    [Senate Hearing 116-38]
    [From the U.S. Government Publishing Office]

                                                             S. Hrg. 116-38

      NOMINATIONS OF THOMAS PETER FEDDO, NAZAK NIKAKHTAR, IAN PAUL STEFF,
           MICHELLE BOWMAN, PAUL SHMOTOLOKHA, AND ALLISON HERREN LEE

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

                                    HEARING

                                   BEFORE THE

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

                         ONE HUNDRED SIXTEENTH CONGRESS

                                 FIRST SESSION

                                       ON

                                NOMINATIONS OF:

     THOMAS PETER FEDDO, OF VIRGINIA, TO BE ASSISTANT SECRETARY, TREASURY
                            FOR INVESTMENT SECURITY
                                   __________

       NAZAK NIKAKHTAR, OF MARYLAND, TO BE UNDER SECRETARY, COMMERCE FOR
                             INDUSTRY AND SECURITY
                                   __________

     IAN PAUL STEFF, OF INDIANA, TO BE ASSISTANT SECRETARY OF COMMERCE AND
         DIRECTOR GENERAL, UNITED STATES AND FOREIGN COMMERCIAL SERVICE
                                   __________

     MICHELLE BOWMAN, OF KANSAS, TO BE A MEMBER, BOARD OF GOVERNORS OF THE
                             FEDERAL RESERVE SYSTEM
                                   __________

      PAUL SHMOTOLOKHA, OF WASHINGTON, TO BE FIRST VICE PRESIDENT, EXPORT-
                        IMPORT BANK OF THE UNITED STATES
                                  __________

        ALLISON HERREN LEE, OF COLORADO, TO BE A MEMBER, SECURITIES AND
                              EXCHANGE COMMISSION
                                   __________

                                  JUNE 5, 2019
                                   __________

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

                      [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                    Available at: https: //www.govinfo.gov /

                                  ___________

                        U.S. GOVERNMENT PUBLISHING OFFICE

    37-106 PDF                 WASHINGTON : 2019

                COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS

                          MIKE CRAPO, Idaho, Chairman

    RICHARD C. SHELBY, Alabama           SHERROD BROWN, Ohio
    PATRICK J. TOOMEY, Pennsylvania      JACK REED, Rhode Island
    TIM SCOTT, South Carolina            ROBERT MENENDEZ, New Jersey
    BEN SASSE, Nebraska                  JON TESTER, Montana
    TOM COTTON, Arkansas                 MARK R. WARNER, Virginia
    MIKE ROUNDS, South Dakota            ELIZABETH WARREN, Massachusetts
    DAVID PERDUE, Georgia                BRIAN SCHATZ, Hawaii
    THOM TILLIS, North Carolina          CHRIS VAN HOLLEN, Maryland
    JOHN KENNEDY, Louisiana              CATHERINE CORTEZ MASTO, Nevada
    MARTHA MCSALLY, Arizona              DOUG JONES, Alabama
    JERRY MORAN, Kansas                  TINA SMITH, Minnesota
    KEVIN CRAMER, North Dakota           KYRSTEN SINEMA, Arizona

                         Gregg Richard, Staff Director

                     Mark Powden, Democratic Staff Director

                          Joe Carapiet, Chief Counsel

                  Kristine Johnson, Professional Staff Member

                     Elisha Tuku, Democratic Chief Counsel

                Laura Swanson, Democratic Deputy Staff Director

                  Phil Rudd, Democratic Legislative Assistant

                          Cameron Ricker, Chief Clerk

                          Shelvin Simmons, IT Director

                        Charles J. Moffat, Hearing Clerk

                              Jim Crowell, Editor

                                      (ii)

                                C O N T E N T S

                                  ----------

                            WEDNESDAY, JUNE 5, 2019

                                                                       Page

    Opening statement of Chairman Crapo..............................     1
        Prepared statement...........................................    32

    Opening statements, comments, or prepared statements of:
        Senator Brown................................................     2
            Prepared statement.......................................    33

