would help thwart violent
extremism and counteract rogue States like North Korea and
Iran.
Finally, I want to applaud your work in the June treasury
report and its call for much needed regulatory relief for
community financial institutions. According to a recent
estimate, these reforms that you have proposed would allow
firms to lend up to an additional $2 trillion into the real
economy, which would create much-needed opportunities for
Americans in all walks of life.
Again, thank you, and I look forward to your testimony. I
yield back.
Chairman Hensarling. Gentleman yields back.
The chair now recognizes the gentlelady from Wisconsin, Ms.
Moore, ranking member of the Monetary Policy and Trade
Subcommittee, for 1 minute.
Ms. Moore. Thank you very much. I know I would feel a lot
better, Mr. Secretary, if you support a strong, independent
Consumer Financial Protection Bureau, especially given your
reputation as a foreclosure king.
I am so disappointed that you and the Trump Administration
supported repeal of the extractive industry disclosures under
Dodd-Frank, 1504, and ironically, Treasury has just fined the
agency for a crooked deal it did with Russia while now-
Secretary of State Tillerson was its CEO.
Finally, I have heard from State, USAID, and Treasury
officials that section 1502 conflict minerals provisions are
working just fine. So I am hoping that you will support 1502. I
am a very nice, sweet person. I hope to get to know you. But
trust me, I am going to fight you to the end to keep that in
place.
I look forward to your testimony.
Chairman Hensarling. Gentlelady yields back.
Today, we will welcome the testimony of the Honorable
Steven Mnuchin. Since this is a new administration and the
first time that we have had a cabinet-level official testify
before our committee, I thought it would be prudent to review
the committee and House rules on decorum.
Members are required under the rules of the House to
observe the principles of decorum and courtesy in debate set
forth in Rule 17, and by related provisions in Jefferson's
manual, including by speaking and acting respectfully and by
refraining from the use of disorderly words or unparliamentary
language, which includes impugning motives, charging falsehood,
or implying a lack of intelligence.
I would also add that, over the last 2 years, my colleagues
on the other side of the aisle have expanded upon these
principles on the record to say that no administration witness
should be, quote ``badgered''. No administration witness should
be subject to, quote ``I got you politics.'' The ranking member
and other Democrats on the committee have also said that no
administration witness should be, quote ``talked to badly.''
No administration witness should be interrupted. Every
administration witness should be, quote ``treated fairly.''
Every administration witness has, quote ``the right to be able
to respond.'' And finally, my Democratic colleagues have opined
that every administration witness should be treated with, quote
``acceptable standards of dignity, propriety, courtesy. and
decorum.''
So, Steven Terner Mnuchin--
Ms. Waters. Mr. Chairman?
Chairman Hensarling. For what purpose--
Ms. Waters. I have a parliamentary inquiry.
Chairman Hensarling. State your inquiry.
Ms. Waters. First, I would like to know if this witness
will be sworn in.
Chairman Hensarling. It is not our custom to swear in
administration witnesses, and we did not do so with the Obama
Administration. It is not the chair's intent.
Ms. Waters. Well, Mr. Chairman, since you took time to talk
about how we should conduct ourselves today, I would like to
remind you and your colleagues how you treated Mr. Cordray. And
I never heard you take time out to talk about how members
should conduct themselves. So while we have not done some
things in the past, and you are doing it now, I would like to
make sure I understand that you do not wish to swear in this
witness.
Chairman Hensarling. I believe, in my tenure, we have sworn
in exactly one witness, and we have never required Obama
Administration officials to be sworn in. It is not my intention
to swear in this witness. It is simply my intent to profit from
the minority's advice and counsel on decorum.
Ms. Waters. Thank you very much, Mr. Chairman.
Chairman Hensarling. Today we welcome, again, the testimony
of the Honorable Steven Mnuchin. Again, this is the first time
that he has appeared before our committee. Steven Turner
Mnuchin was sworn in as the 77th secretary of Treasury on
February 13th, 2017. Secretary Mnuchin was born and raised in
New York City and holds a bachelor's degree from Yale
University. The secretary has several decades of both retail
and investment banking experience, which he brings to the
office and which he now holds. Without objection, the witness's
written statement will be made part of the record.
Secretary Mnuchin, welcome for your first appearance before
our committee, and you are now recognized for 5 minutes to give
an oral presentation of your testimony.
STATEMENT OF HON. STEVEN MNUCHIN, SECRETARY, U.S. DEPARTMENT
OF THE TREASURY
Secretary Mnuchin. Thank you very much.
Chairman Hensarling, Ranking Member Waters, and members of
the committee, I am pleased to be here today and I look forward
to discussing the important issues to the American people.
I would like to begin by addressing Treasury's national
advisory committee report. Treasury uses its leadership role in
international financial institutions to help ensure that they
are carrying out their core mandates effectively and
efficiently.
As the Federal Government is streamlining, Treasury is
focused on keeping the international financial institutions as
cost-effective as possible. We have pressed the IMF to increase
its focus on the need to address global economic imbalances.
This will help to improve prospects for U.S. jobs and exports,
while holding the IMF's administrative budget largely flat in
real terms.
In addition, U.S.-supported reforms to how the multilateral
development banks employ their balance sheets have made it
possible for us to substantially increase the assistance that
they can provide to the world's poorest countries, while
reducing U.S. budgetary contributions.
Where it makes sense, we will preserve these investments
and remain a top donor and shareholder, while also balancing
priorities across other parts of the government. In doing so,
we will continue to promote access to economic opportunities,
to eliminate poverty and to build shared prosperity. When the
world is prosperous and stable, America reaps the benefits.
I would like to now highlight our domestic reform agenda.
Let me begin by congratulating the committee on its passage of
the CHOICE act. The administration supported house passage of
this legislation, and we will work with Congress to reform the
financial regulatory system.
Years have passed since the financial crisis, and this has
given us time to see what has worked and what has not. The
administration is committed to robust financial system with the
free flow of credit that fuels the engine of American growth.
This means allowing community financial institutions to lend,
and small businesses access to borrowing. It means giving
Americans the opportunity to make independent financial
decisions, such as buying a home and saving for retirement.
This also means preventing taxpayer bailouts. In February, the
President issued an executive order that directed the
Department of Treasury to report on whether financial
regulations were in line with important core financial
principles.
In June, Treasury released the first in a series of reports
in response to this executive order. Our first report dealt
with banks and credit unions. The treasury report provides a
road map to better align the financial system to serve
consumers and businesses and to drive economic growth.
While the report focused heavily on regulatory actions that
can be taken by the executive branch, it also included a number
of legislative recommendations to more appropriately align the
laws governing depository institutions with the President's
core financial principles.
One of these is properly tailoring capital requirements for
small, mid-size, and regional banks that pose little or no risk
to the financial system. It included that is the endorsement of
a regulatory off-ramp for highly capitalized institutions.
Another recommendation is structural reform to provide a
mechanism to identify a single lead regulator, to ensure that
there is not unneeded regulatory overlap or duplicated efforts.
A third is a legislative remedy to the overly complex
Volcker rule.
A fourth is statutory changes to make the Consumer
Financial Protection Bureau more accountable. Working together,
we can implement both regulatory reforms and legislative
remedies, particularly for the benefit of community banks and
mid-size institutions.
Housing finance reform is also a priority of the Treasury
and the administration. The current system, in which GSEs
remain in perpetual Federal Housing Finance Agency
conservatorship is not sustainable, and leaves taxpayers at
risk.
Our housing finance policy should be clear and should be
designed to provide financing for homeowners and owners of
multifamily units. Additionally, such policies should increase
private-sector participation and protect taxpayers.
The other critical component is comprehensive tax reform.
We have gone too long without addressing our tax system. Our
business rate is one of the highest and most complicated in the
world. It makes our businesses less competitive, and we are
committed to changing that. Lowering the rate and bringing back
trillions of dollars that are sitting overseas will allow
business to invest in this country, spurring economic growth.
Another important component of strong and robust
international financial system is stopping bad actors and those
who finance them. I would like to acknowledge this committees
effort to combat terrorism and illicit finance with the
creation of its newest subcommittee. As our enemies change, so
too must our weapons that combat them. Stopping the flow of
funds is one more tool in our arsenal to disrupt their
capabilities. Our Office of Terrorism and Financial
Intelligence is ready to work with this committee, and I am
personally looking forward to working with Chairman Pearce and
Ranking Member Perlmutter on these critical issues.
We have a chance to create historic opportunities for
American people, and I look forward to working with you. Thank
you.
[The prepared statement of Secretary Mnuchin can be found
on page 60 of the appendix]
Chairman Hensarling. Chair now yields himself 5 minutes for
questions.
Mr. Secretary, you are probably familiar with the Federal
Reserve report of December 2016, dealing with the Volcker rule,
that concluded, quote ``The illiquidity of stress bonds has
increased after the Volcker rule''.
You may know that the director of the IMF's monetary and
capital markets department provided another critique of the
Volcker rule, saying that it can impact the ability of
institutions to supply credit.
We have a recent study, conducted by the Bank of England,
saying, in their stress simulation, material increase in
spreads and the corporate bond market, and in the extreme,
corporate bond market dislocation can threaten the stability of
financial markets.
So, particularly as head of FSOC, what are your current
concerns on the state of bond market liquidity in general? And
what are your views on the Volcker rule in specific?
Secretary Mnuchin. Chairman Hensarling, thank you very much
for that question. And first, let me just acknowledge--I see
you have the debt clock up here today. Hopefully, I will get
out of here before it goes to $20 trillion.
In any event, as it relates to your question about the
Volcker rule, this is something that--I do share your concerns.
I think the biggest problem with the Volcker rule is its
complexity and regulatory overlap. And even if it is our intent
not to have proprietary trading within banks, we need to make
sure that banks understand how the regulation works.
Recently, I was at a G20 meeting where we had some
economists that came and talked to us, and they said that every
trading desk needs a psychiatrist and a lawyer to determine how
to apply the Volcker role.
In any event, as my role of chair of FSOC, this is one of
the issues that I am working on. I am pleased to report that we
have already done preliminary work on it. The regulators also
share these concerns, and we have it on our agenda tomorrow for
the meeting and will be addressing how we can deal with the
regulatory overlap.
Also, Mr. Chairman, as you do know, in our report on the
executive order to the President, we have also made certain
suggestions for legislative changes to that. Thank you.
Chairman Hensarling. Mr. Secretary, particularly those on
this side of the aisle, we very much deplore what is happening
to our community banks and credit unions. I know there are some
on the other side of the aisle who have opined that there is no
regulatory problem there. In your report and, frankly, in your
testimony today, you mentioned the term ``tailoring.''
Can you expound upon your views and what are you
considering that one can--that you can do in the administration
to better tailor rules to our community banks and credit
unions?
Secretary Mnuchin. Mr. Chairman, thank you for that
question. And let me first say, we are very focused in making
sure that community and regional banks can properly grow.
Our financial system here, the top eight banks account for
approximately 50 percent of the assets in the American
financial markets. And that is quite problematic. What we want
to do is make sure that there is robust lending, particularly
in community banks.
I have met with many, many people--these are not
Republicans or Democrats. These are hard-working
businesspeople, particularly in agricultural communities,
particularly in small manufacturing communities, that
constantly complain that the community banks are not able to
lend because they are overburdened by regulatory issues. And I
firmly believe that community banks know how to make loans.
Let me just say they should be properly regulated, whether
they are regulated by the State or the Federal Government. I do
believe in proper regulation, but overly burdensome
regulations, so that community banks cannot strive is not
something that is good for any of us or the American economy.
So we are very focused on raising the regulatory burden,
and we look forward to working with this committee on it.
Chairman Hensarling. Speaking of the regulatory burden on--
perhaps on our regional banks, the Treasury report recommended
raising the asset threshold for the application of enhanced
prudential standards to a bank holding company--raising it from
its current $50 billion threshold to an unspecified amount.
It appears that changes can be accomplished without
legislation. So what do you believe the threshold should be
increased to? And do we have your commitment that you can--that
you will implement these changes administratively?
Secretary Mnuchin. Sure. Mr. Chairman, let me first say, my
understanding is that there had been bipartisan discussions on
raising this limit in the previous administration. So I would
hope that those conversations continue, and that this is
something that we could accomplish quickly.
I think that it should be raised substantially, at least to
$250 billion or $300 billion. And I would go further, saying
that simple, uncomplex banks, the regulators should be able to
exempt above that.
And again, that doesn't mean that those banks shouldn't be
regulated. Those banks will be regulated. They will be
regulated by the primary regulator. And they will be regulated
properly.
Chairman Hensarling. My time has expired.
I now yield 5 minutes to the ranking member.
Ms. Waters. Thank you very much, Mr. Chairman.
Secretary Mnuchin, I want to make sure that we all are
operating here with the same understanding. Even though you are
not sworn in, do you realize you are under oath?
Secretary Mnuchin. I do, thank you.
Ms. Waters. Thank you very much. Are you familiar with the
May 23rd letter I sent to you, along with several of my
Democratic colleagues on this committee?
Secretary Mnuchin. Yes, I am.
Ms. Waters. Do you understand that this committee not only
has jurisdiction, but a responsibility to oversee the
activities of the Financial Crimes Enforcement Network?
Secretary Mnuchin. Yes.
Ms. Waters. Given that the Treasury maintains these types
of records, and given your department's statements that the
agency takes responsiveness to congressional requests very
seriously and is committed to providing useful and appropriate
responses to requests from congressional members, is there some
reason why I did not get a response to the letter that I sent
May 23rd?
Secretary Mnuchin. So, Ranking Member Waters, first of all,
let me thank you for your service to California. Being a
resident of California, I appreciate everything that you have
done--
Ms. Waters. Thank you very much--
Secretary Mnuchin --For the community there--
Ms. Waters. I don't want to take my time up with how great
I am.
Secretary Mnuchin. I also have appreciated the
opportunity--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --To meet with you several times--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --When we were doing our--
Ms. Waters. Reclaiming my time.
Chairman Hensarling. The time belongs to the gentlelady
from California.
Ms. Waters. Let me just say to you, thank you for your
compliments about how great I am, but I don't want to waste my
time on me.
I want to know about the May 23rd letter. You know about
it, why did you not respond to me and my colleagues?
Secretary Mnuchin. I was going to answer that--
Ms. Waters. Just, please, go straight to the answer.
Secretary Mnuchin. Mr. Chairman, I thought, when you read
the rules, you acknowledged that I shouldn't be interrupted,
and that I would have--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --The opportunity--
Ms. Waters. What he failed to tell you was, when you are on
my time, I can reclaim it. He left that out. So I am reclaiming
my time.
Please, will you respond to the question of why I did not
get a response--me and my colleagues--to the May 23rd letter?
Secretary Mnuchin. Well, I was going to tell you my
response.
Ms. Waters. Just tell me.
Secretary Mnuchin. So first of all--let me just say that
the Department of Treasury has cooperated extensively with the
Senate Intel Committee, with the House--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --Intel Committee--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --With the Senate Judiciary Committee--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin. OMatter of fact--
Ms. Waters. Reclaiming my time. Reclaiming my time.
Chairman Hensarling. Mr. Secretary, the time belongs to the
gentlelady from California.
Secretary Mnuchin. Perhaps, Mr. Chairman, I don't
understand the rules--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --Because I thought I was allowed to
answer questions.
Ms. Waters. Reclaiming my time. Would you please explain
the rules, and do not take that away from my time.
Chairman Hensarling. We will give the gentlelady adequate
time.
So what I read, Mr. Secretary, were statements of the
ranking member and Democratic colleagues on how administration
witnesses should be treated, not necessarily the way they will
be treated.
So the time belongs to the gentlelady from California, but,
I assure you, majority members will allow you to answer the
question when it is our time.
Secretary Mnuchin. So what I was saying is that we have
provided substantial information. We believe there is
significant overlap, and, matter of fact, I would say that we
spoke to your chief oversight counsel yesterday. We have been
responsive, and we are trying to coordinate with you the
response, and we have suggested that you get the information
through the other committees.
But I would like to emphasize we believe we have been very
responsive--
Ms. Waters. Reclaiming my time.
Secretary Mnuchin --And will continue to do so.
Ms. Waters. Thank you very much. You left a message
yesterday--or someone on staff left a message.
Secretary Mnuchin. No, we didn't leave a message.
Ms. Waters. Reclaiming my time.
Secretary Mnuchin. We spoke to the chief oversight counsel.
Ms. Waters. Reclaiming my own time. Reclaiming my time.
