[Senate Hearing 115-57]
[From the U.S. Government Publishing Office]




                                                         S. Hrg. 115-57


                DOMESTIC AND INTERNATIONAL POLICY UPDATE

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

                                HEARING

                               before the

                              COMMITTEE ON
                   BANKING,HOUSING,AND URBAN AFFAIRS
                          UNITED STATES SENATE

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                                   ON

   REVIEWING DOMESTIC AND INTERNATIONAL POLICY ISSUES AND RECEIVING 
  UPDATES ABOUT THESE ISSUES FROM THE SECRETARY OF THE DEPARTMENT OF 
                                TREASURY

                               __________

                              MAY 18, 2017

                               __________







  Printed for the use of the Committee on Banking, Housing, and Urban 
                                Affairs








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            COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                      MIKE CRAPO, Idaho, Chairman

RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
BOB CORKER, Tennessee                JACK REED, Rhode Island
PATRICK J. TOOMEY, Pennsylvania      ROBERT MENENDEZ, New Jersey
DEAN HELLER, Nevada                  JON TESTER, Montana
TIM SCOTT, South Carolina            MARK R. WARNER, Virginia
BEN SASSE, Nebraska                  ELIZABETH WARREN, Massachusetts
TOM COTTON, Arkansas                 HEIDI HEITKAMP, North Dakota
MIKE ROUNDS, South Dakota            JOE DONNELLY, Indiana
DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada

                     Gregg Richard, Staff Director

                 Mark Powden, Democratic Staff Director

                      Elad Roisman, Chief Counsel

                      Joe Carapiet, Senior Counsel

                 Matt Jones, Professional Staff Member

            Laura Swanson, Democratic Deputy Staff Director

            Erin Barry, Democratic Professional Staff Member

                       Dawn Ratliff, Chief Clerk

                     Cameron Ricker, Hearing Clerk

                      Shelvin Simmons, IT Director

                          Jim Crowell, Editor

                                  (ii)























                            C O N T E N T S

                              ----------                              

                         THURSDAY, MAY 18, 2017

                                                                   Page

Opening statement of Chairman Crapo..............................     1

Opening statements, comments, or prepared statements of:
    Senator Brown................................................     2

                                WITNESS

Steven T. Mnuchin, Secretary, Department of the Treasury.........     4
    Prepared statement...........................................    45
    Responses to written questions of:
        Senator Brown............................................    47
        Senator Toomey...........................................    51
        Senator Sasse............................................    52
        Senator Reed.............................................    62
        Senator Rounds...........................................    64
        Senator Menendez.........................................    65
        Senator Tillis...........................................    67
        Senator Warner...........................................    74
        Senator Warren...........................................    76
        Senator Kennedy..........................................    83
        Senator Van Hollen.......................................    84

                                 (iii)

 
                DOMESTIC AND INTERNATIONAL POLICY UPDATE

                              ----------                              


                         THURSDAY, MAY 18, 2017

                                       U.S. Senate,
          Committee on Banking, Housing, and Urban Affairs,
                                                    Washington, DC.
    The Committee met at 10 a.m., in room SD-538, Dirksen 
Senate Office Building, Hon. Mike Crapo, Chairman of the 
Committee, presiding.

            OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

    Chairman Crapo. This hearing will come to order.
    Today we will receive testimony from the Secretary of the 
United States Department of Treasury on domestic and 
international policy issues.
    Thank you, Mr. Secretary, for attending today.
    This is Secretary Mnuchin's first hearing since being sworn 
in as Treasury Secretary in February, and we look forward to 
our discussion.
    Many of this Committee's priorities fall within the 
jurisdiction of the Treasury Department, including housing 
finance reform and development of policies to encourage a 
healthier economy. We look forward to working with you and your 
staff on these priorities and improving the lives of Americans.
    Housing finance reform remains the most significant piece 
of unfinished business following the crisis, and it is 
important to build bipartisan support for a path forward. Last 
week, we received testimony from Federal Housing Finance Agency 
Director, Mel Watt. At that hearing, Director Watt emphasized 
that it is Congress that needs to act to determine the future 
of housing finance reform. The hearing reinforced why 
conservatorship is unsustainable--namely, GSEs having zero 
capital, taxpayers on the hook for losses, and the Government 
effectively taking all risks.
    A number of groups have released proposals for reform in 
recent months, including the MBA, the ICBA, the Milken 
Institute, several co-authors writing jointly for the Urban 
Institute, and many others.
    Three years ago, seven Republicans and six Democrats on 
this Committee voted in support of a comprehensive housing 
finance reform bill. A key priority for this Congress is to 
build on that bipartisan legacy and these new ideas and pass 
legislation that will create a sustainable housing finance 
system for future generations.
    I look forward to working with you, Secretary Mnuchin, and 
your staff at the Treasury Department as this Committee 
develops this bipartisan legislation that will fix the broken 
housing finance
system.
    Regarding economic growth, I am encouraged by President 
Trump's Executive Order on Core Principles for Regulating the
Financial System. I understand that the Treasury Department 
will be issuing a report identifying laws and regulations that 
inhibit Federal regulation of the U.S. financial system in a 
manner consistent with the core principles soon. I will review 
this report and work with you, regulators, and Members of the 
Committee to enact measures to improve our financial system.
    Financial regulation should help ensure a safe and sound 
financial system, but in a tailored manner to help grow and 
maintain a healthy economy. We want our Nation's banks to be 
well capitalized and well regulated, without being drowned by 
unnecessary compliance costs. Undue regulation chills 
innovation and imposes significant and unnecessary costs and 
burdens on financial institutions and companies, often 
disproportionately on smaller ones.
    For example, community banks and credit unions lack the 
personnel and infrastructure to handle the overwhelming 
regulatory burden of the past few years, yet in many ways are 
treated the same as the world's biggest institutions. Our 
regulatory regime should be properly tailored and avoid a one-
size-fits-all approach.
    One area I would like this Committee to address is the $50 
billion SIFI threshold for regional banks. In prior hearings, 
we have discussed whether $50 billion is the appropriate 
threshold, and
I hope that we can work together to craft a more appropriate
standard.
    My goal is to work with you, Secretary Mnuchin, Senators of 
this Committee, and financial regulators to look for ways to 
improve regulation and foster economic growth, while 
maintaining resiliency in the economy.
    Senator Brown.

               STATEMENT OF SENATOR SHERROD BROWN

    Senator Brown. Thank you, Mr. Chairman. Welcome, Mr. 
Secretary. Nice to see you two days in a row. Thank you so 
much.
    I thank Chairman Crapo for calling this hearing. Treasury 
has played a key role in our Government since its creation more 
than two centuries ago. That role expanded in the wake of the 
Great Recession when it became clear, at great cost, that the 
rules in place for financial services were inadequate. Given 
the greater role that the Treasury Secretary plays in oversight 
of Wall Street, it makes sense that he devotes some of his time 
to conveying his views and those of the Administration on 
issues within this Committee's jurisdiction to us and to the 
public.
    So far, that communication has been insufficient. Questions 
posed to the Secretary by me and questions posed to the 
Secretary by other Senators have gone either unanswered or were 
answered by non sequiturs. So I hope today will give an 
opportunity to all of us for more forthright conversations.
    On Tuesday, we held an ordinary hearing that, in my mind, 
turned out to be quite extraordinary. Three of the four 
nominees will work in national security positions in Treasury, 
if confirmed; the fourth will work in a national security 
position at Commerce.
    One Senator after another felt compelled to ask the 
nominees, to ask each of them, if they would put the law and 
the Constitution and their country ahead of loyalty to the 
President. Amazing and unprecedented that we thought we had to 
ask that question. Given all the troubling revelations from the 
White House and about the White House, such a question is vital 
for every nominee in a sensitive position. This was hours 
before we learned that President Trump very likely asked FBI 
Director Comey to shut down an
investigation.
    Honesty is critical. Our national interests are undermined, 
whether national security or domestic economic security, when 
our leaders traffic in falsehoods. You cannot lead if we do not 
believe you. And when I say ``we,'' I mean the American public. 
China was a champion of currency manipulation, and then it was 
not. Wealthy taxpayers would not get a tax cut, and then they 
would. The deficit would be eliminated in 8 years, and then it 
would not. Wall Street was getting away with murder, but now it 
has too big a compliance burden. The carried interest loophole 
would be closed, but now maybe not. We must invest $1 trillion 
in our ``Third World infrastructure,'' but now there seems to 
be no rush. No cuts to Medicaid, it was promised; now a $900 
billion--$900 billion--cut to Medicaid is fine.
    The President launched the examination of Dodd-Frank with 
the claim that creditworthy borrowers cannot get loans, but the 
spigot is not dry and we do not need to, in the President's 
words, original words perhaps, ``prime the pump.'' Bank loans 
and profits are at record levels. These are facts that bear 
repeating. Bank loans and profits are at record levels.
    The President was elected saying Wall Street has caused 
tremendous problems for us; ``we are going to tax Wall 
Street,'' his words. Now that he is in office, he seems to have 
forgotten the tremendous problems that Wall Street created for 
middle-class families across America. That same amnesia seems 
to have infected a number of my colleagues who seem to forget 
what Wall Street did 10 years ago to our country, to our 
economy, to our families, to our neighborhoods. The President 
sacked a dedicated public servant for a bank lawyer to oversee 
the Nation's biggest banks. He is threatening the Consumer 
Bureau, one of the only champions that consumers have in the 
executive branch.
    Can we improve upon how we regulate the banks and the 
shadow banks and the rest of the financial services industry? 
Of course we can. I believe we can do so for smaller 
institutions. But let us do so based on facts. The fact is that 
one in five homeowners in the city of Cleveland--one in five--
holds a mortgage that is more than 120 percent of the value of 
their home. The fact is that bank lending has grown 6 percent 
annually over the past 3 years. Loan growth at community banks 
was 8 percent--8 percent--this past year. Lending stalled in 
the first quarter of this year. Why? Because demand was not 
there.
    The fact is that U.S. households have more debt now than 
they did at the peak in 2008, driven by increased auto and 
student debt. The fact is the wealthiest Americans may have 
recovered from the Great Recession, recovered and then some, 
but many, many families like these Cleveland homeowners have 
not. If we want to
improve our economy, we would be better off debating how to 
create jobs through an effective means like infrastructure 
investment rather than the thoroughly discredited trickle-down 
approach, whether achieved through the Tax Code or by raising 
the speed limit for Wall Street.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Secretary Mnuchin, we will now turn to you. You have the 
time that you may need to make a statement. If you would like 
to introduce anyone, as you choose, you may do so. And the time 
is yours.