                                    NOMINEES

    Thomas Peter Feddo, of Virginia, to be Assistant Secretary,
      Treasury for Investment Security...............................     5
        Prepared statement...........................................    34
        Biographical sketch of nominee...............................    36
        Responses to written questions of:
            Senator Brown............................................    91
            Senator Toomey...........................................    93
            Senator Perdue...........................................    93
            Senator Tillis...........................................    94
            Senator Warner...........................................    95
    Nazak Nikakhtar, of Maryland, to be Under Secretary, Commerce for
      Industry and Security..........................................     6
        Prepared statement...........................................    41
        Biographical sketch of nominee...............................    43
        Responses to written questions of:
            Senator Brown............................................    97
            Senator Perdue...........................................    99
            Senator Moran............................................   101
            Senator Menendez.........................................   102
            Senator Warner...........................................   104
            Senator Cortez Masto.....................................   107
    Ian Paul Steff, of Indiana, to be Assistant Secretary of Commerce
      and Director General, United States and Foreign Commercial
      Service........................................................     8
        Prepared statement...........................................    50
        Biographical sketch of nominee...............................    52
        Responses to written questions of:
            Senator Menendez.........................................   110
    Michelle Bowman, of Kansas, to be a Member, Board of Governors of
      the Federal Reserve System.....................................    10
        Prepared statement...........................................    60
        Biographical sketch of nominee...............................    61
        Responses to written questions of:
            Senator Brown............................................   111
            Senator Rounds...........................................   120
            Senator Tillis...........................................   121
            Senator Menendez.........................................   125
            Senator Warren...........................................   126
            Senator Cortez Masto.....................................   127

                                     (iii)

    Paul Shmotolokha, of Washington, to be First Vice President,
      Export-Import Bank of the United States........................    11
        Prepared statement...........................................    69
        Biographical sketch of nominee...............................    70
        Responses to written questions of:
            Senator Brown............................................   132
            Senator Warner...........................................   134
            Senator Cortez Masto.....................................   135
            Senator Sinema...........................................   137
    Allison Herren Lee, of Colorado, to be a Member, Securities and
      Exchange Commission............................................    13
        Prepared statement...........................................    79
        Biographical sketch of nominee...............................    80
        Responses to written questions of:
            Senator Rounds...........................................   138
            Senator Menendez.........................................   139
            Senator Warner...........................................   140
            Senator Warren...........................................   143
            Senator Cortez Masto.....................................   145

                  Additional Material Supplied for the Record

    Letter submitted by Senator Bob Dole in support of Thomas Peter
      Feddo..........................................................   148
    Letter submitted by the Independent Community Bankers of America
      in support of Michelle Bowman..................................   149

                                      (iv)

      NOMINATIONS OF THOMAS PETER FEDDO, NAZAK NIKAKHTAR, IAN PAUL STEFF,
           MICHELLE BOWMAN, PAUL SHMOTOLOKHA, AND ALLISON HERREN LEE

                                  ----------

                            WEDNESDAY, JUNE 5, 2019

                                           U.S. Senate,
              Committee on Banking, Housing, and Urban Affairs,
                                                        Washington, DC.
        The Committee met at 9:52 a.m., in room SD-538, Dirksen
    Senate Office Building, Hon. Michael Crapo, Chairman of the
    Committee, presiding.

                OPENING STATEMENT OF CHAIRMAN MIKE CRAPO

        Chairman Crapo. This hearing will come to order.
        First of all, I want to thank our six nominees who are here
    to serve in five different agencies. As you are well aware, we
    have had votes scheduled today at eleven o'clock. So we are
    trying to adjust how we move along, and we have changed the
    instructions to you several times this morning.
        Let me tell you how we will proceed. At one point, we had
    asked you to just forego your opening statements to give us
    more time for Senators to ask questions. The Senators have
    indicated that they would like to have you make your opening
    statements, if you would like to make one, and so any of you
    who would like to--and I invite you to--can make your opening
    statements.
        We will then proceed normally from there. We are going to
    ask everybody here to help us move along quickly with answers
    and questions, and hopefully, we will get through this with no
    difficulty.
        With that, this morning, we have first Mr. Thomas Peter
    Feddo. He is nominated to be the Assistant Secretary of
    Treasury for Investment Security.
        Next, the Honorable Nazak Nikakhtar. Did I get it right?
    Where are you? There you are.
        Then next, Mr. Ian Paul Steff.
        By the way, Nazak is to be the Under Secretary of Commerce
    for Industry and Security.
        Next, Mr. Ian Paul Staff to be the Assistant Secretary of
    Commerce and Director General of the United States and Foreign
    Commercial Service.
        Then we have the Honorable Michelle Bowman to be a member
    of the Board of Governors of the Federal Reserve System.
        We next have Mr. Shmotolokha--I got it pretty close--who
    has been nominated to serve as the First Vice President and
    Vice Chairman of the Export-Import Bank of the United States.
        And, finally, we have Ms. Allison Lee, who is nominated to
    serve as a Member of the Securities and Exchange Commission.
        I welcome all of you to the hearing today.
        I see friends and family behind you, and I welcome you to
    introduce them, if you would like to do so as well, when we
    turn the time over to you.
        At this point, I am going to forego any further statement
    of my own so that we can move on more quickly.
        Senator Brown does have a statement, and let me turn to
    you, Senator Brown.