You did not respond. You left a message. Let us keep going.
If a bank identifies suspicious activity related to
potential money laundering or sanctions violations by The Trump
Organization involving Russian persons, would such a bank have
a legal obligation to report it to FinCEN?
Secretary Mnuchin. Can you repeat your question, please?
Ms. Waters. If a bank identifies suspicious activity
related to potential money laundering or sanctions violations
by the Trump organization involving Russian persons, would such
a bank have a legal obligation to report it to FinCEN?
Secretary Mnuchin. Yes. If a U.S. institution had any
suspicious activity they would be required to file a SAR, which
would go to FinCEN.
Ms. Waters. Thank you. If FinCEN received reports of
suspicious activity involving potential violations of money
laundering or sanctions involving President Trump, his
immediate family and associates, would FinCEN immediately share
it with the Justice Department, Special Counsel Mueller, or
other interested law enforcement officials? Or would you
generally wait until you received a request from law
enforcement for this type of information?
Secretary Mnuchin. Let me just comment that I can't comment
on any specific actions of FinCEN, because they are
confidential, but I can assure you that FinCEN would respond to
any issues revolving the Trumps no different than they would
respond to anybody else.
Ms. Waters. And so the question is whether or not you
would--FinCEN would immediately share it with the Justice
Department, Special Counsel Mueller, and other interested law
enforcement officials, or, again, would you generally wait
until you received a request from law enforcement for this type
of information?
Secretary Mnuchin. Again, what I would assure you is that
FinCEN would respond to those situations no different than
anybody else. And FinCEN and Treasury have cooperated
extensively with, as I said before, the three other committees.
Ms. Waters. If it was widely reported in the press that a
close adviser of the President was being investigated for money
laundering using anonymous shell companies and bank accounts
located in Cyprus, would your department proactively seek to
obtain relevant information from foreign financial intelligence
units where such activity reportedly took place? Or would you
wait until a specific law enforcement request came in?
Secretary Mnuchin. Again, I am not going to comment on
hypothetical situations. FinCEN would handle these situations
no different than any other situation.
Ms. Waters. Mr. Chairman, I respectfully request, pursuant
to our memorandum, to ask for additional 5 minutes.
Chairman Hensarling. Gentlelady is granted an additional 5
minutes.
Ms. Waters. Thank you. And I am not asking for specificity.
I am asking for, generally, the way you would handle these
questions that I have presented to you.
Let me continue. Have any Treasury Department employees
expressed concerns to you, or are you aware of concern among
Treasury staff, about the relationship between President Trump
and Russia?
Secretary Mnuchin. No. Nobody has expressed those concerns
to me.
Ms. Waters. Given that you were finance chair of the Trump
campaign, which is accused of soliciting illegal, in-kind
contributions from a foreign country, have you recused yourself
from any work related to Russia or other foreign countries?
Secretary Mnuchin. I am not aware of those accusations that
the campaign has taken those types of contributions, nor have I
recused myself from anything at this moment, since I believe I
have no conflicts.
Ms. Waters. Thank you.
Trump's ``red line'' on investigations of his personal
finances--in a recent review, President Trump made it clear
that he considered any investigation by Robert Mueller into the
President's personal finances a red line that shouldn't be
crossed.
Secretary Mnuchin, have you had any conversations with the
President or any official at the White House in which it was
directly stated or implied that supporting any investigation
into Trump's finances would in some way be crossing a line?
Secretary Mnuchin. I am sorry, can you repeat the last
part? I heard the first part. Just the last part of it.
Ms. Waters. In a recent review, President Trump made it
clear that he considered any investigation by Robert Mueller
into the President's personal finances a red line that
shouldn't be crossed.
Secretary Mnuchin, have you had any conversations with the
President or any official at the White House in which it was
directly stated or implied that supporting any investigation
into Trump's finances would in some way be crossing a line?
Secretary Mnuchin. No. I have had no conversations along
those lines. Quite the contrary.
Ms. Waters. As secretary of the Treasury, you chair the
interagency Committee on Foreign Investment in the United
States, known as CFIUS--
Secretary Mnuchin. Yes, I do.
Ms. Waters --Which evaluates the sale of U.S. businesses to
foreign entities to determine whether such sales undermine our
national security.
Given the significant pressure President Trump has exerted
over government officials with key oversight responsibilities,
from Sally Yates, to James Comey, to Robert Mueller, to Jeff
Sessions, how can we be sure that you, in your own oversight
role, will appropriately review the sale of assets or property
to foreign entities by top administration officials?
This includes, for example, reviews involving the sale of
assets by the White House communications director, Anthony
Scaramucci, and the President's son-in-law and adviser, Jared
Kushner.
Can you assure us that you would recommend blocking such a
sale in the event it indicates the foreign entity may seek to
unduly influence U.S. policy, even if doing so may jeopardize
your position as secretary?
Secretary Mnuchin. Well, let me assure you, I take my
position at CFIUS very seriously. I have not had anybody in any
way try to influence me in that position, nor would I let them.
And I would use my judgment, as I have, to take the seriousness
of the CFIUS responsibility.
Ms. Waters. And, as I understand it, you have such a matter
under consideration, relative to Mr. Scaramucci and the sale of
a huge property to a Chinese interest. Is that correct?
Secretary Mnuchin. Ranking Member Waters, I think, as you
are aware, all actions at CFIUS are highly confidential, and it
would be inappropriate for me to comment one way or another on
any potential transaction and even acknowledge whether any
transaction is being reviewed in this public format.
Ms. Waters. Is it true that Mr. Scaramucci was considered
for a position in the administration, but because of this
questionable sale, that he could not go forward, for fear of
not being confirmed, but yet he is now in the administration?
And does this in any way influence your decision that you have
to make about that sale?
Secretary Mnuchin. Again, I want to acknowledge that I am
not making any comment about any potential decision that I may
make about a confidential item. But I will say I have not been
aware that he was ever considered for a position that required
confirmation within the administration.
Ms. Waters. Thank you very much, and I yield back the
balance of my time.
Chairman Hensarling. Gentlelady yields back.
The chair now recognizes the gentleman from Kentucky, Mr.
Barr, chairman of the Monetary Policy and Trade Subcommittee,
for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
Again, Secretary Mnuchin, welcome to our committee.
Over 20 of my colleagues and I sent you a letter last week,
prior to the--with the ongoing Comprehensive Economic Dialogue
with China, to ask you to address market access issues for U.S.
financial firms, particularly, lifting the equity caps that are
currently in place.
And as you know, U.S. banks and insurance companies face
significant barriers and restrictions in China, while Chinese
banks and insurance companies have little, if any, barriers in
the United States.
I want to thank you for your response to this letter and
your commitment to, quote ``continue to press for the removal
of these and other restrictions that unfairly disadvantage
American firms.''
What are the next steps that you plan to take to help lift
these foreign equity caps that harm American companies
operating in China?
Secretary Mnuchin. So, let me just first comment that I
have had the opportunity to meet with President Trump and
President Xi two times, once in Mar-a-Lago, and the other in
Hamburg. I also had the opportunity--we just finished our
Comprehensive Economic Dialogue.
So, first, I think as you are aware, President Trump is
very focused on having a more balanced economic relationship
with China, and has made it very clear that the current trade
balance is unacceptable. And I think you may have seen in our
press release from the comprehensive economic dialog last week
that China acknowledged that it is a shared goal to fix the
trade deficit.
I think, as you know, the United States has a significant
competitive advantage in financial services, services in
general. It is one of the areas where we actually have a trade
surplus with China. And I assure you, I think it is extremely
unfair that Chinese companies, subject to security reviews, can
buy 100 percent of any company in the United States, yet, as
you have said, our companies in China are limited to minority
partners.
We have seen, most recently, Apple has been forced to share
their iCloud business, one of the key parts of their business,
with a Chinese joint venture partner. That is not fair, it
doesn't make sense, and this administration is fully committed
to making sure that American companies and American workers are
on a level playing field.
Mr. Barr. Thank you, Mr. Secretary.
And for the second time--I will move onto my second
question, but I appreciate your commitment and the
administration's commitment to working with Congress to address
that inequity in our relations with China.
With respect to Iran Air and the efforts that Treasury is
engaged in in the implementation of the JCPOA, as you know, the
Obama Treasury Department allowed U.S. banks to lend to Iran in
order to finance aircraft sales, despite the fact that the
associated services in the aircraft section of the JCPOA only
spell out warranty, maintenance and repair services, and
safety-related inspections.
So the Treasury Department, as we understand it, currently
authorizes U.S. banks to finance the sale of aircraft to Iran
Air. Well, in a committee hearing in April, in this committee,
we learned that this airline, Iran Air, flew 114 flights from
Iran to Syria between the JCPOA's implementation day in January
2016 and March 30, 2017, likely as an airlift in support of the
Syrian regime's atrocities.
Mr. Secretary, can you certify to us today that Iran Air
has ceased all sanctionable activities? And if not, will the
department re-designate this airline, an action that Treasury
has admitted is allowed under the JCPOA?
Secretary Mnuchin. So thank you very much for your question
on that. First let me say, specifically on Iran Air, in this
public format, I don't want to comment on them specifically. We
do have intelligence information that I would be prepared to
share with you in a private setting.
But what I would say is that OFAC is responsible for
granting licenses for aircrafts, as you have mentioned. Both
the Boeing sale, as well as the Airbus sales will require
additional OFAC licenses. And that is an issue that is under
review and is part of the national security review of the
JCPOA.
Mr. Barr. Finally, Mr. Secretary, I asked your predecessor
if he thought that regulations, particularly Volcker, risk
retention, and the layers of capital liquidity requirements
could contribute to illiquidity and actually undermine our
financial system--destabilize our financial system. He always
denied that. He said that it was a market structure issue.
Do you agree or disagree with your predecessor?
Secretary Mnuchin. Well, nothing against my predecessor,
who I have a lot of respect for. But as you know, I do have
firsthand experience in the trading and investment markets, and
I absolutely agree with you that the Volcker rule, in
particular, has eliminated liquidity that, in the times of
crisis, we need market makers to provide liquidity--not
proprietary trading, but liquidity for market making. And that
is something we are very focused on fixing.
Mr. Barr. Thank you, I yield back.
Chairman Hensarling. Time of the gentleman has expired.
According to the earlier-referenced memorandum of
understanding, the chair will recognize two Republicans in a
row.
The chair now recognizes the gentleman from New Mexico, Mr.
Pearce, chairman of our Terrorism and Illicit Finance
Subcommittee.
Mr. Pearce. Thank you, Mr. Chairman.
Mr. Secretary, thank you for being here today.
Before getting into my observations from you, I would point
out that my friend from California, and I do consider her to be
a friend, her questions were edging toward things that would be
a violation of the BSA.
FinCEN works for national security. Everything that FinCEN
has is available to any law enforcement agency, and to release
that publicly not only reveals the process, which is
extraordinarily sensitive, again, it looks to be very close to
a violation of the actual law itself.
So I appreciate your willingness to hold a position there,
because it is a very delicate balance.
Now, I--we all know that AML and CFT--those are real
threats to the Nation. Mr. Secretary, what I really appreciate
about your report is that you don't--even with these major
threats coming into the Nation, you don't lose sight of the
mission, and that is on page 2, where you talk about the robust
financial system, free flow of credit, that fuels the engine of
America--businesses--small businesses getting access to credit.
At the end of the day, that is what you are here for and
that is what we are here for. And so I appreciate the threats
and that you are monitoring those, but you are not losing sight
of what makes this country work. So thank you for that
attention to detail as you approach your job.
Mr. Pearce. Now, OFAC is--they work with Congress, the
President. They work with the military to just see that the
world's bad actors don't operate. Their major activity is
shutting off funds to them, and we can see, in the estimates of
North Korea and Iran, that we have very significantly affected
that.
But also the Financial Activities Task Force--they have
evaluated that, as soon as you find a way to stop one action,
then another action steps up. So my question is how do we
modernize, how we update our AML, CFT standards?
Myself, I see technology as having to be on a constant,
robust movement. But tell me a little bit from your
perspective, on that aspect of how we keep moving ahead of the
threats.
Secretary Mnuchin. So, first of all, I do acknowledge your
concerns in this area. My number-one focus is on economic
growth, and we are very focused on tax reform as part of that.
But my number-two focus--probably spending 50 percent of my
time on sanctions-related and terrorist-financing-related
issues.
And, as you have mentioned, using technology to stay ahead
of these things is very important. We will continue to use all
the tools in the toolbox and new tools. That is why we want to
set up a terrorist financing unit with Saudi Arabia in the
Gulf, where we have people there firsthand, working with them
and working with our Arab partners.
I firmly believe that cutting off the money works. It
worked with Iran. It brought them to the table. It works in
stopping terrorist activity. I constantly work with Secretary
Tillerson, Secretary Mattis, Director Pompeo, General McMaster
on a unified approach to stopping terrorism.
Mr. Pearce. What can we do more here? In other words--be
our subcommittee that contemplates your mission in that. Tell
me what we need. If we need resources in a specific area,
please share that with me, if you can.
Secretary Mnuchin. Will do. We need more money for our
Terrorist Financing Center in Saudi Arabia, but we will talk
about that later.
Mr. Pearce. The--Mr. Secretary, you had wanted to make
responses earlier to some of the questions. I would yield the
rest my time to you to make those answers right now, if you
would like to go into depth where you weren't allowed to
before.
Secretary Mnuchin. Oh, I was really going to just thank the
ranking member for her activity in support of regional banking
in California, and that I had the opportunity to meet with her
many times, and appreciated her work in California. That is
really the extent of what I was saying in my opening remarks.
Mr. Pearce. Well, again, I think, from my perspective, if
you can get the tax reform that you have mentioned, if you can
keep the focus on the small businesses, they are the engine of
the economy of the U.S. Getting access to credit--those are the
major things, and then we fight the--AML, fight the financing
of terrorism.
I think that we have got a big job, and I believe you are
up to it. Thank you for being here today.
Secretary Mnuchin. Thank you. I appreciate that. Thank you
very much.
Chairman Hensarling. Time of the gentleman has expired.
The chair now recognizes the gentlelady from New York, Mrs.
Maloney, Ranking Member of our Capital Markets Subcommittee.
Mrs. Maloney. Thank you, Mr. Chairman.
And welcome, Mr. Secretary.
I am deeply concerned about terrorism financing, and during
your confirmation hearing, you stated, and I quote ``I agree
that law enforcement's anti-money-laundering efforts face
serious challenges if they are unable to determine the
beneficial ownership of the various companies and entities that
utilize the U.S. financial system.
``It can be a real vulnerability that various bad actors,
including terrorists and criminals, can exploit,'' end quote.
And then you later stated that, if confirmed, you would, and I
quote ``be willing to work with Congress and the various
equities impacted by beneficial ownership due-diligence
requirements to address this challenge.''
We have, on this committee, introduced a bipartisan bill,
called the Corporate Transparency Act, that would require
companies to disclose their true beneficial owners at the time
the company is formed. And this information would only be
available to law enforcement and financial institutions that
are required to know their customers, with those customers'
consent.
Our bill says that States can collect this information, but
if they do not, then it would be Treasury's responsibility to
collect it as a backup. So my question is, do you support
requiring companies to disclose their true beneficial owners at
the time the company is formed, and Treasury's role in our
suggested legislation?
Secretary Mnuchin. Let me just first say thank you very
much for that. And I now understand this issue much better than
I did, and when I have--my initial confirmation. And I spent a
lot of time looking at this internally. It is also a concern at
the G7. I can tell you, this is not only a--just a U.S. issue,
but our European partners are concerned as they make progress
in this area and we don't. So let me first say, I am very much
looking forward to working with you and the committee on a
solution to this. I hopefully think this can be a bipartisan
solution.
It is a complicated issue. We need not only the information
when companies are set up, but we need to figure out a way of
how that is maintained overall. Obviously, if we just capture
the information on day 1 and it is literally the ownership is
moved 1 hour later, then it is not very effective.
And I am somewhat concerned about Treasury, perhaps, being
the ultimate depository, because I think the States aren't
going to want this responsibility. But we look forward to
working with you on a solution.
Mrs. Maloney. Well, I think it is critical. We have
numerous LLCs that no one knows who owns them. This issue came
to us from law enforcement, saying they keep hitting a wall in
trying to know.
And we certainly--if we know who owns things in our
country, it is a tremendous step toward combating terrorism
financing, which is a huge concern to the city of New York and
our entire country.