 STATEMENT OF STEVEN T. MNUCHIN, SECRETARY, DEPARTMENT OF THE 
                            TREASURY

    Mr. Mnuchin. Thank you. I would like to introduce my 
fiancee, Louise Linton, who is with me this morning, as well as 
many other members of my team at Treasury.
    Chairman Crapo, Ranking Member Brown, and Members of the 
Committee, it is an honor to appear before you today for the 
first time as Treasury Secretary. During my confirmation 
hearing, I promised to work with Congress to create and 
maintain prosperity for all Americans. I want to reaffirm that 
commitment to you today.
    Let me begin by discussing the Treasury's recent report on 
foreign exchange policies of our major trading partners. 
Ensuring that American business, consumers, and workers face a 
level playing field is one of the essential components of this 
Administration's agenda. When foreign governments engage in 
currency manipulation, it makes the playing field uneven, which 
is why we regularly monitor these practices.
    After careful study, the Treasury Department has found that 
no major trading partner met the criteria for currency 
manipulation during the current reporting period. We will 
continue to follow this important issue and have established a 
``Monitoring List'' of economies that warrant close attention. 
This list comprises China, Germany, Japan, Korea, Switzerland, 
and Taiwan.
    Additionally, we are committed to rethinking our foreign 
agreements and trading practices to ensure that they are both 
free and fair to American business and workers. In my 
discussions with the IMF and the finance ministers of the G-20, 
I have emphasized this goal, and I will continue to do so.
    Turning to our domestic agenda, it has been more than 30 
years since we have had comprehensive tax reform in this 
country. Combined with often imprudent regulations crafted in 
the midst of the crisis, the entire American prosperity has 
slowed. I believe that a goal of 3 percent GDP or higher 
economic growth is achievable if we make historic reforms to 
both taxes and regulation.
    There are about 100 people working at the Treasury on the 
issue of tax reform. It is our goal to bring relief to middle-
income Americans and make American business competitive again. 
We will do this all while simplifying the tax system.
    On regulatory reform, Treasury is preparing its initial 
report in response to the President's Executive Order on ``Core 
Principles for Regulating the United States Financial System.'' 
These principles provide a road map for the Administration's 
approach to financial services regulation.
    We have taken a systemic approach in our work by meeting 
with a variety of stakeholder groups to hear what works, what 
does not work, and what can be improved. Our initial report 
contains recommendations to provide relief for community banks 
and make regulations more efficient, effective, and 
appropriately tailored.
    Housing finance reform is another priority of mine. This 
has been an unresolved issue for far too long and one we are 
committed to fixing. We will ensure that there is both ample 
credit for housing and that we do not put taxpayers at risk. 
This Committee has done extensive work on this along with your 
work on community financial institution regulatory relief. My 
hope is that we can partner on both of these issues. I look 
forward to working with the Congress to develop a solution.
    Finally, another area that is crucially important to 
Treasury is our commitment to combating terrorist activities 
and financing. We have announced a number of sanctions against 
individuals and entities associated with destabilizing regimes 
like Syria, Iran, and North Korea. This work is essential to 
the Administration's efforts to continue to keep Americans 
safe.
    The first few months of this Administration have been 
significant. We have been working hard at Treasury to develop 
and implement policy that will allow the economy to grow. This 
will make the dream of prosperity once again a reality for all 
Americans.
    Thank you.
    Chairman Crapo. Thank you very much, Secretary Mnuchin. And 
I want to thank you personally for your responsiveness to this 
Committee. We appreciate your willingness to work with us on 
these issues, and certainly your expertise and assistance can 
help us get to the right results.
    I want to ask my first question about housing finance 
reform and the status quo. As I indicated in my opening 
remarks, last week Director Watt of the FHFA indicated that 
this was critical for Congress to deal with. My question to you 
is: Do you agree that the status quo is unsustainable and that 
Congress must move on this issue?
    Mr. Mnuchin. Thank you, Chairman Crapo. I do agree 
completely with that. We are committed to working with you on a 
solution on housing reform. I think we need to fix Fannie and 
Freddie. We are committed to make sure that there is proper 
liquidity in the housing markets. It is a very, very important 
part of the American economy, and we need to make sure that 
there is ample credit for the middle class to buy homes, while 
at the same time making sure that the taxpayers are not at 
risk. As you know, the Treasury has a very big line outstanding 
to those two entities.
    Chairman Crapo. Well, thank you. And as you know, during 
the 113th Congress, this Committee developed a comprehensive 
housing reform bill. We had to make a lot of compromises to 
achieve that bipartisan legislation.
    As the Committee again focuses on housing finance reform, 
what do you think are the key compromises that need to be 
achieved?
    Mr. Mnuchin. Well, I think we are open to working with you, 
as I have suggested. We need to find a solution that creates 
necessary liquidity while making sure we do not put taxpayers 
at risk. And while we have been busy working on tax reform and 
focusing on regulatory issues, during the second half of this 
year I will focus on housing reform and look forward to 
speaking to many of you on ideas.
    Chairman Crapo. Well, one of the big issues that does face 
us on housing finance reform is whether there should be an 
explicit Government guarantee provided through the housing 
system. Do you believe that such a guarantee is necessary? And 
if so, how do we deal with implementing adequate taxpayer 
protections in exchange for any Government guarantee?
    Mr. Mnuchin. Well, I think it is a bit early for me to make 
a conclusion on whether a guarantee is necessary. That is 
something that we would like to study very carefully, and if 
there is a guarantee, we would want to make sure that there is 
ample credit and real risk in front of that guarantee so that 
taxpayers are not at risk.
    Chairman Crapo. All right. Thank you.
    I want to move quickly to the Executive order that the 
President has issued. I notice I only have a couple minutes 
left, and I did not at the beginning of this remind all of our 
colleagues that we need to pay very close attention to the 5 
minutes for questioning because I am confident that every 
Senator on this Committee wants to have his or her opportunity 
to speak with you. So I will just in my last 2 minutes quickly 
bring up the Order that President Trump signed in February 
outlining the Administration's Core Principles for Regulating 
the U.S. Financial System.
    Now, the Executive order requires you to report within 120 
days on the extent to which existing laws and regulations 
promote those core principles and to identify laws and 
regulations that inhibit the Federal regulation of the U.S. 
financial system in a manner consistent with them.
    And, by the way, I strongly agree with those core 
principles, and I am looking very much forward to working with 
you on this effort.
    Can you tell the Committee some of the specific issues you 
have looked at and perhaps some of the findings that we may 
expect to see in your report?
    Mr. Mnuchin. Yes, thank you. We have had a very large group 
at Treasury working on this. One of the things that I 
emphasized to the team ahead of time was that we wanted to make 
sure that we reached out to many different groups and got 
feedback, that this was not something that Treasury was just 
designing on its own.
    I know certain people refer to this as a ``review of Dodd-
Frank.'' That is one of the things we are looking at. But it is 
actually much broader than that in looking at the core 
principles.
    We have met with over 16 different groups, many of them 
having 50 to 100 people. We have had community banks. We have 
had small- and medium-sized banks. We have reached out to each 
one of the regulators and had working groups with each one of 
the independent regulators to make sure we have input from 
them. And we will be issuing a series of reports, the first one 
coming out shortly, which will be on banking. And I will say 
one of the big
focuses, we will make sure that as we have different 
regulators, we have proper coordination between them, and this 
is something that I have also been working on at FSOC where I 
take my responsibility as Chair very seriously.
    Chairman Crapo. Thank you very much.
    Senator Brown.
    Senator Brown. Thank you, Mr. Chairman. And welcome again, 
Mr. Secretary.
    At your nomination hearing on January 19th--and as a member 
of the Finance Committee, I was there--you stated that OneWest, 
the bank you were affiliated with, did not engage in 
robosigning and other types of misconduct related to mortgage 
practices. Since, there has been a lot of news, including 
reports in Ohio from perhaps our State's most conservative 
newspaper, some 1,900 signings in Ohio just in the six largest 
counties, reports that OneWest did, in fact, engage in 
robosigning. Earlier this week, your former company, Financial 
Freedom, settled with the Department of Justice for $89 
million--$89 million--related to violations of Federal law.
    Do you stand by that January 19th testimony?
    Mr. Mnuchin. Yes. Let me first comment and let me first say 
that, as you know, I am no longer on the board of CIT, so I 
only have access to public information and what I have read. 
But I would like to comment on the Financial Freedom settlement 
which was in the recent press.
    Let me first say----
    Senator Brown. Please make it as short as possible. I have 
other questions.
    Mr. Mnuchin.----that these issues were identified by my 
management team and self-reported to HUD and FHA when we
became aware of them. These were issues that existed prior to 
us taking over the bank. We were concerned. We sent a team to 
go see the FHA Commissioner, and we dealt with that.
    We also took reserves, and as soon as we learned there were 
issues, we put in policies to correct those issues immediately.
    Senator Brown. I am sorry to interrupt, but my question, 
Mr. Secretary, was did you--you said that OneWest did not--
forgetting the settlement. You said OneWest did not engage in 
robosignings. Do you stand by that statement from January 19th 
that you said under oath to the Finance Committee?
    Mr. Mnuchin. I do, and I would also just comment, I believe 
in a series of questions that were issued to me after that 
hearing, we responded on the definition of robosigning. And, 
again, I am no longer at the bank, so I cannot comment----
    Senator Brown. I know that. All right.
    Mr. Mnuchin.----on anything that----
    Senator Brown. Thank you. Chairman Crapo mentioned the 
Executive order, and then you gave us some detail about it, and 
I am appreciative of that. As you and your team at Treasury 
work through this, are you reviewing the reforms made to the 
mortgage market that would address practices that took place in 
places like IndyMac and OneWest, including protecting--and you 
mentioned all the banks that you have brought in the room, but 
there are customers, there are community people that you did 
not mention. But the practices that took place at OneWest and 
IndyMac, protecting home buyers from predatory mortgages, 
banning robosignings, other harmful servicing practices, 
evaluating borrowers for their ability to repay a loan, are you 
looking at--are you reviewing those
reforms?
    Mr. Mnuchin. There will be a series of reports, and we will 
be making recommendations on things that impact home mortgages.
    Senator Brown. I am just concerned, as I sit through these 
hearings year after year after year, that so many of my 
colleagues have suffered this collective amnesia about what 
happened 10 years ago. I do not want you as Treasury Secretary 
to suffer from the same affliction.
    Another question. You are meeting with stakeholders on the 
Wall Street reform Executive order and housing finance reform. 
How many industry groups have you--not your staff, but how many 
industry groups have you met with versus how many consumer 
groups?
    Mr. Mnuchin. First of all, let me just comment on your 
other thing. I will not forget those issues. I lived with those 
issues very seriously from the problems at IndyMac, and I spent 
many years trying to fix those and work on home loan 
modifications.
    In regards to industry groups, I have met with several 
groups of industry leaders and community areas. We have worked 
with them, and we have had several meetings of large groups 
that have come in.
    Senator Brown. Could you spell out for this Committee--I 
assume you cannot recite numbers now, but would you get back to 
this Committee within the week that the Chairman usually calls 
on to delineate whom you have met with, which banks? I mean, 
give us a litany of--I mean, diversity of meetings is not small 
banks, medium banks, large banks. There are customers, there 
are community groups. There is all that. So if you would spell 
out specifically whom you have met with and give that to this 
Committee, whom you have met with about the Executive order, if 
you would be willing to do that.
    Mr. Mnuchin. We would be more than happy to do that on a 
confidential basis.
    Senator Brown. Of course. Of course, and I accept that and 
would honor that.
    Last question, Mr. Secretary. You committed to Senator 
Hatch in the Finance Committee that you would respond to all 
the Finance Committee members' questions. I wrote to you 2 \1/
2\ months ago, on March 2nd. I have not received an answer that 
I asked for about potential conflicts of interest and ownership 
in the Administration.
    Just today, there is a front-page story in the, shall we 
say, mainstream media--it is the Wall Street Journal--about the 
President's business partners and his financial entanglements 
with a Russian bank that is on the sanctions list. So I would 
like to pose the question again that I asked in Finance in 
follow-up--I am sorry, that I wrote to you on March 2nd. Will 
you get a complete list of Trump business associates and 
financial ties to ensure that any foreign
entanglements are benign with respect to the laws you enforce--
terrorism, money laundering, sanctions, CFIUS, IRGC 
associations and the like? So would you commit to us to get a 
complete list of Trump business associates and financial ties 
because of the threat they could have to ensure that they are, 
in fact, benign?
    Mr. Mnuchin. Well, let me first say I did review before I 
came today to make sure that my staff had fully responded to 
all the inquiries from you and the Committee, and I believe we 
have. And if there are outstanding questions that you have from 
letters that you have sent us, please make sure you follow-up 
with me after this, and we will make sure that we are 
responsive.
    In regards to your specific question, again, if you would 
just send me a note on what you are looking for, we will review 
internally whether it is appropriate to come from us or 
somewhere else, and we are happy to respond to you.
    Senator Brown. I appreciate that. Thank you for your 
cooperation. But the letter was March 2nd. It was not answered. 
I am asking it again. I will follow up with a letter again. But 
we want to know--we want a complete list--I mean, people in 
this country are troubled by the President's business 
connections. They are troubled when the President's family goes 
to another country to do business and American taxpayers 
provide security for their families and that money goes to the 
Trump business empire, including the President. People want to 
know about those financial entanglements. That is not an 
academic or a political science exercise. It is not even a 
political exercise. It is about the national security of this 
country, and it is about people wanting, needing to know that 
information. So I reiterate how important it is.
    We just last week listened to the nominee for CFIUS and 
terrorism and financial crimes, all those very important 
issues--or those positions, and we want to make sure his ties 
do not affect their ability, the Under Secretary of Treasury 
for Terrorism and Financial Crimes, the ability of the CFIUS 
nominee to do their jobs.
    Mr. Mnuchin. Well, I can assure you I take the CFIUS 
responsibility very seriously. I review the cases weekly. My 
team reports to me on it, and I can assure you that if there 
were any cases that involved the President or any members of 
his family, they would be treated very seriously, and we would 
review them like anything else.
    Senator Brown. But the public needs to know that as you 
review them.
    Thank you, Mr. Chairman.
    Senator Shelby. [Presiding.] Senator Corker.
    Senator Corker. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. I appreciated our 
conversation yesterday evening, and I know that you heard 
Chairman Crapo's commitment to housing reform in his opening 
comments. I know that you have got some tax reform issues and 
others to deal with, but it is my sense that you are strongly 
committed to finally dealing with housing finance reform in an 
appropriate way. Is that correct?
    Mr. Mnuchin. That is correct, and I hope that is something 
that we can do on a bipartisan basis.
    Senator Corker. And I think the only way to do it 
appropriately, where you deal with some of the charter issues 
that are necessary to really go beyond the model that we had 
back in 2008, the only real way to do that is through 
congressional action. Is that correct?
    Mr. Mnuchin. My strong preference is to do it through 
congressional action and working with you and your colleagues. 
I will say that, obviously, the Treasury has a lot of exposure 
and taxpayers are at risk. But my strong preference is to do it 
exactly as you have described.
    Senator Corker. I talked to you a little bit about the--I 
guess a couple nights ago Mr. White called me to talk a little 
bit about a conversation we had had here publicly about the 
capital cushion and some other issues, and, you know, I 
sincerely believe that he feels strongly about the position 
that he has laid out. I discussed that with you a little bit 
last night, and I know your position there. But it seems like 
we have got another 75 days or so to figure out the appropriate 
resolve to that. Is that correct?
    Mr. Mnuchin. That is, and I appreciated you calling me and 
talking about that issue. I have had the opportunity to meet 
with Mel Watt several times. The last time we talked about the 
dividend extensively, and I did tell him that it was our 
expectation at Treasury that they would pay us the dividend, 
and we hope they continue to do so per the agreement.
    Senator Corker. I think most of the models that have been 
put forth to try to resolve the issues that have continued to 
exist with Fannie and Freddie, most of them call for an 
explicit guarantee because of the fact that there was an 
implied guarantee, which really caused the situation where 
there were private gains and public losses. Certainly if there 
is any guarantee that is put in place after hopefully a large 
amount of capital being put in front, that is something that 
should be priced, should it not?
    Mr. Mnuchin. Absolutely. If we do end up with a situation 
where the Government is issuing a guarantee, no different than 
FDIC insurance or FHA insurance, the Government and the 
taxpayers should be compensated for that risk.
    Senator Corker. Well, I would just like to say, again, 
there has been a lot of work, Senator Warner and myself, many 
of the people here at the Committee, have spent a great deal of 
time on this issue. As I mentioned to you last night, I doubt 
we will have a Secretary of Treasury like you that knows as 
much about this topic as you, and I look at this as a 
tremendous opportunity really to resolve this issue because of 
your knowledge and the strong interest on our Committee.
    I think when we attempted this back in 2013, we did so in a 
fashion that was so complicated, very difficult, even though we 
passed something out of the Committee, to bring that into the 
mainstream on the floor, and certainly in front of the American 
people. My sense is there has been a lot of work to streamline 
since, and I will say I feel for the first time a real 
opportunity to align not just the interest of U.S. taxpayers 
and the fact that we want to have a housing finance system that 
is robust, but also, in fairness, one that more fully aligns 
the public sector interest and the private sector interest.
    I know I talked to you a little bit about some potential 
proposals last night on the phone, but I just want to thank you 
for your interest in this and look forward to hopefully 
completing the work that is the last piece of work, the one 
piece of work that really should have been front and center on 
financial reform when we did it in 2010. And I want to thank 
you for your concern, your interest, and hopefully involvement 
in bringing this to a close.
    Mr. Mnuchin. Thank you. I am committed to work with you on 
it.
    Chairman Crapo. [Presiding.] Thank you.
    Senator Reed.
    Senator Reed. Thank you, Mr. Chairman, and thank you, Mr. 
Secretary, for joining us today.
    You noted in your testimony the importance of the work done 
in the Treasury Department to identify and disrupt terrorist 
activities specifically by targeting their financial networks, 
and this work is critical and depends a great deal on 
cooperation of our allies around the world, specifically where 
intelligence sharing is concerned.
    After the recent revelation that President Trump shared 
highly classified information with the Russian foreign 
minister, reportedly information given to him by an ally but 
shared without its knowledge, do you have concerns about the 
chilling effect this is likely to have on our relationships 
with these critical intelligence-sharing partners?
    Mr. Mnuchin. Well, I cannot comment on what information was 
shared or not since the only thing I know is what I read in the 
press. But I will say I am probably spending 50 percent of my 
time on TFI issues. It is, I think, perhaps the most important 
issue right now as part of my job. I assure you that I take it 
very seriously. I have had two foreign trips, meeting with both 
the G-7 and G-20, and in each one of those meetings with my 
counterparts, I have discussed this. And I am happy to report 
that we have a very close working relationship with our 
partners and our allies on this issue and something I think can 
be incredibly effective in stopping terrorism throughout the 
world.
    Senator Reed. Thank you. The White House has also asked you 
to review the orderly liquidation authority established by the 
Dodd-Frank Act. And as you know, the statutory purpose of the 
OLA is to provide the necessary authority to liquidate failing 
financial companies that pose a significant risk to the 
financial stability of the United States and a mandate that 
mitigates such risk and minimizes moral hazard. And I would 
like to highlight some of the OLA provisions and ask whether 
you support them.
    In the case of a failure of a mega bank, do you support the 
mandatory removal of the mega bank's executives and board 
members responsible for the failure?
    Mr. Mnuchin. Again, we are going through an extensive 
review of OLA as instructed by the President. We are just 
starting that process. I have had discussions with many finance 
ministers and Governors throughout Europe, and this is 
something that is obviously very important to them as well.
    It would be premature for me to make any specific comments 
on any aspects of it. We are doing a review. I am open-minded 
to looking at all these, and I look forward to issuing a 
report, and we would be more than happy to come back and update 
you once we have done more work on it.
    Senator Reed. Let me, recognizing your answer, put on the 
record two other issues which I would like you to give 
particular attention, and I will put it in the form of a 
question, understanding that your response would probably be 
similar to your initial
response. Do you support the FDIC's authority to claw back 
compensation from executives and directors substantially 
responsible for the failure?
    Mr. Mnuchin. I would say as a general matter I think that 
that is a good policy that has been instituted. So, again, it 
is something we will review, but, yes, I generally support 
that.
    Senator Reed. Would you support the statutory mandate that 
taxpayers shall bear no losses from the exercise of any 
authority under OLA?
    Mr. Mnuchin. Again, I would say that that is an objective, 
but, again, I would reserve comments, specific comments, until 
we complete the review. Obviously, we do not want to put 
taxpayers at risk in any way, and that is one of the reasons we 
are looking at all the core principles.
    Senator Reed. Mr. Secretary, the tax plan is rather terse 
in details, but it suggests that some of the highest-income 
Americans would receive significant tax cuts, and the majority 
of the tax relief to the remaining Americans would be rather 
minuscule or certainly small. And there is a possibility that 
in the proposal there could be indeed some increases on 
individual families or individual taxpayers.
    Are you committed now to ensuring that there will be no 
increase on families or individual taxpayers of less than 
$250,000 a year? And I am picking that as kind of a reference 
point, but are you committed to something like that?
    Mr. Mnuchin. Let me just say that, obviously, tax reform is 
something that we are working on with the House and the Senate. 
But I can assure you that the President's objective and my 
objective is that we create a middle-income tax cut and that we 
do not raise taxes on the middle-income. If anything, the 
opposite. We are trying to create a middle-income tax cut.
    Senator Reed. Would that tax cut be equivalent to the tax 
cut enjoyed by the very richest Americans, people who make 
about--the 1 percent, highest 1 percent?
    Mr. Mnuchin. Again, obviously, we are working on the 
details. One of the things we have done is we have proposed 
getting rid of almost every single deduction, which is 
something that is used by the rich, in return for a slight 
reduction in taxes. And our objective is that 95 percent of 
Americans will not need to use itemized deductions and will be 
able to fill out simplified tax returns. And we look forward to 
working with you as we progress on the details.
    Senator Reed. Thank you, Mr. Secretary.
    Chairman Crapo. Senator Toomey.
    Senator Toomey. Thank you, Mr. Chairman. And, Mr. 
Secretary, thanks for joining us. Good to see you again.
    I do want to take a moment to compliment you on the 
extraordinary accessibility. You have been before groups of us, 
members of the Finance Committee. I have lost track of the 
number of times you have been on the Hill to get input on the 
various issues in your brief. You have been available by phone. 
You have hosted meetings at the White House. And that is a very 
welcome change from the previous regime, and I am grateful for 
your accessibility and responsiveness.
    I also want to commend you for reiterating the goal that we 
should be striving to create an environment in which we can 
sustain growth that is above 3 percent. I think that is 
entirely achievable, and it is a very important goal. So thanks 
for mentioning that.
    As a quick follow-up to the comments from the Senator from 
Rhode Island, I would just like to underscore that as you do 
this review of the OLA and the OLF, I hope we will keep in mind 
that this very convoluted construct, which, at the end of the 
day, contemplates a taxpayer-funded bailout through the OLF of 
a failed bank, it is a creature of the fact that we do not have 
an adequate resolution mechanism in bankruptcy. And some of us 
have been working for some time on legislation that would give 
us the confidence that we could resolve even a very large, 
complex firm in bankruptcy so that we would not need to put 
taxpayer funds at risk indirectly through the OLF, nor all of 
these very prescriptive punishment mechanisms that the FDIC 
would subjectively decide to impose, of which the Senator from 
Rhode Island mentioned a few.
    In this general topic, I wanted to address one of the 
egregious problems with the FSOC, which you chair now, and it 
has to do with the designation of these too-big-to-fail firms, 
the SIFI designation. It strikes me there are several obvious 
problems with the way that had been run, and I am hoping to get 
your reassurance it is going to be run differently.
    Some of the things I have objected to is a completely 
opaque process where a prospective designee would have no idea 
the criteria by which they would be designated. Second is a 
complete lack of a defined so-called stringent regulation, 
which is the Dodd-Frank-prescripted punishment for being 
designated; no clear off ramp; no mechanism by which you could, 
once designated, change your business practices so that you 
could be relieved of the designation. And even firms like asset 
managers had to worry about being designated, and asset 
managers, as you know, do not intermediate credit risk. They do 
not fund themselves with deposits. They do not have the kind of 
risk profile that banks have.
    So my question for you is: Can you assure us that under 
your leadership the FSOC is not going to launch a whole new 
wave of designations and is not going to be run in this very 
opaque fashion? And could you share with us how you do intend 
to lead the FSOC since it does exist in statute?
    Mr. Mnuchin. Sure. Well, again, I take my responsibility of 
Chair of FSOC very seriously, not only on the designation 
issue, but it is also a very important forum where we can talk 
about issues across the regulators. Cybersecurity is something 
that I am very focused on, and we are working at FSOC and other 
areas with the regulators.
    Specifically on your question, the President has signed an 
Executive order where we are reviewing the FSOC designation 
process. Again, it is early in that work, but I will tell you I 
do support the concept of transparency, and I do believe that 
if a company is being designated, that they should understand 
what would be required to be de-designated if they want to de-
risk their business. So, yes, generally in regulation, I 
believe that there should be transparency.
    Senator Toomey. Thanks. And then just quickly on the CFPB, 
I remain deeply concerned that the way this entity was 
structured has left it completely unaccountable, and it behaves 
as an unaccountable regulator in many ways. The House Financial 
Services Committee had to take extraordinary steps to even 
discover the nature of their processes in their regulation of 
indirect auto lending, despite the fact that the statute 
forbids them to regulate auto lending. They continue to fail to 
produce a timeline that we have requested to explain their 
involvement in the discovery of the Wells Fargo abuses, where 
it appears that the CFPB jumped in at the end to take credit 
for what others had done. And Director Cordray has still yet to 
respond to QFRs that I submitted to him over a year ago. I 
think this lack of responsiveness and accountability is the 
logical consequence of an entity that even a court has 
determined is unconstitutional in its construct.
    I hope you would agree to work with us to change the 
governance of this entity, make it subject to appropriations 
and appropriate congressional oversight.
    Mr. Mnuchin. Yes, we would work with you on that.
    Senator Toomey. Thank you.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Menendez.
    Senator Menendez. Thank you, Mr. Chairman. Mr. Secretary, 
welcome.
    Mr. Mnuchin. Thank you.
    Senator Menendez. The President spent a great deal of time 
on the campaign trail highlighting those neighborhoods and 
communities throughout the country that seldom reap the 
benefits of economic expansion but are reliably and 
disproportionately burdened by economic downturns. And in 
responses to my questions for the record after your 
confirmation hearing, you said, ``I share your commitment to 
bring back jobs to these communities that have been so gravely 
affected by economic conditions for which they had no part in 
creating. If confirmed, I will work with you to make sure the 
poorest and rural areas of America are no longer left behind,'' 
which was heartening to hear.
    So, with that, let me ask you about community development 
financial institutions (CDFIs), the private community partners 
that have stepped up for the better part of a century to inject 
capital, create jobs, provide mortgage credits, small business 
loans, banking services in those forgotten communities.
    In 2016 alone, CDFIs made over 39,000 loans and investments 
totaling more than $3.6 billion, financed over 11,000 small 
businesses and over 33,000 affordable housing units.
    So explain to me, how is it possible to reconcile the 
President's promises and your commitments with the 
Administration's plan to eliminate the community development 
financial institution from the very foundation on which these 
investments are made possible?
    Mr. Mnuchin. Sure. Well, let me first again say I am 
committed to work with you on helping these communities. In 
traveling with the President during the campaign, I had the 
opportunity to see a lot of this, and I also had the 
opportunity at OneWest to see this where previous loans had 
been made improperly by IndyMac.
    In regards to your question on CDFIs, as you know, the 
President's budget has as a priority to make sure that we 
reinstitute proper spending for the military. The President is 
very concerned that we have not made those proper investments 
over the last number of years, and that that required a huge 
investment on the part of the Government. So we had to make 
difficult decisions in where we would try to save money on 
other areas.
    While I share some of your concerns with the CDFIs, we had 
to look at this across a lot of different priorities. It is an 
area where this market is mature and there is private capital 
that will come in and the banks do lend. But I do share your 
concerns on this.
    Senator Menendez. Well, let me respond to that, because I 
believe in a strong defense. We spend more than the next seven 
countries combined. And we can do better, but not at the cost 
of everything that makes America worthy of fighting for and 
dying for, and not at the cost of millions of Americans who 
languish in an economic situation for which none of us 
generally would want to live in.
    And when I looked at the budget justification that was put 
out by the Administration, the justification proposed in the 
budget outline as to why it should be zeroed out is not even an 
accurate description of the program's statutory purpose. It 
said that this was to ``jump-start an industry.'' That was not 
the case. It was created to promote access to capital and 
promote economic growth in economically distressed areas.
    So we obviously disagree on the value of the program 
because in my mind, when there are more than 50 million 
Americans living in communities with high percentages of adults 
who are not working and many who have no high school degree, 
every block has a few vacant homes, and incomes are stagnant, 
these communities desperately need investments that will allow 
them to start small businesses, create jobs, purchase homes. 
This is why I thought I was going to find common ground with 
the Administration, but zeroing out, for example, CDFIs, even 
in your desire to do national defense, does not make any sense 
on behalf of the very people who we supposedly want to defend. 
We want to defend, but we also want to create economic 
opportunities.
    So even the banking industry, the ABA and the ICBA, said it 
best in their letter to Congress requesting full funding. They 
said CDFIs work in the exact communities that were the focus of 
this conversation, they are uniquely positioned to understand 
local credit needs.
    So as we go into the 2018 fiscal cycle, I hope that you can 
be an advocate within the Administration for something that 
would meet the President's goal and your own stated goal. And, 
you know, I hope to be able to work with you to make that 
happen.
    Last, I wrote a letter in March to you concerning the real 
possibility that the Administration would be forced to deal 
with an offer from Russia's state-owned oil company to acquire 
critical entity infrastructure in the United States. Last year, 
Venezuela's large state-owned oil company, PDVSA, pledged 
nearly 50 percent of Citgo shares to Rosneft as collateral for 
its loan. I received your
response on Friday evening and, frankly, it does not say 
anything. It just recites relevant statutes and standard CFIUS 
procedures.
    So my question is: Would it concern you, Mr. Secretary, if 
Venezuela's state-owned oil company defaults on the debt, and 
as a result, Russia's state-owned oil company exercised a near-
majority ownership stake if they have not purchased additional 
shares in the open market? They may have, the possibility being 
the majority owner. With 48 U.S. petroleum product terminals, 3 
refineries in 3 different States, 9 pipelines throughout the 
country, wouldn't that be something that would concern you?
    Mr. Mnuchin. Well, let me just be very clear in stating 
this. This is an issue that I am aware of, not just from your 
letter but from other people who have raised the concern. I can 
assure you that this, like any other national security issue, 
will be reviewed at CFIUS, and at the appropriate--where 
national security issues are also discussed in other 
confidential settings. And at the appropriate time, I would be 
more than--as issues progress, on a classified basis we would 
be more than happy to have a confidential discussion.
    Senator Menendez. Well, I look forward to that.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Scott.
    Senator Scott. Thank you, Mr. Chairman. It is good to see 
Mr. Tillis here with us today. Everyone is giving him thumbs 
up, so it is good to see you healthy here.
    [Applause.]
    Senator Scott. That is why I do not run at 8 a.m. in the 
morning, however. Excuse me. We will talk to you later.
    Mr. Secretary, it is good to see you here as well. Like 
you, I had a past professional life. I spent about 20 years in 
the insurance industry. Now, that may not be as cool as making 
``The LEGO Batman Movie,'' but it is germane to my question.
    I was pleased to see the President call for you to review 
the FSOC's nonbank SIFI designation authority. I think 
examining the transparency, the due process, and likelihood of 
distress associated with these designations is good public 
policy. At the end of the day, insurance companies are not 
banks, and they should not be treated as such.
    Under existing law, FSOC includes an independent member 
with insurance expertise. Most FSOC members can have their 
vacancies on the Council filled by whoever takes their place. 
The law specifically allows that. Unfortunately, such a 
provision does not exist for the independent member with 
insurance expertise.
    When the current insurance expert's 6-year term ends, there 
will be no one there to take his place and no voting member 
with any insurance expertise. Do you believe that Congress 
should address this discrepancy between the vacancies of the 
FSOC members? And if so, how would you suggest that we do so?
    Mr. Mnuchin. First of all, let me just say I have had the 
opportunity to meet with him several times. I do think it is 
very important that we have someone on the FSOC that represents 
and has experience in the industry, knowledge. I would be happy 
to work with you on that issue. We are aware that his term is 
coming up, and if you or anybody else have suggestions for us 
for someone to replace him, we would be happy to listen to 
that. But I share your concern, and we want to make sure that 
we keep that spot on FSOC.
    Senator Scott. I assume that when you make your 
presentation to the President on your review, that you would 
perhaps bring that issue up to the President as well?
    Mr. Mnuchin. Yes.
    Senator Scott. I want to thank Chairman Crapo and Ranking 
Member Brown who have both committed to solving this issue as 
well. So I think if we work as a Committee, we can solve this 
discrepancy that is unusual and certainly not practical.
    Thank you.
    Chairman Crapo. Thank you.
    Senator Tester.
    Senator Tester. Thank you, Mr. Chairman and Ranking Member 
Brown, and thank you for being here, Secretary Mnuchin. I 
appreciate your presence at this hearing.
    Senator Moran and I have a community bank reg relief bill 
called the CLEAR Act. Have you had a chance to take a look at 
that at all?
    Mr. Mnuchin. I have only looked at it briefly, but I would 
be happy to get together with you and go through it.
    Senator Tester. OK. The reason I bring that up is that it 
is a bipartisan bill. There are a number of Democrats that are 
willing to work with you and Republicans that are willing to 
work with you to try to get some common sense reg relief for 
community banks, and if you could take a peek at that and get 
back to us, I would like that a lot.
    Mr. Mnuchin. I would be more than happy to do that, and I 
can assure you that one of the things that will be in the 
report to the President is relief for community banks.
    Senator Tester. Thank you.
    There is a bill out there called the Marketplace Fairness 
Act. It deals with requiring small businesses to collect sales 
tax on behalf of other States and local governments when 
selling goods over the Internet. Are you familiar with that 
bill?
    Mr. Mnuchin. I am familiar with the bill.
    Senator Tester. Do you or the President have a position on 
that bill?
    Mr. Mnuchin. I have not discussed it with the President, so 
I do not know his view. I think this is something that we 
seriously need to look at, and I share certain concerns of 
yours on it.
    Senator Tester. How about a national sales tax in general? 