I would also like to ask about the debt ceiling, which will
need to be raised soon, and I hope it can be done without the
usual political drama. But the markets seem to be worried that
the ceiling might not be raised in time, and it has already
substantially raised the cost of short-term borrowing in
Treasury.
And Treasury is also expected to have to reduce its
issuance of short-term treasuries this fall, in order to stay
below the debt limit, and at a time when the supply of short-
term treasuries is already low because of the shifts toward
government money market funds.
So my question is, do you agree that the uncertainty over
when and whether the debt limit will be raised is causing
distortions in the market and is impacting Treasury's ability
to borrow at the lowest possible rate?
Secretary Mnuchin. Well, let me say that I assure you I am
very focused on the debt limit. As I have said before, I urged
Congress to work on this before anybody leaves. I said
yesterday in my testimony, and I will be alerting Congress,
that my previous letter on special powers will be extended
through September--
Mrs. Maloney. Mr. Secretary, my time is almost up, and I
want to know, if Treasury were to breach the debt limit and
start prioritizing interest payments on the debt over the
government obligations, like Social Security, do you think the
markets would view this as a default?
Secretary Mnuchin. I have no intent on prioritizing. I
think that doesn't make sense. The government should honor all
of its obligations, and the debt limit should be raised.
Chairman Hensarling. Time of the gentlelady has expired.
The chair now recognizes the gentleman from Missouri, Mr.
Luetkemeyer, chairman of our Financial Institutions
Subcommittee.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
And thank you, Mr. Secretary. I am over here. There we go.
Thank you for being here, and appreciate your comments to
date here. I will also thank you for the Treasury report that
you have done. I know it was a tremendous effort, and I think
it yielded great results.
I want to followup on my initial question here on what the
chairman started--or discussed a little bit with you, with
regards to, basically, both banks and non-banks that are
systemically important financial institutions.
Your report discusses the problem with the arbitrary nature
of the process. I am still perplexed, as to somebody who deals
both with banks and non-banks--as to how one can indicate an
insurance company as systemically important. But for now, all
of my discussion will focus on the bank holding company side.
I recently introduced H.R. 3122, my Systemic Risk
Designation Improvement Act. And the bill removes the $50
billion threshold, which the chairman discussed with you a
moment ago, and goes to a well-established set of standards
that more accurately reflects systemic importance--and goes to,
basically, the Fed systemic risk indicator score, which--the
Fed already does the analysis of this so that we can save time,
money and effort on everybody's part and use that systemic
score.
So I guess my initial question is, you made the comment a
minute ago that you want to focus on community and regional
banks. Some of these regional banks are nothing but big
community banks--just big. You better know this than anybody.
So, again, does it make sense to put an arbitrary figure in
there? Or do you think we need to go to more risk-based
analysis?
Secretary Mnuchin. My own preference would be to have the
higher of both, so that we have a floor where we know it is not
subjective, and then above that, as you have mentioned, the Fed
would have the ability, based upon, as you have suggested, the
risk analysis.
Mr. Luetkemeyer. There is a--we are going to put a chart up
here in a minute with regards to cyber security. And--
Secretary Mnuchin. I love this chart, I saw it ahead of
time.
Mr. Luetkemeyer. Well, I am glad you could see it, because
it reminds of an old Spirograph toy that I had when--it was a
long, long time ago--as a kid. And it kind of gives you a
headache to look at.
But, Mr. Secretary, you addressed this subject, also, in
your Treasury report, and there is a word that is used when
discussing this with the different agencies and different
banks, when they talk about this. It is ``harmonization.'' We
need to harmonize, stop the duplicity and stop the overlap of
the regulators with regards to all of the things that they are
having to work with here.
And so I would just like to give you--ask you to comment on
whether, as chair of FSOC--that is a great position from which
you can bring all of the different agencies together to stop
some of this overlap and duplicity that is going on, and take
some of the regulatory nonsense and provide relief for a lot of
the banks.
Would you like to comment on it?
Secretary Mnuchin. Yes, well, thank you. It would look like
modern art if I hadn't seen it in more detail. And I share your
concerns in both my role of chair of FSOC and--as well as FDIC.
Cybersecurity is a major concern of mine, and we are already
working with the regulators on how to consolidate their
resources.
I am all for the different regulators making sure--but
cyber security is one of our biggest, biggest risks, and we
should make sure that they consolidate their resources, but
they do it in a way that they don't have to do it four or five
times, independently, with banks.
Mr. Luetkemeyer. Well, I think, you know, some sort of
standardization of guidelines and principles, I think, is a
good place to start, and so when the regulators come in, they
are not having one group say this, another group say that so
the banks get a mixed message and they have to comply with
different sets of rules and regulations.
So I think your position as FSOC chair is key to getting
that harmonization.
Secretary Mnuchin. And I can assure you we are already
working on it. Thank you.
Mr. Luetkemeyer. Thank you very much.
One last question, before my time runs out here, deals with
Operation Choke Point. This is something we have been dealing
with for a long, long time. I am sure you are familiar with it.
Between the DOJ and the FDIC, they began to try and drive
legally operating businesses out of the financial system
because they, for political or own set of values that they
believed didn't match up with their own.
And I am quite concerned, quite frankly, I will be honest
with you--the FDIC has sort of backed off on this problem for a
while, but it has continued with the OCC.
And we want--I would like your commitment to continue to
work on something with us. And I realize that you are probably
going to try and do your best to stop the nonsense, and that is
great. But I am concerned that, should you leave, then there is
another new administration down the road--4 years, 8 years, 10
years, whatever it is--that we have a set of guidelines in
place to prohibit this activity from ever being able to be done
again.
Would you help us along those lines, sir?
Secretary Mnuchin. Absolutely. Look forward to working with
you. Thank you.
Mr. Luetkemeyer. I yield back the balance of my time.
Chairman Hensarling. Time of the gentleman has expired. The
chair now recognizes the gentlelady from New York, Ms.
Velazquez.
Ms. Velazquez. Thank you, Mr. Chairman.
Mr. Secretary, former Secretary Lew was instrumental in
passing legislation that provided Puerto Rico the necessary
tools to comprehensively restructure its debt.
Prior to his departure, he personally indicated to you that
it was important to continue monitoring the situation to ensure
Puerto Rico's successful recovery. He recognized that, even
though the law was critical to providing the breathing room
necessary for the local government, a missing piece of the
equation were policy initiatives that will jumpstart the
economy.
In fact, in late May of this year, Senator Grassley
restated that, and I quote ``Extending bankruptcy authority
alone could not fix the problem.'' However, since the Trump
Administration has taken command, there has been little to no
conversation stemming from the Treasury Department on Puerto
Rico.
What policy tools are your staff considering to assess
Puerto Rico?
Secretary Mnuchin. So, thank you for the question. And
first of all, I share your concern on the financial situation
in Puerto Rico. I can assure you I personally spent a lot of
time on it. Secretary Lew did give me his views on it, and his
concerns, before he left. We do support the legislation.
Ms. Velazquez. I know--
Secretary Mnuchin. And we are using that. And I can assure
you I have a team that is working on it actively. It is a very
complicated issue. I wish there was a simple solution. There is
not.
Ms. Velazquez --I know--400,000 Puerto Ricans have left the
island in the last 10 years. We have three doctors leaving the
island every day. And so I am happy, in the sense that they are
coming to Florida and Ohio.
Believe me, politically speaking, it is going to be good
for Democrats. But I want to give the option to the people of
Puerto Rico for them to stay in Puerto Rico, if they choose to.
So Puerto Rico is under the territorial clause. It means it
is a colony. We, the U.S. Congress, have a responsibility. So I
want for you to commit, yourself, that you will guide your
staff to look at the viable options, including the use of the
Exchange Stabilization Fund, to help reach Puerto Rico's
immediate needs.
Secretary Mnuchin. Well, I am not going to commit to use
any specific tools, such as the exchange fund. But I can commit
to you, easily, because I have already done this and will
continue to do it--we are working very closely with lots of
people on this. As I said, it is a very complicated issue. So
we are trying to balance what a solution would be that is
appropriate.
Ms. Velazquez. So I was a member of the task force on
Puerto Rico, to promote economic growth in Puerto Rico. So
would you assign a--or do you have a staff that have been
assigned to monitor the situation in Puerto Rico?
Secretary Mnuchin. I do, and we are happy to followup with,
and have them come meet with, you and your staff and get your
thoughts.
Ms. Velazquez. Wonderful, thank you.
Mr. Secretary, in May, Senator Shaheen and I wrote you a
letter expressing our concern regarding the administration's
decision to eliminate all new program funding for the Treasury
Department's CDFI programs for Fiscal Year 2018, and
encouraging you and President Trump to reconsider this
position.
In June 2017, your own treasury report states that CDFIs
are often the only source of credit and financial services in
low-income urban and rural communities. So how do you reconcile
the finding of your report and the shortsighted decision of
eliminating funding for the program?
Secretary Mnuchin. Well, thank you for asking that. And I
had the opportunity to talk at the Senate yesterday about the
same issue. So first let me say I do support the CDFI program.
I think it has been effective.
Having said that, we had to make difficult decisions in the
context of the President's budget. The overall agenda was to,
one, get to a balanced budget and, two, fund military
expansion, which is much-needed. And this was just a difficult
prioritization decision that we have made within the
department.
I would also comment that, as part of our financial report,
we did specifically recommend a review of the Community
Reinvestment Act and make sure that we meet with consumer
advocates, community members, to make sure that that money is
being used properly in communities, especially as we are forced
to reduce other funding.
Ms. Velazquez. I yield back my time.
Chairman Hensarling. Time of the gentlelady has expired.
The chair now recognizes the gentleman from Michigan, Mr.
Huizenga, chairman of our Capital Markets Subcommittee.
Mr. Huizenga. Secretary Mnuchin, I really appreciate you
coming here and being in front of this committee.
And, as tempting as it is--as you see some others on the
other side of the aisle want to talk about anything other than
the economy, our international standing--and it is tempting for
me to talk about Samantha Power and Susan Rice illegally
unmasking people, or Hillary Clinton's illegal use of her e-
mail as Secretary of State, or Director Comey illegally
releasing classified documents, or Ukrainian meddling in our
elections, I think it is a waste of time in this particular
committee.
So I would like to move on to a couple of other issues and
try to divide those--that time equally. First and foremost, we
just--celebrated would not be the right word in my mind--the
seventh anniversary of Dodd-Frank. And we have seen this be a
continual stumbling block to our recovery that we have been
trying to get going here in the United States.
And I am wondering, what do you view as the most urgent
priorities needed to address and restore confidence and create
more opportunities in our economy with our capital market
system, being chairman of the capital markets committee, very
interested in that and the effects of Dodd-Frank. And then I
would like to move on quickly to Volcker.
Secretary Mnuchin. Sure, so, I mean, I would just say, as
part of Dodd-Frank, our focus is first, as I mentioned,
community and regional banks. I think another big focus is
around housing and housing reform and the qualified mortgage
and making sure that banks that make good mortgages and they
want to keep them on their balance sheet--they can.
And I think you should mention the Volcker Rule as a big
concern of ours in that--what it does to liquidity, and that we
can have proper monitoring of eliminating proprietary trading
with managing liquidity.
Mr. Huizenga. And I know, in your report, you had laid out
various items. And I am curious, is there anything specifically
in Dodd-Frank that you think we, as a committee, need to
address?
Secretary Mnuchin. The long list is as we have outlined.
But if I gave you the number-one thing, it is probably to raise
the limit, as we have talked about.
Mr. Huizenga. Great. That is helpful.
As has been expressed by a few others, you know, I believe
that the Volcker rule is at least partially to blame for the
diminished liquidity in our markets. And, you know, this is
something that is 900--I believe it is 932 pages, with 29--or
just under 300,000 words.
This is not an easily digestible, quote-unquote ``rule.''
That is War and Peace, frankly, into this whole thing. It is
five separate Federal agencies in there. And I know, in your
report, and I think it was page 132 and 133, you kind of have a
chart laying out a number of things--19 different things,
specifically, that could be used for improving the Volcker
rule.
And, as you had acknowledged earlier, our CHOICE act--we
actually repeal Volcker in that. That is certainly my
preference. You do lay out eight suggestions for Congress.
But there are 11 regulatory suggestions for providing
immediate relief. And that is from the Federal Reserve, the
FDIC, the OCC, the SEC, CFTC--the alphabet soup of all these
regulators.
How quickly can we expect to see some relief coming,
without the legislation, necessarily, maybe backing that up,
but from the regulators themselves?
Secretary Mnuchin. Well, I mean, I think, as you have
mentioned in your legislation--you have repealing it, and we
don't object to that, if that is what Congress wants to do. I
don't think the Volcker rule is what created--or the lack of
it--is what created the financial crisis.
We are very focused on how to fix it. And as I said,
these--there are active discussions at FSOC and with the
financial regulators about what we can get a consensus to fix.
Mr. Huizenga. Well, we would like to work with you on that
and encourage you, because, again, as we know, legislative
fixes are challenging to get to, but these are regulatory
agencies that have the immediate and sometimes immediate
ability to flip a switch. So we are hoping to do that.
I guess, in the last few moments, here, I do want to touch
on one other thing that Chairman Barr had talked a little bit
about: the Iranian situation with aircraft exports.
And I--the former chair of that committee in the last term,
am curious, have there been any other financial institutions,
be it U.S. or foreign institutions, that have been in contact
with Treasury with respect to aircraft exports to Iran?
Secretary Mnuchin. Again, I can't comment on the specifics
that are confidential, but I can assure you we are on top of
this.
Mr. Huizenga. Well my time has expired, but I look forward
to continuing the conversation.
Secretary Mnuchin. Thank you.
Mr. Huizenga. Thank you.
Chairman Hensarling. Time of the gentleman has expired.
The chair now recognizes the gentleman from California, Mr.
Sherman, for 5 minutes.
Mr. Sherman. Mr. Chairman, I want to get one thing clear
for the record. Mr. Chairman, you began by quoting people
saying that we should be nice to witnesses, and I think that it
is important that the record reflect that no comment about
being nice to either Democratic or Republican witnesses ever
came from me.
Now, I want to go through a number of things for the
witness to respond to for the record.
You talked about the importance of small banks and credit
unions being able to make business loans to companies in our
districts. That is not a reason for us to take the giant banks
off the hook for prudential regulation. It is their near-
collapse that nearly collapsed the economy.
It is the reason for you to deal with the OCC, which is
under your jurisdiction, and have them, when they audit banks
and those banks have a prime-plus-four or prime-plus-five loan
to a company that is just a little shaky, that they have a
reserve of just an extra 1 or 2 percent, rather than 30 to 50
percent. You, Mr. Secretary, could do more than any of us to
get small business loans made by local banks.
The debt clock has been behind you. You commented on that.
I would hope that any tax reform that came out of your
department or that was supported by your department would not
increase that debt according to the CBO.
And we just voted in the House yesterday not to cut the
CBO, because they are the umpire here in Washington to
determine what increases and decreases the deficit.
I would hope you would use your power on FSOC to break up
the ``too big to fail'' banks. The debt limit is just over the
horizon, and I hope that you would use your voice to remind us
that it is not enough to deal with the debt limit in overtime,
after you have used extraordinary measures to keep us from
defaulting. The harm is to our economy now, because investors
have to price in the risk that America will default on its
debt.
You probably didn't think you would be dealing with Armenia
today. We need a U.S.-Armenia tax treaty. Your department needs
to allocate one tax lawyer for a few weeks. And in making the
decision as to whether to allocate a tax lawyer for a few weeks
to the project, you will be told that we should make the
decision based upon the size of the business transactions with
that country. I hope that you would direct your department to
add two more criteria.
The first is whether the other country is willing to use
the U.S. model treaty. Because if they are willing to sign on
our bottom line, you don't have to commit much in the way of
resources to negotiating the treaty and you build momentum
internationally for other countries accepting the U.S. model.
And second, I hope you would listen to the State Department
when they testified before my other committee, Foreign Affairs,
just yesterday that it is important geopolitically that we have
this treaty. So I will get you the letter from the government
of Armenia saying they are willing, pretty much, to sign the
bottom line that the United States has presented.
Now, I have got some questions. Is China a currency
manipulator today?
Secretary Mnuchin. First of all, on Armenia, we are happy
to followup on your office. I do stay on top of a lot of
issues, but I must admit that is not one I am on top of. But we
will followup--
Mr. Sherman. That is one you should respond to for the
record. I look forward to working with you.