Is that something that the Administration supports?
    Mr. Mnuchin. We have had no discussions on a national sales 
tax. It is not something that we are inclined to do.
    Senator Tester. OK. Recently, you along with NEC Director 
Cohn announced a one-page tax plan and a briefing. The document 
is not specific, but that is OK. Nonpartisan experts have said 
that this plan could cost $5.5 trillion. I do not think any of 
us here think that that is a good idea, saddling the kids with 
additional debt. I think even Senator McConnell has recently 
said the plan cannot add to the debt.
    Could you commit that this plan, this tax relief plan, 
would not add to the debt?
    Mr. Mnuchin. First of all, let me assure you that this 
plan--we would never propose a plan that we thought would cost 
$5 trillion. OK? Only specific parts of the plan were released, 
so I do not know how it could be responsibly scored. And what I 
have said repeatedly is that any plan we put forward we believe 
should be paid for with economic growth.
    Now, I am concerned as to whether some of the models will 
attribute enough growth in dynamic scoring, but when we present 
the details, we will present how we think it should be paid 
for.
    Senator Tester. I would just--a couple things. First of 
all, the budget that the President put out--and, quite frankly, 
Senator Menendez talked to part of it, but it does not bode 
well for rural America. So if we are talking about economic 
growth and rural America to pay for a tax plan based on the 
budget that the President laid out, we have got some huge 
problems. I am just telling you it is not going to happen with 
that budget. I will just be quite honest with you.
    The other thing I would say is that I am very suspicious of 
dynamic scoring because it has been done before. It is not the 
first time we have been here. And oftentimes, through dynamic 
scoring, the end product looks really good, but then when 
reality hits, it is not that way at all.
    So if you are concerned about the debt--and I do believe 
you are, by the way--I would just ask this needs to be done 
very prudently.
    Mr. Mnuchin. I can assure you that I am very concerned 
about the debt, and I will give you my 10-second commercial on 
the debt limit, which we do need to raise, and I look forward 
to working with all of you on that.
    Senator Tester. And we look forward to working with you on 
that, too.
    GSE reform has been brought up several times. Do you 
support a 30-year fixed-rate note?
    Mr. Mnuchin. I do indeed.
    Senator Tester. OK. And you talked several times about 
protecting taxpayers, and I think that is a solid. Would your 
support for that go away if, in fact, there was some taxpayer 
risk with the GSE rebuild?
    Mr. Mnuchin. Well, again, I think that the 30-year mortgage 
has been a fundamental part of our----
    Senator Tester. Yes, no doubt.
    Mr. Mnuchin.----mortgage finance for as long as most people 
can possibly remember.
    Senator Tester. It is a big deal.
    Mr. Mnuchin. Again, if we end up with a scenario where we 
need some type of explicit guarantee, I would expect that it 
would be paid for, and I would expect that it would hopefully 
never be hit, no different than there is an FDIC Insurance Fund 
or an FHA Insurance Fund.
    Senator Tester. OK, OK. The FSOC underwent a number of 
changes related to transparency and the designation process. 
You have talked about some of them: notifying companies when 
they move between stages, making public the calculation for 
Stage 1 evolution, providing more information to companies as 
they go through their annual review.
    Would you support codifying those changes into law?
    Mr. Mnuchin. Again, we are looking at recommendations, but 
I think that is one of the things we will look at and 
potentially recommend.
    Senator Tester. OK. Thank you very much.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Shelby.
    Senator Shelby. Mr. Secretary, thank you for your 
willingness to serve. You bring unique experience from the 
private sector to the Office of Treasury. You know well that we 
need meaningful bank reform. You have been in the banking 
business.
    A lot of us have pushed for overall and comprehensive bank 
reform, but it seems to me that a lot of the smaller banks and
regional banks that, to my knowledge, having been here 31 years 
on this Committee and Chairman three times, that they do not 
pose a systemic risk to this country, you know, the small banks 
and regional banks.
    So do you support in concept and would you work with us to 
try to bring some meaningful fundamental bank reform to our 
system?
    Mr. Mnuchin. Absolutely. And I think that regional banks 
and community banks are critically important to lending. These 
are the banks that know the communities, know what is needed, 
and they know how to make loans, and we should make sure that 
they can do it without undue regulatory burden, without putting 
taxpayers at risk.
    Senator Shelby. And, sir, aren't they mainly the banker for 
the small- and medium-sized businesses in this country which 
are the job creation machines?
    Mr. Mnuchin. They are indeed.
    Senator Shelby. On the tax reform, which we are all 
interested in and we have talked about, we talk about the 
corporate rate, 35 percent is too high. Of course, nobody pays 
35 percent, as we know. But I have brought this up with the 
Administration several times. A lot of us have. Most of the 
small- and medium-sized businesses that we are talking about in 
this country are taxed under Subchapter S of the IRS Code, and 
that is the pass-through. Is that correct?
    Mr. Mnuchin. That is.
    Senator Shelby. So if we are talking about tax relief for 
the biggest of the biggest, what are some of your proposals or 
what are you working on--you have got a lot of smart people 
working on this--for the small businesses and so forth? Because 
I for one would not want to support a big reduction just for 
the biggest of the biggest and do nothing for our basic base 
and job creation small- and medium-sized businesses. Are you 
working in that area?
    Mr. Mnuchin. Yes, thank you, Senator. We share your 
concerns, and I have referred to this in the plan as a 
``business rate'' as opposed to a corporate rate. We need to 
figure out and we have a large team working on how we would 
deal with pass-throughs.
    But I also just want to emphasize that we are committed to 
making sure that rich people do not use pass-throughs as a 
loophole to pay lower rates. So we do want small- and medium-
sized businesses to have the benefit of lower rates, but we 
will make sure that, you know, not every single accountant, 
lawyer, and doctor who should be paying higher personal rates 
sets up an LLC or a pass-through to get around the system.
    Senator Shelby. But, again, this is the backbone of our 
economy, is it not?
    Mr. Mnuchin. It is, and we are working hard on how we 
create growth in that part of the economy.
    Senator Shelby. I do not want to put you on a calendar 
right now, but as you flesh this out and you get into the weeds 
on this, I hope you will be briefing us. I know the Finance 
Committee has jurisdiction over this, but we have more than a 
passing interest in all of it.
    Mr. Mnuchin. Absolutely, and we will be more than happy to 
come back and brief you and your staff on this.
    Senator Shelby. Thank you very much.
    Chairman Crapo. Thank you, Senator Shelby.
    Senator Heitkamp.
    Senator Heitkamp. Thank you, Mr. Chairman. And welcome, Mr. 
Secretary.
    Mr. Mnuchin. Thank you.
    Senator Heitkamp. This is your first appearance in front of 
this Committee, and I could not agree with you more. One of the 
demands of the American public and the responsibility of 
Washington, DC, is to encourage economic growth. That can solve 
a lot of our problems as we go forward. And so I want to talk a 
little bit about the Ex-Im Bank. It is not a big surprise to a 
lot of people on this Committee that I will be raising it.
    In 2014, Ex-Im Bank's last fully functioning year, the Bank 
supported 164,000 jobs across the country. That is compared to 
about 52,000 jobs in 2016. That is because we did not have a 
quorum.
    In 2015 alone, three Chinese export credit agencies 
financed a total of $500 billion. The potential there is that 
those could have been markets that we were accessing, but we 
are not getting access to today.
    Do you believe that the Ex-Im Bank is a critical tool for 
enabling American manufacturing competitiveness?
    Mr. Mnuchin. I do. I have actually spent a lot of time 
looking at this, and I am concerned that, without more members 
on it, they can only make loans up to $10 million. I think that 
the board should obviously look at credit risk and everything 
else, but the Ex-Im Bank is an important tool, and the 
President has proposed adding new members.
    Senator Heitkamp. One of the great fears that we have is 
that the suggestion of the leadership of the Ex-Im Bank going 
to former Representative Scott Garrett, who really is not just 
a critic of the Bank and a reformer, I think he is someone that 
we are very concerned would not advance the interest of the 
Bank and does not believe in the mission of the Bank, not just 
reforming the Bank.
    Do I have your commitment to work on a bipartisan basis to 
forward leadership in the Bank that would, in fact, make sure 
that the Bank is fully functioning and that these credits 
actually come before the board for up-or-down approval?
    Mr. Mnuchin. I am sorry. I just want to make sure I 
understood your question. Is it on----
    Senator Heitkamp. My question is: If, in fact, Scott 
Garrett's name is advanced to lead the Bank as Chairman, we are 
deeply concerned that many of these credits that are--you know, 
$30 billion worth of manufacturing today will not even see the 
light of day because the head of the Bank has the ability to 
set the agenda for the board. And so it is very important 
that--you know, I quite honestly do not care if Mr. Garrett is 
on the board, but I do care if he is setting the agenda for the 
Ex-Im Bank.
    And so my commitment to you--or my question to you is: Are 
you willing to work on a bipartisan basis so that we can move 
these nominees as expeditiously as possible without getting 
into the weeds on someone that many of us suspect might be a 
saboteur of the Bank?
    Mr. Mnuchin. Yeah, I mean, I cannot comment on his specific 
situation. He was proposed by the President. I would say I can 
assure you that the President is interested in making sure that 
the Ex-Im Bank can lend. We have had lots of business people 
come in and talk about this, and it is something that Director 
Cohn and I are deeply involved in.
    Senator Heitkamp. OK. I would tell you that I raised this 
issue as early as December with the President and was grateful 
to hear that he was supporting the Bank. But as we move 
forward--we are already in May, looking to June--we do not have 
nominees yet, and the nominees that have been proposed I think 
cause great hesitation on our part. And so we will leave it 
there.
    I wrote you a letter on May 11th--you should have received 
it by now--about the Central States Pension System. These are 
good Americans, the kind of Americans that the President talks 
about every day, who worked very hard, negotiated and bargained 
for a pension and health care, and yet they are being told in 
many cases in my State that their pensions will be reduced 70 
percent. Now, we were able to, I think, reject--Treasury 
rejected a plan that was submitted.
    Where are you at with reviewing Central States? And how do 
you see this moving forward?
    Mr. Mnuchin. So, again, let me just comment on--I do recall 
this is something that you mentioned at my meeting and 
confirmation. I am a lot more familiar today on this issue than 
I was beforehand.
    At Treasury, we perform an important function when people 
make applications on these, but it is not a subjective 
function. It is a function of we go through and run tests. I 
share your concerns, and we look forward to working with you 
and others. It is a complicated issue.
    Senator Heitkamp. It certainly is, and I look forward to 
your response to the May 11th letter. Thank you, Mr. Secretary.
    Senator Shelby. [Presiding.] Senator Rounds.
    Senator Rounds. Thank you, Mr. Chairman.
    Mr. Secretary, we appreciate the opportunity to visit with 
you today. I would like to talk about just a couple of items.
    I would like to go back to an insurance-related issue, if I 
could, and that has to do with the U.S.-EU Covered Agreement. 
We may be getting into the weeds a little bit on it, and if you 
would like to take it for the record, that would be fine. I am 
curious. There are different types of insurance carriers that 
do business in the United States. Some do business in Europe as 
well. They all want to be able to--or at least a number of them 
want to be able to do business both within the European market 
but also within the United States market. Some only do business 
here. A lot of our property/casualty carriers do, but they have 
reinsurance connections with the European market.
    Their concern in many cases--there is a little bit of a 
discrepancy between some of the reinsurers who want to 
basically have full access and capability to do business in all 
of the EU markets, and because of that, there was a covered 
agreement that was created, one in which we have a temporary 
seat basically in this decisionmaking body. But property/
casualty carriers on our side of the ocean have some real 
concerns about what the impacts are of being included in this 
Covered Agreement, which leaves a number of different areas 
unanswered with regard to it.
    Some of my friends on the other side of the aisle suggested 
in our last meeting with Treasury officials that when I 
indicated it was kind of like passing a law to find out what is 
in it, that I was going back to Obamacare and that I did not 
need to do that at this time. But this Covered Agreement which 
is there leaves some real unanswered questions for a number of 
our property/casualty carriers that are doing business within 
the United States, but who may be subject to some of the 
requirements found under the Covered Agreement in the future.
    Would you just simply--number one, I will submit a question 
specifically to you for the record on it, but would you commit 
to work with us and get back with us on taking a second look at 
what is in that Covered Agreement, whether or not it really is 
in the best interest of most of the carriers that do business 
within the United States market today?
    Mr. Mnuchin. I will. And I would just comment this is 
another area that I am actually a lot more familiar with than 
when I first came during my hearing. We have had several 
internal meetings where I have been briefed on this. We have 
actually reached out to industry, and we are aware of--there 
are people who support it and people who do not support it. The 
agreement specifically, this is something we do in conjunction 
with the U.S. Trade Representative, and now that the Trade 
Representative has been confirmed, we will be close to making a 
decision. But we would be more than happy to reach out to you 
and hear your views before we make that final decision.
    Senator Rounds. Thank you. I just think some of the 
questions which they have asked really do deserve to be able--
we should be able to get an answer to them one way or another 
before we actually get into this.
    Mr. Mnuchin. I can assure you we will, and this is 
something I am familiar with.
    Senator Rounds. All right. Thank you, Mr. Secretary.
    Also, in following up a little bit on Senator Shelby's 
discussion in terms of the tax rates and so forth and the fact 
that a lot of our job creators are not C corporations, they are 
S corporations, and so forth, but they all come back down to a 
private tax rate or an individual tax rate. I am just curious. 
You know, we have a lot of discussion here about tax reform. 
Within a 74,000-page tax bill, some of those pages giveth and 
some taketh away when every time we talk about simplification 
we can have people that get hurt and people that have an 
advantage or that receive an advantage. When we start talking 
about doing that, and particularly if we are doing this, there 
are going to be individuals who will lobby hard against not 
allowing some of the deductions to be removed, even if there is 
a lower tax rate, once they have done the calculation in their 
own situation.
    While we want to see a simplification, and I think a lot of 
people out there would love to see that happen, there is also a 
concern that, as the President would suggest, it is truly time 
to prime the pump similar to the way that it occurred during 
the Kennedy administration and during what was a very 
successful Reagan administration where we refueled the economy. 
Part of that has got to be regulatory reform, but the second 
part is actually allowing a few more dollars to remain with 
individuals so that they can reinvest back into businesses as 
well.
    When we get right down to it, are we stuck with only a 
program which is revenue neutral, meaning that we basically are 
going to take away as much as we give back? Or could we 
actually consider some sort of a downpayment perhaps on a tax 
plan in which we allow for a reduction in actual taxes 
collected so that that can be reinvested back in the economy in 
a very small nature, perhaps as in a bill that I am suggesting 
and one that I will be introducing in which we take our basic 
tax rate for those individuals at 10 down to 8, from 15 to 13, 
from 25 to 23, from 30 to 28, from 35 to 33, from 39 to 37. It 
is not a huge expense, and yet it may very well impact those at 
the very bottom a little bit more than those at the top, and it 
would be a downpayment to the American public clearly 
indicating that there are additional resources that they can 
invest back into business and basically back into the economy.
    Mr. Mnuchin. Well, the President and I fundamentally 
believe that tax reform is critical to growing the economy and 
getting back to sustained economic growth. We look forward to 
working with you. I think different people will have different 
views as to under what scenarios it should be revenue neutral. 
As we have heard today, some people believe in dynamic, some 
people believe in static. The President does believe that we 
need to create economic growth and that we are willing to have 
lower tax revenues in the short term if that will create 
economic growth.
    I think as I have said, the difference between 2 percent 
and 3 percent GDP is roughly $2 trillion over a 10-year period 
of time. That is a lot of money, and economic growth will help 
us deal with a lot of other complicated economic issues we 
have.
    Senator Rounds. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    Chairman Crapo. [Presiding.] Thank you, Senator.
    Senator Van Hollen.
    Senator Van Hollen. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary, for your service.
    Recently, I sent you a letter together with many of my 
colleagues on this Committee objecting to your decision to put 
Keith Noreika in charge at the OCC by using a maneuver that 
evaded Senate confirmation. As you well know, the OCC serves as 
the chief banking regulator overseeing over 2,000 banks, and 
Mr. Noreika has spent most of his career working very closely 
to protect the interests of those banks.
    I appreciate the letter I got back yesterday. It raised 
some additional questions, and I am going to be sending you 
another letter to ask you to respond to the following 
questions:
    Why were you willing to install him as head of the OCC 
before his ethics pre-vetting has actually been certified so 
that the American public can know whether or not conflicts 
exist now that he is in charge, at least for now, of regulating 
2,000 banks?
    And, second, your letter indicated that Mr. Noreika's 
special temporary 130-day status allows him to avoid President 
Trump's ethics pledge, and I am going to want to know whether 
that would allow him to immediately leave the OCC and lobby or 
work on behalf of big banks. And I am also interested in 
whether all this means that you will be presenting a nominee in 
the next 130 days. So I am going to send you a letter to ask 
for your follow-up on that.
    I want to ask you a question about tax policy, and I agree 
with my colleagues who have said that if we are going to do tax 
reform--and I think tax reform can work, can be an important 
step--that we should focus on middle-income tax relief and not 
another round of tax breaks for the very wealthy and special 
interests.
    In fact, Mr. Secretary, last November you agreed with that 
statement, and I quote what you said in November: ``Any 
reduction we have in upper-income taxes will be offset by less 
deductions, so there will be no absolute tax cut for the upper 
class.'' That is what you said.
    Now, Senators Reed and Tester have asked you questions 
about the tax reform plan that you are thinking of submitting 
or will be submitting. I have a question related to a tax cut 
plan that is already in progress that you and President Trump 
have strongly endorsed, and that is the House health care plan, 
which, according to the Congressional Budget Office, has $900 
billion in tax cuts, including $270 billion in tax cuts that go 
to higher-income families, and the analysis of that tax cut is 
that millionaires will get on average $50,000 a year in tax 
cuts. And that is because what we did in the Affordable Care 
Act was we applied capital gains and net income taxes, Medicare 
taxes, on very high income individuals on their investment 
income so they could help shoulder their share of the Medicare 
Trust Fund.
    That totally violates--totally violates--the standard you 
set forward in November, doesn't it?
    Mr. Mnuchin. Let me just first----
    Senator Van Hollen. It is really a yes-or-no question, Mr. 
Secretary.
    Mr. Mnuchin. The first question you asked I wanted to 
respond to, which was on the Comptroller of the Currency, the 
OCC. So, yes, it is our intention--we actually have someone who 
the President has approved that is going through the FBI 
vetting process. I think as you know, unfortunately, with all 
the candidates, this is a time-consuming process. But we do 
hope that there will be somebody who is cleared and somebody 
who will go through a Senate confirmation process. So this was 
in no way an attempt to put someone in who would not be going 
through. This is someone who is in on an acting basis.
    On your second comment, I have only been partially involved 
in the health care. That is not really in my priority area of 
responsibility. My comments are really more focused on tax 
reform and, yes, the President's intent is that there is a 
middle-income tax cut, and that is our major focus----
    Senator Van Hollen. Mr. Secretary, my question was it is a 
fact that the healthcare bill, so-called healthcare bill that 
passed the House has $900 billion in tax cuts, combined with 
almost $900 billion in cuts to Medicaid and some to Medicare. 
So a huge pillar of this is tax cuts. And isn't it the case 
that the provision that gets rid of the Medicare tax on 
investment income flatly contradicts your test that any 
reduction we have in upper-income taxes will be offset by less 
deductions so there will be no absolute tax cut for the upper 
class? Isn't it an absolute tax cut for millionaires? Yes or 
no.
    Mr. Mnuchin. Again, my comments were focused on tax 
reform----
    Senator Van Hollen. Mr. Secretary, this is tax policy. It 
is a tax--Mr. Chairman, I think it--what has been interesting 
about this healthcare debate is that you have got this major 
tax change masquerading under the cover of health care. Why is 
there a big tax cut in a healthcare bill? You are the Secretary 
of the Treasury. You deal with tax policy.
    Mr. Mnuchin. Again, I think the idea was that that tax was 
hurting investment and jobs in this country, and that, again, 
that was part of the healthcare repeal. So, yes, factually, 
that tax will help people who are investing money back into the 
economy and will create jobs.
    Senator Van Hollen. All right, Mr. Chairman. It flatly 
contradicts your statement of no absolute tax cuts for the 
upper class. It is a flat contradiction.
    Thank you, Mr. Chairman.
    Chairman Crapo. Senator Perdue.
    Senator Perdue. Thank you, Chair. Mr. Secretary, thank you 
for being here.
    Mr. Mnuchin. Thank you.
    Senator Perdue. I appreciate you being willing to step up 
and do this, and it is nice to have a private sector guy in 
here trying to figure this out.
    I want to go to the debt and the portfolio. We have got 
about $20 trillion of debt all in. That is about a third of all 
sovereign debt in the world. It is about 200 total debt--200 
trillion of total debt in the world. But one out of every three 
Government debt dollars that are out there are ours.
    We have also got the largest debt balance sheet in history, 
and the question is: During this period of low interest rates, 
about a little over 50 percent, I think, are 3 years or less in 
maturity, while the United Kingdom has about 48 percent of 
their bond portfolio is 20 years or longer.
    So my question is: Is this something that you guys are 
taking a look at? And do you plan to go a little longer while 
interest rates are still in somewhat of a low environment?
    Mr. Mnuchin. It is. It is something that I have talked 
about. We are studying ultra-long bonds, which would be 50-year 
bonds or even longer. We have been working with the Treasury 
Borrowing Advisory Committee, which is comprised of outsiders, 
to advise us on what the market is for that. And it is 
something that we will consider as we look at debt management. 
No decision has been made, and we are seeking guidance as to 
the demand.
    Senator Perdue. All right. Thank you.
    Let us move to Basel III. Can we talk about that for a 
second?
    Mr. Mnuchin. We can.
    Senator Perdue. It is part of your job, as I understand it. 
You know, it looks to me like that we are unilaterally way 
ahead of our other signatory partners in Basel III in terms of 
our capital reserve requirements. It looks to me like as a 
business guy that for small banks and community banks, regional 
banks, that they are inordinately hampered by the cost of 
compliance and also by this reserve requirement.
    Is there any attempt in your future priorities to look at 
what we are doing regarding our future commitments to Basel III 
and what we can do to get the other partners in Basel III to 
line up and at least catch up with us in terms of the 
commitment of the safety for banks?
    Mr. Mnuchin. There is, and I have had conversations most 
recently when I was at the G-7 in Bari with other board 
governors and other finance ministers about Basel III, and it 
is something that we will be looking at as part of the 
President's Executive order.
    Senator Perdue. But no decision is taken yet regarding it?
    Mr. Mnuchin. No decisions have been taken, and I think as 
you know, Chairwoman Yellen is--the Fed is the one who 
technically participates in Basel, but it is something that we 
are looking at.
    Senator Perdue. Thank you. I met with her this week and 
talked about that, and we talked about the fact that we have 
got somewhere around $6 trillion of liquidity, U.S. liquidity, 
that is really not at work in the economy today, between the 
Russell 1000 balance sheets that have a very strong liquidity 
position, probably the strongest ever, a few trillion dollars 
in the bank balance sheets because of this capital reserve 
requirement, and then also the unrepatriated U.S. profits.
    Let me move to growth just for a second, because the 
capital investment is one that I think is a part of our future 
in terms of getting the economy moving again. It looks to me 
like--the GAO has said that--or CBO has said that 1 percent of 
GDP growth is about $3 trillion over a decade in terms of 
Federal impact on the Federal budget. But yet we tend to talk 
in the Senate about spending cuts or tax increases as a 
bilateral conversation, and yet growth really is very rarely 
talked about because it is an esoteric term here in the Senate. 
But I know that is job one for you guys.
    Can you talk about how to balance those and relative to--
the 800-pound gorilla in the room, relative to our deficit 
spending, and that is, mandatory expenses, and how the 
President and how the Administration sees fiscal policy now 
marrying up with the monetary policy of our future?
    Mr. Mnuchin. Well, let me just comment. You did talk about 
repatriation, and that is something that we are looking at as 
part of tax reform, because there are literally trillions of 
dollars sitting offshore. It is not a surprise. With the 
highest corporate tax rate, worldwide taxation, and this 
concept of deferral, why would U.S. companies bring money back? 
So as part of tax reform, we do hope that there are literally 
trillions of dollars that come back. And as it relates to the 
other economic issues, we look forward to continuing to talk to 
you about them.
    Senator Perdue. But the corporate tax rate also puts U.S. 
companies at risk for foreign companies who have a lot of 
liquidity who can come in and make an acquisition of a U.S. 
company and basically use the tax arbitrage to basically pay 
for that acquisition. Is that not correct?
    Mr. Mnuchin. They can indeed, and I hear that almost every 
day as I meet with business leaders reminding me of that, 
particularly U.S. companies who feel like they are at risk of 
getting taken over and at risk of having the jobs moved outside 
of the United States. We have an uncompetitive system that we 
need to fix.
    And I would also just comment there are several economic 
reports that over 70 percent of the corporate tax burden is 
actually borne by the workers. And for far too long, workers in 
this country have not had wage increases. That is something 
that we clearly saw when we met with hundreds of business 
leaders across the country and something we are focused on.
    Senator Perdue. Thank you for that.
    Thank you, Mr. Chairman.
    Chairman Crapo. Thank you.
    Senator Warner.
    Senator Warner. Thank you, Mr. Chairman. Secretary Mnuchin, 
good to see you again.
    Mr. Mnuchin. Nice to see you.
    Senator Warner. I do not want to belabor the point that 
Senator Van Hollen was making, but I would just add, beyond the 
fact that the healthcare legislation, which I strongly oppose, 
offered a massive tax cut for folks like you and me, it also--
and I say this as a former Governor--is really just a transfer 
of obligation from the Federal Government, which used to share 
in the Medicaid responsibility, to the States. It is an $830 
billion transfer of responsibility back to the States.
    Now, the States can cut their Medicaid, or they can end up 
resulting in dramatic tax increases to continue to pay for that 
Medicaid, which will slow the kind of growth that Senator 
Perdue and I would like to see.
    So I really hope--I know today is tax reform, but the 
healthcare debate really is going to influence how many of us 
approach the tax reform debate, because whether it comes from 
repatriation, when it comes to these other issues, I want to 
work with you.
    Mr. Mnuchin. I appreciate that.
    Senator Warner. But we have got to do it in a way that is 
at least deficit neutral and does not follow up on something 
that, frankly, does not do the best for health care, does not
disproportionately benefit folks like you and me, and, 
candidly, is simply a transfer of responsibility to the States.
    I want to move to two other topics in my time. One is, as 
you are aware, I am up to my eyeballs in the issue around the 
Russia investigation, and it is, I have said repeatedly, maybe 
the most important thing I will ever do in public life. Senator 
Burr and I have asked the Treasury Department for cooperation, 
particularly from the FinCEN division, on getting appropriate 
documents that will be part of our investigation. I am happy to 
see that we received some of those documents yesterday, and we 
are reviewing them. My understanding of how we query that big 
data is going to require some collaboration. And I just would 
like to ask you at this hearing that we will have your 
commitment, your personal commitment, that you will continue to 
work with this bipartisan committee and bipartisan 
investigation in a way so that we can get to the bottom of it 
and get the facts out to the American public.
    Mr. Mnuchin. Yes, you have my assurance, and I did meet 
with my general counsel and review and make sure we were being 
responsive to you on that.
    Senator Warner. I appreciate that, because this is an area 
of enormous interest, and this particular area in terms of, in 
a sense, following the money is something that is terribly 
important. So I appreciate that, and I will try to hold you to 
it.
    Actually, I think somebody else raised this issue, but I 
want to take you through at least a hypothetical in terms of 
the kind of orderly liquidation authority in Title II of Dodd-
Frank, Title II which my good friend Senator Corker and I spent 
a lot of time on it, the one part of Dodd-Frank that actually 
got 80 votes.
    The hypothetical is this: If we have a large $1 trillion-
plus SIFI institution headquartered in the United States and 
operating across the world with multiple subsidiaries, if it 
runs into a credit crunch and the rest of the financial 
industry stops doing business with this SIFI, and it therefore 
fails, in order to have an orderly failure and wind-down, would 
you agree that shareholders need to be wiped out in that SIFI 
institution?
    Mr. Mnuchin. Again, it is hard to respond to a hypothetical 
situation, but----
    Senator Warner. But the normal course would be----
    Mr. Mnuchin. Yes, but----
    Senator Warner.----if the institution got into trouble and 
we do not want to have a taxpayer bailout, you would want to 
have, first of all, the shareholders wiped out, right?
    Mr. Mnuchin. Again, let me just comment on that it is hard 
to comment on a hypothetical----
    Senator Warner. But if a large institution is failing, I 
would think you would want, based upon earlier comments, and 
everybody else's comments, you would want the shareholders 
wiped out----
    Mr. Mnuchin. I would----
    Senator Warner.----you would want the creditors to take 
some losses.
    Mr. Mnuchin. I would expect----
    Senator Warner. You would want the management fired.
    Mr. Mnuchin. I would expect that shareholders would be 
wiped out before the Government was risked. I am only saying 
that it is a hypothetical situation. There could be situations, 
OK, where, for various regulatory reasons, Title I and Title II 
may not be appropriate.
    Senator Warner. I guess what I believe is that if you wipe 
out the shareholders, wipe out the management, end up having 
the creditors take the loss, and you have still got a liquidity 
issue, you need some backstop there. And I believe that, while 
not perfect by any means, the orderly liquidation process we 
set up in Title II makes the most sense. And I just find--I 
know my time is running out here, but back when we had your 
confirmation, we talked about this. I referenced the fact that 
the National Bankruptcy Conference, which is composed of 
bankruptcy judges and lawyers, believes ``orderly liquidation 
authority under Title II should continue to be available, even 
if the Bankruptcy Code is amended.''
    I just hope that as you go through this process--I know you 
are reviewing Title II. If there are ways to improve--but some 
folks who are characterizing Title II as a bailout I think 
are--frankly, it is not accurate. And there is a recoupment 
clause, as you know, for any of that liquidity that may be 
needed in the short term.
    So thank you. I know we are going to have more conversation 
on this, but I wanted to at least put this out for further----
    Mr. Mnuchin. Yes, and thank you. And let me just assure 
you, we have not reached any conclusions on this. So this is 
something we are looking at. We have not reached a conclusion. 
And I do share your concern and the concern others Senators 
have expressed. The current Bankruptcy Code does not work for 
financial institutions, and liquidity is a serious concern as 
to even if we went through a bankruptcy process.
    So I look forward to continuing to work with you on this.
    Senator Warner. Thank you.
    Chairman Crapo. Senator Kennedy.
    Senator Kennedy. Thank you, Mr. Chairman. Good morning, Mr. 
Secretary. For your benefit and mine, I am going to ask you to 
encapsulate your answers within 30 seconds. If you could, we 
can cover more ground.
    A few months ago, the Chairwoman of the Federal Reserve was 
with us, and she was asked what, if anything, the community 
banks and credit unions defined as less than $10 billion in 
assets did wrong in 2008, and she said, ``Nothing.'' Do you 
agree with that?
    Mr. Mnuchin. I do.
    Senator Kennedy. Would you support a bill that would 
eliminate community banks and credit unions defined as less 
than $10 billion in assets from supervision under Dodd-Frank?
    Mr. Mnuchin. That is likely going to be one of the 
recommendations that we make when we come out with the report.
    Senator Kennedy. Because if you do that, it is not as if 
the community institutions are not going to still be regulated. 
Is that not accurate?
    Mr. Mnuchin. That is correct. They would be regulated by 
their primary regulator, which would make sense.
    Senator Kennedy. OK. Do we still have financial 
institutions in America that are too-big-to-fail?
    Mr. Mnuchin. I do not believe that anything is too-big-to-
fail. Some of them may be too big to succeed.
    Senator Kennedy. Do we still have financial institutions in 
America that are so big that if they did fail, it would have a 
substantial, reprehensible, if you will, impact on the American 
economy?
    Mr. Mnuchin. It could.
    Senator Kennedy. OK. Do you think Dodd-Frank has eliminated 
that risk?
    Mr. Mnuchin. Again, I would just make the comment that it 
is very fact-specific as opposed to being hypothetical.
    Senator Kennedy. OK. If those financial institutions that I 
just referenced had more capital, would that help them?
    Mr. Mnuchin. I believe right now that the large financial 
institutions actually have plenty of capital.
    Senator Kennedy. But if they had more, it would make them 
safer, wouldn't it?
    Mr. Mnuchin. Well, more is obviously always better than 
less, but the question is, if more is stopping them from 
lending, that is concerning.
    Senator Kennedy. OK. My question is not meant to suggest my 
thinking about this. I honestly want your opinion. What do you 
think about Glass-Steagall?
    Mr. Mnuchin. Glass-Steagall, we do not support a separation 
of banks from investment banks. We think that that would have a 
very significant problem on the financial markets, on the 
economy, on liquidity. And we think that there are proper 
things that potentially we could look at around regulation, but 
we do not support a separation of banks and investment banks.
    Senator Kennedy. OK. Why is our productivity growth so low, 
in your opinion, in our economy?
    Mr. Mnuchin. I think that is a complicated question that is 
going to take a lot more----
    Senator Kennedy. You have got a full 30 seconds.
    Mr. Mnuchin.----than 30 seconds, but I will be happy to 
come back and talk to you about it. I think----
    Senator Kennedy. Can you just give me the CliffsNotes 
version?
    Mr. Mnuchin. I think it is a multi-factor issue. It is a 
combination of regulatory issues. It is a combination of job 
training issues. It is a combination of tax issues. I think 
there are a lot of issues that is leading to lower 
productivity.
    Senator Kennedy. Now, if we could increase productivity 
growth from 1 percent to what I think is normal, 2 percent, 
wages ought to go up, right?
    Mr. Mnuchin. That is true, and we would create huge growth 
in GDP.
    Senator Kennedy. OK. Once again, this is a question, not a 
suggestion. Do you think it is possible to do legislation to 
incent businesses to do more profit sharing so that it is a 
win-win, the idea being that it would increase profits for the 
entity as well as incent workers to work harder and, therefore, 
make them more productive and make their wages go up?
    Mr. Mnuchin. I think there has been very successful 
scenarios of companies with profit sharing, but I support 
leaving that to private industry to decide what is best. I do 
not support legislation for that.
    Senator Kennedy. OK. I have got 30 seconds. Could you tell 
me why GDP growth is so anemic?
    Mr. Mnuchin. You know, I listen to a lot of economists tell 
me why we are in a secular situation and give me all the 
reasons. I have repeatedly said that may be the case, but we 
are going to do everything. I think fundamentally we need to 
grow GDP and our focus is a combination of tax reform, 
regulatory relief, and renegotiating trade agreements that will 
create sustained economic growth.
    Senator Kennedy. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    Chairman Crapo. Thank you.
    Senator Warren.
    Senator Warren. Thank you.
    I want to go back to your remarks about Glass-Steagall. As 
you know, the original Glass-Steagall was put in place to 
divide commercial banks and investment banks. The law was 
repealed in 1999, which created the too-big-to-fail banks like 
Citigroup and JPMorganChase that got so large. And since then, 
there have been many proposals, including my own bipartisan 
bill, with Senators McCain, Cantwell, and King, for a 21st 
century Glass-Steagall that would break up the banks and 
modernize the wall between commercial banking and investment 
banking.
    Now, I want to look at the history of this. The President 
and this Administration have said repeatedly that they support 
a 21st century Glass-Steagall. It was in the Republican Party 
platform. Donald Trump said it specifically a few weeks before 
the election. You said, ``We need a 21st century Glass-
Steagall,'' at your confirmation hearing. And now you have just 
said exactly the opposite.
    You know, in the past few months, you and the President 
have had a number of meetings with big banks' CEOs and 
lobbyists. Is that the reason for the reversal on Glass-
Steagall?
    Mr. Mnuchin. No, not at all. There actually was not a 
reversal. So----
    Senator Warren. It was not a reversal?
    Mr. Mnuchin. No. Let me just explain. So the Republican----
    Senator Warren. I am ready.
    Mr. Mnuchin.----platform did have Glass-Steagall. We during 
the campaign--and I had the opportunity to work with the 