Is China a currency manipulator?
Secretary Mnuchin. I think, as you saw in our most recent
currency report, we did not label China a currency manipulator
at this time. However, they have been a currency manipulator in
the past.
Mr. Sherman. Since they have been a currency manipulator,
are you in favor of tariffs or other actions to recoup for
America the jobs we lost when they were a currency manipulator?
Or is it that they can--as long as what they did was in the
past, we are not going to respond?
Secretary Mnuchin. I can assure you that the--President
Trump is very focused on the economic and trade issue with
China, and nothing in the past is in the past. So--
Mr. Sherman. Let me squeeze in one more--
Secretary Mnuchin --All tools will be on the table.
Mr. Sherman --One more question. And that is, your
department fined ExxonMobil for violating our sanctions against
Russia. Are you confident that your department made the right
decision? And why aren't you holding any individuals
responsible, since a corporation is an inanimate construct?
Individual people undermined our sanctions.
Secretary Mnuchin. Let me first comment that, obviously, I
am highly aware of the situation and the decision. It is under
litigation, so it would be inappropriate for me to make any
specific comments.
And thank you for being nice on me since I am a California
resident.
Mr. Sherman. I will get you next time.
Chairman Hensarling. Time. Time of the gentleman has
expired.
The chair now recognizes the gentleman from Wisconsin, Mr.
Duffy, chairman of our Housing and Insurance Subcommittee.
Mr. Duffy. Thank you, Mr. Chairman.
Thank you, Secretary Mnuchin, for being here.
I just would like to note that it was not Rex Tillerson who
set the reset button with Russia. That was actually Hillary
Clinton, with this stupid little button that she pushed. It was
Romney who said that Russia was our greatest threat, but it was
Barack Obama who said the 1980's want their foreign policy
back.
Ms. Moore. Mr. Chairman--
Mr. Duffy. And it was Bill Clinton--
Ms. Moore. Mr. Chairman.
Mr. Duffy --Who received a half a million dollars for
speaking--
Chairman Hensarling. The gentleman will suspend.
For what purpose does the gentlelady from Wisconsin seek
recognition?
Ms. Moore. I was just reminding my good friend and
colleague from Wisconsin about the--he was not here when you
recited the rules about not--
Chairman Hensarling. Does the gentlelady have a
parliamentary inquiry?
Ms. Moore. Yes, sir. I do have a--
Chairman Hensarling. Would you state your inquiry?
Ms. Moore. My inquiry is whether or not this particular
discourse violates the rules that you articulated earlier when
Mr. Duffy was unavailable.
Chairman Hensarling. The gentlemen's questioning has
violated no House rule or committee rule. The time belongs to
the gentleman from Wisconsin.
He may proceed.
Mr. Duffy. Thank you, Mr. Chairman.
I would also note that it wasn't Melania Trump who received
a half a million dollars for a speech to an investment company
that was tied to the Kremlin.
As you have noted, we have a lot of folks on the other side
of the aisle who are part of the ``Impeach Trump'' movement.
They were trying to impeach Trump before he was even sworn into
office.
So, as my friends--and I know this is a little off-topic,
but, as my friends are talking about Russia across the aisle,
do you have any idea what is being talked about in Wisconsin
today?
Secretary Mnuchin. Sorry--
Mr. Duffy. You do.
Secretary Mnuchin --Absolutely--13,000 new jobs and a $10
billion investment from Foxconn to build the most advanced
manufacturing plant in the United States and, for the first
time in I can't even remember how long, to build T.V. screens
and other videos.
It is just extraordinary, and I was pleased to be at the
White House yesterday for that announcement. And
congratulations to Wisconsin. I know it was a very competitive
situation with other States, and boy, that will be a big deal
for that economy.
Mr. Duffy. And we are happy it is not going to California,
I am sorry to say.
That is right, but we are talking about jobs. We are
talking about economic growth. We are talking about industries
that my friends across the aisle--they had written off. They
had said, ``These jobs will never come back. They are gone
forever.''
And, under your boss and my Governor, to your point, a $10
billion investment and 3,000 to 13,000 jobs in the great State
of Wisconsin. And that is what people care about.
Secretary Mnuchin. That doesn't include the construction
jobs, I might add, in the creation of what I think you are
calling now Wisconn Valley.
Mr. Duffy. Wisconn Valley. That is right, that is what we
are talking about. And maybe that is why my friends across the
aisle have lost 1,000 seats across government, because they
don't understand that people care about jobs and economy and
border security and a strong military. And the heart of all
that is our financial service sector, which is what we are
talking about today.
But I am going to go off topic again and ask you about our
tax code, because I think, if we are going to have more
Foxconns, we are going to need a revamp of our tax code. We
have heard some rumor that some in the administration have said
the top rates might not be going down, they might be going up.
Do you want to give us some clarification on your view of
taxes and where they should go to make America competitive
again?
Secretary Mnuchin. So we have been working very closely
with the leadership of the House and the Senate to create a
unified plan. Our objectives are very simple. On the personal
side, we want to cut down the number of brackets. We want to
simplify taxes--95 percent of Americans will be able to do
their taxes on a giant postcard. That will make my job
overseeing the IRS much simpler.
And on the business side, as you pointed out, we want to
transition from a worldwide system, where we allow companies to
defer and not pay taxes and leave trillions of dollars
offshore, to a territorial system that is competitive, with a
competitive rate that will bring back trillions of jobs--
trillions of dollars and huge amounts of jobs and capital to
this country.
Mr. Duffy. And I would just note that I don't think this is
a partisan issue, making--or allowing companies to stay and
compete in America, but also bringing other companies, like
Foxconn, to the United States of America for American jobs.
Not Republican, not Democrat--these are American issues,
making us competitive again. And I would hope that both sides
could come together and work on tax reform so we don't have to
craft bills that have to get through budget reconciliation,
which I don't think works very well.
One harder question for you, though, on point. I do have
some concern about the U.S.-E.U. covered agreement. The
President, who I have been supportive of, talked a lot about
bad deals being negotiated by the prior administration--by
stupid people, I think that is what he said.
This deal was announced the week before President Trump was
sworn into office. I know that we have talked about this, and I
appreciate your conversation. I spoke with your staff. We sent
you a letter, 21 signers. We pointed out seven things that we
have concerns about.
I know you are going to send a letter of your understanding
of this agreement. You are not going to renegotiate it. I do
have a concern that we don't have an exchange of letters that
everyone is agreeing to, to clarify our understanding of what
this agreement means.
My time is expired, but I want to make sure that we get the
negotiation prowessness of yourself and Mr. Trump to make sure
this deal works for American insurers and our State-based
model, as opposed to an international system that doesn't work
for--
Chairman Hensarling. Time of the gentleman has, indeed,
expired.
Mr. Duffy. I yield back.
Chairman Hensarling. The chair now recognizes the gentleman
from New York, Mr. Meeks.
Mr. Meeks. Thank you, Mr. Chairman.
Mr. Secretary, let me just ask first. When you became the
secretary of the Treasury, you had to take an oath of office,
correct?
Secretary Mnuchin. That is correct.
Mr. Meeks. Now I--just so that I am clear, that oath of
office was to the United States of America and our
Constitution? Or was the oath of office to the President of the
United States?
Secretary Mnuchin. It was to uphold the Constitution.
Mr. Meeks. And you are aware, because I know we were
talking about current events, recently--other current events,
because I want to make sure that you are able to do your job.
The current event recently is--for example, the President of
the United States is telling the attorney general that he
should be protecting the President as opposed to the
Constitution.
Most folks, Democrats and Republicans, believe that maybe--
that the attorney general did the right thing by recusing
himself from any investigation that dealt with Russia.
So my question to you, given that the President is talking
about that he wants loyalty and protection, because he says
that the people--his administration is not protecting him, that
in matters that are serious to the Department of Treasury, are
you going to protect the President of the United States? Or are
you going to uphold the Constitution of the United States?
Secretary Mnuchin. I think, in many cases, in my job, it is
one and the same.
Mr. Meeks. No. You think it is one and the same?
Secretary Mnuchin. I said, in many cases. I said it is--
many cases.
Mr. Meeks. So, then, that gives me serious concerns--
Secretary Mnuchin. No, what I said is in many cases--
Mr. Meeks. Reclaiming my time.
Secretary Mnuchin. I will--
Mr. Meeks. Reclaiming my time.
Secretary Mnuchin --I assure you I will uphold the
Constitution.
Mr. Meeks. Reclaiming my time.
Chairman Hensarling. The time belongs to the gentleman from
New York.
Mr. Meeks. That gives me serious concerns, because there
are many allegations about conflicts of interest by the
President of the United States, and there is an ongoing
investigations against the President of the United States about
his involvement in Russia.
And if there is someone that tells me that you believe that
your obligations, even if the--because I thought that no person
was above the law. So the--your oath of office, from what I
heard, was to the Constitution of the United States of America,
not to Donald Trump, the President of the United States. So--
Secretary Mnuchin. Let me just be clear. My obligation is
to uphold the law. We have cooperated with all investigations
and we will absolutely do that.
Mr. Meeks. Let me--let me reclaim some time, because, you
know, that--the U.S. Congress has some huge responsibilities,
also. So now I am concerned, because--U.S. Congress, what they
have done, bipartisan--we have--we were about to implement a
sanctions bill against Russia.
And in that sanctions bill, there is some authority that
OFAC has to enforce certain protections. So maybe I should ask
you this question first. Do you believe, Mr. Secretary, that
there is corruption in Russia? Yes or no?
Secretary Mnuchin. Yes, I am sure there is corruption in
Russia.
Mr. Meeks. Now, if you believe that there is corruption in
Russia, and--have you read or understand the sanctions bill
that we are doing in a bipartisan way in the U.S. Congress,
both the House and the Senate? Have you familiarized yourself
with that bill at all, sir?
Secretary Mnuchin. Of course I have.
Mr. Meeks. And so you know what your responsibilities are
under OFAC?
Secretary Mnuchin. Of course I do.
Mr. Meeks. So let--then, have you also made some plans on
how you will implement the sanctions bill, or how the Treasury
Department will utilize the sanctions bill in regards to
Russia, sir?
Secretary Mnuchin. We have looked at it.
Mr. Meeks. But have you thought about how you would do some
planning to go against what you admit, the corruption that is
taking place in Russia; how the Treasury Department would
protect the people of the United States, the Constitution, not
the President?
Have you thought about how you would implement that? Or can
you do that on your own? Or must you go back and get some
clearance from someone else? Because--
Secretary Mnuchin. I don't need to get clearance from
anybody else, and I assure you, we will work with Congress.
I do have certain concerns that we may have--
Mr. Meeks. Let me--reclaiming my time, because I am just
concerned--I have got 45 seconds left--because I am concerned
that, when I see others in the administration trying to do
their jobs, the President then Tweets something and--there have
been inconsistencies.
For example, just quickly about the debt ceiling, you have
said, at one point, that the debt ceiling should be clean.
Others in the administration have said the debt ceiling to be
a--you should be able to include some increases, or change it.
So what is your position now? Should there be a clean debt
ceiling when we pass it? Or should there be other things added
to it?
Secretary Mnuchin. The President has been very clear that I
am responsible for the debt ceiling, and my position has been
that I believe there should be a clean debt ceiling.
Mr. Meeks. So, you are not for, as others in the department
have talked about, in regards to that there should be additions
to the debt ceiling, or add-ons to the debt ceiling?
Secretary Mnuchin. Again, Director Mulvaney and I are on
the same page that I am representing the administration on
this.
Chairman Hensarling. Time of the gentleman has expired.
The chair now recognizes the gentlelady from Missouri, Mrs.
Wagner, chairman of our Oversight and Investigations
Subcommittee.
Mrs. Wagner. Thank you, Mr. Chairman.
Over here, Secretary. Welcome, and thank you for appearing
before this committee today.
I dearly and sorely want to get back to the purpose of this
hearing today, which is to talk about Treasury and the state of
the international financial system.
I first want to commend you regarding the Treasury report
you recently released, focusing on regulatory burdens for
financial institutions. And I was honored to be present in the
Oval Office with the President of the United States on February
3rd when he signed the Executive Order directing you to conduct
said report.
Many of the proposals in the report will go a long way
toward alleviating regulatory overburden, especially--
especially for community financial institutions, so that
lending and economic growth can continue.
Another thing that I am particularly concerned about, Mr.
Secretary, particularly with my role on the--also on the
Capital Markets Subcommittee, is that we now have about half as
many public companies in the United States as we did 20 years
ago.
Additionally, there has been a decline in IPOs, or initial
public offerings, during the same time without a corresponding
decline in the number of business startups. I understand that
Treasury is expecting to issue a capital markets report later
this year. Will that report focus on the issue of the declining
number of public companies and IPOs?
Secretary Mnuchin. We are happy that will be one of the
issues we will consider. Thank you.
Mrs. Wagner. And why should we care about this trend?
Secretary Mnuchin. I think, as you said, we care about
creation of businesses. We want to make sure that there is not
too much consolidation in certain industries, that there is
proper competition and that there is job creation.
Mrs. Wagner. And what are some of the regulatory and other
impediments that are chilling the IPO market, or negatively
affecting company decisions to access capital in the public
market?
Secretary Mnuchin. Well, I think, as you know, there are a
lot of issues, and we will address those in the report and look
forward to working with you.
Mrs. Wagner. And why is reversing this trend important for
both, I think, the broader economy and for individual
investors?
Secretary Mnuchin. Well, I am--I am more focused on
broadening the economy than, necessarily, individual investors
but it is important for individual investors, for their
retirement, and be able to invest in things.
I would say, in broadening the economy--again, it all gets
back to jobs. We are very focused on how we get to 3 percent
GDP, which we think is critical. The difference between 2
percent and 3 percent is trillions of dollars--
Mrs. Wagner. And we haven't been there, Mr. Secretary, for
a long time.
Secretary Mnuchin. We haven't, but we have, over a long
period of time. Thank you.
Mrs. Wagner. And does a healthy public market impact small
company growth and what impacts does it have on job creation?
Secretary Mnuchin. Limiting capital to industries limits
job creation and investment.
Mrs. Wagner. I thank you. And I will yield the remainder of
my time to the chairman, if he so chooses.
Chairman Hensarling. Well, I thank the gentlelady for
yielding.
Another question, Mr. Secretary--so, in the Treasury
report, it proposes a regulatory off-ramp, much like the off-
ramp that we have in the CHOICE act, and I think you are
familiar with. In the CHOICE Act, a banking organization that
maintains a simple leverage ratio, non-risk-weighted, of 10
percent essentially has a Dodd-Frank off-ramp.
So can you talk to us about how this kind of a regulatory
burden-capital tradeoff could help spur economic growth?
Secretary Mnuchin. Well, Mr. Chairman, we do share your
view that the off-ramp is one of multiple solutions. It is not
the only solution. But, again, going back to what we said
earlier, our number-one objective is to make sure that the top
eight banks don't go from 50 to 70 percent market share or 100
percent market share, and that we have a robust banking system
with community and regional banks that can grow the economy.
Chairman Hensarling. Time of the gentlelady has expired.
The chair now recognizes the gentleman from Georgia, Mr.
Scott.
Mr. Scott. Thank you, Mr. Chairman.
I am over here. I want to ask you two points, two
questions. Let me get the first one out of the way first.
We have had some discussion about the debt limit, and I
just want to remind you that your predecessors, Jack Lew
especially, would send us estimates, would say and give us a
running account of when that possible time would come.
But when--your responses to that have been--you said
Congress should act. And then you said--and you keep providing
us with a nebulous deadline of sometime after September.
Now, Mr. Mnuchin, you and I both know that the market's
worst enemy is uncertainty, not to mention uncertainty around
the debt limit, which also plays a role in what the Fed does.
And keeping that sterling credit rating, AAA, all around the
world is what sustains us. It is the backbone of what keeps our
country the number-one financial system.
So let me just ask you can you commit to this committee
today that, within a week, you could follow the example of your
predecessor and send to us your best estimate as to when we
will reach the debt limit? Can you do that?
Secretary Mnuchin. Again, first of all, thank you for that
question. And I am very familiar with financial markets, which
I have been involved in for the last 35 years. So I do
understand this issue very well. I have been very clear on it
publicly. I can tell you today the answer to that question.
Mr. Scott. What is that?
Secretary Mnuchin. That it is--I have said that I am
comfortable that we can fund the government through the end of
September, that based upon my information at this time--which
is subject to change, given big moves--but my best judgment
right now is through the end of September. I have said that--
Mr. Scott. OK--
Secretary Mnuchin --Publicly. This is not the first time.
And I will also--
Mr. Scott --Thank you. I have got your answer.
Secretary Mnuchin. Thank you.
Mr. Scott. I only have a few minutes. And I got to get to
this other question. Now, I want you to know that this effort
and concern, on this committee, with President Trump and the
Russian connection--there was a movie called the French
Connection, also. But I want you to know that what Ms. Waters's
bill and her efforts in this is not a Democratic-alone
position.
I work with both Democrats and Republicans. I have friends
on both sides of the aisle. And it is a growing consensus among
Republican Members of Congress that we owe it to the American
people to come clean on this. President Trump is not bigger
than America. This isn't about him. It is about the American
people.
And I love this country. I was born in the middle of a
tobacco field in Aynor, South Carolina. But I made it all the
way up to the Wharton school of finance. And not only that--to
serve on the executive board of directors of the best school of
business and finance, at the University of Pennsylvania, in the
world. And I did it with just helping hands, because I come
from a poor family.
So I want you to know, and I want this Nation to know, that
we deserve to know what it is that President Trump is hiding,
that he is willing to turn the Federal Government, the Justice
Department, upside down and inside out.
It ain't about him no more. It is about coming to a sense
of confidence and truth that we can restore the respect, the
power, and authority of our Nation, first to the American
people, and to the world.
Chairman Hensarling. Time of the gentleman has expired. The
chair now recognizes the gentleman from California, Mr. Royce,
chairman of the House Foreign Affairs Committee.
Mr. Royce. Well, thank you, Mr. Chairman.
Again, Mr. Secretary, good to see you.
And, just following up on the questioning of Mr. Barr, I
would like to thank you for your commitment to leveling the
trade and regulatory playing field for our job creators here in
the United States.
And on this front, unlike at least one of my colleagues, I
was very pleased to see that the U.S.-E.U. covered agreement on
insurance and reinsurance moved across the finish line, because
that is going to mean billions of dollars in savings for U.S.
firms, which can be reinvested in our economy, and that is
going to be passed on to the consumers.
And I also appreciate your commitment to raising the equity
caps for U.S. financial services in China--raising that issue.
And I was hoping you could update us on your most recent
conversations and how the Chinese side reacts when we push them
on that issue of caps.
Do you think we could get a win on this front?
Secretary Mnuchin. Again, I am going to withhold how they
react. But what I will say is--this is a yes-no answer. We
expect them to be increased. We have told them to do that. I
don't care how they react. What I care about is when they tell
us that there is no cap. So I am not interested in them going
from 49 to 52 percent. I want no cap.
Mr. Royce. I think that is absolutely--
Secretary Mnuchin. I hope you don't mind--
Mr. Royce --The right attitude.
Secretary Mnuchin --I hope you don't mind me using just 5
seconds of your time, because I do want to acknowledge Mr.
Scott, and I too share this great love for this country, and it
is extraordinary, your accomplishments, so thank you.
Mr. Royce. And let me also say, on the topic of housing
finance reform, you have made it very clear that perpetual
conservatorship is unsustainable, and you would prefer we deal
with Fannie and Freddie through legislation. But as we work
toward reform in this committee and in the Senate, we can't
lose sight of the benefits afforded the GSEs by previous
Congresses. This is one of the problems. There are benefits no
other company has.
And they are benefits that help create the duopoly and
broken system of private gains and public losses. And among
those obvious benefits are tax-exempt status from State and
local jurisdictions; the ability to issue special SEC-exempted
TBA, or ``to be announced,'' securities; the ability for the
Fed to purchase GSE securities through their monetary policy
operations; a perpetual line of credit directly to Treasury
beyond the 2008 bailout authority; and above all else, the
implicit government guarantee that comes with the charter which
gave them the ability to borrow at below-market rates and
ignited the duopoly.
And, you know, as someone who was concerned about,
basically, the moral hazard in this equation, in 2004 and 2005,
I tried to have them regulate it for systemic risk.
I think, Secretary Mnuchin, you understand this. Can you
eliminate any of these benefits without legislation? And would
you agree that reconstituting Fannie and Freddie as private
companies with these congressionally mandated benefits should
be avoided at all costs?
Secretary Mnuchin. I do. And, first, let me say I look
forward to working with you on this.
As I have said, we need a solution that creates liquidity
for the housing market and doesn't put taxpayers at risk. And
if there are any guarantees from the government going forward,
they should be explicit and paid for and done so in a way that
doesn't put taxpayers at risk.
And we are determined to find a solution, because this is a
huge part of the economy, and leaving them in conservatorship
for the next 4 years makes no sense.
Mr. Royce. Well, let me make sure that I understand, as
this issue is as important, probably, as anything that is going
to come up today.
Given our past experience of what happened with the
collapse of the GSEs, do you agree, or not, that Fannie Mae and
Freddie Mac should not under any circumstances, be re-
privatized as privately owned, implicitly government-backed
institutions?
Secretary Mnuchin. So, what was the last part of it?
Implicitly?
Mr. Royce. Implicitly government-backed institutions. In
other words--under any circumstances be re-privatized as
privately owned, implicitly government-backed institutions.
Secretary Mnuchin. I agree. There shouldn't be implicit. If
there is something, it should be explicit and paid for.
Otherwise--it should be very clear. There is no implicit
government backing.
Mr. Royce. Thank you--thank you, Mr. Secretary.
Chairman Hensarling. Time of the gentleman has expired.
The chair now recognizes the gentleman with the dashing
pink suit from Missouri.
Mr. Cleaver, the ranking member of the Housing and
Insurance Subcommittee.
Mr. Cleaver. Thank you, Mr. Chairman.
Mr. Secretary, thank you for being here.
I do think that, in a democracy, once the commonly accepted
rules of politeness are breached, it will be painfully
difficult for them to be reversed. And maybe, we are there now,
in that regard, the ranking member had talked to you about the
letter that was sent.
I am simply hoping that, as we move along, that you would
respond to letters, communication from her. I personally
believe it is impractical for you to respond to every letter
that we send you, as, you know, each member of the Democratic
side would send you--or Republican side, for that matter.
So I am just hoping that, in the future, that the letters
are responded--that you would respond to the letters in some
kind of a timely fashion.
Now, let me, again, unless you want to respond to that, I
will move to my question.
Secretary Mnuchin. Yes, so, I mean, first of all, as you
can see, we have over 50 letters that we have responded to. I
can assure you, and I can assure the ranking member, that we
will cooperate with you. We have fully cooperated with three
committees.
To the extent you are asking for the same information that
other people--I would merely ask for you to coordinate with
information we have already received. But we fully intend to
cooperate with the committee and be responsive, as we think we
have done.
Mr. Cleaver. I could argue with that, but I am more
interested in something else at the present time. I was here
during the whole Dodd-Frank debate, and the development of that
legislation. And it was a turbulent time, as you well know.
And I will admit that there was a destabilizing component
in that legislation, as it relates to small banks--community
banks: 22 percent of them, 22 percent of the small banks--
community banks--have declined, have evaporated over time, and
25 percent--this was very troublesome to me--25 percent of them
say they are anticipating merging with another bank. So what we
are going to end up having are the larger banks getting even--
even larger.
I think they were helped a little bit because they were
exempt from the Durbin amendment. However, I am asking you,
what do you--what advice would you give us on how we can
quickly remove the burden from small banks?
And understand this, in case you don't understand it, I
don't know anybody on this side, or the other side, for that
matter, who believes that we ought to continue to allow this
burden to hit small and community banks. So, if everybody
agrees on it, what do you think we can do and do quickly to
remove that burden?
Secretary Mnuchin. Well, again, thank you, and we look
forward to working with you, and I would hope that we could do
this on a bipartisan basis, as it relates to things that impact
community banks and regional banks.
So I think we delivered a very balanced report, and many of
the regulators have agreed with us. So we have a long list of
recommendations, and we would be more than happy to followup
with your office and go through the specific legislative ones
for community banks.
Mr. Cleaver. So you would sit down with the chair and the
ranking member and work on and work out recommendations to
provide that relief?
Secretary Mnuchin. To the extent they both want to sit down
with us, we would be more than happy to do that and support
that, yes.
Mr. Cleaver. Well, I am hoping that will happen. And, like
every other member, I have community banks and small banks who
are struggling. And it is a little frustrating to me that all
we have to do is change it--is change the legislation, and we
don't do it.
Secretary Mnuchin. I share your frustration, and I think
this is the biggest single issue, since community banks know
how to lend and will drive the engine of growth.
Mr. Cleaver. All right. And by the way, I am wearing this
pink so my friends can find me quickly.
Secretary Mnuchin. I was going to say, definitely, best
male dressed in the room.
Chairman Hensarling. Time of the gentleman has expired.
The chair now recognizes the gentleman from Oklahoma, Mr.
Lucas.
Mr. Lucas. Thank you, Mr. Chairman.
Secretary Mnuchin, thank you for being here today.
As you may know, I serve on the Ag Committee, in addition
to this committee, and thus I care a lot about the use of
derivatives and similar instruments that can help my
constituents manage risk. As such, I would like to visit with
you about margin requirements for a moment.
First, I was very pleased to see that your department's
recent report suggested excluding margin from centrally cleared
derivatives from the supplemental leverage ratio. And I thank
you for coming to that conclusion, as the regulation reduces
the number of clearing options available to customers. I really
hope that gets reviewed and remedied soon--soon.
And second, I would want to ask you about margin for inter-
affiliate swaps. While the CFTC's rules have distinguished
internal transactions within the same company, when setting
margin requirements, the banking regulators have not.
And this raises some concerns for me, not only because it
creates a patchwork effect of regulations in the U.S., but the
approach of the banking regulators is inconsistent with that of
the Asian and European regulators.
So, having said that, do you have any comments about
whether an approach more like the CFTC from banking regulators
would level the playing field and unleash significant amounts
of capital into the market, Mr. Secretary?
Secretary Mnuchin. Well, we look forward to working with
you, and yes. On the first issue, we think, where there is
central clearing, that should be accounted for. And on the
inter-affiliates, we look forward to working with you, and that
will be one of the issues addressed in our subsequent reports.
Mr. Lucas. And that is very important, because to tie up
capital that should not be otherwise tied up, to reduce the
options that my, for instance, ag and energy people have in
being able to manage the risk in both selling their commodities
and securing the resources to do their work, it just, I think--
in the environment we are in right now, the approach taken by
CFTC and the initial report from your people would tend to
think that we will be in a position to address that, so to
speak.
In the remaining time, I would like to commend your
department for suggesting in its report that the recent
leveraged lending guidance be reworked.
As I told Chair Yellen earlier this month, much of the
energy industry is considered distressed, which means it is
harder for them to obtain capital under the leveraged lending
guidance.
Could you briefly tell the committee why your department
suggested withdrawing the guidance, and what you think would
happen if the guidance were done in a better fashion?
Secretary Mnuchin. We think it would help lending
significantly. And again, that doesn't mean that banks
shouldn't properly underwrite loans, they should. But that we
don't support a blanket across the board approach that cuts off
leveraged lending.
Mr. Lucas. Absolutely. Allowing bankers to be bankers. And
in the case of the energy industry people, in my State, where
they have proven barrels, they have proven MCF in the ground,
they have the proven ability to deliver, the proven ability to
continue in their business.
Creating a situation where, in effect, we push them over
the edge, arbitrarily, just seems counterproductive and
literally destructive. So, I appreciate that.
And with that, Mr. Chairman, I yield back the balance of my
time.
Chairman Hensarling. Gentlemen yields back.
Chair now recognizes gentlelady from Wisconsin, Ms. Moore,
ranking member of the Monetary Policy and Trade subcommittee.
Ms. Moore. Thank you so much, Mr. Chairman.
I lost 5 seconds. OK. Thank you so much. And welcome again,
Mr. Secretary. Mr. Secretary, I was really relieved to hear you
say, on a number of occasions this morning, that you are going
to be very vigilant on anti-money laundering and
counterterrorist financing compliance.
And so, given that, I just want a few--put a few things on
the record and find out whether or not you think that certain
kinds of investment activity raise concern and warrant
heightened scrutiny from regulators and law enforcement, and
that, of course, our President and his family have engaged in.
Investments with parties who have admitted to or have been
accused of or convicted of crimes, do you think that is
problematic? Yes or no?
Secretary Mnuchin. It sounds that way--
Ms. Moore. OK.
Secretary Mnuchin. But it depends on the specifics.
Ms. Moore. Oh. Well I can be specific. How about Felix
Sater who helped build the SoHo projects? He is--
Secretary Mnuchin. I am not aware of any of the specifics--
Ms. Moore. Well, OK--
Secretary Mnuchin --Nor would it be appropriate for me to
comment, that is not part of my job.
Ms. Moore. You are the treasury secretary. Investments
where apparent enterprise lacks a significant or economic
basis, do think that is problematic? In mirror trades?
Secretary Mnuchin. What was the last part?
Ms. Moore. Mirror. Like in a mirror trade.
Secretary Mnuchin. I don't know what your--I don't--I am
not connecting this to the terrorist financing issues.
Ms. Moore --And investments with politically explicit
parties. Well, I could consume all my time, but I would just
bring to your attention that there have been--these are not
secret things.
They are exposed, they are in the news for everybody to
read about the partnerships that the Trump family has with
people who have been convicted of crimes, who have been
associated with Russian mob activity. And I was just wondering,
for the record, if you thought that that was problematic?
Secretary Mnuchin. Again, it is really not part of my job
to comment one way or another on that. My job is focused on
terrorist--
Ms. Moore. Well you are the secretary of the treasury. You
are part--you know, you--the SEC, the Foreign Corrupt Practices
Act. These are all things that you have jurisdiction over.
Secretary Mnuchin. No, the SEC, I have no jurisdiction
over.
Ms. Moore. All right. Let me ask you some more questions. I
mentioned in my opening statement, I talked about conflict
minerals, and I talked about the disclosures for extractive
industries, which you supported.
What were the judgments you relied upon to support
eliminating disclosures for extractive industries? And for, in
the Choice Act, eliminating conflict minerals? And so, since
you seem to need examples, I will give you examples.
ExxonMobil, as you know, the Treasury just fined them for
corrupt dealings with Russia. And conflict minerals, you are
familiar with the horrific civil war that has ravaged the
Democratic Republic of Congo and how armed groups took control
of the mines, used the proceeds to fund armed conflict, and
those minerals ended up in the U.S. consumer market.
And thereby, we, as U.S. citizens, have inadvertently
funded the killing, rape, and destruction in the DRC. So, upon
what judgment did you rely to decide that we don't need these
provisions?
Secretary Mnuchin. First of all, I just want to comment on
the Exxon. It was not on corrupt dealings, it was on an OFAC
violation. In regards to the mineral issue--and again, we think
there is a lot of problems as you pointed out, and I would be
more than happy to followup with your office and talk more
about this issue.
Ms. Moore. I would like to yield the last minute to the
ranking member.
Ms. Waters. Thank you very much. I would like to thank you,
Ms. Moore, for delving into some of the many issues that we are
so very concerned about.
What Ms. Moore walked through was, relationships. The
President of the United States has relationships with those who
have been jailed, who have known to have mob contacts, who have
been involved in criminal activity.
And, as the treasurer, she was asking you, you know, what
do you think about that? And the real question and in all of
this is whether or not you see your responsibility to make sure
that you are protecting the people of this country, respecting
the Constitution of the United States, or as it appears, that
this President is demanding of those in his cabinet and others
that they spend their time protecting him.
Basically, that is the question.
Chairman Hensarling. Time--time of the gentlelady has
expired.
The chair recognizes the gentleman from Florida, Mr. Posey.
Mr. Posey. Thank you very much, Mr. Chairman.
Secretary Mnuchin, I appreciate you being here today. For
more than 6 years, 6 long, torturous years, I have been
fighting for a group of heroes that were once held captive. On
February 13th, 2003, four Americans, who were Department of
Defense contractors on a U.S. Government counter narcotics
flight mission in Columbia, were shot down by the Revolutionary
Armed Forces of Colombia, or FARC as they are commonly known, a
designated terrorist organization that controls more than 95
percent of the world's cocaine business.
The pilot, Tom Janice, a retired member of the U.S. Army's
Delta force, was executed on the spot and three Floridians,
Keith Stansell, Marc Gonsalves, and Tom Howes, who happens to
be my constituent, were captured, held hostage in the jungle,
and severely tortured for more than 5-1/2 years until they were
rescued by the Colombian army.