President on this--specifically came out and said we do support 
a 21st century Glass-Steagall.
    Senator Warren. Yes.
    Mr. Mnuchin. Which is that means that there are aspects of 
it, OK, that we think may make sense. But we never said before 
that we supported a full separation of banks and investment 
banks.
    Senator Warren. I am sorry----
    Mr. Mnuchin. If we had said that, we would have--we would 
have----
    Senator Warren. Let me just stop you right there, Mr. 
Secretary.
    Mr. Mnuchin. You are not letting me finish.
    Senator Warren. Yeah, I am not because I really have to 
understand what you have just said. There are aspects of Glass-
Steagall that you support, but not breaking up the banks and 
separating commercial banking from investment banking? What do 
you think Glass-Steagall was if that is not right at the heart 
of it?
    Mr. Mnuchin. Again, I am well aware of what Glass-Steagall 
was, and as you may know, the original concern about Glass-
Steagall was actually about conflicts, not about credit risk. 
And if we had supported a full Glass-Steagall, we would have 
said at the time that we believed in Glass-Steagall, not a 21st 
century Glass-Steagall. We were very clear in differentiating 
it.
    Now, I now realize that I had not----
    Senator Warren. Could I ask you to answer----
    Mr. Mnuchin.----realized that your bill was named ``The 
21st Century Glass-Steagall,'' so----
    Senator Warren. Yes, and has been for 3 years now.
    Mr. Mnuchin. I apologize that I was not aware of that, so 
we were----
    Senator Warren. But I still have not heard the answer to my 
question. What do you think Glass-Steagall was if it was not 
separating commercial banking from investment banking--from 
ordinary banking?
    Mr. Mnuchin. Again, the fundamental part of Glass-Steagall 
was, as you have just outlined, the separation of investment 
banking from commercial banking, because people were concerned 
about conflicts in issuing securities.
    Senator Warren. And how do you separate without breaking up 
the big banks that have integrated these two things?
    Mr. Mnuchin. Again, the integration of commercial banking 
and investment banks has gone on for a long period of time. 
That is not what caused the problems during the financial 
crisis. And if we did go back to a full separation, you would 
have an enormous impact----
    Senator Warren. So----
    Mr. Mnuchin.----on liquidity and lending to----
    Senator Warren. So let me----
    Mr. Mnuchin.----small- and medium-sized businesses.
    Senator Warren. So let me get--let me get this straight. 
Let me get this straight. You are saying that you are in favor 
of Glass-Steagall, which breaks apart the two arms of banking--
--
    Mr. Mnuchin. No, I said----
    Senator Warren.----regular banking and commercial banking, 
except you do not want to break apart the two parts of banking. 
This is like something straight out of George Orwell. You are 
saying simultaneously you are in favor of breaking up the 
banks--that is what Glass-Steagall is.
    Mr. Mnuchin. I have never said we are in favor of breaking 
up the banks and separating. If we had, it would have been very 
simple----
    Senator Warren. OK. Let me try it one more time----
    Mr. Mnuchin. We would not have----
    Senator Warren. We are going to run out of time here, but I 
have to try this one more time. What does it mean to be in 
favor of 21st century Glass-Steagall if it does not mean 
breaking apart these two functions in banking?
    Mr. Mnuchin. You know what? I would be more than happy to 
come see you----
    Senator Warren. No, I----
    Mr. Mnuchin.----and follow up and talk about this.
    Senator Warren. Just tell me what it means.
    Mr. Mnuchin. Had we--we never came out and----
    Senator Warren. Just tell me what it means----
    Mr. Mnuchin.----said we should separate banks----
    Senator Warren. Tell me what----
    Mr. Mnuchin.----from investment banks----
    Senator Warren.----21st century Glass-Steagall means if it 
does not mean breaking apart those two functions. It is an easy 
question--or an impossible question.
    Mr. Mnuchin. It is actually a complicated question----
    Senator Warren. I will bet.
    Mr. Mnuchin.----because there are many aspects of it. OK? 
The simple answer, which we do not support, is breaking up 
banks from investment banks. We think that would be a huge 
mistake. But, again, I am more than happy to listen to your 
ideas on it. You obviously have strong views, and I would be 
happy to follow up and listen to you.
    Senator Warren. This is just bizarre, the idea that you can 
say, ``We are in favor of Glass-Steagall, but not breaking up 
the''----
    Mr. Mnuchin. We never said we were in favor of Glass-
Steagall. We said we were in favor of a 21st century Glass-
Steagall. It could not be clearer.
    Senator Warren. ``We are in favor of a bill that is called 
`Breaking up the banks, only do not break up the banks.' ''
    Thank you, Mr. Chairman. This is crazy.
    Chairman Crapo. Senator Tillis.
    Senator Tillis. Well, the good news is you are going to be 
able to finish your answers because I am going to drill down on 
this. I have some other questions that, if time allows, I will 
get to. But isn't it kind of fair to say that the 2008 
financial crisis demonstrates that nondiversified companies 
like Lehman, AIG, Washington Mutual had the most significant 
economic failings?
    Mr. Mnuchin. I am sorry. What was your question?
    Senator Tillis. In other words, the nondiversified 
institutions seemed to be most susceptible in the 2008 crisis.
    Mr. Mnuchin. Yeah, well, I mean, in the case of AIG, they 
were diversified. They just took a massive amount of risk that 
they never should have taken, and the same with Lehman and 
others. So I think I agree with you.
    Senator Tillis. Would you just go back? And you were saying 
that breaking up of the banks would have an enormous impact. 
Can you give me an idea of what that would look like?
    Mr. Mnuchin. Again, when we are talking about breaking up 
the banks, I think what you--one, there are people who just 
think banks are too big and that they should be broken up into 
smaller banks. I would say our view is that what we should be 
doing is supporting and making sure that community banks and 
regional banks can grow so we do not just end up with big 
banks.
    I think if you are talking about separating investment 
banking from commercial banking, that is completely different 
than the concept of breaking up big banks.
    Senator Tillis. I agree, and that is what I am referring 
to. You touched on community banks, and I know in your opening 
statement that you referred to community banks. I did hear you 
refer to regional banks earlier. And I know in the CLEAR Act 
that I believe is cosponsored by Senators Tester and Moran, a 
concern that I have there is whether or not we are hitting the 
right target for where we are talking about regulatory relief 
based on institution size.
    Do you have any thoughts on when you are providing 
regulatory relief what that would look like, how you would 
actually structure it so you could provide that targeted relief 
to, I think, banks or financial institutions that may be a 
little bit larger than is targeted in the CLEAR Act?
    Mr. Mnuchin. I agree with that completely, and when we come 
out with the report, that will be one of the recommendations.
    Senator Tillis. Do you have any sense and rough order of 
magnitude what that would look like?
    Mr. Mnuchin. I think that generally there are people who 
believe that we should raise the $50 billion limit 
considerably, and as you have said, there are people who 
believe that we should raise the $10 billion limit. So we are 
looking at both of those. But we believe that there should be a 
greater differentiation. Banks that have $50 billion do not 
play the same risk as a bank that has $750 billion or $2 
trillion.
    Senator Tillis. What other regulations or provisions of 
Dodd-Frank do you feel should be revisited beyond what we have 
just talked about for mid-sized and regional banks? And, 
specifically, I think it was Senator Menendez that was talking 
about trying to get to the folks that need access to loans to 
be able to invest, the mid-sized and smaller businesses I guess 
primarily. But what other areas should we be looking at or what 
other areas are you going to give us as feedback for where we 
should be prioritizing any other provisions of Dodd-Frank?
    Mr. Mnuchin. Well, I look forward--in the next couple of 
weeks, we will be delivering the extensive report, and we will 
be more than happy to come and sit down with the Committee and 
go through the recommendations. It will be quite detailed.
    Senator Tillis. Good. We are looking for that because I 
think we need leadership from the Administration to focus our 
efforts so that we can get to bipartisan reforms. I do not 
think--I mean, there are a lot of singles and doubles that we 
can hit if we get a very clear indication from the 
Administration what will be well received and what we can get 
bipartisan support for regulatory relief. But I think that we 
have to have explicit recommendations. I am looking forward to 
getting those detailed recommendations as quickly as possible 
so that the Chair can continue his good work trying to get 
bipartisan support.
    I only have about 35 seconds remaining. In 35 seconds--or I 
guess you can go over a little bit--can you tell me what 
direction we should take or what the Administration thinks we 
should take on GSE reform?
    Mr. Mnuchin. Yeah, I mean, I think----
    Senator Tillis. And not waiting for us to come up with 
something, but giving us an outline?
    Mr. Mnuchin. Yeah. So this is something that, you know, we 
will come back in the second half of the year and make 
recommendations to you.
    Senator Tillis. Will it be as extensive as the report we 
are expecting on the----
    Mr. Mnuchin. I think we would like to kind of give a clear 
outline as to what our recommendation would be, and, obviously, 
we need to work with Congress. And I do view this as something 
that needs to be done on a bipartisan basis. But, yes, just 
like we are doing on the core principles, we will be reaching 
out to many different groups, specifically consumers, 
specifically realtors, people who need access to capital, 
mortgage bankers, and we will come back with a specific 
suggestion.
    Senator Tillis. Thank you, Mr. Secretary.
    Mr. Mnuchin. Thank you.
    Chairman Crapo. Senator Cortez Masto.
    Senator Cortez Masto. Thank you, Mr. Chair.
    Secretary Mnuchin, I represent Nevada and for 8 years there 
was the Attorney General, and I have to say I have been sitting 
here listening to your comments, and I have some concerns. And 
let me just start off by saying I give everybody the benefit of 
the doubt. Even as Attorney General, it was about working for 
the betterment of people in our community, making sure 
everybody was coming together to work together. And I am 
concerned about how--what I have seen, some of the responses 
and the dancing around that you have done here to some of the 
questions. And the only other time I had that opportunity to 
hear that was from some bankers and Wall Street executives who 
were in my conference room as Attorney General during the worst 
foreclosure crisis we have ever seen. And the one thing they 
said to me was, ``Well, we are all doing it, and if you are 
going to come after me, you are going to have to come after all 
of us.'' And you know what I did? I went after them. And this 
is my concern: I am still hearing the same kind of dance, 
looking for the betterment of people instead of businesses and 
big corporations, instead of looking out for homeowners and 
consumers and seniors and servicemembers. So let me start off 
with this question because this is why I am concerned.
    You recently spoke at a conference of executives where the 
cheapest ticket to attend cost $12,000, and you joked, and I 
quote, you said, ``You should all thank me for your bank stocks 
doing better.'' I am sure you do not feel that way today. But 
this remark came during a discussion of your efforts to roll 
back Wall Street
reform, including under an Executive order signed by President 
Trump, before a roomful of powerful Wall Street executives.
    Well, let me just tell you this: While you are working to 
undo those financial protections, I am still hearing from 
constituents in my State who are suffering. And let me just 
quote you some of what I am hearing from them based on your 
actions and what we are seeing from this Administration.
    Ruby from Reno said, ``This bill needs to stay in effect. 
The regulations are needed now more than ever as you cannot 
depend on the big banks to just be honest.''
    We have Susan from Elko: ``Please do not weaken the 
financial regulations that were meant to prevent a repeat of 
the financial collapse that led to the Great Recession. It will 
only hurt the middle class.''
    Katherine from Sparks said: ``Appalling that the 
regulations monitoring banks would be lowered. Stand against 
the Executive order and rolling back Wall Street reform.''
    Why doesn't President Trump's Executive order that rolls 
back the Wall Street reform mention consumer or investor 
protection even once? Why doesn't it direct you to consider the 
financial needs of borrowers, students, servicemembers, 
seniors, homeowners? What are you doing to ensure that you are 
looking out for those best interests? And who are you 
surrounding yourself with so that you just do not hear from 
executives but you also get the perspective of homeowners and 
victims of that 2008 collapse? Because I have not heard today 
anything that you have said that is looking out for the 
interests of the people that I just talked about.
    Mr. Mnuchin. Well, I can assure you we are interested in 
looking out for all those people, and this is not about----
    Senator Cortez Masto. And what are you doing specifically--
--
    Mr. Mnuchin.----rolling back reform. On homeowners, on the 
mortgage side, we are absolutely looking at people who do not 
have proper access to mortgage credit. We are looking at all 
different aspects, and this is not about rolling back 
regulation for big banks. This is about making sure that small- 
and medium-sized businesses, homeowners, have access to proper 
credit. That is what we are focused on to grow this economy.
    Senator Cortez Masto. Well, let me tell you my concerns. 
First of all, I am troubled by the people you are bringing into 
the Treasury. Press reports suggest that you are advocating for 
the appointment of another OneWest executive to head the Office 
of the Comptroller of the Currency, our regulator entrusted 
with overseeing more than 2,000 national banks. And your senior 
counsel, whom you hired to run housing finance policy, was 
instrumental in managing the line of credit for Morgan Stanley 
to New Century, a toxic subprime lender that went bankrupt in 
2007. As Attorney General, I sued for this very conduct, and 
this conduct was the subject of a $2.6 billion Justice 
Department settlement in 2016.
    Do you have anyone on your leadership team that has 
advocated for borrowers or worked on behalf of homeowners?
    Mr. Mnuchin. Absolutely. First of all, we absolutely are 
very interested in protecting borrowers and homeowners. It is 
very critical to everything that we are doing. And this is 
something that is going to be a big focus of the Treasurer when 
she starts, who has lots of experience, having worked at the 
Small Business Administration and also having come up the ranks 
through UPS and managed a big part of their business. And a big 
part of her focus will be on community outreach and making 
sure--and I am sorry you feel that way about our appointments 
at the Treasury. I think we have an enormously incredible 
staff. We have an incredible career staff. We have lots of 
people inside the Treasury who have been with us that have 
tremendous experience. And I think as you may know, I started 
loan modifications at IndyMac, and that is something that we 
were very proud of.
    Senator Cortez Masto. I do not have enough time, and I do 
not want to go through that, because I think we are going to 
disagree on what you did to help homeowners in Nevada with 
OneWest. But let me just say this: I hope I am wrong. I hope 
that you prove me wrong and you are out there advocating and 
the people around you are going to be advocating for the very 
constituency that I just talked about. Because I will tell you 
what: Right now I have not heard any specifics with middle-
class tax breaks; I have not heard any specifics on how you are 
going to address the very people that I just talked about. 
Talking in absolutes and without bringing specifics into the 
conversation concerns me.
    And so I am looking for very specific information, so I 
hope that you have that and we will have the ability to work 
together.
    Mr. Mnuchin. OK. Well, I will contact your office, and I 
look forward to getting together with you and your staff, and 
we will come over and talk about how we appreciate the issues 
in Nevada and the housing issues. And I will follow-up in the 
next couple of weeks to come and see you.
    Senator Cortez Masto. Thank you.
    Chairman Crapo. Senator Schatz.
    Senator Schatz. Thank you, Mr. Chairman.
    Mr. Secretary, thank you for being here. I have some 
questions about your tax proposals, and the first is a process 
question. There are basically two paths for the Administration 
and for the Congress in terms of tax policy, whether or not you 
are going to move through reconciliation, which requires 51 
votes, or whether you are going to move through the regular 
order for legislation, which would require 60 votes and, of 
course, would result in a bipartisan product.
    So the first question is: Do you intend to work through 
reconciliation or through the regular order?
    Mr. Mnuchin. Well, I mean, that is a decision for the 
Senate. What I would say is I hope that we can get bipartisan 
support for tax reform. As we have outlined, middle-income tax 
cuts, making businesses competitive, creating jobs----
    Senator Schatz. So I have a----
    Mr. Mnuchin.----and I hope the Democrats support that.
    Senator Schatz. Mr. Secretary, I have a lot of questions, 
so I just--and they are mostly about process, so yes or no or a 
quick sentence would be great. Do you have any more details 
since this piece of paper was released on April 26th?
    Mr. Mnuchin. We have a large team of people that is 
working. Yesterday I met with the Finance Committee. We are 
having outreach to lots of different people, and we expect in 
the near term to have something with a lot more details.
    Senator Schatz. So is it fair to say--I mean, I am looking 
at your proposal and media reporting around it. Yes or no, is 
it accurate to say that the plan cuts the corporate tax rate, 
cuts the pass-through rate, reduces the top marginal tax rate 
for individuals, eliminates the AMT, and eliminates the estate 
tax?
    Mr. Mnuchin. That is correct.
    Senator Schatz. OK. So I think it was 2 days ago or maybe 
3, Leader McConnell made a statement that tax reform must be 
paid for. Is that the view of the Administration?
    Mr. Mnuchin. Again, it will be paid for through growth, so 
yes.
    Senator Schatz. I just--sorry, my colleague got a chuckle 
out of that. I am trying not to. But I guess the question I 
have--and let us just be really blunt here. I understand your 
position, which is essentially tax cuts pay for themselves. But 
I think what I am hearing is that you are not concerned with 
the sort of formal processes that determine whether or not, at 
least in the context of the legislative branch, something is 
paid for. You are basically asserting not just through dynamic 
scoring, which is a new technique of measuring the impact of 
legislation that the Congress adopted over the last 4 or 5 
years. But you are saying: You know what? We are just going to 
ignore CBO and just hope, allege, assert that tax cuts always 
generate more revenue and pay for themselves. And that is----
    Mr. Mnuchin. No, that is----
    Senator Schatz. But that is a change in the way the tax 
policy is being made.
    Mr. Mnuchin. Again, let me just comment, that this is math. 
So, you know, you can create models. As we have seen during the 
financial crisis, sometimes models work, and sometimes models 
do not work.
    Senator Schatz. But are you going to rely on the math of 
CBO or are you going to generate your own arithmetic?
    Mr. Mnuchin. Again, what I have said, OK--and let me just 
be clear. The tax reform is something that obviously the 
Administration is driving forward but needs the support of the 
House and Senate. I believe that we will have three scores: a 
static score, a dynamic score per the process with Joint Tax, 
and we will----
    Senator Schatz. And then your score?
    Mr. Mnuchin. We will likely have developed out of 
Treasury--we have over 100 people--a different view of growth 
and show those numbers. And when it is voted on----
    Senator Schatz. You are going to have, as you say, a static 
score, a dynamic score, and then a Treasury score?
    Mr. Mnuchin. Again, what I would say is there will be a 
Joint Tax score, and there will be a score that shows what we 
believe the impact is. That is correct.
    Senator Schatz. So Senator McConnell also said that a 
border adjustment tax would not pass the Senate. My view is 
that the same is true for a value-added tax. And I guess as I 
am looking at the so-called loopholes that you are looking at 
closing, without a VAT or a BAT, you are just not going to be 
able to generate the revenue to do tax reform. So my concern is 
that either you are going to try to jam a VAT or a BAT through, 
or you are basically not doing tax reform, you are doing tax 
cuts unpaid for with sort of a little bit of spin on the ball.
    So could you just allay my concerns that you actually--I 
understand we may have a different view of the revenue impacts 
of tax cuts. That is an interesting and legitimate conversation 
to have. But you cannot possibly believe that we do not need to 
generate some revenue to make up for the holes that we are 
creating in the Tax Code.
    Mr. Mnuchin. First of all, we absolutely believe that we 
have to generate revenue, and that is why, again, we are trying 
to create----
    Senator Schatz. So if not a VAT and a BAT, then where?
    Mr. Mnuchin. Can I just answer?
    Senator Schatz. Sure.
    Mr. Mnuchin. So we absolutely believe we need to generate 
revenue. We are very concerned about the debt, OK? And we will 
go through the math and show you. Clearly, in the case of 
business taxes, there are many, many companies that pay much 
less than the 35-percent rate. And there are many companies 
that leave foreign profits offshore. This is all about 
broadening the base.
    And in regards to the BAT, we have said to Chairman Brady 
in its current format that it does not work, although we will 
look at something else if they want to present----
    Senator Schatz. I am over time. I would just like to make 
one final comment with the permission of the Chairman.
    Chairman Crapo. Briefly.
    Senator Schatz. And I apologize. What concerns me is that 
it seems to me that you are very sure about where you want to 
cut taxes and you are very vague about how you want to generate 
the revenue to make up for those tax cuts, and that is a 
dangerous position to be in, because all the things that you 
are sure you want to do mostly benefit the wealthiest among us, 
and all the things that are very vague and may be done in 
secret and in private are the things that may be harming most 
of our constituents. And that is my deep and abiding concern 
about this process.
    Thank you.
    Mr. Mnuchin. Well, there is nothing that will be done in 
deep and secret. When the tax bill is generated, it will have 
all the specifics, and it will have the distribution, and there 
will be complete transparency in the process.
    Chairman Crapo. Senator Donnelly.
    Senator Donnelly. Thank you, Mr. Chairman. I just want to 
follow up and support the comments of my colleague Mr. Schatz 
that what is actually happening is the appearance that we will 
be making those working-class families, the ones who are 
struggling the most are going to be the ones whose funds go 
away from to help the richest among us.
    We find ourselves with $20 trillion now, $20 trillion in 
debt, and we were going to dynamically score our way out of $20 
trillion in debt for the last 30 years, and we just find that 
the pile gets bigger and bigger and bigger. And I laughed one 
time when somebody said to me about the dynamic scoring, I 
said, ``Well, then
theoretically, if we go to zero, we should have more money than 
we ever dreamed of in history,'' because as the tax rates go 
lower and lower and lower, we theoretically have more income 
coming in.
    And so one of my greatest fears as I look at the tax 
reform, as I look at where we are going, as I look at the 
budget that goes forward, we have budgets that dramatically 
increase spending in areas and tax reform that has huge cuts. 
And I think all you are doing is just adding to the deficit, 
which is incredibly irresponsible to the children of this 
country.
    Mr. Mnuchin. Well, I can assure you we have no interest in 
doing that, and the fact that the deficits and the national 
debt went from $10 trillion to $20 trillion is something we are 
very concerned about. And, again, as I have said before, if we 
make cuts, this is going to be about broadening the base and 
paying for it.
    Senator Donnelly. But we have heard that before, and you 
have seen in various times where the deficit just increased 
when we----
    Mr. Mnuchin. Well, actually, the time we had a surplus 
under Clinton and Secretary Rubin was where the economy grew 
incredibly, which nobody expected. They never thought they were 
going to and they could not have predicted that type of 
revenue. This is all about how we need to create economic 
growth, and I hope that is something that everybody in this 
room----
    Senator Donnelly. And then we had the follow-on tax cuts 
after that----
    Mr. Mnuchin.----will work with us on it.
    Senator Donnelly.----that blew up the deficit as well. So, 
you know, there were specific tax cuts that occurred after that 
that increased the deficit. But I also want to talk about 
outsourcing, and the President has talked about how this is one 
of his biggest priorities, is stopping outsourcing. My State, 
Indiana, is where Carrier is. It is where Rexnord is. It is 
where these workers who did an amazing job creating the best 
products in the world were summarily fired for no reason other 
than $3-an-hour wages in Mexico. And I was disappointed to see 
that the recent tax proposal did not have any provisions that 
addressed outsourcing in regards to things such as clawing back 
tax breaks for companies that moved jobs overseas or 
incentivizing companies to invest in our communities.
    And when I met with President Trump--I met with him at the 
White House and told him about an end-outsourcing bill I have--
he was very, very supportive of this. And so what I would like 
to get is any specific policies that you are working on now in 
a tax reform package to address this outsourcing; to 
incentivize that, keeping jobs here; to claw back any tax 
breaks that go to companies that are moving jobs overseas. I 
would love the details of that.
    Mr. Mnuchin. OK. Well, first of all, let me say I would be 
happy to get together with you and go over your ideas on 
outsourcing. I can assure you that the President is----
    Senator Donnelly. And the good part is I laid them out to 
the President, and he told me he was 100 percent behind them.
    Mr. Mnuchin. I will get together with you, and we will go 
through them. I can assure you the President is very concerned 
about jobs leaving this country. I think that you know one of 
the main reasons why he wants to renegotiate NAFTA in the case 
of Carrier and others, you know, he personally picked up the 
phone and made calls. And we are very concerned about that 
and----
    Senator Donnelly. And we have supported all of those 
efforts.
    Mr. Mnuchin. In all of my trips overseas, I have told my 
counterparts we expect free and fair trade and better trade 
deals, and that for too long American workers have been hurt by 
jobs leaving this country, whether it is because we have an 
uncompetitive tax system or whether we have bad trade deals. 
And the President has talked about the concept of reciprocal 
deals and reciprocal taxes.
    Senator Donnelly. I am about out of time, but I want to ask 
you about one more subject: currency manipulation. For a long 
time, we have suffered in Indiana. We have seen products dumped 
on our shores. We have seen steel dumped in our State and 
around our country, and currency manipulation has been a big 
part of that.
    The President promised to label China a ``currency 
manipulator.'' China has been able to rack up a huge trade 
surplus because of artificially keeping their currency low over 
the years at the expense of our companies. And in your 
testimony, you state that the Treasury Department found no 
major trading partner currently meets the criteria to be 
considered a currency manipulator, including China.
    I guess the question is: What happened?
    Mr. Mnuchin. Again, first of all, thank you, because we did 
a lot of work. I brought the report----
    Senator Donnelly. I am very impressed, and it has very 
attractive graphics.
    Mr. Mnuchin. Page 13----
    Senator Donnelly. But the President told us that he said 
China was a currency manipulator. What happened?
    Mr. Mnuchin. Page 13, we specifically reference, OK, 
China's intervention for roughly a decade, OK? And there is no 
question that they did. This is for a very specific period of 
time. We went through a very specific test. If anything, during 
this period of time China has used their currency reserves to 
go the other direction, which is actually good for American 
workers. And I have had very specific conversations with my 
counterparts that we will continue to monitor this behavior 
very carefully.
    I am glad you like the graphs.
    Senator Donnelly. Very attractive. I am a lot more 
concerned about the currency manipulation, though.
    Thank you, Mr. Chairman.
    Mr. Mnuchin. So are we, I can assure you.
    Chairman Crapo. Thank you, Senator.
    And, Secretary Mnuchin, a vote has been called. The 
questioning has concluded. Senator Shelby wants to make one 
brief statement, and then actually Senator Brown wants to make 
I guess a statement and a couple of real quick questions, and 
then we will be wrapped up.
    Senator Shelby.
    Senator Shelby. Mr. Secretary, we appreciate your 
appearance and your candor here today. You are a breath of 
fresh air. We want you to stay that way.
    I want to pick up on the Export-Import Bank and the 
question by the Senator. I believe that the two nominees by the 
President, former Congressmen Garrett and Bachus, are good 
appointments. I do have some fundamental differences with the 
role of the Bank. A lot of us do. I had 2 days of hearing when 
I was Chairman of the Committee to try to reform the Bank 
because, if my numbers are about right, what I have been told--
you would know offhand--about $2 trillion of our exports each 
year, a little more than that, and only about 1 percent or 1.5 
percent or something used the
Export-Import Bank, and that we all know that the Bank is used 
primarily, as far as the numbers, by one or two big companies.
    A lot of us believe that is corporate welfare. You know, 
that bothers us. I would hope that the Administration--and the 
President talked about this at one time--would look at ways to 
reform the Bank. I know that is separate legislation than just 
the nominees themselves. I hope you will not close your eyes to 
that because you know a lot about the private market.
    Mr. Mnuchin. Not only would I not close my eyes, I would 
welcome working with you and the Committee. But we do support 
reopening the Bank for more than $10 million loans. But we also 
have a team at Treasury who has worked and will work with you 
on making sure that it is not just for two large companies.
    Senator Shelby. But the majority of the Republicans in the 
Senate a year or so ago voted against reauthorizing the Bank 
because we could not get real meaningful reform. So that would 
be a priority, I think, for a lot of us. Maybe not all of us.
    Mr. Mnuchin. We are willing to work with you on that.
    Senator Shelby. Thank you.
    Chairman Crapo. Senator Brown.
    Senator Brown. Thank you, and I wanted 30 seconds to 
address what Senator Shelby just said. The blemish on this 
Committee and this Committee's stonewalling last year affected 
economic growth because we did not have a functioning Export-
Import Bank, as you just said, Mr. Secretary, for over $10 
million.
    A couple of real quick questions. I know there is a vote 
called on the floor. Are you aware, Mr. Secretary, of any White 
House--these are really housekeeping measures that the Chairman 
and I sometimes do. Are you aware of any White House guidance, 
formal or informal, urging Administration officials not to 
respond to or to delay in responding to Democratic Senators?
    Mr. Mnuchin. I am not.
    Senator Brown. OK. Thank you for that.
    You committed to Chairman Hatch you would respond to 
Finance Committee members' questions. Will you commit to 
responding to Members in both parties of this Committee in a 
timely manner to all requests for information?
    Mr. Mnuchin. Yes, I will.
    Senator Brown. Good. Thank you.
    And the last question is a little longer, but I hope you 
can do it quickly. Are Treasury and FHFA working together to 
prevent another draw on Treasury by the GSEs? If so, how are 
you doing that?
    Mr. Mnuchin. I am sorry. What was the question?
    Senator Brown. I am sorry. Are Treasury and FHFA, Mel Watt 
and you, working together to prevent another draw on the 
Treasury by the GSEs? And if so, how are you going to do that?
    Mr. Mnuchin. No, my conversations with Mel Watt have been 
specifically, one, around the dividend, and that we believe the 
dividend payment should be paid; and, two, that we are willing 
to work with him and with Congress on housing reform. Those are 
the conversations we have had.
    Senator Brown. OK. Thank you for that.
    Thank you, Mr. Chairman.
    Chairman Crapo. OK. Thank you.
    Senator Warren has come back, and she wants to briefly ask 
a few questions. We will do that, and then we will be done.
    Senator Warren. OK, and I will not ask about Glass-
Steagall. I will ask about something else.
    I want to ask about the tax proposal that the 
Administration released a few weeks ago. It proposed slashing 
the rate on all pass-through entities--partnerships, LLCs, S 
corporations--to 15 percent. So I just want to take a look for 
a minute at who that benefits.
    Seventy percent of all income from pass-through entities 
goes to the top 1 percent of taxpayers. That is households 
making more than $450,000 a year. And according to an analysis 
this week from the nonpartisan Tax Policy Center, this pass-
through change would put over $1 trillion in the pockets of the 
top 1 percent of households while 95 percent of middle-income 
households would receive zero in tax benefits from it.
    So other than creating new tax deductions for yachts, it is 
hard to come up with a more targeted tax cut that goes to the 
rich other than this cut on the rate on pass-throughs.
    So, Secretary Mnuchin, with working families struggling to 
make ends meet, why is this Administration giving the ultra-
wealthy this massive tax cut?
    Mr. Mnuchin. So I can assure you--and I have said this 
repeatedly--we are not going to allow all pass-throughs to get 
that rate. We are going to make sure that small- and medium-
sized businesses have the benefit. But we will put procedures 
in place--and I specifically said this--to make sure that 
people who should be paying higher taxes do not use pass-
throughs to arbitrage the
system.
    Senator Warren. If I can just understand, there are two 
parts to your answer that I just want to make sure I am 
understanding what you are saying. Are you saying people who 
currently receive pass-through under your proposals may not 
receive pass-through in the future?
    Mr. Mnuchin. Again, the concept is that there will be a box 
that you have to check that says, ``I am eligible for the 
business tax,'' which is----
    Senator Warren. OK, and are you----
    Mr. Mnuchin.----15 percent, and there will be 
qualifications around that. So, no, it is not----
    Senator Warren. Will that shrink up the number of people 
who receive it now? Because right now--I am not talking about 
new people coming in--it is $1 trillion in tax breaks to the 
top 1 percent.
    Mr. Mnuchin. Trust me, we have run the numbers, OK? And 
despite the fact that lots of people have asked me these 
questions, we are sensitive to the deficit and everything else. 
And you are correct, if we let every single pass-through 
holder, that would be purely arbitraging the system----
    Senator Warren. It is currently a pass--I am not changing 
it. Currently a pass-through----
    Mr. Mnuchin. Yes, that is correct. We are not----
    Senator Warren. You are not going to do that.
    Mr. Mnuchin.----going to allow every single pass-through, 
and specifically, people who are making lots of money will not 
be able to use pass-throughs. There will be criteria as to 
whether you are eligible for the business tax if you are a 
pass-through. It will not be available for everyone.
    Senator Warren. And you are going to limit this to small 
businesses?
    Mr. Mnuchin. Small and medium-sized businesses, yes.
    Senator Warren. OK, limited to that. That is what I wanted 
to understand.
    Thank you very much for the indulgence, Mr. Chairman. Thank 
you.
    Chairman Crapo. Thank you very much.
    And now the questioning has concluded, and, Secretary 
Mnuchin, the hearing is concluded. Before I hit the gavel, 
though, I just want to thank you for your openness and your 
work with the Committee. I mirror what Senator Toomey said. You 
have been very willing to give us your time, both in formal 
hearings as well as in private meetings with the Senators of 
this Committee and of other committees, and I appreciate your 
outreach to us.
    Thank you very much for being here.
    Mr. Mnuchin. Thank you. A pleasure.
    Chairman Crapo. The hearing is adjourned.
    [Whereupon, at 12:14 p.m., the hearing was adjourned.]
    [Prepared statements and responses to written questions 
supplied for the record follow:]
                PREPARED STATEMENT OF STEVEN T. MNUCHIN
                 Secretary, Department of the Treasury
                              May 18, 2017
    Chairman Crapo, Ranking Member Brown, and Members of the Committee, 
it is an honor to appear before you today for the first time as 
Treasury Secretary. During my confirmation hearing I promised to work 
with Congress to create and maintain prosperity for all Americans. I 
want to reaffirm that commitment to you today.
    Let me begin by discussing the Treasury's recent report on the 
foreign exchange policies of our major trading partners. Ensuring that 
American businesses, consumers, and workers face a level playing field 
is one of the essential components of this Administration's agenda. 
When foreign governments engage in currency manipulation, it makes the 
playing field uneven, which is why we regularly monitor these 
practices.
    After careful study, the Treasury Department has found that no 
major trading partner met the criteria for currency manipulator during 
the current reporting period. We will continue to follow this important 
issue and have established a ``Monitoring List'' of economies that 
warrant close attention. This list comprises: China, Germany, Japan, 
Korea, Switzerland, and Taiwan.
    Additionally, we are committed to rethinking our foreign agreements 
and trading practices to ensure that they are both free and fair to 
American businesses and workers. In my discussions with the IMF and the 
finance ministers of the G-20 I have emphasized this goal and will 
continue to do so.
    Turning to our domestic economic agenda, it has been more than 30 
years since we have had comprehensive tax reform in this country. 
Combined with often imprudent regulations crafted in the midst of 
crisis, the engine of American prosperity has slowed. I believe that a 
goal of 3 percent GDP or higher economic growth is achievable if we 
make historic reforms to both taxes and regulation.
    There are about 100 people working at the Treasury on the issue of 
tax reform. It is our goal to bring meaningful relief to middle-income 
Americans and make American businesses competitive again. We will do 
this all while simplifying the system.
    On regulatory reform, Treasury is preparing its initial report in 
response to the President's Executive Order on ``Core Principles for 
Regulating the United States Financial System.'' These Principles 
provide a roadmap for the Administration's approach to financial 
services regulation. We have taken a systematic approach in our work by 
meeting with a variety of stakeholder groups to hear what works, what 
does not work, and what can be improved. Our initial report will 
contain recommendations to provide relief for community banks and make 
regulations more efficient, effective, and appropriately tailored.
    Housing finance reform is another priority of mine. This has been 
an unresolved issue for far too long and one we are committed to 
fixing. We will ensure that there is both ample credit for housing and 
that we do not put taxpayers at risk. This Committee has done extensive 
work on this along with your work on community financial institution 
regulatory relief. My hope is that we can partner on both of these 
issues. I look forward to working with the Congress to develop a 
solution.
    Finally, another area that is crucially important to Treasury is 
our commitment to combating terrorist activities and financing. We have 
announced a number of sanction actions against individuals and entities 
associated with destabilizing regimes like Syria, Iran, and North 
Korea. This work is essential to the Administration's efforts to 
continue to keep Americans safe.
    The first few months of this Administration have been significant. 
We have been working hard at the Treasury to develop and implement 
policy that will allow the economy to grow. This will make the dream of 
prosperity once again a reality for all Americans.
    Thank you and I look forward to answering your questions.