These Americans and the Janice family, obtained a Federal
judgment, in 2010, under the Anti-Terrorism Act for damages
against FARC to compensate them for FARC's acts of terrorism
during their captivity, and the execution of one American.
However, there are no FARC assets in the United States
except for drug moneys of FARC agents--the traffickers and
money launderers--and these assets are frozen under the Foreign
Narcotics Kingpin designation Act. Under current law, victims
cannot access frozen assets under the Kingpin Act.
I believe the victims of the foreign terrorist
organizations--which profit and fuel their activity with drug
money--should be compensated from the drug money that we have
secured. In the 114th congress, I introduced legislation,
titled the ``Clarifying Amendment to Provide Terrorism Victims
Equity Act,'' or CAPTIVE Act, is the acronym, to change that
law.
My bill passed the House by unanimous consent last year,
but was stalled in the Senate, when the Office of Foreign
Assets Control raised concerns about the bill that they never
mentioned to us in the House. I introduced the legislation,
this Congress, and I am hoping to bring the bill to the floor
soon.
The situation, right now, is that the former hostages have
been waiting 14 years for justice, and so far they have
received absolutely zilch help, from the U.S. Government that
they served so heroically because of the Office of Foreign
Assets Control.
I would like to get a committment from you to work with me,
to find a solution to make these brave Americans whole again.
Do you think we can work together in that regard?
Secretary Mnuchin. Absolutely. Let me first comment on, it
sounds like it was a horrible situation, and I am not familiar
with any of the details of what OFAC's concerns are, but I am
more than happy to work with you in your office on the
legislation and understand it.
Mr. Posey. Yes, your predecessor gave us all kinds of song
and dance, but he seemed relatively unconcerned, but I
appreciate your concern and look forward working you--
Secretary Mnuchin. We will followup with you.
Mr. Posey. Thank you very much. I yield back.
Chairman Hensarling. The gentleman yields back. Chair now
recognizes the gentleman from Minnesota, Mr. Ellison.
Mr. Ellison. We thank the chair and the ranking member.
Secretary Mnuchin, one of the worst moments I experienced
in my service in Congress is the financial--foreclosure
collapse that occurred in 2008. I don't ever want to see it
again. I am sure you agree with me about that. And so, I am
concerned about your approach to supervising the mortgage
market, and making sure that banks that are engaged in issuing
mortgages are upholding high standards of ethics.
So, to that degree, could you explain to me how, OneWest,
of which you were the CEO, was able to--engage in 5,600
violations of foreclosure sale auctions, including backdating,
in nearly all of the 35,000 foreclosures of homes, that you all
engaged in?
Secretary Mnuchin. First of all, let me assure you, that I
did not make one mortgage, during or prior, to the mortgage
crisis. I took over three banks from the FDIC, one of which was
the worst originator in the entire world. I am very proud of
the fact that we started loan modifications at IndyMac under
the FDIC's control, which we then did. So, I take great offense
to anybody who calls me the foreclosure king. Whatever issues--
Mr. Ellison. I am claiming my time, you know how that goes.
Secretary Mnuchin. Whatever issues are--
Mr. Ellison. Sir, I allowed you to answer and I am
reclaiming my time.
Chairman Hensarling. Mr. Secretary, the time belongs to the
gentleman from Minnesota.
Mr. Ellison. Look, I don't have a problem with you
answering, but you did answer so, I am not going to let you
filibuster. That is what I won't do.
Secretary Mnuchin. I am not filibustering--I was just
responding to your comment.
Mr. Ellison. No--no--no--there is no question before the
Secretary.
Secretary Mnuchin. Wasn't there a rule--
Mr. Ellison. There is no question before the Secretary, at
this point. So, Vice President Erica Johnson-Seck robo-signed
6,000 foreclosure related paperwork documents per week. Was she
under your supervision?
Secretary Mnuchin. Not directly.
Mr. Ellison. Was she under--when you were the CEO, was she
employed under you?
Secretary Mnuchin. She was employed at the bank.
Mr. Ellison. She said in testimony that she robo-signed as
many as 6,000 foreclosure related documents a week. She--do
you--what is your position on robo-signing?
Secretary Mnuchin. You know, I have answered this
extensively--
Mr. Ellison. You have to answer it now, sir.
Secretary Mnuchin. I am going to, and you have to listen to
me.
Mr. Ellison. No, I don't, no, I don't have to listen you.
Secretary Mnuchin. Well--
Mr. Ellison. I asked you a direct question, I would like an
answer, which would be--
Secretary Mnuchin. If you are not going to listen to me--
Mr. Ellison. Are you willing to answer the question, or
not?
Secretary Mnuchin. Repeat your question.
Mr. Ellison. What is your position on robo-signing?
Secretary Mnuchin. Again, I don't even think you know the
definition of robo-signing is.
Mr. Ellison. You don't know what I know.
Secretary Mnuchin. There is not a legal definition of robo-
signing.
Mr. Ellison. How about this? Do you deny that under your
supervision robo-signing occurred at the firm that you were the
CEO of?
Ms. Waters. Mr. Chairman--
Secretary Mnuchin. I have reported before--
Mr. Ellison. And are you--
Secretary Mnuchin --There was not robo-signing, and I have
said this on the record.
Mr. Ellison. So, you deny it for the record, thank you.
Secretary Mnuchin. For the record, I have denied it before.
Mr. Ellison. Yes, right. And you are denying that--well,
also for the record and under direct testimony a person under
your supervision admitted to it.
And for people watching, I will just let you know, robo-
signing is when you have a foreclosure--when you are signing
documents to get a loan to purchase a home, and you have to
review the documents, you have an obligation to review them.
And to just sign them as you are going through, without
reviewing them, is not proper, and is illegal, because you are
swearing that you have reviewed those documents.
And, under the Secretary's supervision, which he claims I
don't know anything about robo-signing, that happened to a very
severe degree while he was the CEO of OneWest.
Here is another question for you, sir. OneWest was nine
times as likely to foreclose on a homeowner living in a
community of color, as originating a mortgage to a borrower
living in other communities.
Are you concerned about the disproportionate number of
people who found themselves in foreclosure, at the hands of
your company, who were persons of color? Where are you at on
making sure that there is an equal administration of justice
for companies as they engage in foreclosure?
Secretary Mnuchin. Let me assure you that we upheld, to the
strictest amount, the rules and regulations, as was reviewed by
the OCC, the Fed, and the Consumer Protection Bureau, and we
did not and would not, discriminate in any way.
Mr. Ellison. We will see.
Chairman Hensarling. Time for the gentleman has expired.
The chairman now--
Ms. Waters. Parliamentary inquiry.
Chairman Hensarling. For what purpose does the ranking--
state your inquiry.
Ms. Waters. Mr. Chairman, would you like--thank you--would
you like to give the Secretary an opportunity to apologize to
Mr. Ellison for--
Chairman Hensarling. That is not a proper parliamentary
inquire.
Ms. Waters --Asserting that he is too stupid to know what
robocalls are? Would you like to give him that opportunity?
Chairman Hensarling. The time now belongs to the gentleman
from Illinois.
Mr. Hultgren is recognized for 5 minutes.
Mr. Hultgren. Thank you, Mr. Secretary.
Secretary Mnuchin. But perhaps, could I borrow 10 seconds?
Mr. Hultgren. Yes, absolutely, I was going to offer--you
can do more than that. I would like you to have a chance--
Secretary Mnuchin. I would like the record to state that
OneWest Bank was the only bank that concluded the independent
foreclosure review, and every single loan was reviewed and was
properly compensated. We were also the only bank to have done
all those loan modifications, and I take great offense in that
anybody who calls me a foreclosure king or anything else.
And, ranking member, I have had the opportunity to talk
about this with you, many times before, and this is nothing
new, and I am very proud of OneWest's record, and I am not
apologizing to anybody, because robo-signing is not a legal
term, and I was being harassed.
Ms. Waters. You are under oath.
Mr. Hultgren. Thank you.
Chairman Hensarling. The time does not belong to the
ranking member, the time belongs to the gentleman from
Illinois.
Mr. Hultgren. Thank you.
Chairman Hensarling. The time belongs to the gentleman from
Illinois, he may proceed.
Mr. Hultgren. Thanks, Mr. Chairman, thank you, Mr.
Secretary, for being here. The Treasury Department's June 12th
report makes a number of recommendations regarding the
harmonization of our cybersecurity framework.
Specifically, the report recommends further coordination on
two fronts; one, financial regulatory agencies should work
together to harmonize regulations including a common lexicon;
two, financial regulators should work to harmonize
interpretations and implementation of specific rules and
guidance around cyber security framework.
I believe both of these are very important goals.
I wondered if you could just talk briefly on how the
Treasury Department plans to facilitate these efforts and is
there anything we in Congress can do to help support this work.
Secretary Mnuchin. Yes, we look forward to working with
you. It is very critical. Cybersecurity is a very, very
important issue and we are working closely with all the
regulators on us.
Mr. Hultgren. Please let us know, again, how we can provide
assistance--
Secretary Mnuchin. Thank you.
Mr. Hultgren. We just know so much--the importance of
confidence of consumers--
Secretary Mnuchin. Thank you.
Mr. Hultgren --And securities. So thank you.
I know you have touched on a little bit the Volcker rule, I
want to go in a little bit more on that.
As you know, venture capital funds and startup companies in
which they invest are the innovation and job creation engines
of our Nation. Page 77 of the Treasury Department's June 12th
report recommends changes to the Volcker rule as covered funds
provisions to assist in the formation of venture and other
capital that is critical to fund economic growth opportunities.
I wondered, Mr. Secretary, have you discussed this specific
provision of the Volcker rule with the agencies that have
authority to make amendments? If so, what feedback have you
received? And then, followup on that, how does the Treasury
Department plan to pursue amendments to the Volcker rule that
could conform to existing laws.
In other words, how would you encourage the regulators with
rulemaking authority to undertake this important work?
Secretary Mnuchin. Well, again, there is a two part process
we are going through. One part is working with the regulators
where we can clarify the regulatory issues, make clear
definitions. So, again, people can follow the Volcker rule, but
follow it appropriately and understand it.
And then, also, we would be more than happy to work with
you and Congress on certain legislative changes to further help
that.
Mr. Hultgren. Good. Thank you. I believe it is important
and we want to help.
The June 12th, again, report states significant adjustments
that should be made to the calculation of the supplementary
leverage ratio. And, particularly, deductions from the leverage
exposure denominator should be made, including for cash or
deposit with central banks.
I certainly agree with this recommendation and I have
worked closely with members of this committee such as Keith
Rothfus and Bill Foster to get some regulators to help
understand our concerns.
I wondered, how do you plan to work with the Fed, FDIC, and
OCC to amend the supplementary leverage ratio? If possible,
could you share a timeline for when these concerns might be
addressed?
Secretary Mnuchin. Well, I don't have a specific timeline
but we are working very closely with them and, again, we are
hopeful that we can make progress on that. Thank you.
Mr. Hultgren. I hope so as well, and we would love to be
helpful there.
Last minute, maybe one more question, I understand the
administration has been putting together some ideas on
comprehensive tax reform. I absolutely agree that we need a
more efficient tax code and it would greatly contribute to
economic growth.
Outside the work on this committee I am also very focused
on fighting for tax exempt financing for States and local
government. Specifically for preserving the tax exempt status
of municipal bonds. I believe this local decision, making
process for investing in infrastructure is working. It is
ensuring that we build the roads, schools, bridges, and police
stations that our communities really need and some 160 members
of the House of Representatives agreed with that by signing a
letter that myself and Congressman Ruppersberger passed around.
I wondered, have you considered how this existing piece of
the tax code fits in with the administration's plan for
comprehensive tax reform? If not, I would love to followup with
you a little bit more on the importance of municipal finance
and, specifically, the current tax treatment of municipal
bonds.
Secretary Mnuchin. Yes, so, again, we very much appreciate
the importance of municipal finance. We want to make sure that
State and local entities can continue to access that market in
an efficient way and we look forward to working with you.
Mr. Hultgren. Thanks Mr. Secretary, thanks for your
service, and I yield back.
Chairman Hensarling. The time of the gentleman has expired.
The chair now recognizes the gentleman from Colorado, Mr.
Perlmutter.
Mr. Perlmutter. Hi, Mr. Secretary, thank you for being here
today.
Secretary Mnuchin. Thank you.
Mr. Perlmutter. Thanks for your testimony today. Let's
start with you being a Californian and me being a Coloradan,
OK? And I want to talk about marijuana and banking, just for a
second. Because we now are 28 States plus the District of
Columbia have some level of marijuana use and then if you add
all of the States that allow for cannabis oil to try to deal
with seizures, that is another 16 States.
And so, mostly it is a statement to you sir that I would
like to make and California, Colorado having fully legalized
marijuana, that it is important that the Treasury Department
and the Justice Department really continue to focus on this
because in Colorado--unless we have banking services, the
amount of cash just becomes a huge magnet for crime. And it is
very important that we allow businesses that are legal in their
States to be able to have checking accounts and credit card
accounts and payroll accounts.
And I would just impress on you, sir, we need to get this
handled. And I don't know exactly where you are--I am not going
to ask you on the record but I just want to make sure you
understand this is now way more than half the States of the
country, and I would suggest to you that you talk to Mr.
Mulvaney and the administration to try to come up with some
ideas so we can have baking for legitimate businesses in those
States that have some level of marijuana use.
Secretary Mnuchin. Yes, well, let me just comment. When I
was a banker I was familiar with this issue and we were very
concerned for the regulatory issues of banking, those types of
clients, despite the fact that it was legal.
So I don't have a view but we are happy--I do understand
the issue--we are happy to work with you, and we do think we
need to figure out the regulatory solution.
Mr. Perlmutter. And I thank you for that and if you would
work with me and Mr. Heck and--
Secretary Mnuchin. Be more than happy to.
Mr. Perlmutter --I know we have Mr. Coffman from Colorado,
Republican and a number of Republicans--we would really like to
work with you and the department to get this ironed out.
Secretary Mnuchin. Thank you.
Mr. Perlmutter. Thank you. Second question--or second
statement I guess is, you used the words cutting off the money
earlier on about sanctions and the way that that can work, and
I think you were directing that toward Iran, but it also
applies to North Korea and it applies to Russia, would you not
agree?
Secretary Mnuchin. Yes, and it applies to Venezuela where
we just launched sanctions yesterday to 13 people and will
continue to do more.
Mr. Perlmutter. And I appreciate that, and I thank you for
that. So I guess where I am coming from is again with respect
to sanctions, we have, because of aggressive actions taken by
the Russians in Ukraine and elsewhere, that the department
continue to apply those, where appropriate, where lawful, and
where necessary.
So one of the things--I serve on the terrorism and illicit
finance with Mr. Pearce, and we--it is a really good committee
and we appreciate your department working with us. One of the
places where it is very important is on cryptocurrencies, and
it appears that the Russians are very adept at making opaque a
lot of transactions and we would ask you and your department to
continue to work with us to make sure we are able to pierce
those cryptocurrencies so that they aren't using block chain or
whatever other kinds of things. Would you agree to work with
us?
Secretary Mnuchin. I would and I would also tell you I
share your concerns about bitcoin and others and them being
used for illicit activity. And matter of fact, I believe this
morning we just announced a major action against a bitcoin
operator. So I share your concerns and this is going to be a
big priority of ours.
Mr. Perlmutter. All right, last thing I would like to talk
about and then I will yield some time to my friend Mr. Ellison
is, on 23 of July, there is an article called The Future Of
Banking by Piyush Gupta, which really talks about the
technological changes that are occurring within the banking
world. And just to give you--well I don't have much time. What
do you see happening in--with respect to banks, given all the
technological changes that are occurring?
Secretary Mnuchin. It is no question banking has changed
substantially. Most people don't go into banks anymore and we
need to address that as we think of changes in technology and
regulation.
Mr. Perlmutter. If I could, I like introduce this in the
record.
Chairman Hensarling. Without objection. Time of the
gentleman has expired; the chair now recognizes the gentleman
from Florida, Mr. Ross for 5 minutes.
Mr. Ross. Thank you, Mr. Chairman. Mr. Secretary, thank you
for being here. In reading and listening to your opening
comments, I laud you on one of your priorities and when you say
the other central component to our agenda for growth is a
package--is a passage of comprehensive tax reform.
And we have talked about this before; you have expressed
how important it is for us to have tax reform if we are going
to grow our economy. Now we are the No. 1 in the OECD with the
highest tax rate. I think, in fact, I believe that at 39.08
percent, we have the highest corporate tax rate of any
developed nation. At the same time, our effective tax rate is--
hovers around 20 percent and we are 21st in terms of tax
revenue as a share of GDP.
Businesses make decisions to avoid suffering under the full
burden of our tax system, and in my opinion I think that what
we have to look at is what impact this has had on our economy.
In other words, if we can lower the corporate tax rate just
alone, we can change the equation for how American businesses
benefit the American economy.
And what I mean by that is, we need to look at how they
shelter their income, are they paying 35 percent up here but
the effective rate is 21 down here, what is happening is that
14 percent? Are they putting their money overseas in order to
take advantage of shelters? Are they looking at choice of form
of where they want to be able to locate their businesses so
they don't have to have tax implications in the United States?
Are they looking at what type of entity are they going to have?
are they looking even at who they are going to hire because of
our corporate tax structure?
So, I guess my question to you, is would you agree that--
because we are having a little bit of issue here in Congress
trying to do comprehensive stuff right now, whether it be
health care or anything else.
And if we come back here in September and we talk tax
reform, if we are only able to do corporate tax reduction,
would you not agree that just lowering the tax revenue--and you
take into consideration how businesses affect their tax
planning by tax shelters by where they want to locate
physically.
Whether in the United States or not, that that lowering of
the taxes would more than make up for what any anticipated loss
of revenues that the CDO may access from going from 35 percent
to 15 percent.
Secretary Mnuchin. Yes, I agree with you completely. This
is not just about lowering the rate, this is about
comprehensive tax reform, about changing from a worldwide
system to a territorial system.
Mr. Ross. And we are the only ones in a worldwide system.
Secretary Mnuchin. We are broadening the base.
Mr. Ross. Correct.
Secretary Mnuchin. And as you have pointed out, although
our stated rate is 35 percent, most international companies pay
significantly less, because they can defer income and sometimes
not even pay any tax on it.
Mr. Ross. And as a matter of fact, as we lower the rate, we
broaden the base?
Secretary Mnuchin. We do indeed.
Mr. Ross. And raise our revenues. Do you agree or disagree,
with those who say that we will never be able to achieve real
GDP growth above the anemic 1 to 2 percent we have seen since
the years following the recession?
Secretary Mnuchin. I disagree with that. I am very
committed that we can get to 3 percent GDP and we will.
Mr. Ross. Thank you.
And as an insurance person, I have to ask you in FIO, look
I am a strong supporter of our State-based regulation systems
in terms of insurance. McCarran-Ferguson has been, I think, a
very good thing for consumers.
It is been a very good thing for insurance companies for
solvency and protections for consumers. My concern with FIO is,
while I understand its role to be a facilitator, especially in
international negotiations, do you feel there is any need for
it ever to be a regulator?
Secretary Mnuchin. Again, what I would say is we
fundamentally believe in the State-based system and we support
that, so the intent is not for it to be a regulator. I don't
know if at any, at some points, there may be certain issues
that they need to deal with, but we are not looking for Federal
regulation of insurance.
Mr. Ross. Thank you, that is somewhat comforting.
I yield back the balance of my time.
Chairman Hensarling. Gentleman yields back.
Chair now recognizes the gentleman from Connecticut, Mr.
Himes.
Mr. Himes. Thank you, Mr. Chairman.
And thank you, Mr. Secretary, for being here.
Like my colleague on the Republican side, I want to deviate
a little bit from the jurisdictional area of this committee
because I agree with him that we are presented with a really
terrific opportunity for comprehensive tax reform. And I really
want to make one point and then ask you a question.
Appearances to the contrary, there is actually strong
bipartisan agreement on the need for comprehensive tax reform.
There are elements of that that are very, very important to
this side of the aisle.
Those elements amongst others include maintaining
distributional equity in the code. It may surprise you to know
that it includes for a lot of us a sense of revenue neutrality,
both inside and outside the budget window.
Something that is not revenue neutral, of course, poses a
threat to programs like Medicare and Social Security. But
really, and I guess, point to my question here, what is really
important to us is a process that is regular order and that
starts in a bipartisan fashion. And I can draw sort of a
dramatic contrast with the way healthcare was brought forward
just in the last 6 months. It was a process using
reconciliation, designed to exclude Democrats, particularly in
the Senate. And in fact, the Senate majority leader noted that
the failure would mean having to work with the Democrats.
So, I really do think process is important here. Hearings,
inviting this side of the aisle in early rather than at the
end.
So, my question to you is, is the White House and is the
Treasury prepared to really push that this process be designed
for bipartisanship and all of the possible durability
associated with that? Or are we going to sadly see something
more akin to what we have seen in the healthcare realm?
Secretary Mnuchin. Well, again, I would like to hope that
it is bipartisan, because you point out, many of these aspects,
I think we have shared values, and objectives, and goals. And I
personally sat down with many Democrats already to solicit
views and get feedback. And I look forward to continuing to do
that.
Mr. Himes. I think a lot of the debate right now is on the
Republican side of the aisle over big issues around revenue
neutrality, around border adjustment tax, deductibility of
interest. I think your and Mr. Coons voice will be very strong
here on those issues. And I just--you know, I see the President
in his tweets sort of occur--blaming the Democrats in the
Senate for being obstructionist when the process at least on
healthcare was designed to exclude them.
And I know your previous career. I know the President's
previous career. You haven't been in town that long.
Really, our signals and processes that you can set up that
will set the stage for bipartisanship in the way it wasn't done
the healthcare issue. So, I just hope--again, I think we all
recognize that durability relies to some extent on bipartisan
cooperation. We have certainly seen that in the healthcare
realm.
And I would note--you were probably following at the time.
Sometimes, the Democrats, under Obama, were accused of having,
you know, a process that excluded the Republicans in 2009. That
was simply not true.
There were months and months of efforts, hearing after
hearing after hearing, efforts to attract a number of
Republican Senators that ultimately did not bear fruit. But I
would just note that those attempts were made. And I think the
country could really benefit if the White House would commit
itself, particularly for something as important as the tax
code, to a process that starts out in bipartisan fashion.
Secretary Mnuchin. Thank you.
Mr. Himes. Thank you. Mr. Chairman, I will yield back the
balance of my time.
Chairman Hensarling. Gentleman yields back. The chair now
recognizes the gentleman from North Carolina, Mr. Pittenger,
for 5 minutes.
Mr. Pittenger. Thank you, Mr. Chairman. Good to see you,
Mr. Secretary.
Secretary Mnuchin. Nice to see you, too. Thank you.
Mr. Pittenger. Great to have you here.
Mr. Secretary, I want to thank you for your understanding
of the role and importance of community banks. I did serve on a
community bank board from the time we chartered to the time we
sold it, it was very successful. And yet, in North Carolina
today, I can tell you that we have lost 50 percent of our banks
since 2010.
I serve eight counties, several of which are rural. It has
had a devastating impact on access to capital credit. So,
appreciate your efforts there.
Mr. Secretary, as you know, I am currently working on a
CFIUS reform bill with Senator Cornyn. We have hoped to
introduce it sometime this fall.
One of our primary goals is recognizing the alarming
transfer of our new and emerging military applicable
technologies that have gone from the United States to the
Chinese. And we want to see greater oversight with that.
Chinese investments here in the United States have grown by 350
percent from 2015 to 2016, and we believe that CFIUS of course
needs greater teeth and greater reforms.
The Defense Department has spoken out on this, that our
military technological superiority is at risk due to this well-
coordinated effort by the Chinese. And a number of officials
have spoken out, including the secretary of Defense, the
director of National Intelligence, director of the CIA, the
director of the NSA, commander of the U.S. Cyber Command, and
the chairman of the Joint Chiefs of Staff.
I would like to have your clarity on this issue and
understanding and really what you believe is necessary in
reference to an update in reforms of CFIUS.
Secretary Mnuchin. Well thank you, and as you know I take
my role very seriously there and I look forward to working with
you and others again. I hope this is something we can
definitely do on a bipartisan basis. There are some obvious
changes we need to make to CFIUS. One of which is CFIUS doesn't
cover joint ventures. But as we have had the opportunity to
talk about, and we look forward to working with you and
others--there is a laundry list of changes that we look forward
to making with you.
Mr. Pittenger. Thank you, sir. Reference to terrorism
finance--which I do serve on that committee--I have some real
concerns today regarding Qatar--I have had several meetings
with the Emir and with the Ambassador regarding concerns that I
have. I have yet to receive any reports of anyone that they
prosecuted for terrorism finance related issues.
They have certainly been involved in financiers, who reside
there and work there. Hamas works there with impunity--they
have been known to pay significant amounts of ransoms out on
the market. And even the Emir said to be that in his efforts
depose Assad, that he worked very closely and supportive with
al Qaida. In that regard he said, I will take care of al Qaida
later. I would really like to get your input regarding--the
concerns relative to--Qatar. Have they been complicit, and what
is the best way to work with them?
Secretary Mnuchin. So--we have worked very closely with
them. I can tell you that they are cooperating with us and that
they take this very seriously. They most recently signed a
memorandum of understanding and making certain commitments, and
we are committed to working with them and making sure that
there is not terrorist financing.
Mr. Pittenger. Yes sir, I appreciate your diligence on
that. This now I would like to ask you--one other matter that I
am giving a significant amount of effort to and that is
relative to the section 314 of the Patriot Act. I would like to
know your assessment of the current process.
We have had a number of meetings with the major banks
relative to the transfer of data, the sharing of data, between
financial institutions, and with our government, and regarding
the SAR's reports, and what can be done to enable the financial
institutions to have closer access to data that allow from the
government--that allow them to really hone in on those--
concerns we really have--apart from looking at the broad
spectrum of SAR's reports--this it seems to me would directly
help our concerns regarding privacy and matters for American
people and the data the financial institutions have on them.
So, I would like to get your perspective on this particular
bill and what can be done.
Secretary Mnuchin. Well we look forward to working with you
on the bill. I will tell you when I was a banker and we filed
SARs we always thought they just went into a big black hole.
And wondered if anything actually happened with them, and I can
assure you the first thing I did when I got here, is I asked
that question. And we do use the SAR's very effectively, but we
look forward to working with you.
Chairman Hensarling. Time, the time of the gentlemen has
expired. The chair recognizes now the gentlemen from Illinois,
Mr. Foster.
Mr. Foster. Thank you, Secretary Mnuchin for coming here
today. I would like to focus on one of the sparse areas of
potential bipartisan agreement--namely the need for forceful
and effective national response to any future currency
manipulation by our trading partners.
As a manufacturing businessman and someone who has co-
founded in our basement a company that now manufactures most of
the theater lighting equipment in the U.S. and exports a good
fraction of what it manufactures, I have been long concerned
about the currency manipulation by foreign nations that creates
an unlevel playing field favoring their domestic manufacturers.
As you are aware, Treasury has been charged by Congress
with making periodic reports on currency manipulation. To that
end, Treasury has developed an objective, quantitative three
part test which I strongly support and believe was done very
well. In your most recent report, I believe you correctly
concluded that six countries, including China, should be put on
the watch list for violating two out of the three criteria but
that, at present, no country satisfies all three criteria.
The difficulty, of course, is that if in the future any
country is designated a currency manipulator the only mandatory
response could be charitably described as toothless jawboning.
There is an alternative, which is for the United States to
unilaterally declare, as a matter of national policy, that
whenever any country is designated a currency manipulator we
would engage in countervailing currency manipulation.
Simply put, if one of our trading partners intervened in
currency markets to depress the value of their currency for
competitive advantage, the U.S. would engage in an equal and
opposite currency intervention to cancel this effect.
Dr. Fred Bergsten of the Peterson Institute has long
advocated for the countervailing currency intervention approach
as a response to foreign manipulation.
He recently published a book on this with Dr. Joseph Gagnon
with very specific proposals for this. And, while there is some
authority under current law to respond in this manner against a
designated currency manipulator it could obviously be
strengthened with legislation.
So, my question is, what specific actions are you
considering against possible future currency manipulation if it
occurs and would you be open to considering countervailing
currency intervention or other approaches in a response?
Secretary Mnuchin. Well, thank you, and we look forward to
working with you on this, and I can tell you we have recently
studied this internally as it relates to NAFTA where we are
going to be going through a renegotiation process, this is one
of the issues we are going to look at adding into the
agreement, and I think this sounds like--
Mr. Foster. Excuse me, but in the case of NAFTA I believe--
you know, in North America currency intervention, manipulation
has not been a major issue.
Secretary Mnuchin. I understand that, I am just saying it
has only come up because of the legislation and us looking at
what we use going forward in trade agreements. So we are
focused, I do agree with you. If someone is a currency
manipulator and labeled and determined as such, there should be
an impact of what that means and not just talk.
The idea that you have cited may be one of many. I surely
wouldn't want to be required to have to do that because the
countervailing size and scale may be quite large. But we do
need to have an impact. If someone does manipulate their
currency and impacts American companies and American workers,
there needs to be an impact and a result.
Mr. Foster. Yes, well the advantage of an equal and
opposite intervention, if they go intervene in the market and
buy x dollars--we intervene and buy x dollars of their
currency. And so, equal and opposite is a well defined and
appropriate response to nullify this.
Second, I would like to ask you what your reaction is to
the idea of a permanent--permanently repealing the debt limit?
You know, there was a very interesting Wall Street Journal
editorial by a very prominent--Jason Fuhrman and Rohit Kumar,
very prominent members of both parties advocating for this.
Among other points they made was that Democrats are
currently using the debt limit as leverage to increase
spending, which is not normally something Republicans would be
enthusiastic about. So I was wondering what your reaction would
be and what the reaction of the administration would be to the
idea of just saying, let's have an appropriate budget process
instead of arguing about whether or not we should pay for our
meal after we have eaten it?
Secretary Mnuchin. Well, I think we have got to look at
this and I agree that there should be a change going forward.
We are obviously not going to address this now but we have a
debt limit, we have a budget process and we have an
appropriations process. I am all for--there should be very
strict controls of spending money. But once we have agreed to
spend the money, we should make sure that the government can
pay for it.
Mr. Foster. Right, so the idea of the debt limit as a
mechanism is not something you are enthusiastic about?
Secretary Mnuchin. I am not.
Mr. Foster. All right. Thank you. Well I look forward to
working with you on this.
Secretary Mnuchin. Thank you.
Chairman Hensarling. Time of the gentleman has expired. The
chair wishes to advise all members that the chair currently
anticipates clearing four more members before excusing the
witness at the agreed upon departure time at one o'clock. I
anticipate clearing Mr. Rothfus, Mr. Delaney, Mr. Tipton and
Mr. Heck at this time.
The gentleman from Pennsylvania, Mr. Rothfus, is recognized
for 5 minutes.
Mr. Rothfus. Thank you Mr. Chairman. Secretary Mnuchin
what--over here--here you go.
One of my priorities is to make certain that the
regulations that banking agencies implement are tailored to the
risks that they address. An area of particular concern is the
regulatory treatment of custody banks and I want to join my
colleague from Illinois, Mr. Hultgren, in highlighting this
issue.
I applaud the conclusion of the Treasury report that calls
for exempting cash deposits at central banks from the
denominator of the supplementary leveraged ratio or SLR. As you
know, this is particularly important for custody banks, due to
their role as a safe haven for cash in times of financial
market stress. My concern is that the unique aspects of the
custody banking sector have not been fully considered in
previous rulemakings, particularly as it relates to the SLR.
In addition to the treasury report, Chair Yellen, Governor
Powell, and Former Governor Tarullo have all recognized that
the SLR disproportionately affects custody banks and should be
revised but, so far, no action has been taken.
I have introduced a bill, H.R. 2121, the Pension Endowment
and Mutual Fund Access to Banking Act which has 14 bipartisan
co-sponsors, many of whom who serve on this committee, to
address the issue.
I say all this to emphasize the broad based chorus out
there to address this issue, and I ask that you keep the
committee informed of progress.
Can you say whether we can expect action prior to the
upcoming January 1, 2018 effective date for the SLR?
Secretary Mnuchin. I can't commit whether there will be
action or not but I can tell you it is something we are very
focused on, and I agree with you, particularly as it relates to
custody banks but the thought that banks could turn away cash
in a financial crisis doesn't seem to make sense.