 RESPONSE TO WRITTEN QUESTIONS OF SENATOR BROWN FROM STEVEN T. 
                            MNUCHIN

Q.1. As requested at the hearing, please provide me a complete 
list of all meetings you have had with stakeholders, including 
industry, financial regulatory agencies, advocates, and others 
about the Core Principals Executive Order and Housing Financing 
Reform. Please indicate which meetings you attended and which 
meetings were only attended by Treasury staff.

A.1. I participated in the meetings with large banks and 
community banks. I planned to participate in the consumer 
advocate meeting but was unable to due to a scheduling 
conflict. While not specifically related to the Executive 
order, I have met with advocate groups where the Core 
Principles were discussed. I have chaired two Financial 
Stability Oversight Council (FSOC) meetings and have met with 
almost all of the heads of financial regulatory agencies at 
least once, both within the context of the FSOC meetings and 
outside of those meetings. All of these groups are outlined 
below. A complete list of all stakeholder engagements lead by 
Treasury staff was sent to your office on June 2.
Consumer Advocates
Advancing the Seed
Archimedes Institute
California Association for Micro Enterprise Opportunity
Centro de Vida Church
Christ Our Redeemer Church
Connect Authentically
Impact Southern California Community Development Corporation
Instituto de Avance Latino Community Development Corporation
Latino Coalition for Community Leadership
Los Angeles Latino Chamber of Commerce
Macedonia Community Development Corporation
National Asian American Coalition
National Diversity Coalition
OASIS Center International
Operation HOPE
Orange County Interdenominational Ecumenical Council
Templo Calvario Community Development Corporation
US-Sino Friendship Association
Industry Groups
Banc of California
Bank of America Corporation
Bank of Bennington
Barclays US LLC
Bank of New York Mellon Corporation
Cape Cod Five Mutual Company
Capital One Financial Corporation
Cardinal Bank
Cedar Rapids Bank and Trust Company
Centric Financial Corporation
Century Bank and Trust Company
Citigroup Inc.
Citizens Financial Group, Inc.
Credit Suisse Group AG
Deutsche Bank AG
EagleBank
First National Bank of Elkhart
FirstCapital Bank of Texas
German American Bancorp
Goldman Sachs Group, Inc.
Grand Rapids State Bank
HSBC North American Holdings
JPMorgan Chase & Co.
MainStreet Bancshares, Inc.
Morgan Stanley
Northwest Bancshares, Inc.
PNC Financial Services Group, Inc.
Royal Business Bank
Santander
Security Bancorp, MHC.
State Street Corporation
TD Group US Holdings
First State Bank
The Peoples Bank Co.
Union State Bank of Everest
U.S. Bancorp
UBS Group AG
Wells Fargo & Company
Windsor Federal Savings Bank
Regulators
Commodity Futures Trading Commission
Consumer Financial Protection Bureau
Federal Reserve Board of Governors
Federal Deposit Insurance Corporation
Federal Housing Finance Agency
FSOC Independent Member with Insurance Expertise
National Credit Union Administration
Office of the Comptroller of the Currency
Securities and Exchange Commission

Q.2. At the hearing, you stated that the OneWest management 
team flagged problems at Financial Freedom for HUD. However, 
the Department of Justice credited Sandra Jolley for bringing 
the problems to the attention of Federal officials, and even 
gave her a whistleblower award. Can you clarify whether you or 
OneWest management self-reported the problems before Ms. Jolley 
raised them? Please provide the Committee with supporting 
documentation.

A.2. I no longer have any affiliation with CIT or OneWest Bank. 
Specific questions regarding this matter are best directed to 
CIT, which acquired OneWest in August 2015.

Q.3. During your confirmation process, I asked you about 
solutions for housing finance reform. At the time, you said 
that the GSES need capital. Has that changed and if not, how do 
you propose they build capital given the terms of the preferred 
stock purchase agreement?

A.3. The $258 billion of undrawn capacity under the Senior 
Preferred Stock Purchase Agreements (PSPAs) gives the 
marketplace confidence that the GSEs will remain solvent and 
continue to provide liquidity and stability to the mortgage 
market. However, the GSEs' prolonged conservatorship has been 
an unresolved issue for far too long and one we are committed 
to fixing. I look forward to working with the Congress to 
develop a solution.

Q.4. At the time Mr. Noreika's appointment as Acting 
Comptroller of the Currency, he was representing Ant Financial, 
a Chinese company that is currently under review by CFIUS. 
What, if any, conversations did you or your staff have with Mr. 
Noreika about his representation of Ant Financial while you 
were vetting him to serve as Acting Comptroller? Separately, 
have you or your staff spoken with him as part of the CFIUS 
review? Do you believe that there are any conflicts of 
interests by having conversations about a job position, as the 
same person is representing a foreign company that is being 
reviewed by you as part of the CFIUS process?

A.4. In line with its statutory confidentiality restrictions, 
Treasury does not discuss cases before the Committee on Foreign 
Investment in the United States (CFIUS), including whether or 
not any case has been filed with CFIUS. Treasury would not 
engage with OCC on CFIUS matters that do not involve a company 
subject to OCC regulation or that provides goods or services to 
the OCC. Although Mr. Noreika identified the clients he 
represented in the last 2 years during his ethics vetting 
process, we are not aware of any conversations with Mr. Noreika 
specific to Ant Financial during any part of this process. As a 
Government employee, Mr. Noreika must recuse from participating 
in any particular matter involving specific parties in which a 
recent former client or employer is or represents a party.

Q.5. In a world where cyberattacks against U.S. companies and 
Government agencies to acquire Americans' personal identifiable 
information (PII) are a frequent occurrence, what steps is the 
Treasury taking to protect Americans against these risks? Are 
you concerned about acquisitions of U.S. companies by foreign 
companies that may make it easier for the foreign governments 
to gather personal data on American citizens, including 
servicemembers? Do you consider foreign access to Americans' 
PII a national security threat? How will CFIUS consider these 
types of potential risks?

A.5. Treasury has identified cyber threats as one of the most 
pressing economic, financial stability, and national security 
risks and made financial sector cybersecurity and resiliency a 
top policy and operational priority. Effectively executing 
Treasury's mission and responsibilities to improve the security 
and resilience of the U.S. financial system requires a ``whole-
of-Treasury'' approach.
    As it relates to the protection of PII within Treasury's 
internal systems, Treasury has established a Cybersecurity 
Enhancement Account (CEA) that has specific line items 
dedicated to enterprise-wide operational cybersecurity 
improvements. This includes enhancing capabilities such as data 
loss/leakage protection (DLP) and encryption of data in 
transit/at-rest for our high value assets, many of which 
process large amounts of personally identifiable information. 
Treasury collaborates with other agencies to help ensure our 
cybersecurity protections are properly calibrated and effective 
against today's cyber threats.
    With limited exceptions, the private sector owns and 
operates the critical financial services sector infrastructure 
that Treasury seeks to help protect as a part of its 
cybersecurity mission. Thus, Treasury's work depends on 
partnerships with various stakeholders, including private 
sector institutions and representatives, and other Government 
partners to enhance the security and resilience of the U.S. 
financial services sector.
    Treasury's Investment Security Office is responsible for 
the implementation of Treasury's responsibilities as Chair of 
CFIUS. CFIUS has, for many years, considered the collection of 
sensitive personal data of American citizens--including data 
specific to servicemembers and other Government employees, as 
well as more general bulk customer data--as a factor in its 
national security reviews. New commercial innovations in recent 
years have increased the ease with which data can be collected, 
stored, aggregated, and accessed, presenting new national 
security considerations. CFIUS will continue to consider 
potential foreign access to sensitive personal data in its 
analysis of the threats, vulnerabilities, and national security 
consequences of the transactions under its review. And where 
such considerations constitute a national security risk, CFIUS 
will continue to either mitigate such risk, or--when the risk 
cannot be sufficiently mitigated--recommend to the President 
that he block or suspend the transaction.

Q.6. You said during the hearing that you take your 
responsibility as Chair of the Financial Stability Oversight 
Council (FSOC) very seriously. In that role, you said that you 
are focused on cybersecurity. What other risks to the financial 
system concern you and what steps are you taking, as the Chair 
of FSOC, to address these risks?

A.6. The FSOC will fulfill its responsibilities to monitor 
risks to U.S. financial stability, including by focusing on 
areas such as cybersecurity, market liquidity, housing finance 
reform, and global economic and financial developments, among 
other areas. We are happy to work with you and your staff to 
discuss areas of particular interest in more detail.

Q.7. Under section 4 of the Bank Holding Company Act, the 
Secretary of the Treasury has some authority to participate in 
establishing restrictions upon merchant banking. At your 
confirmation hearing you committed to looking into financial 
holding companies' involvement in merchant banking activities 
and that you would work on it. What are you doing to address 
this issue?

A.7. In February, the President signed an Executive order that 
tasks Treasury with reporting on the extent to which existing 
laws, regulations, and other Government policies promote or 
inhibit the Core Principles for financial regulation set forth 
in the Executive order. As part of this process, we are 
considering a broad set of financial regulations that affect 
banks' investments and other activities. In its initial report 
under the Executive order, addressing the regulation of 
depository institutions, Treasury did not propose new 
restrictions on the merchant banking activities of financial 
holding companies, but will continue to assess whether 
regulations are consistent with the Core Principles described 
in the Executive order. Financial holding companies are 
permitted by statute to
engage in merchant banking activity. The Treasury Secretary and 
the Federal Reserve Board have authority to issue joint rules
implementing this authority, and they jointly issued merchant 
banking rules in 2001.

Q.8. Last week, you told Senator Toomey that you want to work 
with Congress to appropriate funds for the CFPB. Supporters of 
CFPB oppose this change because it would be used to starve the 
agency of resources, resulting in less protection for 
consumers. The President's budget appears to confirm this 
strategy. It shows $6.8 billion in savings from reducing 
funding for CFPB. Is it possible to have $6.8 billion in 
savings without zeroing out the CFPB's entire budget? If it is 
possible, please explain. If it is not possible, why did you 
testify that you wanted to appropriate funds for the CFPB when 
the Administration's position is that the agency should receive 
no funding?

A.8. The Budget proposes to restructure the Consumer Financial 
Protection Bureau (CFPB), limit the CFPB's mandatory funding in 
2018, and provide discretionary appropriations to fund the CFPB 
beginning in 2019. This would yield $6.8 billion in mandatory 
savings over the budget window. Subjecting the reformed CFPB to 
the appropriations process would provide the oversight 
necessary to impose financial discipline and prevent future 
overreach by the CFPB. Under this proposal, the President's 
Budget for fiscal year 2019 and each subsequent year would 
include a request for appropriations to fund the reformed 
agency within the discretionary
totals.
                                ------                                


 RESPONSE TO WRITTEN QUESTION OF SENATOR TOOMEY FROM STEVEN T. 
                            MNUCHIN

Q.1. I was pleased to see President Trump announce his 
intention to nominate a reform-minded individual to head the 
Export-Import Bank. Under former Congressman Scott Garrett's 
leadership, I expect that the Export-Import Bank will better 
protect taxpayer dollars and give greater consideration to the 
potentially disruptive impact of its activities on domestic 
companies and American consumers. I look forward to learning 
more about Congressman Garrett's plans at his confirmation 
hearing.
    Prior to providing the bank's board with a quorum, the 
Administration should also share with the Committee what 
reforms it would like to see implemented at the Export-Import 
Bank. Please describe what, if any, reforms you view as 
appropriate. In particular, what steps can the bank take to 
better protect taxpayers, understand its impact on domestic 
competition, and better quantify subsidies that it provides to 
customers? Finally, how does the Administration plan to engage 
with our major trading partners to negotiate an end to trade-
distorting export credit financing as required by Sec. 55002 of 
the FAST Act (P.L. 114-94)?

A.1. The Administration is focusing its current efforts on 
restoring EXIM's board quorum so that EXIM has a leadership 
team in place to continue implementing reforms in the Export-
Import Bank Reform and Reauthorization Act of 2015. Treasury 
looks forward to working with the White House and Congressman 
Garrett following his confirmation to discuss future additional 
reforms to ensure EXIM is better protecting taxpayer dollars.
    The Administration is negotiating the reduction of export 
credits among our major trading partners through the 
International Working Group on Export Credits (IWG). The IWG, 
comprising major OECD and non-OECD providers of Government-
backed export credit support, aims to establish a set of 
disciplines on official export financing in order to reduce 
subsidies and market distortions, and promote a level playing 
field for exporters.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR SASSE FROM STEVEN T. 
                            MNUCHIN

Q.1. I'd like to discuss the Trump administration's trade 
policy, given the Treasury Department's policy and advisory 
role in this area.

Q.1.a. How does the Treasury Department estimate a 45 percent 
tariff on Chinese goods would impact the U.S. economy?

A.1.a. My top priority is to boost U.S. economic growth and our 
trade policy should support that effort.
    We are engaging the Chinese intensively through our 100-day 
action plan and have established the Comprehensive Economic 
Dialogue to remove unfair trade barriers. We are making 
important progress and wish to continue to engage China 
constructively.
    We have not made any decisions about possible tariff 
measures, but we reserve the right to protect the U.S. economy 
against trading partners that maintain unfair trade practices.

Q.1.b. How does the Treasury Department estimate a 20 percent 
tariff on Mexican goods would impact the U.S. economy?

A.1.b. My top priority is to boost U.S. economic growth and our 
trade policy should support that effort.
    We look forward to modernizing NAFTA and engaging 
constructively with our Canadian and Mexican counterparts to 
maintain the existing benefits of the agreement while 
addressing outdated aspects and improving the agreement overall 
to the benefit of U.S. workers, farmers, ranchers, and firms.

Q.1.c. The Treasury Department recently declined to label any 
major U.S. trading partner a currency manipulator. Is the 
Treasury Department concerned that labeling a major U.S. 
trading partner a currency manipulator would spark a trade war?

A.1.c. There has been a trend in the last 2 years toward 
reduced currency intervention by key trading partners.
    However, it is critical that this not represent merely an 
opportunistic response to shifting global macroeconomic 
conditions--in particular changes in capital flows which have 
created depreciation pressures on many emerging market 
currencies--but a durable policy shift away from foreign 
exchange policies that facilitate unfair competitive advantage.
    Treasury is committed to aggressively and vigilantly 
monitoring and combating unfair currency practices.

Q.1.d. How does the Treasury Department expect a trade war with 
China to impact the U.S. economy?

A.1.d. We are not planning a trade war with China.

Q.1.e. How does the Treasury Department expect a trade war with 
Mexico to impact the U.S. economy?

A.1.e. We are not planning a trade war with Mexico.

Q.1.f. Mexico has reportedly been exploring ways to reduce corn 
imports from the United States, including by opening up trade 
with Brazil or Argentina. Is there a risk that the 
Administration's rhetoric on trade will drive other countries 
to explore other import markets?

A.1.f. We seek to maintain the benefits of NAFTA while it is 
modernized. This includes the benefits that have accrued to 
U.S. farmers and ranchers. We expect that Mexico will continue 
to see the United States as an important source.

Q.1.g. Should the United States always adhere to its WTO 
obligations?

A.1.g. The Administration is in the process of reviewing our 
trade agreements, including the WTO agreements. As part of our 
trade agreement review, the United States is examining how we 
can make the WTO more effective and hold trading partners 
accountable.

Q.1.h. Under what circumstances should the United States ignore 
its WTO obligations?

A.1.h. The Administration is in the process of reviewing our 
trade agreements, including the WTO agreements. As part of our 
trade agreement review, the United States is examining how we 
can make the WTO more effective and hold trading partners 
accountable.

Q.1.i. The Trump administration is reportedly taking steps to 
begin the process to renegotiate NAFTA. What steps should be 
taken to ensure that these negotiations result in a successful 
new agreement, instead of the dissolution of NAFTA?

A.1.i. We are just beginning the process of NAFTA 
modernization, including through the congressional notification 
and consultation process. The Administration is focused on 
getting a better deal for American workers, farmers, ranchers, 
and firms. We believe this is possible to achieve with these 
important trading partners.

Q.1.j. Would dissolving NAFTA be preferable to maintaining the 
current version of NAFTA?

A.1.j. Our relationships with Mexico and Canada are strong and 
we believe that we can work together to get a fair deal while 
maintaining the existing benefits.

Q.1.k. How would the dissolution of NAFTA impact the U.S. 
economy?

A.1.k. We are working toward a modernization of NAFTA that will 
benefit the U.S. economy.

Q.1.l. What trade agreements are the Trump administration 
considering renegotiating? How would the Administration rank 
the importance of each renegotiation?

A.1.l. President Trump signed an Executive order tasking the
Department of Commerce and the United States Trade
Representative (USTR) with conducting a performance review of 
all our existing international trade agreements.

Q.1.m. What trade agreements are the Trump administration 
considering pursuing during its first term? How would the 
Administration rank the importance of each potential agreement?

A.1.m. The President has already made clear some of his top 
trade priorities including modernization of NAFTA. We are 
seeking to negotiate a number of bilateral deals with key 
trading partners, and we look forward to consulting Congress on 
trade priorities.

Q.2. I'd like to explore the Treasury Department's views on 
China.

Q.2.a. To what extent is China's currency convertible into 
currency from other countries?

A.2.a. Your question identifies a statutory factor that the 
Department of Commerce must consider under Section 771(18)(B) 
of the Tariff Act of 1930 as part of its review of a country's 
designation as a nonmarket economy.
    As you know, in March 2017, the Department of Commerce 
initiated a new inquiry to review China's designation as a 
nonmarket economy, and that review is ongoing.

Q.2.b. To what extent are wages in China set by the free 
market?

A.2.b. Your question identifies a statutory factor that the 
Department of Commerce must consider under Section 771(18)(B) 
of the Tariff Act of 1930 as part of its review of a country's 
designation as a nonmarket economy.
    As you know, in March 2017, the Department of Commerce 
initiated a new inquiry to review China's designation as a 
nonmarket economy, and that review is ongoing.

Q.2.c. To what extent are foreign companies and investors 
allowed to freely invest in China?

A.2.c. U.S. investors have noted significant obstacles to 
investing in China, due to regulatory hurdles and restrictions 
that China places on foreign investment. The Administration is 
engaging with China to promote fair and open access to Chinese 
markets for American companies.

Q.2.d. To what extend does the Chinese government own or 
control the means of production within the country?

A.2.d. Your question identifies a statutory factor that the 
Department of Commerce must consider under Section 771(18)(B) 
of the Tariff Act of 1930 as part of its review of a country's 
designation as a nonmarket economy.
    As you know, in March 2017, the Department of Commerce 
initiated a new inquiry to review China's designation as a 
nonmarket economy, and that review is ongoing.

Q.2.e. To what extent does the Chinese government control the 
allocation of resources and firm decisions over prices and 
outputs within the country?

A.2.e. Your question identifies a statutory factor that the 
Department of Commerce must consider under Section 771(18)(B) 
of the Tariff Act of 1930 as part of its review of a country's 
designation as a nonmarket economy.
    As you know, in March 2017, the Department of Commerce 
initiated a new inquiry to review China's designation as a 
nonmarket economy, and that review is ongoing.

Q.2.f. China continues to advance the Regional Comprehensive 
Economic Partnership (RCEP), a regional multilateral trade 
agreement in the Pacific that includes our current free trade 
agreement (FTA) partners, South Korea and Australia, as well as 
Japan, a potential FTA partner. According to the Congressional 
Research Service, should the RCEP move forward in its current 
form, the ``United States would face higher tariffs in RCEP 
markets.''\1\
---------------------------------------------------------------------------
    \1\ U.S. Congressional Research Service, The United States 
Withdraws from the TPP, Report IN10646, February 13, 2017.
---------------------------------------------------------------------------
    Has the Administration expressed concern that many of our 
trading partners could run to RCEP markets under trade rules 
set by China? What actions is the Administration taking to 
secure our trade interests in the Pacific after the withdrawal 
from TPP?

A.2.f. Trade, including with countries in the Pacific region, 
is a very high priority for the Administration, and we are 
actively considering next steps on reviewing ways to improve 
our trade relations with key partners. While we have withdrawn 
from TPP, we remain fully committed to strengthening our 
economic relationships across the Asia-Pacific region.

Q.2.g. The Administration announced that the United States will 
soon have access to China's $2 billion beef market. Nebraska 
has one of the largest and most innovative beef industries in 
the Nation and welcomes the opportunity to compete in China. 
When does the Administration expect negotiations to be 
finalized?

A.2.g. We sent the first shipment of beef to China on June 
19th. The 100-day period runs through July 16, 100 days after 
the conclusion of the Presidential Summit in April.

Q.3. I'd like to discuss the current state of the economy.

Q.3.a. What portion of currently unemployed, underemployed and 
discouraged workers will have to retool their skill set to 
enter a new sector of the economy to become fully employed?

A.3.a. The Administration is committed to making sure that the 
American economy continues to generate jobs. One factor that 
helps bring people back into the labor force and particularly 
into more highly skilled jobs is the availability of education 
and training opportunities.
    A 2016 study conducted by the Pew Research Center concluded 
that since 1980, employment has been expanding at a faster pace 
in jobs that require higher levels of education, training, and 
experience. The study also reported on views about training and 
education among the employed and unemployed. It found:

   LEmployment in occupations requiring average to 
        above-average education has risen by about two-thirds 
        since 1980, while employment in jobs requiring below-
        average education and training has increased by only 
        one-third since that year.

   LAmong those who are unemployed but looking for 
        work, about one-quarter have reported that they took a 
        class or received extra training in the past year to 
        help them obtain a job.

   LOf those who did not obtain additional training, 
        two-thirds reported that they could not afford to do 
        so, while one-third did not know this type of training 
        was available.

   LAmong those who are unemployed but looking for 
        work, only about half feel that they have the education 
        and training needed to obtain the kind of job they 
        want.

    The Administration believes that some of the jobs that have 
moved overseas can be brought back to the United States. In the 
manufacturing sector, where employment has fallen by nearly 
one-third since 2000, workers may need to retool to fill those 
jobs. In a 2015 report from the Manufacturing Institute, seven 
out of 10 manufacturing executives reported shortages of 
workers with adequate technological skills.
    Annual BLS data for 2016 show that 94.4 million persons 
were counted as ``not in the labor force.'' Only 224,000 of 
that total number, or 0.2 percent, indicated that they were 
outside the labor force specifically because they were in 
school or obtaining training.

Q.3.b. Will this percentage of unemployed, underemployed, and 
discouraged workers that must enter a new sector increase in 
the future?

A.3.b. The U.S. labor market is considered one of the most 
dynamic in the world, constantly adapting to changing economic 
conditions. The U.S. economy has created an average of 162,000 
jobs monthly since the start of 2017 and solid jobs growth is 
expected to continue. Tight labor market conditions are likely 
to pull more workers from the sidelines and into the economy.
    That said, it is difficult to project precisely how 
employment among prime-age workers will evolve and to which 
sectors such workers will gravitate. The fact that job growth 
is fastest in sectors requiring higher levels of education 
implies that unemployed, underemployed, or discouraged workers 
will likely need the right education and training in order to 
enter a new sector.

Q.3.c. What is the average age of an unemployed or 
underemployed worker that decides to leave the workforce 
altogether instead of seeking to retool their skill set and 
enter a new sector?

A.3.c. Annual data from the Bureau of Labor Statistics show 
that in 2016, among those not in the labor force who also 
indicated that they ``do not want a job now,'' 58.8 percent of 
the group was 55 years and older, 23.8 percent was 25 to 54 
years, and 17.5 percent was 16 to 24 years.
    It is difficult to say definitely whether, or in what 
numbers, persons from any of these groups might elect to re-
enter the work force, whether in the same sector or a new one. 
Presumably, the decision to leave the workforce altogether, 
versus obtaining additional skills, would depend upon the cost 
of required training. For example, of the three occupations 
with the highest projected changes in employment through 2024 
(personal care aides, registered nurses, and home health 
aides), training requirements vary widely. To become a 
registered nurse would require extensive and expensive training 
for a period of years, whereas the other two occupations would 
require only short-term training and licensing, all at much 
less cost.

Q.4. I'd like to explore your views on artificial intelligence 
and automation. This March you were asked about artificial 
intelligence at an event hosted by Axios. You said, ``I think 
that [it] is so far in the future--in terms of artificial 
intelligence taking over American jobs--I think we're, like, so 
far away from that.'' You then went on to say that this issue 
was ``[n]ot even on [your] radar screen.'' As recently as 6 
months ago, the Obama White House published a report by Jason 
Furman of the President's Council of Economic Advisors on 
``Artificial Intelligence, Automation, and the Economy.'' 
According to the report, ``[a]ccelerating artificial 
intelligence capabilities will enable automation of some tasks 
that have long required human labor. These transformations will 
open up new opportunities for individuals, the economy, and 
society, but they have the potential to disrupt the current 
livelihoods of millions of Americans.''

   LCan you elaborate on what positive and negative 
        impacts, if any, the increasing artificial intelligence 
        and automation of routine work tasks will pose to the 
        economy over the long-term, particularly for wages and 
        employment?

   LHow long will it take for these risks to come to 
        significant fruition?

   LWhat sectors of the economy will benefit the most 
        from automation?

   LWhat sectors of the economy will benefit the least 
        from automation?

   LWhat--if any--policy solutions are the Treasury 
        Department exploring in order to respond to 
        intelligence and automation?

A.4. I was specifically referring to artificial intelligence 
not the impact of technology and robotics on the economy. In 
general, technological innovations allow the economy to better 
use its existing resources, allowing us to produce more output 
with the same inputs. While higher output is desirable, there 
is no guarantee that the economic gains from adopting new 
technology are widely shared, which means that some, maybe 
most, workers are worse off even though the economic ``pie'' 
has gotten bigger. Technology brings labor market disruptions 
that are both good and bad, and the policy challenge will be 
addressing those distributional consequences.
    Given the difficulty in predicting how jobs will change and 
who will ultimately be helped and harmed by technology, prudent 
public policy should try to position the labor force as a whole 
to make the best use of technology while addressing any 
distributional problems that arise from the adoption of new 
technologies. Humans will likely still have a relative 
advantage in tasks that involve, for example, social 
interactions, physical dexterity, or human judgment, so the 
jobs that adapt to new technologies will have humans emphasize 
those types of tasks while technology complements them. 
However, employment in jobs that do not include such tasks may 
decline significantly, and then it falls to policymakers to 
determine whether and how to help displaced workers. Human 
capital development, for both future workers and those who are 
displaced by technology, would help mitigate some job losses by 
allowing workers to adapt to the newly demanded jobs.

Q.5. I'd like to explore your views on deficits and the debt.

Q.5.a. During Federal Reserve Chair Yellen's February 14, 2017, 
Senate Banking Testimony, Chair Yellen told Senator Corker that 
``fiscal sustainability has been a long-standing problem . . . 
and the U.S. fiscal course, as our population ages and 
healthcare costs increase, is already not sustainable.'' Do you 
agree?

Q.5.b. In correspondence with me last year, Chair Yellen told 
me that ``fiscal policymakers should soon put in place a 
credible plan for reducing deficits to sustainable levels over 
time.'' Do you agree?

Q.5.c. What level of deficits and debt would the Treasury 
Department consider sustainable over the long-run?

Q.5.d. What metrics would the Treasury Department consult in 
order to evaluate the impact of the U.S.'s debt and deficit 
levels? What levels must these metrics reach in order for the 
U.S. debt and deficit to be sustainable?

A.5.a.-d. Chair Yellen's testimony is consistent with analysis 
and conclusions presented in the annual Financial Report of the 
U.S. Government (FRUSG). Since the introduction in the fiscal 
year 2010 FRUSG of reporting on long-term fiscal projections 
(i.e., fiscal sustainability reporting), the reported 
conclusion in each successive year's report has remained 
unchanged--that ``the projected continuous rise in the debt-to-
GDP ratio indicates that current policy is unsustainable.'' 
This conclusion is consistent with the Congressional Budget 
Office's (CBO's) and Government Accountability Office's (GAO's) 
projections.
    The fiscal sustainability analysis presented in the FRUSG 
is prepared by OMB and Treasury in accordance with Statement of 
Federal Financial Accounting Standards (SFFAS) 36, 
Comprehensive Long-Term Projections for the U.S. Government. 
The analysis considers projected deficits and debt as a 
percentage of gross domestic product (GDP) assuming current law 
and policy continue unchanged over the projection period. As 
such, the analysis is considered to be based on projections, 
not predictions, and is intended to assist readers of the FRUSG 
in assessing whether future budgetary resources of the U.S. 
Government will likely be sufficient to sustain public services 
and to meet obligations as they come due.
    Reducing the deficit to levels that are sustainable over 
time is critical. SFFAS 36 states, ``While many experts agree 
that some level of public debt is reasonable and acceptable, 
there is no universally agreed upon `sustainable' percentage of 
debt to GDP. However, all experts agree that a continually 
increasing level of debt to GDP is not sustainable.''
    In accordance with SFFAS 36, the FRUSG discussion of long-
term fiscal projections or fiscal sustainability focuses on 
trends in deficits and debt as a percentage of GDP. Chart E 
from the fiscal year 2016 FRUSG presents the trend in Public 
Debt as a percentage of GDP (debt to GDP ratio) from 1940 
through 2016. As can be seen from Chart E, the debt-to-GDP 
ratio has varied widely over time. While the FY-end 2016 debt-
to-GDP ratio was reported as 77 percent, that ratio was as high 
as 106 percent in 1946, shortly following the end of World War 
II.

Q.5.e. Assuming current policy and current demographic trends, 
how will population aging impact the U.S. fiscal situation over 
the next 10 years?

A.5.e. As the population ages, a larger share of individuals 
will retire and exit the labor market. As a result, tax 
receipts and payments will be lower. In addition, as the 
population ages, more individuals will become eligible to 
receive Social Security and Medicare benefits, which will 
result in increases in Government spending.

Q.5.f. Assuming current policy and current demographic trends, 
how large does the Treasury Department expect the shortfall to 
be between retiring workers and new entrants into the 
workforce, over the next 10 years?

A.5.f. The 2016 Annual Report of the Social Security Trustees 
projected that by 2022, there will be 2.6 workers per Old-Age, 
Survivors, and Disability Insurance (OASDI) beneficiary. By 
2027, the 2016 Annual Report of the Social Security Trustees 
projected that there will be 2.4 workers per OASDI beneficiary, 
approximately 17 percent lower than the 2015 number of covered 
workers to OASDI beneficiaries (2.8) and approximately 28 
percent lower than the 2007 number of covered workers to OASDI 
beneficiaries (3.3). While the definition of ``covered 
workers'' and ``OASDI beneficiaries'' are not exactly 
equivalent to ``new entrants'' and ``retiring workers,'' these 
projections of a declining number of covered workers to OASDI 
beneficiaries suggest that the gap between the number of new 
entrants and retiring workers will increase. (see https://
www.ssa.gov/oact/tr/2016/lr4b3.html).
    CBO projects that the labor force participation rate will 
decline from 62.8 percent in 2017 to 61.0 percent in 2027 and 
to 59.3 percent in 2047. CBO, however, notes that without the 
effects of the aging of the population, the labor force 
participation rate would remain roughly constant over the next 
30 years. (see https://www.cbo.gov/sites/default/files/52480-
appendixa.pdf.)

Q.5.g. What policy changes are the Treasury Department 
considering to address the impact of population aging on our 
fiscal situation?

A.5.g. The Administration's budget proposal identifies 
potential policy solutions to many of these issues. Treasury is 
also investigating policies to increase labor force 
participation and increase savings. Treasury looks forward to 
working with the Congress to address these issues.

Q.5.h. How would the Treasury Department evaluate the economic 
impact of an unfunded $1 trillion infrastructure spending 
package?

A.5.h. The Administration continues to work and develop policy 
proposals relating to infrastructure. The impacts of these 
policy proposals will depend on a number of details regarding 
the state of the economy and the proposal itself. Examples 
include: how close the economy is to full employment, monetary 
policy, the types of projects undertaken and the efficiency of 
public investment, and the extent of private sector 
participation. Treasury looks forward to working with the 
Congress on infrastructure policy proposals.

Q.6. Australia has created a Standard Business Reporting regime 
(SBR) that allows a firm to complete one filing to comply with
multiple regulatory disclosure requirements. This has 
extensively reduced the amount of required data fields, saving 
the Australian economy more than a $1.1 billion annually by one 
estimate.\2\ Is a similar SBR system possible in the United 
States? (DF)
---------------------------------------------------------------------------
    \2\ See https://www.xbrl.org/sbr-savings-in-australia-soar/.

A.6. Treasury agrees that more needs to be done to minimize 
duplicative data reporting. A number of recommendations on 
reducing regulatory burdens are identified in Treasury's first 
report pursuant to Executive Order 13772 (``Core Principles for 
---------------------------------------------------------------------------
Regulating the United States Financial System'').

Q.7.a. According to research from the Economic Innovation 
Group, the new startup rate is near record lows, dropping by 
``half since the late 1970s'' and the total number of firms in 
the U.S. dropped by around 182,000 from 2007-2014.\3\
---------------------------------------------------------------------------
    \3\ See: Trump's quiet economic crisis, Glickman, Steve (February 
27, 2017), available at: http://www.foxnews.com/opinion/2017/02/27/
trumps-quiet-economic-crisis.html; citing: Dynamism in Retreat, 
Consequences for Regions, Markets & Workers, Economic Innovation Group 
(February 2017), available at: http://eig.org/dynamism.
---------------------------------------------------------------------------
    Is the Treasury Department concerned about this decline in 
new starts and broader economic consolidation?

A.7.a. The number and age of firms in the economy are not 
systematically monitored by the Treasury Department. However, 
Treasury is interested in the forces that contribute to 
productivity growth because it links closely to higher 
standards of living and well-being in the United States. In 
this context, the decline in the rate of startup firms may be 
noteworthy because they are essential to the firm churning 
process that helps to reallocate labor and capital to more 
productive uses, and contributes to innovation and productivity 
growth. There is evidence that new firms are more physically 
productive than either incumbent or exiting firms, on 
average.\4\ Young firms also have higher innovation intensities 
than mature firms (larger ratio of R&D spending to sales).\5\
---------------------------------------------------------------------------
    \4\ Foster, Lucia, John Haltiwanger, and Chad Syverson, 2008, 
``Reallocation, Firm Turnover, and Efficiency: Selection on 
Productivity or Profitability?'' American Economic Review 98: 394-425.
    \5\ Acemoglu, Daron, Ufuk Akcigit, Nicholas Bloom, and William 
Kerr, 2013, ``Innovation, Reallocation, and Growth,'' NBER Working 
Paper 18993.
---------------------------------------------------------------------------
    The declining number of aggregate firms is not necessarily 
cause for concern from an economic perspective. Consolidation 
often reflects the growth of more efficient firms which gain 
market shares in part by replacing less productive firms. When 
capital flows toward high productivity investment opportunities 
and results in consolidation, this consolidation contributes to 
economic dynamism and productivity growth.

Q.7.b. What--if any--policy solutions are the Treasury 
Department exploring in order to respond to these challenges?

A.7.b. Treasury continues to examine ways to ensure that young, 
innovative firms have access to capital to support their growth 
and sustainability. Over the years, Treasury has administered a 
number of programs that provided capital to financial 
intermediaries that support new and existing small businesses 
across the country. For example, two Treasury Department 
programs established by the Small Business Jobs Act of 2010 
have helped to boost small businesses' access to capital. The 
Small Business Lending Fund provided $4 billion to community 
banks to enable them to increase small business lending at a 
time when credit markets were severely constrained. The State 
Small Business Credit Initiative injected nearly $1.5 billion 
in a range of State financing programs (including venture 
capital for innovative startups) to help small businesses to 
enter and compete in their local markets.
    In addition, as Treasury reviews the regulatory landscape, 
we will assess the general approach to regulation and 
supervision of the primary sources of small business credit. 
Regulatory requirements and compliance relevant to small 
business lending should not have an adverse impact on small 
businesses and the communities they serve. Reducing regulatory 
burden, particularly for community banks, which provide nearly 
half of all small business loans, would help promote capital 
access for small businesses and, more broadly, support economic 
growth and job creation in the United States.

Q.8. I'd like to inquire about the Treasury Department's 
various sanctions efforts:

Q.8.a. Secondary sanctions are theoretically effective because 
they force a firm to choose between accessing the U.S. 
financial system and engaging in prohibited activities. Is the 
U.S. financial system dominant enough for this strategy to 
work?

A.8.a. Yes.

Q.8.b. Does Treasury have the capabilities to track or fight 
against ransomware that uses cryptocurrency, and if not, is it 
in the process of developing said capabilities?

A.8.b. Treasury leverages its regulatory tools and technical 
expertise to help protect our financial system from illicit 
cyber activity, including ransomware. Under the Bank Secrecy 
Act (BSA), FinCEN regulates as money transmitters, virtual 
currency exchangers, administrators, mixers and other 
individuals or entities engaged in virtual currency money 
transmission, subjecting them to anti-money laundering and 
countering the financing of terrorism (AML/CFT) obligations, 
including registration, compliance, recordkeeping, and 
reporting requirements. The information required, together with 
FinCEN's analysis of suspicious activity reports (SARs) 
relating to virtual currency activities, helps support law 
enforcement investigations targeting ransomware attacks and 
other cybercrimes and track their illicit proceeds. In 
addition, to address the transnational nature of virtual 
currency transactions, the Office of Terrorist Financing and 
Financial Crimes (TFFC) has led global efforts to encourage 
other countries to regulate virtual currency exchangers, 
administrators, and other virtual currency businesses, pursuant 
to international AML/CFT standards. However, a new generation 
of privacy-enhancing cryptocurrencies and more
sophisticated mixers provides significantly greater anonymity 
in virtual currency transactions and is not amenable to 
currently available network analytic tools, presenting a 
potential challenge to
future sanctions implementation.
    I will ensure Treasury has the capabilities to address 
cybercrime and the abuse of virtual currencies, including by 
appropriate regulatory responses and by working with 
interagency and private
sector partners to develop and implement more powerful analytic 
tools, and will strengthen those capabilities where needed. 
Treasury will also actively support similar efforts by foreign 
counterparts.

Q.8.c. What challenge does block chain pose to future 
sanctions, and does Treasury have the capabilities to meet 
those challenges?

A.8.c. Blockchain technology and other financial technology 
offer numerous potential innovations that could provide many 
benefits to the financial sector, its customers, and the 
broader economy. In implementing these new technologies, we 
expect all relevant parties to continue to follow all 
appropriate regulations, including those related to sanctions.

Q.8.d. What challenge does bitcoin pose to future sanctions, 
and does Treasury have the capabilities to meet those 
challenges?

A.8.d. A new generation of privacy-enhancing cryptocurrencies 
and more sophisticated mixers provides significantly greater 
anonymity in virtual currency transactions and is not amenable 
to currently available network analytic tools, presenting a 
potential challenge to future sanctions implementation. 
Treasury is actively working to improve its capabilities to 
address new challenges, including in the sanctions context. We 
will continue addressing this issue, including by appropriate 
regulatory responses and by working with interagency and 
private sector partners to develop and implement more powerful 
analytic tools.

Q.8.e. Does Treasury have the necessary resources and 
capabilities to conduct a North Korean leadership asset hunt, 
as the North Koreans are adept at developing shell companies 
and other methods of hiding money?

A.8.e. North Korea is a top priority, and I am ensuring 
Treasury uses all its tools and authorities to fully implement 
the President's objective of a denuclearized Korean peninsula. 
Additionally, Treasury continues to use its strong 
relationships with allies and partner countries to achieve this 
Administration goal.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR REED FROM STEVEN T. 
                            MNUCHIN

Q.1. Student Loan Servicing: In April, Secretary DeVos 
rescinded guidance for student loan servicers that was based on 
joint principles developed in consultation with the Department 
of Treasury and the Consumer Financial Protection Bureau. Was 
the Department of Treasury consulted before this decision was 
made? Given the Department of Treasury's involvement with 
administrative wage garnishment, tax refund offsets, and other 
collection tools for defaulted student loans, what role should 
the Department of Treasury play in setting standards for 
student loan servicing?

A.1. Treasury was not consulted regarding the recently revised 
servicing requirements for the Federal student loan servicing
contract or the rescission of the July 2016 servicing guidance. 
Treasury has worked with the Department of Education and an 
interagency group on standards for Federal student loan 
servicing,
including the Federal student loan servicing guidance issued by 
Education in July 2016. Treasury continues to monitor Federal
student loan servicing issues and provides expertise where 
appropriate.

Q.2. Tax Loophole: The Administration's one-page tax plan 
promises to ``eliminate tax breaks for special interests.'' 
Each year, corporations accused of illegal behavior settle out 
of court with the Federal Government and then take advantage of 
a tax loophole to deduct millions of dollars in settlement 
costs from their tax bills. My bipartisan bill with Senator 
Grassley, the Government Settlement Transparency and Reform 
Act, would close this loophole and ensure these settlement 
costs in the future aren't tax deductible. Would you support 
this bipartisan proposal as a part of overall tax reform?

A.2. The Government Settlement Transparency and Reform Act 
largely codifies current law under I.R.C.  162(f) and creates 
a new mandatory reporting and disclosure requirement for 
certain Government settlements. The Treasury Department and IRS 
would welcome these types of proposals and other changes to 
reduce complexity and disputes related to the deductibility of 
Government settlement costs.

Q.3. Tax Reform: The Administration's stated goals for tax 
reform are to primarily provide tax relief for the middle class 
and to balance tax cuts for the wealthiest Americans by 
eliminating most itemized deductions in favor of a larger 
standard deduction. Yet many middle-class families, 
particularly first-time home buyers with children, rely on a 
combination of exemptions and deductions in order to manage 
their finances and provide for their families. Will the 
Administration commit that it will not, under any 
circumstances, endorse an overall tax reform package that 
increases the overall tax bill for any taxpayer making under 
$250,000 per year?

A.3. The President's stated goal in tax reform is to provide a 
tax cut to the middle class. I fully support that goal and am 
working with the Congress to achieve that goal. Until an 
agreement is reached, I cannot pledge specific outcomes on 
select taxpayer groups.

Q.4. IRS Data Retrieval Tool: The removal of the IRS data 
retrieval tools has made completing the FAFSA more difficult, 
putting the neediest students at risk of not successfully 
completing the form or any additional verification process, and 
therefore, losing access to student financial aid. For 
borrowers, it could mean losing access to income-driven 
repayment plans, increasing the likelihood of default. What is 
the Department of Treasury doing to get this vital tool back 
online? What steps are being taken to ensure that security 
enhancements do not create new barriers for low-income students 
or struggling student loan borrowers to access the assistance 
they are entitled to? How are the Departments of Education and 
Treasury sharing the responsibility and costs for a solution to 
the data retrieval tool problem?

A.4. Treasury and Education are working together to make 
changes to the FAFSA frontend and Data Retrieval Tool (DRT) 
backend such that a secure, fully functional system can be 
reactivated by October 2017. While at one point Treasury and
Education considered an interim technical solution that would 
allow the system to be reactivated sooner, it came with the 
potential that low-income students or struggling student loan 
borrowers might be unable to access the assistance to which 
they are entitled. Treasury and Education continue to work to 
determine the cost allocation for the changes required, noting 
technical solutions will be implemented on each Department's 
respective information systems.

Q.5. Office of Financial Research: The Office of Financial 
Research (OFR) was established to support the work of the 
Financial Stability Oversight Council, and in particular, to 
help FSOC and its member agencies identify risks before they 
snowballed into another financial crisis, like the last one, 
that hit working class families particularly hard. The OFR is 
intended to be a data driven, deeply analytical, and apolitical 
research organization that speaks truth to power, and like the 
proverbial canary in the coal mine, serves as an early warning 
system while there is still time to avert disastrous 
consequences. Mr. Secretary, do you see value in keeping such 
an early warning system?

A.5. Treasury is reviewing the OFR's structure and authorities 
pursuant to Executive Order 13772 (``Core Principles for 
Regulating the United States Financial System'') and Executive 
Order 13781 (``Comprehensive Plan for Reorganizing the 
executive branch''). As part of these reviews, Treasury is 
taking a close look at the OFR's role.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR ROUNDS FROM STEVEN T. 
                            MNUCHIN

    Secretary Mnuchin, Section 4(h)(ii) of the Covered 
Agreement seems to set forth prescriptive criteria for a group 
capital assessment that the United States must adopt in order 
for the European Union to live up to its side of the agreement. 
In calling for ``preventive'' and ``corrective'' measures to be 
a part of the group capital assessment, I fear the European 
Union is attempting to export EU-style group-level regulation, 
which is at odds with our legal entity regulatory system in the 
United States.

Q.1. Is it Treasury's position that the European Union intends 
to accept the final version of the NAIC's group capital 
calculation in whatever form ultimately adopted by the NAIC?

A.1. In March, I directed that before the United States makes 
any decisions regarding the U.S.-EU covered agreement, Treasury 
should hear from interested parties. Treasury has undertaken a 
series of meetings with interested stakeholders and Members of 
Congress to gather feedback on the agreement and provide 
updates regarding the Administration's decisionmaking process. 
Treasury is currently considering next steps in consultation 
with USTR. Treasury welcomes your input on this matter.

Q.2. Without reopening negotiations on the agreement itself, 
will Treasury commit to seeking a formal exchange of letters 
with the European Union to accompany the ratification of the 
Covered Agreement, explicitly clarifying that Section 4(h)(ii) 
does not commit the United States to creating a new group 
capital requirement?
    Short of an exchange of letters with the European Union, 
are there assurances that Treasury can give to Congress that 
Section 4(h)(ii) does not commit the United States to creating 
a new group capital requirement?

A.2. In March, I directed that before the United States makes 
any decisions regarding the U.S.-EU covered agreement, Treasury 
should hear from interested parties. Treasury has undertaken a 
series of meetings with interested stakeholders and Members of 
Congress to gather feedback on the agreement and provide 
updates
regarding the Administration's decisionmaking process. Treasury 
is currently considering next steps in consultation with USTR. 
Treasury welcomes your input on this matter.
                                ------                                


 RESPONSE TO WRITTEN QUESTIONS OF SENATOR MENENDEZ FROM STEVEN 
                           T. MNUCHIN

Q.1. Two weeks ago, in testimony before this Committee, FHFA 
Director Watt warned that if either of the Enterprises 
experience losses next year, be it operational or the result of 
accounting adjustments, they will likely need to draw on their 
lines of credit at the Treasury due to the capital buffers 
being drawn down to zero at the end of this year. Director Watt 
warned that the impacts of such a draw could be significant, 
impacting liquidity in the secondary market and ultimately 
making it more expensive for families to purchase homes. As 
Director Watt explained, his preferred method to address this 
issue is to work with you to amend the agreements between 
Treasury and the Enterprises to allow them to keep a small 
capital buffer to ensure small losses do not require a draw. 
Director Watt told us he has had that conversation with you.

   LIn your opinion, what would be the potential market 
        impacts, both to the secondary market and for 
        borrowers, if either of the Enterprises are in a 
        position that requires a draw on the Treasury next 
        year?

   LDo you agree with Director Watt's assessment that 
        an Enterprise draw on the Treasury could have 
        significant market impacts, both to the secondary 
        market and ultimately for borrowers?

   LDuring the hearing last week, you said your 
        ``conversations with Mel Watt have been specifically, 
        one, around the dividend, and that we [the 
        Administration] believe the dividend payment should be 
        paid; and two, that we are willing to work with him and 
        with Congress on housing reform.'' What assurances can 
        you provide that the Administration is committed to 
        avoiding a draw?

A.1. Currently $258 billion of undrawn capacity remains 
available to the GSEs under the Senior Preferred Stock Purchase 
Agreements (PSPAs), which serves as a backstop against future 
GSE losses. This support gives the marketplace confidence that 
the GSEs will remain solvent and continue to provide liquidity 
and stability to the mortgage market. As long as taxpayers are 
at risk for losses at one or both of the GSEs, they should be 
fully compensated for their extraordinary support that they 
have provided and
continue to provide. The Administration is committed to housing 
finance reform more broadly and supports Congressional efforts 
to this end.

Q.2. The Administration's budget relies on a savings of $6.8 
billion over 10 years from ``restructuring the Consumer 
Financial Protection Bureau.'' Given the fact that the CFPB's 
fiscal year 2017 budget is $636 million--essentially one-tenth 
of the proposed savings--these so-called savings would 
effectively reduce the Bureau's annual budget to zero. This is 
a less of a ``restructuring'' and more of a full-throttled 
obliteration of the Bureau.

   LHow does the Administration plan to ensure fair 
        markets for consumer financial products and to enforce 
        Federal laws that protect hard-working families from 
        unfair and predatory practices in the mortgage 
        industry, by credit card issuers, by student loan 
        companies, and so forth, if the CFPB has no funding?

A.2. I strongly support robust consumer financial protection. I 
also believe that the CFPB should be funded through the annual 
Congressional appropriations process like most Federal 
agencies. Congress' power of the purse serves as an important 
check to ensure that Federal agencies exercise their power 
responsibly and spend taxpayer dollars wisely.

Q.3. In January 2016, the U.S. Patent and Trademark Office 
granted a license to allow Cubaexport to renew an expired 
trademark registration for Havana Club rum. Cubaexport is an 
entity wholly owned by the Cuban government, and this decision 
reverses a longstanding policy that had denied Havana Club 
rights to Bacardi LLC in the United States. Despite repeated 
inquiries, the Office of Foreign Assets Control has yet to 
provide a satisfactory and legally sound answer for this 
decision which in effect rewards the Castro government that 
continues to oppress its people and deny them basic human 
rights.
    Previously, when making licensing decisions, OFAC has 
relied upon Section 211, which determines ``whether the 
applicant has obtained the consent of the original owner of the 
stolen mark or the latter's bona fide successor-in-interest to 
register or renew that mark.'' Since Havana Club was illegally 
confiscated from the Jose Arechabala Company (JASA), this 
decision to award the trademark to Cuba raises serious concerns 
about intellectual property policy implications.