Mr. Rothfus. Thank you. As you are aware, a number of us on
this committee have expressed concerns about the U.S./E.U.-
covered agreement which Chairman Duffy mentioned earlier in the
process for negotiating future covered agreements.
Covered agreements can be a useful mechanism for achieving
mutual equivalency with foreign jurisdictions but we need to
make sure that we accommodate elements of the U.S. insurance
system that help to foster a robust insurance marketplace,
namely the State-based system of regulation.
What are some ways that covered agreement negotiations can
be improved and made more transparent?
Secretary Mnuchin. So, again, we spent a lot of time
looking at the cover agreement. We did negotiate a side letter
which we are comfortable with and is going to be adhered to and
we look forward to working with you further on these issues.
Mr. Rothfus. We have heard, in a number of hearings and
meeting with bankers--I want to touch on the SAR--the SARs that
you mentioned--and we have heard that term black hole before.
With respect to SAR filing requirements, that they are more
often focused on checking boxes rather than providing useful
targeted data to FinCEN and law enforcement. They also worry
that they ultimately drown out the signal with too much noise.
Should the SAR process be reformed to make compliance easier
and increase the value of information conveyed in reports?
Secretary Mnuchin. Well, I think it should be looked at. I
mean I don't know whether it should be reformed or it shouldn't
be, but it should be looked at. And again, I can assure you as
you know it is very useful getting these reports, but it is one
of the things that we will continue to look at.
Mr. Rothfus. Thank you. My colleague Representative Moore
of Wisconsin and I have introduced bipartisan legislation that
would fix the unintended consequences of an SEC rule that went
into effect last October that destroyed stable value money
market funds as a source of low-cost variable-rate borrowing
for businesses and State and local governments.
The effect has been to limit investment options, reduce
short-term liquidity, and significantly increase the cost of
business and infrastructure investment. Our bill, H.R. 2319,
would restore stable funds--stable value funds, reversing many
of these negative effects.
I think this is very much in keeping with the President's
executive order on core principles for regulating the financial
system. It would empower Americans to make independent
financial decisions, prevent taxpayer-funded bailouts, promote
American competitiveness both at home and abroad, and make
regulation efficient, effective, and appropriately tailored.
I understand that the treasury department will be issuing
additional reports on the executive order to the President and
the Congress in the coming months; I would ask that you give
appropriate consideration to our proposal as part of those
efforts.
Secretary Mnuchin. Will do.
Mr. Rothfus. Thank you. With that, I yield to the chairman
if he has any--
Chairman Hensarling. I thank the gentleman for yielding.
Some ground that Mr. Secretary, I don't think we have plowed
yet, the treasury report recommends the frequency of section
165, resolution plan submissions to 2-year cycles. I think that
both Federal Reserve Governor Powell and FDIC Chair Gruenberg
have testified they supported it, or are at least considering a
2-year cycle. I think this is again, something that can be
accomplished administratively. Is that something that you
anticipate?
Secretary Mnuchin. It is something we are working on and
something we think makes sense.
Chairman Hensarling. Well I am glad to hear that, and it
certainly makes sense to a lot of us on this committee, and I
would encourage you to do that, Mr. Secretary.
Time of the gentleman has now expired; the chair now
recognizes the gentleman from Maryland, Mr. Delaney.
Mr. Delaney. Thank you, Mr. Secretary. I want to go back to
tax reform for minute. Obviously you are working hard I am
sure, on comprehensive tax reform which will involve adjusting
rates, adjusting deductions, hopefully doing it in a way that
is pro-growth, more simple, and doesn't affect negatively the
long-term trajectory of the country.
Let's assume for the purposes of my question that you are
ultimately not successful in getting that done, which I know
you won't want to acknowledge today, but for purposes of my
assumption, let's assume you are not. Would you then consider
an approach whereby you pursued international-only tax reform
and paired that with the kind of long promised infrastructure
program?
Because that approach, which I quite frankly think would in
many ways be more beneficial to the U.S. economy than just tax
reform by itself without any infrastructure, but that approach
has had very significant bipartisan support in the Congress. At
least 40 members on each side of the aisle have supported a
specific proposal on--I won't ask you on the specific
proposal--to do that, but it involves changing the
international tax system, eliminating deferral, lowering the
rates so that it is more competitive on a go forward basis;
also lowering the rates on all the cash that is over there now
and creating a way for that to repatriate back to the country.
And as most people know, and I am sure you do, that
approach would generate revenues for the treasury, for your
department and what we propose to do is allocate that to pay
for large-scale infrastructure program. So assuming your
comprehensive tax reform is ultimately not successful for any
of the hundred reasons people think it may not be successful--
and we all hope it is by the way. Because God knows we need to
do something on a bipartisan basis. But if it is not would you
consider that approach as kind of your plan B?
Secretary Mnuchin. I wouldn't--I mean I think that
infrastructure is very important and I think we are already
working on infrastructure and the ideas to come out with an
infrastructure plan shortly. I think as you know the President
is very focused on a trillion dollars of infrastructure
spending between the Federal Government and the States.
But my own opinion is putting things together only makes
the issues more complicated, but in any event, we look forward
to working with you on tax reform and infrastructure.
Mr. Delaney. So how are you thinking about paying for
infrastructure in the plan that you are working on?
Secretary Mnuchin. Again, we have allocated infrastructure
spending in the President's budget as it is. I mean, at the end
of the day--all these things have to balance, you can move the
money around but we have to look at the cost of it in its
entirety.
Mr. Delaney. But if you do it sequentially--which is what
you are proposing--and tax reform--lets assume now--switching
to a hypothetical--let's assume tax reform is completed. It is
successful--
Secretary Mnuchin. Thank you. I like that assumption.
Mr. Delaney. Are you envisioning setting aside money, to
pay for infrastructure spending as part of that tax reform?
Secretary Mnuchin. Well it is--
Mr. Delaney. But I guess my question is, how do you propose
to pay for it, if you don't do it as part of tax reform?
Secretary Mnuchin. Well again, if we can get the economy to
3 percent growth--there is an additional 2 trillion dollars of
revenues. And that pays for a lot of things, so--
Mr. Delaney. Right, but we won't know obviously--let's
assume tax reform were to get done. Are you proposing to wait
5, 6, 7 years to see that 3 percent growth before you do
infrastructure?
Secretary Mnuchin. No, not at all. I don't think it will
take 3--I don't think it will take 5 years, and I think--we
should pass infrastructure spending, which will be spent over
time.
Mr. Delaney. So, when do you envision passing
infrastructure spending?
Secretary Mnuchin. I hope that is something that we
consider later this year.
Mr. Delaney. So, if your tax reform gets done and then you
tee-up infrastructure spending, and you have a proposal in the
Congress at the end of this year, how do you propose in that
specific proposal for infrastructure to pay for it--assuming
that Congress is not supportive of--approving unpaid for
spending. How would you propose to do that?
Secretary Mnuchin. I think it has to be paid for through
growth that people buy into.
Mr. Delaney. But growth doesn't work in the models we run
here, right? We pay as we go.
Secretary Mnuchin. Yes it does. The joint taxes uses
growths in their assumptions.
Mr. Delaney. Do they use growth for spending programs, or
just tax reforming the way it is used--the current rule in the
house is just tax reform--
Secretary Mnuchin. Correct.
Mr. Delaney. So then assuming you are operating under the
current rules of the house which is what we operate--how would
you pay for it, because you can't use growth.
Secretary Mnuchin. Well, at the end of day you have to look
at all these things in the context of the overall budget, I
guess that is the answer.
Mr. Delaney. So if tax reform failed and there was
bipartisan support in the Congress to do international tax and
infrastructure--you would not support that?
Secretary Mnuchin. I--again I am not making hypothetical's,
again, I am happy to work with Congress and everything else.
Again, I am hopeful we get tax reform and infrastructure both
done. They are both incredibly important to the economy.
Mr. Delaney. It just feels like with your approach, you are
not going to have any money left for infrastructure. But I
yield back.
Secretary Mnuchin. Thank you.
Chairman Hensarling. The time with has gentlemen is
expired, the chair now recognizes the gentlemen from Colorado,
Mr. Tipton.
Mr. Tipton. Thank you Mr. Chairman, thank you secretary for
taking the time to be able to be here. I represent rural
Colorado. And one of the issues that we are really seeing in
our State is a tale of two economies.
Where our metropolitan areas are doing reasonably well--
some of our resort areas--but as we move out into the rural
areas, we are not seeing the recovery happening. And one of the
challenges that we are hearing from our community banks,
throughout the West slope of Colorado over to Pueblo,
Colorado--is the ability to be able to make loans.
And one of the concerns that we have had expressed, and was
actually addressed in the Treasury report when we were looking
at the objectives, in terms of making sure that the interests
of the United States are not undercut by outsourcing or
regulatory requirements to the global community. Could you
maybe speak a little bit in terms of what you are looking at
for the community banks, when we were looking at some capital
regimes for community banks, in regards to say, Basel III?
How to be able to address that so our local banks can make
those loans?
Secretary Mnuchin. Yes--I don't--I am not concerned that
community banks are going to be limited by Basel III. I mean,
obviously Basel III hasn't passed, and we are generally
supportive of reaching resolutions. And a lot of Basel III is
about bringing European capital standards closer to ours, so
that, there is a level playing field between international
banks and ours.
But, I am--I am not overly concerned about the impact of
that on community banks. I am more focused on our own
regulatory issues.
Mr. Tipton. Great. And when we are talking about those
regulatory issues, in our concerns, we just like that some of
the outcomes, in rural Colorado, we are a good example of this.
The lowest labor participation rate in decades. More small
businesses that are shutting down than new business startups.
And we have had testimony that has come in regularly, in
regards to where banks are not able to make loans that they
would like to be able to make.
Secretary Mnuchin. That is true.
Mr. Tipton. What do you see as a solution to that?
Secretary Mnuchin. Again, I firmly believe in proper
regulation, but in many cases, particularly for community and
regional banks, we have over-regulation, and we are addressing
that.
Mr. Tipton. And I think that is going to be important. We
had the opportunity to have Chair Yellen in, as well. And I am
glad to see the focus coming out of the FSOC for those
community banks. Simply because we have heard about the trickle
down effect, the best practices, and how that is impacting
those local communities and their ability to actually be able
to make those loans, and to be able to get the economy moving
at the local level.
Would you maybe speak a little bit--we have had several
questions in regards to BSA, AML, SARS reports that are going
on. Do you see those needing to be tailored, as well, for small
community banks?
Secretary Mnuchin. You know, again, I think the BSA AML
process should be reviewed. But whatever we ultimately do, I
think it should be the same standards on small banks as big
banks, because if people are money laundering, whether they are
going through a small bank or a big bank, there should be the
same standards.
Mr. Tipton. Thank you, sir. And I would like to be able to
yield a little bit of my time to my colleague, Mr. Williams,
out of Texas.
Mr. Williams. Thank you, Congressman. And I will just be
brief. I am a small business owner from Texas, been in business
45 years, family business for almost 80 years. Tax reform is a
big deal to me, we have got to get our tax rates down. And I
just want to say this, when I came to Congress, I heard terms I
have never heard of before.
One was revenue neutral, never heard that in the private
sector. Pay fors, I never heard of in the private sector. I
think that a lot of people are not believing in Main Street
America enough. Main Street America is just ready to have a
huge impact on this economy, if they can get regulations and
burdens off of them.
And I would just reinforce a lot of what you said, is that
the economic growth that will happen with true tax reform, some
of the things we have all been talking about, I think, is going
to be unbelievable, and that is going to be your pay for. And I
just want to reiterate the fact that I appreciate the path that
you are on, and not be confused with terms that are not ever
used in the private sector, that nobody had ever heard of until
they got to Washington.
So, I thank you for your service, and I appreciate you
being here today, and I yield back.
Secretary Mnuchin. Thank you back.
Mr. Tipton. Thank you, Mr. Chairman. Unless you have an
additional question, I yield back.
Chairman Hensarling. Quickly--Mr. Secretary, in the
Treasury report, you indicated that the CFPB is the source of--
has an unaccountable structure, unduly broad regulatory powers
that have led to predictable regulatory abuses. Are there any
changes that you foresee in the bureau that could happen
without congressional approval at this time?
Secretary Mnuchin. I think that is mostly going to require
congressional approval.
Chairman Hensarling. Time of the gentleman has just
expired. The chair now recognizes the gentleman from
Washington, Mr. Heck, for 5 minutes.
Mr. Heck. Thank you, Mr. Chairman. Mr. Secretary, thanks
for being here. My colleague from North Carolina, Mr.
Pittenger, mentioned the Committee on Foreign Investment in the
U.S., CFIUS as we call it. I have also read the Department of
Defense report that he alluded to, which discusses how our
strategic competitors are seeking to access critical resources
in technology. And with the chair's permission, I would like to
enter it into the record, if I may?
Chairman Hensarling. Without objection.
Mr. Heck. As is common with government reports, Mr.
Secretary, the authors evaluate a no-action alternative, or
what happens if we do nothing, but they note the cost of doing
nothing is extraordinarily high--citing estimates of $300
billion in intellectual property stolen every year and $300
billion in sales to U.S. companies lost as a result of IP
theft, economic activity that could have supported
approximately 2.1 million jobs every single year.
So, Mr. Secretary, here are my questions. Do you think we
can afford to do nothing?
Secretary Mnuchin. No.
Mr. Heck. Will you, and your staff, commit to work with
Congressman Pittenger and myself, and other Members of Congress
who share an interest in this issue, to act on the
recommendations of the DOD report?
Secretary Mnuchin. Yes.
Mr. Heck. Do you agree with us and our strongly held belief
that this issue is pressing?
Secretary Mnuchin. Yes.
Mr. Heck. I understand that there have already been some
proposals shared between our staffs and yours. If we keep at
this through the recess, do you believe that we can have a bill
ready that you can support before Congress comes back in
September?
Secretary Mnuchin. That sounds aggressive by congressional
time, so I want to be careful not to go out on a limb on that,
but we will be fully available, we are not going away.
Mr. Heck. It is not a question of Congress being
aggressive, it is a question of the Department of Treasury
being aggressive--
Secretary Mnuchin. We are happy to work with you and
others, we have given our views on various proposals.
Mr. Heck. Thank you, sir. Last, I would like to associate
myself with the remarks of my friend from Colorado, Mr.
Perlmutter, with respect to the regulatory framework for access
to banking services in States that have legally allowed
marijuana consumption. My State is also one of those. And if
there is anything that you take away from today's hearing, I
hope you will write this down--this name, down thank you, sir.
Secretary Mnuchin. Let me get a pen.
Mr. Heck. Travis Mason. Mr. Secretary, Travis Mason was a
23 year old Marine veteran, served his country honorably. He
was a husband and a father of three small children, set of
twins in there. He was studying to be a law enforcment officer
and helping pay his way through that, by acting as a security
guard at a marijuana retail establishment in Colorado.
Criminals entered the establishment, understandably
concluding that it was all cash because of our broken
regulatory framework, and Travis Mason lost his life that day
and left his wife a widow, and his three children without a
father. That is on us, there was no need for that.
The regulatory framework has failed. This is first and
foremost a public safety issue and Travis Mason is exhibit A in
that regard. We are not going to turn back the clock, despite
what some people may be saying. Despite what trial balloons
some people are floating with respect to the legalization of
marijuana. First medical use, then adult recreational use, also
the use of oils for other kinds of medical ailments. It has
been an unrelenting march forward, from the standpoint of the
liberalization of laws. We are not going back. What we need is
your help, sir, to make sure that there isn't another Travis
Mason.
The Cole memorandum, first from DOJ, and the FinCEN
parallel memorandum, sets forth critical fundamental principles
here, that we proceed, if and only if, we do not provide access
to minors, and that we do not allow cash to get into the hands
of gangs and cartels, and then several other conditions, but
those first and foremost.
That is what we do in States--like mine, Washington State,
where we have a well-regulated marijuana market. It is the
safest thing to do, to enable those businesses where now
hundreds of millions--hundreds of millions of dollars, in my
State alone, have been invested in these businesses. We need
your help, sir. We ask for your help. Travis Mason. With that I
yield back my time, Mr. Chair.
Chairman Hensarling. Gentleman yields back. I wish to thank
the Secretary for his testimony today. Without objection, all
members will have 5 legislative days, within which to submit
additional written questions for the witness to the chair,
which will be forwarded to the witness for his response. I ask
that our witness would please respond as promptly as you are
able.
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 1:02 p.m., the committee was adjourned.]
A P P E N D I X
July 27, 2017
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