   LAre you planning to uphold OFAC's decision to award 
        the trademark to the Cuban government? Or will you 
        commit to reviewing and clarifying why OFAC departed 
        from precedent and declined to apply Section 211?

A.3. Neither Treasury's OFAC nor the Department of State has 
taken any position on ownership of the Havana Club trademark, 
which we understand is the subject of ongoing litigation before 
the U.S. District Court for the District of Columbia in the 
case captioned Bacardi & Co. Limited v. Empresa Cubana 
Exportadora de Alimentos y Productos Varios. Instead, OFAC 
issued a specific license authorizing Cubaexport to engage in 
all transactions necessary to renew and maintain the Havana 
Club trademark at the USPTO. OFAC took this action after 
consulting with the
Department of State, as it often does when processing license 
requests with foreign policy implications. The Department of 
State evaluated the referral in light of a number of factors, 
including U.S. policy with regard to trademark rights 
associated with confiscated property, and recommended that OFAC 
issue the requested specific license.
    With respect to Section 211 of the Omnibus Consolidated and 
Emergency Supplemental Appropriations Act, 1999, OFAC agrees 
that it limited the applicability of a general license in its 
regulations that had broadly authorized the registration and 
renewal of trademarks in which Cuba or a Cuban national has an 
interest. Section 211 does not address OFAC's specific 
licensing authority, however. Finally, as you are aware, the 
Trump administration is continuing its review of our Nation's 
foreign policy with respect to Cuba.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR TILLIS FROM STEVEN T. 
                            MNUCHIN

Q.1. Can you outline for me and for the Banking Committee what 
your agenda is for housing finance and GSE reform? Do you think 
there should be an explicit Government backstop? Do you believe 
we should create a new entity as we consider how to move out of 
the conservatorship for Fannie and Freddie? If so, what does 
this new entity look like? Does having two GSEs make sense--is 
that anachronistic? Do they presently compete against each 
other? Does consolidation make sense? Can you outline how you 
and the Treasury Department envision housing finance reform and 
the core principles that you would like to see? What role do 
you think FHFA should have in crafting policy objectives for 
GSE reform?

A.1. Housing finance reform is a priority of the Treasury and 
of the Administration. We are working across the Administration 
on developing housing principles and engaging with stakeholders 
inside and outside the Government in advance of providing 
recommendations.

Q.2. You have stated publicly that a top priority of yours in 
the housing space is taxpayer protection. Private capital is 
essential to safety and soundness and, in the end, taxpayer 
protection. What are you going to do to raise all available 
forms of capital in the housing system to protect taxpayers? 
How much capital do Fannie and Freddie need to protect 
taxpayers from bailouts over the full housing cycle?

A.2. The GSEs remain in Federal Housing Finance Agency (FHFA) 
conservatorship, leaving taxpayers at risk for any capital 
shortfalls per the commitments provided through the Preferred 
Stock Purchase Agreements. Our housing finance policy should be 
clear and should be designed to provide financing for 
homeowners and owners of multi-family units. Additionally, it 
should increase private sector participation and protect 
taxpayers. Treasury continues to study this issue and engage 
with stakeholders inside and outside the Government in advance 
of providing recommendations.

Q.3. The HERA statute that governs the GSE Conservatorship 
specifically mandates that they be ``placed into a sound and 
solvent condition.'' There has been a lot of debate over 
whether or not FHFA should suspend the dividend payments to 
Treasury and whether or not this prohibits the GSEs from 
building enough capital. Hypothetically, if FHFA suspended the 
dividend payments, is there a level that the GSEs could reach 
in terms of sufficient capital to prevent a future draw from 
Treasury?

A.3. Currently, $258 billion of undrawn capacity remains 
available to the GSEs under the Senior Preferred Stock Purchase 
Agreements (PSPAs), which serves as a backstop against future 
GSE losses. This support gives the marketplace confidence that 
the GSEs will remain solvent and continue to provide liquidity 
and stability to the mortgage market. As long as taxpayers are 
at risk for losses at one or both of the GSEs, they should be 
fully compensated for their extraordinary support that they 
have provided and continue to provide.

Q.4. The AIG re-capitalization was structured in a way that 
protected taxpayers and brought risk capital in to purchase the 
Government shares. Is this not a successful model for the GSEs?

A.4. Housing finance reform is a priority of the Treasury and 
of the Administration. We are working across the Administration 
on developing housing principles. Treasury continues to study 
this issue and engage with stakeholders inside and outside the 
Government in advance of providing recommendations.

Q.5. A recent academic paper estimated that Treasury's warrants 
for stock of Fannie and Freddie were worth $80 to $90 billion 
dollars if the GSEs build capital? Do you think they should 
build capital? How do you attract different sources of capital 
for the GSEs? How will this help the taxpayer?

A.5. Currently, $258 billion of undrawn capacity remains 
available to the GSEs under the Senior Preferred Stock Purchase 
Agreements (PSPAs), which serves as a backstop against future 
GSE losses. This support gives the marketplace confidence that 
the GSEs will remain solvent and continue to provide liquidity 
and stability to the mortgage market. Our housing finance 
policy should be clear and should be designed to increase 
private sector participation and protect taxpayers. Treasury 
continues to study this issue and engage with stakeholders 
inside and outside the Government in advance of providing more 
detailed recommendations. As long as taxpayers are at risk for 
losses at one or both of the GSEs, they should be fully 
compensated for their extraordinary support that they have 
provided and continue to provide.

Q.6. The HERA statute passed in 2008 strengthened regulation of 
the mortgage space and gave FHFA the same strong safety and 
soundness powers that other Federal financial regulators have 
and its predecessor OFHEO lacked. What new safety and soundness 
powers do we need to ensure no more bailouts in the mortgage 
space? What additional powers should Congress bestow upon FHFA?

A.6. We support FHFA's efforts to reduce risk to taxpayers 
during the GSEs' conservatorship, including efforts to transfer 
part of the credit risk from the GSEs to the private market as 
well as oversee the reduction of the GSEs' investment 
portfolios. Treasury
continues to study this issue and engage with stakeholders 
inside and outside the Government in advance of providing 
recommendations.

Q.7. The $5 trillion dollar GSE bond market is the second most 
liquid in the world after U.S. Treasuries. Several GSE reform 
proposals redo the ``plumbing'' for this market by having new 
entities do the mortgage securitization and guarantee 
functions. Does this pose a risk to the secondary mortgage 
market, and how will this impact the consumer's ability to get 
a mortgage?

A.7. We are working across the Administration on developing 
housing principles and engaging with stakeholders inside and 
outside the Government in advance of providing recommendations.

Q.8. Some GSE reform plans take parts or functions of Fannie 
and Freddie and give them to the Government to operate. Given 
our recent disastrous experience with the Federal student loan 
program, why should we trust the Government to run mortgages?

A.8. Treasury continues to study this issue and engage with 
stakeholders inside and outside the Government in advance of 
providing recommendations.

Q.9. Beyond the housing system, what are you doing to attract 
global capital into the United States? If we are going to have 
economic growth in our country beyond the 2 percent, don't we 
need additional investment in the United States? How is 
Treasury and the White House incentivizing global investment in 
the United States, and how does the lack of action on health 
care, tax reform, immigration reform, and the like implicate 
the consideration of global investors when evaluating how they 
are going to invest in the United States? Can you discuss how 
U.S. economic growth implicates the growth of other foreign 
sovereigns and the consequences to our future generations if we 
do not address the aforementioned issues?

A.9. The Administration is putting in place plans to reach 3 
percent economic growth to ensure the United States becomes an 
even more attractive place to invest. These plans include 
regulatory reform, trade reform, and tax reform. Failure to 
increase the rate of U.S. economic growth through such policies 
would imperil the economic prospects of future generations and 
may lead to a loss of competitive advantages currently enjoyed 
by the United States.

Q.10. Can you discuss the underlying assumptions in the recent 
budget proposal from the White House? The budget assumes that 
we are going to have economic growth at 3 percent or greater 
over a 7-year period and that tax reform will be deficit 
neutral--can you discuss both of these and how you envision 
Congress working toward those goals?

A.10. The President's 2018 Budget follows from the central 
assumption that all of the President's policy proposals will be 
enacted. The Administration's proposals for simplifying taxes, 
cutting regulation, building infrastructure, reforming health 
care, and boosting domestic energy production are expected to 
improve the supply side of the U.S. economy and spur faster 
growth.
    The Administration's economic growth assumptions are 
optimistic but not unprecedented. The Obama administration's 
initial policy-based forecast for its first 5 years in office 
was 0.5 percentage point higher than the comparable CBO 
forecast at the time; the Reagan administration's policy 
forecast was 1.4 percentage points higher. The Trump 
administration's policy forecast for first 5 years is 0.8 
percentage point above CBO's.
    The rate of GDP growth is expected to increase gradually to 
3.0 percent by 2020 and then remain at that level for the 
duration of the forecast window. The Administration projects a 
permanently higher trend growth rate as a result of its 
productivity-enhancing policies and a greatly improved fiscal 
outlook.
    Although demographic headwinds are playing a role in slower 
growth, the main culprit is weak productivity growth. Over the 
years 1948 to 2007, average annual productivity growth was 2.3 
percent. From 2011-2016, it was 0.5 percent annually (real 
output per labor hour in nonfarm business sector). A return to 
the productivity growth seen from 1995 through 2005--when it 
averaged 2.8 percent annually--would bring U.S. economic growth 
very close to rates reflected in the Budget.
    The 2018 Budget shows what robust, sustained economic 
growth combined with significant fiscal consolidation could 
achieve by 2027.
    I have stated that the 2018 Budget should be looked at as a 
``preliminary document'' when it comes to tax reform because it 
would be ``premature'' to provide detailed fiscal projections 
based on initial policy principles and before a full-blown 
legislative effort. I have noted that ``ultimately the numbers 
will be completely transparent.''
    The White House has committed to making the Federal 
Government ``lean and accountable to the people'' while 
ensuring that national security and public safety are 
paramount. The 2018 Budget offers one possible course of action 
for fulfilling those promises. It presents a set of major 
initiatives that would reduce Federal expenditures by more than 
$3.5 trillion over the next 10 years. If all of these cuts were 
pursued and if the tax reform were deficit neutral without 
accounting for feedback effects, then the Federal Government 
would run a surplus by 2027 and the debt-to-GDP ratio would 
decline from 77.4 percent this year to 59.8 percent in 2027. 
The Budget incorporated the growth benefits of the tax reform 
as one element of the $2.1 trillion ``effect of economic 
feedback'' and made the assumption that the overall tax reform 
would be revenue-neutral before accounting for economic 
feedback. As the specifics of tax reform become more available, 
we may wish to revisit the revenue projections.
    We look forward to working with Congress on reforms that 
will foster faster growth and improve the country's fiscal 
outlook.

Q.11. I know the Administration is in the process of issuing 
multiple reports on a host of issues. One issue that I 
repeatedly hear about is the Volker Rule and Leveraged Lending 
Guidance. Are both of those issues going to be addressed in the 
Treasury's reports and can you commit to giving explicit 
recommendations to Congress on how we should address these 
issues?

A.11. Treasury's response to the President's Executive Order on 
Core Principles for Regulating the United States Financial 
System includes recommendations on these issues.

Q.12. Can you give me your opinion on Whistleblowers and 
Whistleblower protections?

   LFederal law requires the Government to provide a 
        reward to a Whistleblower of a percentage of all 
        collected revenues in a successful prosecution. 
        However, and potentially to the detriment of this 
        program, the IRS has continued to limit rewards to a 
        percentage of the back taxes collected. Can you explain 
        to me why the IRS' actions have not comported to that 
        of the statute?

A.12. The Department of the Treasury and the Internal Revenue 
Service (IRS) are committed to administering the Whistleblower 
Program in a manner that is both fair for potential 
whistleblowers and effective for the IRS in detecting 
underpayments of tax and violations of the internal revenue 
laws. The Treasury Department and the IRS recognize the risks 
faced by whistleblowers and support legislation to provide 
legal protections to whistleblowers from retaliation by 
employers, much like those protections accorded under other 
whistleblower award programs.
    Section 7623(b) requires the IRS to pay whistleblower 
awards if the whistleblower meets certain statutory 
requirements. These mandatory awards are equal to a percentage 
of the ``collected proceeds (including penalties, interest, 
additions to tax, and additional amounts).'' I.R.C.  
7623(b)(1). The scope of the term ``collected proceeds'' is not 
limited to just ``back taxes'' because the statute clarifies 
that ``collected proceeds'' ``includes penalties, interest, 
additions to tax, and additional amounts.'' The legal 
interpretation of the full scope of the phrase ``collected 
proceeds'' is currently the subject of litigation, and 
therefore, we cannot provide any additional comment on this 
matter. The Treasury Department and IRS would, however, welcome 
any discussion with your office aimed at supporting the 
effectiveness of the Whistleblower Program.

Q.13. In a speech you delivered on March 24th, you identified 
cybersecurity as a primary concern with respect to financial 
markets. A concern from some market participants is that 
financial regulators are issuing rules or guidance that is not 
harmonized and that is so prescriptive that it limits an 
entity's ability to respond to dynamic cyber threats. What are 
your plans to promote regulatory harmonization and principle-
based cybersecurity regulations?

   LHow will the Treasury use FSOC to coordinate and 
        harmonize cybersecurity roles among financial 
        regulators?

A.13. In response to the increasing threat posed by malicious 
cyber activity, Federal and State financial regulators have 
undertaken significant steps to develop regulatory guidance and 
examination tools related to cybersecurity. Effectively 
coordinating regulatory approaches to defining, regulating, and 
evaluating cybersecurity risk management practices among 
agencies will bolster the common goal of mitigating cyber risk 
within the sector and enhancing the sector's resiliency. 
Treasury believes cybersecurity risk
management is an important topic and is actively working on 
several efforts related to regulatory harmonization.
    The FSOC has highlighted the importance of cybersecurity 
across the financial services sector, as well as the potential 
risk to
financial stability posed by cybersecurity failures. The 2016 
FSOC
Annual Report recommended that as financial regulators adopt 
approaches to cybersecurity supervision, they endeavor to 
establish a common risk-based approach to assess the 
cybersecurity and resiliency of the firms they regulate. The 
FSOC noted that, informed by their regulatory and supervisory 
process, individual regulators could leverage that common risk-
based approach to address any unique statutory and regulatory 
requirements, as well as any distinct cybersecurity risks 
presented by the segments of the financial sector they oversee.
    To further the recommendations outlined by FSOC, Treasury 
has supported regulatory coordination on several fronts. The 
Financial and Banking Information Infrastructure Committee 
(FBIIC) serves as a useful venue for coordinating approaches 
among agencies with different statutory authorities and 
Treasury believes the FBIIC should be the focal point to drive 
domestic regulatory harmonization efforts. Within the FBIIC, 
Treasury has supported efforts to promote the National 
Institute of Standards and Technology (NIST) Cybersecurity 
Framework as a common lexicon for regulatory agencies to 
incorporate into their supervisory efforts; expand and complete 
efforts to map existing regulatory guidance to reflect and 
incorporate appropriate elements of the NIST Framework; and 
advance work as to whether cybersecurity examinations could be 
further coordinated. Internationally, Treasury has also 
encouraged further collaboration and partnership through the G-
7 Cyber Experts Group in the financial area.

Q.14. What is the Treasury Department's plan for providing 
meaningful regulatory relief for mid-sized and regional banks 
to help them deploy capital and make loans to help grow 
business and infrastructure?

A.14. Treasury agrees that mid-sized and regional banks are key 
to the financial system. Treasury supports efforts to right-
size regulations to address actual risks posed to the financial 
system rather than the current one-size-fits-all regulatory 
model. Treasury's response to the President's Executive Order 
on Core Principles for Regulating the United States Financial 
System makes recommendations to reduce regulations that are 
inappropriately applied to the business model of these 
financial institutions.

Q.15. In your testimony, you indicated that you reject the 
notion that some banks are too-big-to-fail, and instead 
suggested that some might be ``too-big-to-succeed,'' can you 
elaborate on what you mean by that? You also suggested that 
large financial institutions have sufficient capital but that 
capital buffers have prevented banks from lending. In my view, 
using arbitrary asset thresholds to determine if a bank is 
risky or should be designated a SIFI ignores the actual risk a 
bank may pose to the financial system. Do you believe we should 
have thresholds, or should regulators consider the types of 
assets held, the interconnectedness of a bank, its 
substitutability and its global reach when determining risk?

   LI share your goal of trying to spur economic growth 
        through the elimination of regulations that hinder 
        lending. If you do not believe that thresholds are 
        proper at any size, can you outline for me how you plan 
        on right-sizing regulations and
        putting into place a mechanism so that prudential 
        regulators and institutions have clear rules-of-the-
        road with regard to how they will be regulated and how 
        regulations will be tailored based on the risk-profile 
        of the institution?

A.15. We believe in appropriate regulation and in ensuring that 
taxpayers will not be at risk. At the same time we have to 
ensure that banks can lend and provide liquidity. Treasury's 
recent response to the President's Executive Order on Core 
Principles for Regulating the United States Financial System 
includes recommendations to more appropriately tailor 
regulations for mid-sized and regional banks so that such firms 
can help promote economic growth.

Q.16. As we in Congress continue to work on a specific way 
forward on reforming the bank SIFI designation process, and we 
think there is quite a bit of agreement on this, what is the 
Administration doing to use your existing authority to tailor 
the rules that mid-sized and regional banks operate under? As 
you know from your time on the board at CIT, the resources 
these companies put into the annual capital planning and stress 
testing processes, as well as resolution planning, do not seem 
to be commensurate with their business models and risk. These 
resources could be better used to fuel lending in the economy.

A.16. As noted above, Treasury's recent response to the 
President's Executive Order on Core Principles for Regulating 
the United States Financial System includes a number of 
recommendations designed to improve how regulations apply to 
mid-sized and regional banks.

Q.17. Another area in need of significant financial regulatory 
reform is within the retirement space. Do you believe that 
mutual funds are SIFIs? Such designation would impose 
significant regulatory risks to these entities, such as a host 
of banking regulations, even though they are already heavily 
regulated by the SEC. Is this an area that your financial 
regulatory report will address, and will you put forth a 
recommendation to Congress to advance a statutory change to 
remove mutual funds from the scope of SIFI designation?

A.17. Pursuant to a Presidential memorandum issued on April 21, 
Treasury is currently reviewing the FSOC's processes for 
designating nonbank financial companies and financial market 
utilities. Treasury's goal is to ensure that the FSOC's 
processes are transparent, efficient, and effective. Further, 
the Presidential memorandum calls for a pause in the FSOC's 
designations while we complete our review.

Q.18. What other regulations and provisions of Dodd-Frank do 
you feel should be revisited to help mid-sized and regional 
banks grow loans and economic activity in communities across 
the country?

A.18. Treasury's recent response to the President's Executive 
Order on Core Principles for Regulating the United States 
Financial
System includes a number of recommendations designed to improve 
how regulations apply to mid-sized and regional banks.

Q.19. Have you been briefed on MiFID II and are you aware of 
the standards set forth in MiFID II? Are you concerned about 
how MiFID II's research rules might affect money managers in 
the United States? Data and research suggests that the 
implications of MiFID II will be significant among domestic 
asset managers, global asset managers, brokers, and the like, 
and I am concerned that unless the United States acts there 
will be drastic affects for the U.S. research. Can you commit 
to working with the SEC in finding a solution to this problem?

A.19. The MiFID II legislative package is very broad and covers 
a number of areas, including regulation of trading venues, 
market transparency, investor protections, research fees, and 
other areas.
    Under the terms of MiFID II, research fees and commission 
fees must be unbundled. Investment firms must either pay for 
research out of their own resources or from a Research Payment 
Account controlled by the firm and funded by specific research 
charges to clients. MiFID II rules do not apply to U.S. firms 
per se, but the limitations they impose on EU-registered 
financial services providers could spill over and impact the 
ability of U.S. firms to continue to provide research services 
to their European clients.
    As the effective date of January 3, 2018, approaches, 
Treasury remains engaged with our European counterparts to 
ensure that the playing field remains level and open to fair 
competition. At the same time, Treasury continues to work 
domestically with the regulatory agencies, including the SEC, 
all of whom are involved in regular dialogue with the European 
authorities.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARNER FROM STEVEN T. 
                            MNUCHIN

Q.1. In the past, market participants and regulators have 
expressed concerns about the lack of transparency into treasury 
securities trading. In fact, FINRA recently passed, and the SEC
approved, a rule requiring the reporting of certain treasury 
securities transactions for the purpose of collecting 
additional detail about the market. Are there other policies 
that you are considering that could promote transparency into 
these markets? For example, are there potential systemic 
benefits to policies that permit broader market participant 
access to the clearing of treasury securities?

A.1. Central clearing for cash Treasury transactions has 
existed since the mid-1980s, through the Fixed Income Clearing 
Corporation (FICC). FICC's largest member firms are all SEC-
registered brokers and dealers subject to a comprehensive 
regulatory regime. Many principal trading firms are not members 
of FICC, so their trades are not directly cleared by FICC. 
FINRA reporting is expected to capture roughly 90 percent of 
Treasury market transactions, covering trades of FINRA members 
with non-FINRA members, as is common in the dealer-to-client 
market, and trading on major dealer-to-dealer platforms, such 
as BrokerTec and eSpeed.

Q.2. In October 2016, the Federal Reserve Bank of New York 
hosted a conference on the evolving structure of the U.S. 
treasury market. It appeared there was broad consensus that 
central clearing of treasury securities activity would have 
several benefits: increased transparency, decreased settlement 
and operational risk, and more efficient management of 
collateral because a CCP would have a more accurate view of the 
total exposure of each market participant.

   LAre you reviewing this issue as part of your 
        response to the President's Executive order on 
        financial regulation?

   LDo you believe that increased centralized clearing 
        of treasury securities would reduce aggregate 
        counterparty and credit risk in the system?

A.2. Treasury is continuing to study U.S. Treasury market 
structure issues, including the potential effects of increased 
centralized clearing of Treasury securities. Increased clearing 
could reduce counterparty and credit risk. The cost of central 
clearing could result in higher auction yields for Treasury 
securities, decrease incentives to provide secondary market 
liquidity, and increase operational risk due to the creation of 
a central point of failure.

Q.3. The longest dated bond Treasury currently floats is the 
30-year. The United Kingdom and Canada have floated 50-year 
debt, while Japan and Mexico have been able to float 100-year 
bonds. Even Princeton University and Goldman Sachs float 50-
year debt. I understand Treasury is currently studying the 
issuance of ``ultra-long'' bonds. In light of that, do you 
believe that there is adequate appetite for the U.S. to float 
50-year Treasury bonds, especially while interest rates are 
near historic lows and the United States continues to be a 
haven for global investors?

A.3. Treasury regularly issues securities in a wide range of 
maturities, from the 1-month bill to the 30-year bond and 
studies additional security types in order to achieve the 
lowest cost of financing to taxpayers over time. A number of 
other sovereign issuers (including Canada, France, Japan, and 
the United Kingdom) have sold ultra-long bonds over the past 
several years and I believe that we should evaluate whether 
issuing at longer-dated tenors would help us to achieve the 
lowest cost of financing over time. Benefits of ultra-long 
issuance can include: reducing the potential volatility in 
Treasury's debt service costs, and lowering Treasury's exposure 
to higher interest rate environments as it refinances its debt 
portfolio. Treasury has a nearly $14 trillion marketable debt 
portfolio. Treasury is assessing the size and depth of the 
market and the impact to 30-year issuance in order to evaluate 
whether the ultra-long security makes sense for Treasury.

Q.4. I strongly agree with you that we should examine this 
issue and see if the United States can lock in lower rates over 
a longer period of time. But there is significant pushback from 
some market participants, who worry about one-time issuances or 
a lack of ``regular and predictable'' issuances. What is your 
take on that concern? Could you address it by announcing 
quarterly issuances to ensure sufficient demand and a 
predictable schedule?

A.4. We continue to study ultra-long bonds and assess market 
demand. As part of the May 2017 quarterly refunding process, 
Treasury asked the primary dealer community to estimate the 
potential volume of demand for ultra-long sovereign issuance 
and at what price, relative to our 30-year bond offering, we 
could reasonably expect an ultra-long to price. Treasury posed 
similar questions to the Treasury Borrowing Advisory Committee, 
or TBAC, and analysis from that Committee was posted to the 
Treasury website in May. In addition, Treasury has been 
reaching out to traditional long-duration institutional buy-
side market participants (pension funds and life insurance 
companies) to assess demand for such a product.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR WARREN FROM STEVEN T. 
                            MNUCHIN

Tax Administration
Q.1. The Higher Education Act allows the Department of 
Education to forgive Federal student loans for borrowers with 
total and permanent disabilities. In 2016, the Social Security 
Administration identified 387,000 Social Security beneficiaries 
with Federal student loans who were eligible for such a 
discharge due to their ``medical improvement not expected'' 
diagnosis. The Treasury Department, however, has failed to 
issue any guidance on how these Social Security beneficiaries 
who are totally and permanently disabled, many of whom are also 
veterans, would be taxed on these discharges.

   LDo you believe Treasury should exercise the full 
        scope of its authority to ensure that Social Security 
        beneficiaries who are totally and permanently disabled 
        should not be unduly taxed on these student loan 
        discharges?

   LWill you issue guidance clarifying that the General 
        Welfare Doctrine applies to student loan discharges for 
        total and permanent disability, consistent with Rev. 
        Rul. 57-102? Alternatively, will you exercise your 
        authority under the insolvency exception under 26 USC 
        108(a)(1)(B) to issue guidance that excludes from 
        income the student loan discharges for totally and 
        permanently disabled Social Security beneficiaries?\1\
---------------------------------------------------------------------------
    \1\ For a summary of the well-documented insolvency of these 
taxpayers, cross-validated by multiple sources of Federal 
administrative data, see: https://www.washingtonpost.com/news/grade-
point/wp/2016/12/23/feds-refuse-to-stop-taxing-the-canceled-student-
debt-of-severely-disabled-people/?utm_term=.07ecd4ff1eed.

   LWill Treasury instruct the Department of Education 
        not to issue 1099-Cs to the IRS for these student loan 
        discharges in order to avoid an extraordinary and 
        avoidable compliance burden on borrowers who are 
        totally and permanently disabled and an expensive and 
---------------------------------------------------------------------------
        unnecessary compliance burden on the IRS?

A.1. The Treasury Department is reviewing student loan issues 
generally, and staff from our Office of Tax Policy and our 
General Counsel's office recently had a conversation with your 
staff regarding these specific student loan discharge issues. 
As you know, student loan discharges are subject to income tax 
as a result of the Tax Code, which also provides certain 
limited exceptions but not any that could provide a blanket 
exception for this category of borrower. While it is too early 
to commit to any particular approach that the Treasury 
Department may undertake, we want to continue working with you 
on this important issue.

Q.2.a. In the President's FY2018 Budget released on May 24, 
2017, the Administration proposes to increase oversight of paid 
tax return preparers, projecting this to raise $439 million 
over 10 years.
    What prompted the Administration's concerns about paid tax 
return preparers?

A.2.a. In 2009, recognizing the growing reliance by taxpayers 
on paid tax return preparers and the concurrent impact on tax 
administration, the IRS launched a comprehensive review of tax 
return preparation. Under 31 U.S.C.  330, the Secretary has 
the authority to regulate practice before the IRS. Regulations 
under that section, referred to as ``Circular 230,'' regulate 
the practice of licensed attorneys, certified public 
accountants, and enrolled agents and actuaries. In 2009, IRS 
conducted a formal review of its regulation of paid tax return 
preparers. After significant consideration and input from 
taxpayers, tax professionals, and other stakeholders, Treasury 
and the IRS amended Circular 230 to regulate practice of all 
paid tax return preparers, including individuals who are 
unlicensed and unenrolled. Paid tax return preparers challenged 
these regulations in Loving v. Commissioner. The Court of 
Appeals for the District of Columbia Circuit determined that 
these regulations exceeded the IRS' authority.

Q.2.b. What risks do you see as a result of lax oversight of 
these paid preparers?

A.2.b. Paid tax return preparers have an important role in tax 
administration because they assist taxpayers in complying with 
their obligations under the tax laws. Incompetent and dishonest 
tax return preparers increase collection costs, reduce 
revenues, disadvantage taxpayers by potentially subjecting them 
to penalties and interest as a result of incorrect returns, and 
undermine confidence in the tax system.

Q.2.c. Does the Administration already have empirical 
documentation of this risk? If so, can you share it with me?

A.2.c. A few studies exist that document the relationship 
between paid return preparers and tax return errors and examine 
the effect of preparer regulation. A 2006 report by GAO \2\ 
finds that errors are common among returns prepared by 
commercial tax return preparation chains, with some errors 
resulting in an over claim of tax refunds of nearly $2,000. We 
also direct the Committee to the report that the IRS submitted 
to the Committee on Appropriations on the accuracy of returns 
prepared by participants in the IRS voluntary program for the 
2015 tax season compared to accuracy of returns prepared by the 
same population of preparers prior to the 2015 tax season.
---------------------------------------------------------------------------
    \2\ GAO (2006), Paid Tax Return Preparers: In a Limited Study, 
Chain Preparers Made Serious Errors. Washington, DC: April 2006.

Q.2.d. What additional oversight of paid preparers does the 
Administration envision? Will this oversight include increased 
transparency of pricing so that taxpayers may compare costs 
---------------------------------------------------------------------------
across paid preparers?

A.2.d. The proposal would explicitly provide that the Secretary 
of the Treasury has the authority to regulate all paid tax 
return
preparers. This proposal would be effective as of the date of 
enactment.

Q.2.e. What agencies will you work with to implement this 
oversight of paid preparers?

A.2.e. The Internal Revenue Service works closely with the 
Department of Justice to enjoin unscrupulous individuals and 
entities from preparing tax returns and to prosecute those who 
engage in criminal activity.

Q.2.f. What timeline can we expect for this commitment to 
increase oversight of paid preparers?

A.2.f. If legislation providing authority to regulate all paid 
tax return preparers is enacted, the Treasury Department will 
implement such legislation promptly. Until then, the IRS has an 
interim program, the Annual Filing Season Program, to encourage 
tax return preparers to voluntarily demonstrate that they meet 
the minimum standards of competency. To complement the Annual 
Filing Season Program, the IRS also has a public education 
campaign to encourage taxpayers to make informed decisions when 
choosing a paid tax return preparer.

Q.3. In 2015, Congress required that no EITC or ACTC refunds be 
issued until after February 15th, even though tax returns are 
accepted in January. This new delay spurred a significant 
uptick in ``tax-time financial products''--short-term loans to 
taxpayers that use the tax refund as collateral and often 
conceal the full price of tax-preparation fees that are 
directly withdrawn from the tax refund. One survey of 
storefront tax preparation chains found that EITC recipients 
were charged an average of $400 per return.\3\
---------------------------------------------------------------------------
    \3\ Paul Weinstein Jr. and Bethany Patten, The Price of Paying 
Taxes II: How paid tax preparer fees are diminishing the Earned Income 
Tax Credit (EITC) (April 2016) (online at http://
www.progressivepolicy.org/wp-content/uploads/2016/04/2016.04-
Weinstein_Patten_The-Price-of-Paying-Takes-II.pdf).

   LDo you believe taxpayers should lose portions of 
        their EITC and or ACTC refunds to paid preparers or 
        tax-time financial products, rather than receiving the 
---------------------------------------------------------------------------
        full value of their refunds?

   LWill you commit to assessing the full dollar value 
        of EITC and ACTC refunds that go to the tax preparation 
        industry rather than to taxpayers?

   LWho have you assigned at the OCC to review the tax-
        time financial products offered by the tax preparation 
        industry?

   LWill you, or your delegate, commit to briefing the 
        Financial
        Institutions and Consumer Protection Subcommittee of 
        the Senate Banking Committee on the Treasury 
        Department's oversight of tax-time financial products?

A.3. Beginning with refunds paid in 2017, the Protecting 
Americans from Tax Hikes Act of 2015 (PATH Act) changed the law 
to prohibit payment of refunds with respect to tax returns 
claiming the EITC or ACTC until February 15.
    In conjunction with faithfully carrying out the laws 
enacted by Congress, I am committed to making our tax system as 
efficient as possible, while also protecting the integrity of 
the system.
    In 2015, the Office of the Comptroller of the Currency 
(OCC) updated 2010 guidance to outline safety and soundness 
measures that national banks and Federal savings associations 
(collectively, banks) should follow if they offer tax refund-
related products. Those measures include but are not limited 
to, the following: ensuring that the bank maintains sound risk 
management policies, procedures, and practices; implementing 
effective internal controls and review standards for 
advertising and solicitations; and, providing appropriate 
disclosures that explain material aspects of the products to 
consumers. The Senior Deputy Comptroller for Compliance and 
Community Affairs is monitoring the implementation of this 
guidance in regard to banks that they supervise; the OCC 
indicates that one national bank is currently providing such 
products.
    I understand that you have requested the Government 
Accountability Office examine the use and impact of tax-time 
financial products. The Treasury Department will certainly work 
with GAO in their research and we would look forward to their 
findings.

Q.4. In 1998, the IRS Restructuring and Reform Act directed the 
Secretary of the Treasury to develop procedures to implement a 
``return-free'' filing system by 2006.\4\ Despite this generous 
timeline, the Treasury Department has yet to fulfill this 
mandate.
---------------------------------------------------------------------------
    \4\ Sec. 2004 of (P.L. 105-206).

   LWill you use the full scope of your authority as 
        Secretary to make tax filing faster, easier, and 
---------------------------------------------------------------------------
        cheaper for working families?

   LWill you fulfill your obligations under the IRS 
        Restructuring and Reform Act to ``develop procedures 
        for the implementation of a return-free tax system 
        under which appropriate individuals would be permitted 
        to comply with the Internal Revenue Code of 1986 
        without making the return required under section 
        6012?''

A.4. A simpler, fairer, and more efficient tax system is 
critical to growing the economy and creating jobs. Our 
outdated, overly complex, and burdensome tax system must be 
reformed to unleash America's economy, and create millions of 
new, better-paying jobs that enable American workers to meet 
their families' needs. Going forward, we are committed to 
continue working with Congress and other stakeholders to 
carefully and deliberatively build on these principles to 
create a tax system that is fair, simple, and efficient-one 
that puts Americans back to work and puts America first.

Q.5. In 2015, Congress directed the Internal Revenue Service to 
contract with private debt collection companies for certain 
uncollected tax receivables. Although the IRS oversees these 
contracts, the Federal Trade Commission is tasked with 
overseeing enforcement of the Fair Debt Collections Practices 
Act, which also applies to these debt collectors.

   LHas Treasury already been in contact with the FTC 
        about IRS contractor compliance with the FDCPA? Will 
        you commit to working with the FTC to ensure ongoing 
        compliance with the FDCPA by these private debt 
        collection IRS contractors in order to protect taxpayer 
        rights?

A.5. Section 6306(g) of the Internal Revenue Code provides that 
the Fair Debt Collection Practices Act (FDCPA) applies to 
private debt collection agencies. As a result, the IRS requires 
that, as a condition of receiving a contract with the IRS, 
private debt collection agencies must respect taxpayer rights 
including, among other things, abiding by the consumer 
protection provisions of FDCPA. The IRS and FTC have been in 
contact regarding contractor compliance with the FDCPA, and the 
IRS has confirmed for the FTC that private debt collection 
agencies will not be using robocalls or prerecorded messages as 
part of their collection activities. In addition, the Treasury 
Inspector General for Tax Administration maintains a hotline 
for consumer complaints about private debt collection agencies 
or to report misconduct by its employees. The Treasury 
Department and IRS take all complaints about private debt 
collection agencies seriously and will work with the FTC and 
any other relevant agency in the interest of protecting 
taxpayer rights.

Q.6.a. In 2016, the Treasury Department issued tough rules to 
stop multinational corporations from a whole range of cross-
border tax dodging. These new regulations focused on ``earnings 
stripping,'' when foreign companies load up their U.S. 
subsidiaries with debt from the foreign parent in order to zero 
out U.S. taxes with interest deductions. The rules also cracked 
down on ``corporate inversions,'' when U.S. companies merge 
with a smaller foreign company in order to claim a foreign tax 
residence. On May 15, 2017, the Chamber of Commerce asked you 
to withdraw these rules.\5\
---------------------------------------------------------------------------
    \5\ https://www.law360.com/articles/924367/chamber-asks-treasury-
to-nix-inversion-estate-tax-rules.

   LDo you believe the Treasury Department should 
        increase tax preferences for foreign owned 
        multinational corporations by rolling back section 385 
---------------------------------------------------------------------------
        regulations?

A.6.a. In April 2016, the Treasury Department and the IRS 
issued proposed regulations (REG-108060-15) under section 385 
of the Code that primarily (i) established threshold 
documentation
requirements that ordinarily must be satisfied in order for 
certain related-party interests in a corporation to be treated 
as indebtedness for Federal tax purposes (documentation rules), 
and (ii) treated as stock certain purported debt instruments 
that are issued to a controlling shareholder in a distribution 
or in another transaction that achieves an economically similar 
result (transaction rules). On October 21, 2016, the Treasury 
Department and the IRS issued final and temporary regulations 
that substantially revised the proposed regulations (81 Fed. 
Reg. 72858). In particular, the final and temporary regulations 
were limited to apply to U.S. borrowers only and provided 
additional rules to exempt certain transactions and types of 
U.S. borrowers from application of the regulations.
    Earnings stripping through related-party borrowing 
generally refers to a borrower that borrows from an affiliate 
and thereby incurs deductible interest expense. U.S. 
subsidiaries of foreign-parented multinational groups may 
engage in earnings stripping by borrowing from related foreign 
lenders to arbitrage the tax rate
difference between the interest deduction in the United States 
(currently 35 percent) and the interest income in a lower-tax 
lending jurisdiction. The United States has statutory limits on 
the amount of related-party interest expense that may be 
deducted in a tax year under section 163(j) of the Code. The 
interest expense limitation under section 163(j) is computed as 
a percentage of the U.S. taxpayer's adjusted taxable income.
    The transaction rules in the section 385 regulations do not 
directly address excessive related-party interest expense in a 
manner similar to section 163(j). Rather, the transaction rules 
in the section 385 regulations address specific issuances of 
new related-party debt that is issued by the purported borrower 
to a related party in a corporate distribution (sometimes 
referred to as a ``dividend note'').\6\ Also, unlike the 
section 163(j) earnings stripping limitations, the transaction 
rules in the section 385 regulations recharacterize an issuance 
of a purported debt instrument as stock rather than limiting 
the amount of deductible interest expense associated with the 
purported debt instrument. In other words, the transaction 
rules in the section 385 regulations characterize a purported 
related-party debt instrument as debt or stock for tax purposes 
under certain prescribed circumstances without regard to 
whether or not the borrower has excessive related-party 
interest expense under the current section 163(j) interest 
expense limit.
---------------------------------------------------------------------------
    \6\ The transaction rules in the section 385 regulations also apply 
to other related party transactions that are described as economically 
similar to a distribution and not financing new investment in the 
operations of the borrower.
---------------------------------------------------------------------------
    On April 21, 2017, President Trump signed E.O. 13789, which 
orders the Secretary to immediately review all significant tax 
regulations issued by the Department of the Treasury on or 
after January 1, 2016, and, in consultation with the 
Administrator of the Office of Information and Regulatory 
Affairs, Office of Management and Budget, identify in an 
interim report to the President all such regulations that: (i) 
impose an undue financial burden on United States taxpayers; 
(ii) add undue complexity to the Federal tax laws; or (iii) 
exceed the statutory authority of the Internal Revenue Service. 
The Treasury Department in Notice 2017-38 identified the 
section 385 regulations as meeting the criteria of the 
President's order. A final report will be issued at a later 
time recommending specific actions to mitigate the burden 
imposed by the regulations identified in the interim report. No 
decision has currently been made on what action will be taken 
with respect to the section 385 regulations or the other 
regulations identified. In addition, the Trump administration 
and the Treasury Department are actively engaged with Congress 
on tax reform. As such, the Treasury Department is carefully 
considering the section 385 regulations in connection with E.O. 
13789, and the statutory earnings-striping limits under section 
163(j) in connection with formulating its recommendations for 
tax reform.

Q.6.b. You have described anecdotal concerns by U.S. companies 
of foreign takeovers. Do you have empirical documentation of an 
uptick in foreign acquisitions of U.S. targets relative to U.S. 
acquisitions of foreign targets?

A.6.b. United Nations Conference on Trade and Development 
(UNCTAD) data on flows of foreign direct investment (FDI) into 
and out of the United States are quite variable from year to 
year. Outward flows exceeded inward flows each year from 2007 
through 2014, though inward flows were larger in 2015. The 
widely acknowledged U.S. tax advantages for inbound and 
outbound investment compared to U.S. domestic investment by 
U.S. persons and nontax reasons for cross-border investment 
suggests that this comparison is not definitive on this issue.

Q.6.c. Do you believe relaxing rules on corporate inversions, 
so that U.S. companies can merge with foreign companies to 
claim a foreign tax residence, helps create American jobs?

A.6.c. Most U.S. public corporate inversions do not involve top 
executives moving from the United States to the new country of 
corporate residence, but some do. Beyond that, it is not clear 
that
corporate inversions reduce U.S. jobs in the short run, but we 
know of no convincing evidence that corporate inversions tend 
to increase U.S. employment.
Tax Reform
Q.7. As you know, 70 percent of all income from pass-through 
entities goes to the top 1 percent of taxpayers.\7\ In your 
testimony before the Banking Committee, you stated that not all 
pass-throughs would receive the preferential business tax rate 
proposed by the Administration and that you would propose 
eligibility requirements for the preferred tax rate.
---------------------------------------------------------------------------
    \7\ Business in the United States: Who Owns it and How Much Tax Do 
They Pay? Michael Cooper, John McClelland, James Pearce, Richard 
Prisinzano, Joseph Sullivan, Danny Yagan, Owen Zidar, Eric Zwick, in 
Tax Policy and the Economy; Volume 30, Brown. 2016.

   LHow will you limit eligibility for the business tax 
        rate to middle-class taxpayers who receive income from 
        pass-throughs? Will there be a specific tax bracket for 
---------------------------------------------------------------------------
        claiming the preferred rate?

   LHow will you limit eligibility for this business 
        tax rate to small- and medium-size businesses?

A.7. There are a number of approaches to limit the preferential 
pass-through rate to certain taxpayers and businesses. We are 
confident that we can develop effective measures to 
appropriately target income that should be eligible for the 
preferential rate, and we look forward to working with Congress 
to further develop these proposals.

Q.8. The Child Tax Credit (CTC) and the Earned Income Tax 
Credit (EITC) are some of our Nation's most effective anti-
poverty programs for working families. Many struggling 
families, however, have their refundable tax credits swallowed 
up by bankruptcy trustees, undermining the very purpose of 
these refundable tax credits. In a survey of consumer Chapter 7 
bankruptcy asset cases, bankruptcy trustees took some form of 
tax refunds in 65 percent of the asset cases, with an average 
capture of $3,404 per asset case.

   LIn your tax reform proposals, will you ensure that 
        the EITC and CTC are protected from creditor 
        attachment, just like
        Social Security benefits and certain retirement 
        benefits under ERISA?\8\
---------------------------------------------------------------------------
    \8\ Dalie Jimenez, The Distribution of Assets in Consumer Chapter 7 
Bankruptcy Cases, American Bankruptcy Law Journal, Vol. 83, p. 795, 
2009.

A.8. The current treatment of the EITC and CTC is a function of 
the Bankruptcy Code, not the tax code. Nevertheless, as a 
general matter, we are open to considering all proposals that 
meet the Administration's core principles of tax reform.
ISIS
Q.9. Is the Treasury Department taking additional steps to shut 
off ISIS from the international financial system and from other 
financial networks like money remittance channels and currency 
auctions? Does the Department believe that additional authority 
from Congress would be helpful in this effort, and if so, what 
authority would the Department seek?

A.9. Treasury is leading global efforts to prevent ISIS from 
accessing the international financial system. It is sanctioning 
ISIS senior leaders, financiers, facilitators, recruiters, and 
money services businesses, and has worked closely with Iraqi 
authorities to ensure that bank branches within ISIS-controlled 
territory in Iraq were completely cut-off from the Iraqi and 
international financial systems. Treasury has also helped to 
put in place safeguards at the Central Bank of Iraq to deny 
ISIS access to U.S. dollar currency auctions and to strengthen 
oversight of exchange houses and money transfer companies, key 
channels through which ISIS moves funds. Further, Treasury has 
worked multilaterally, through bodies like the Counter-ISIS 
Finance Group--an integrated part of the broader Defeat ISIS 
Coalition--and the Egmont Group of Financial Intelligence Units 
and the Financial Action Task Force to share information on 
ISIS's finances and its cross-border financial networks, and to 
identify opportunities for disruption.
    Treasury believes it has sufficient authority from Congress 
to counter ISIS's finances.
Iran
Q.10. Iran is still on the Financial Action Task Force (FATF) 
blacklist of countries that are a high risk of money laundering 
and terrorist financing. Last year Iran made commitments to 
FATF to make structural reforms in these areas. Will you work 
with FATF to compel Iran to address its money laundering and 
terrorist financing problems?

A.10. Yes. Treasury will continue to work within the FATF and 
ICRG to hold Iran accountable for AML/CFT deficiencies and 
pressure Iran to address those deficiencies.
                                ------                                


RESPONSE TO WRITTEN QUESTION OF SENATOR KENNEDY FROM STEVEN T. 
                            MNUCHIN

Q.1. Mr. Secretary, as you know, I was a part of a group of 
Senators who wrote to you in March urging you to end FSOC's 
``too-big-to-fail'' policies by addressing the designation of--
bank ``systemically important financial institutions'' (or 
``SIFIs''). There are a number of banks that have been 
designated by FSOC as SIFI. There are serious economic 
consequences to these decisions, starting with a dramatically 
higher level of regulatory burden on the bank that is 
accompanied with significantly higher compliance costs. An 
annual reevaluation could allow designated financial 
institutions an
opportunity to submit a plan with any additional materials 
necessary to contest the determination that material financial 
distress at the bank, or the nature, scope, size, scale, 
concentration, interconnectedness, or mix of the activities of 
the nonbank financial company, could pose a threat to the 
financial stability of the United States.
    As you and your staff begin FSOC reform, have you given 
consideration to building an annual reevaluation process of the 
designation decisions for banks, to determine how to best 
tailor which of the enhanced supervision provisions should 
apply to each bank?

A.1. In February, the President signed an Executive order that 
tasks Treasury with reporting on the extent to which existing 
laws, regulations, and other Government policies promote or 
inhibit the Core Principles for financial regulation set forth 
in the Executive order. As part of this process, we are 
considering a broad set of financial regulations that affect 
banks and other institutions. In its initial report under the 
Executive order, addressing the regulation of depository 
institutions, Treasury recommended that Congress amend the $50 
billion threshold under Section 165 of the Dodd-Frank Act for 
the application of enhanced prudential standards to more 
appropriately tailor these standards to the risk profile of 
bank holding companies.
    Additionally, pursuant to a Presidential Memorandum issued 
on April 21, Treasury is currently reviewing the FSOC's 
processes for its designations of nonbank financial companies 
and financial market utilities to evaluate, among other things, 
whether the existing processes provide for sufficient 
transparency and provide entities with adequate due process.
    The FSOC remains subject to its statutory requirement to 
reevaluate its previous designations of nonbank financial 
companies, and we will continue to do so. As part of each 
annual reevaluation of a nonbank financial company's 
designation, the FSOC invites the company to meet with staff 
and to submit information relevant to the FSOC's analysis. For 
companies that have contested their designation during the 
FSOC's annual reevaluation process, the FSOC has voted on 
whether to rescind the designation and provided the company 
with a notice explaining the primary basis for its decision.
                                ------                                


RESPONSE TO WRITTEN QUESTIONS OF SENATOR VAN HOLLEN FROM STEVEN 
                           T. MNUCHIN

Low Income Housing Tax Credit
Q.1. Mr. Mnuchin, the President's Budget proposes over $7 
billion in cuts to affordable housing programs. At the same 
time, the proposed reduction on corporate taxes will decrease 
the amount of LIHTC equity that can be raised and that will 
decrease the number of affordable rental apartments that can be 
built or preserved. The LIHTC helps in the financing of the 
majority of affordable housing development. In Maryland, the 
LIHTC program has produced 58,910 units of affordable housing 
and has generated $6.34 billion in local income to the economy. 
The combination of decreased funding for affordable housing 
programs and decreased utilization of the LIHTC could have 
disastrous impacts on the production and rehabilitation of 
affordable housing.
    Since the budget dramatically reduces funding for 
affordable housing programs, is Treasury considering modifying 
the LIHTC program in order to help fill some gaps in these 
cuts? Has Treasury studied possible impacts of tax reform on 
the LIHTC? Is Treasury planning on making any changes to the 
program should these corporate tax reductions go into law?

A.1. Created in the 1986 Tax Reform Act and codified in 26 
U.S.C.  42, the Low Income Housing Tax Credit (LIHTC) 
subsidizes the construction or substantial rehabilitation of 
affordable housing units. We look forward to examining the 
LIHTC program as part of the Administration's work with 
Congress on comprehensive tax reform, including the broader 
issue of the tax code's impact on affordable housing.
Office of the Comptroller of the Currency (OCC)
Q.2. Regarding the appointment of Keith Noreika as Acting 
Comptroller of the Currency, please respond to the following 
questions:

   LWhy were you willing to install him as head of the 
        OCC before his ethics pre-vetting was certified so that 
        the American public can know whether or not conflicts 
        exist?

   LMr. Noreika's special temporary 130-day status 
        allows him to avoid President Trump's ethics pledge if 
        he leaves the OCC in 130 days or less. Does that allow 
        him to lobby or work on behalf of financial 
        institutions regulated by the OCC?

   LAdditionally please respond to the following 
        questions related to Mr. Noreika's appointment:
Legal Authority
   LCan you describe the authorities of a First Deputy 
        Comptroller and enumerate the differences between a 
        First Deputy Comptroller appointed to the position of 
        Comptroller as opposed to a Comptroller who has been 
        confirmed by the Senate? Will there be any limits on 
        his duties and authorities as Acting Comptroller of the 
        Currency?

   LWill Mr. Noreika be serving as Acting Comptroller 
        or as a counselor from the Department of Treasury?

   LAs a ``special Government employee,'' will he be 
        limited in any capacity from undertaking the duties to 
        run the agency?

   LWill Mr. Noreika have the authority to sign 
        enforcement orders in his new capacity? If he does not 
        have this authority, how does the OCC plan on executing 
        enforcement orders during his tenure?

   LWill Mr. Noreika have the authority to close 
        financial institutions regulated by the OCC? If he does 
        not have this authority, how does the OCC plan on 
        closing undercapitalized financial institutions during 
        his tenure?

   LWill Mr. Noreika have the authority to authorize 
        mergers and approve new charters? If he does not have 
        this authority, how does the OCC plan on approving 
        mergers and new bank charters during his tenure?

   LWill Mr. Noreika be a voting member of the 
        Financial Stability and Oversight Council (FSOC)? If he 
        does not have this authority, how does the OCC plan to 
        have a voice at the FSOC?
Independence
   LMr. Noreika has represented numerous clients in the 
        financial services industry, including companies with 
        substantial pending or potential matters before the 
        OCC. In order to avoid any potential impropriety (or 
        the appearance of it), is Mr. Noreika required to 
        recuse himself from any matters which may result in a 
        conflict or the appearance of a conflict?

   LPlease provide a detailed list of any such recusals 
        that will be required of Mr. Noreika, based upon his 
        disclosure of financial interests or prior 
        representation.

   LHas Mr. Noreika been granted any exemptions or 
        waivers related to matters involving his work for 
        previous clients?

   LIs it your understanding that Mr. Noreika will 
        continue to serve as First Deputy Comptroller following 
        the nomination and confirmation of Mr. Curry's 
        successor? Does Mr. Noreika plan to return to his legal 
        practice after his time at the OCC?
Circumventing Confirmation
   LWhen was the last time a Treasury Secretary 
        appointed someone from outside the OCC to lead the 
        agency? Please describe the process for installing that 
        person at the OCC.

   LWhy wasn't Mr. Noreika simply nominated for the 
        position of Comptroller?

   LWhat are the Administration's plans for nominating 
        a new Comptroller of the Currency, and when will the 
        Senate Banking Committee receive nomination papers for 
        the nominee?

   LWhy didn't the Administration choose an individual 
        already within the OCC as Acting Comptroller during 
        this period of transition?

A.2. On May 5, 2017, I appointed Mr. Noreika as a Deputy 
Comptroller and further designated him as First Deputy 
Comptroller. Mr. Noreika is a leading expert in the regulation 
and supervision of national banks and Federal savings 
associations. He has deep experience in helping banks operate 
in a safe and sound manner, provide fair access to financial 
services, and provide credit needed for business expansion and 
job growth.
    In appointing Mr. Noreika, I exercised my authority, 
granted by statute, to ensure continued leadership at the 
Office of the Comptroller of the Currency. Specifically, the 
National Bank Act authorizes the Secretary of the Treasury to 
appoint up to four Deputy Comptrollers of the Currency and to 
designate one as First Deputy Comptroller (12 U.S.C.  4). The 
Secretary's statutory authority does not limit the pool of 
candidates from which the Secretary may make such an 
appointment.
    By law, the First Deputy Comptroller acts as Comptroller in 
the event of a vacancy or absence or disability of the 
Comptroller. Specifically, the National Bank Act provides that 
``[d]uring a vacancy in the office or during the absence or 
disability of the Comptroller,'' the First Deputy Comptroller, 
succeeded by the other Deputy Comptrollers, ``shall possess the 
power and perform the duties attached by law to the office of 
the Comptroller.'' Id. The primary duties of the office of the 
Comptroller are set forth in the National Bank Act. (See 12 
U.S.C.  1-16,  481-86.) The First Deputy Comptroller is 
authorized to perform all duties of the office in the absence 
of a Comptroller.
    Prior to his appointment, Mr. Noreika underwent a thorough 
ethics pre-vetting by the career ethics staff of the Treasury 
Department. While serving as Acting Comptroller, Mr. Noreika 
will adhere to the same comprehensive ethics and conflict of 
interest rules as all OCC employees. He has resigned from his 
former law firm and will not engage in any outside employment 
activities while serving. He has filed a public financial 
disclosure report which will be available upon request once 
certified, and he has divested all assets that could pose a 
conflict of interest. Mr. Noreika is recused from any 
particular matters involving specific parties in which his 
former law firm, or a client for whom he provided services in 
the last year, is, or represents, a party. This recusal 
obligation applies regardless of whether Mr. Noreika was 
previously involved in the particular matter at issue. He has 
not been granted any ethics waivers or exemptions related to 
matters involving his work for previous clients.
    The Office of Government Ethics (OGE) has made clear that 
the current Administration's ethics pledge, like the previous 
Administration's ethics pledge, does not apply to appointees 
such as Mr. Noreika who are expected to serve on an interim 
basis. Specifically, pursuant to OGE guidance, the Obama 
administration and Trump administration pledges do not cover 
``special Government employees,'' defined as employees or 
officers who are expected to perform duties on fewer than 130 
days within a 365-day period. This interim status does not 
affect Mr. Noreika's responsibilities as Acting Comptroller. 
Mr. Noreika intends to serve until a permanent Comptroller is 
confirmed.
    The Comptroller of the Currency is appointed by the 
President, by and with the advice and consent of the Senate. On 
June 6, 2017, the President nominated Joseph M. Otting to serve 
in this position. We look forward to working with Members of 
the U.S. Senate Committee on Banking, Housing, and Urban 
Affairs in its consideration of Mr. Otting's nomination.