               OPENING STATEMENT OF SENATOR SHERROD BROWN

        Senator Brown. Thank you, Chairman Crapo, and thanks to all
    of you, and welcome to your families.
        I know even though this hearing may be truncated, we do not
    want that to happen. So I want you to do whatever you want to
    say in your opening statements, and do not feel pressured in
    time in terms of answering questions or anything else.
        Your family is here. It is a big moment for them. It is a
    big moment for you. If for reasons of votes--and the Chairman
    and I have talked. He has not agreed to this, but if we do need
    to bring you back for questions, if Members do not get a chance
    to ask questions because of the floor votes--I would also just
    mention the frustration on this side of the aisle that all this
    Senate seems to be doing is the Majority Leader just wants to
    jam through as many possible judges as possible as he can get
    through the Senate. That is why we have many of these votes
    today, especially considering the number of judges that the
    Majority Leader blocked in the Obama administration and now is
    trying to fill all these with very young judges.
        So it is a power move from the Majority Leader. My
    relationship with the Chairman has been great, and we will
    continue to work together. We disagree on some of the bigger
    picture issues. We want to move on all of you, if we can. Some
    of you, I am happier with than others, as your public records
    and all.
        But I want to just speak and with my opening statement give
    some thoughts, and then we will move forward. But these are all
    really important jobs, all six of you, and I do not think it is
    fair to you or to Members in both parties to get anything but a
    chance to do full questioning. Just the fact that there are six
    of you here is frankly too many--that is our decision, not
    yours--to bring you all together, considering the importance of
    your jobs and considering that all of us have questions,
    multiple questions for many of you, far beyond our 5 minutes.
    That is why it is rare to do six together and why I am not wild
    about doing six together. I understand the crunch of time, but
    that crunch of time is often artificially squeezed.
        Let me say a few things. Mr. Feddo, thank you for joining
    us, first nominee to be Assistant Secretary of the Treasury for
    Investment Security, a position we created under the Foreign
    Investment Risk Review Modernization Act of 2018, the
    bipartisan legislation that came out of this Committee. We are
    thrilled you are here.
        We created this new position because of the critical role
    that CFIUS plays promoting U.S. national security from
    increasing threats from certain foreign investments. Yesterday
    we heard about how China has adopted new tactics to acquire
    American technology in sectors vital to our national security.
    It is why we passed this bill. It is why your job is so, so
    important.
        Mr. Feddo currently serves as Deputy Assistant Secretary
    for Investment Security. He has played a key role in
    formulating the reforms last year and is now working to carry
    out the technical and structural changes under FIRRMA,
    including finishing the rulemaking to expand CFIUS's scope.
        If confirmed, Mr. Feddo, you will need to continue this
    critical work. I know you have made progress. I look forward to
    hearing from you about next steps.
        Ms. Nikakhtar, welcome. Nice that you are here. You have
    been nominated to serve as Under Secretary of Commerce for
    Industry and Security, responsible for a set of key U.S.
    national security, foreign policy, and economic objectives
    through application of effective U.S. and multilateral export
    controls and treaty compliance. Although Ms. Nikakhtar has
    extensive experience in international trade, she has more
    limited experience in national security and export control
    matters. If confirmed, she will be responsible for
    administering critical U.S. export control laws and regulations
    that cover all kinds of sensitive technology.
        I hope you will work with your colleagues to navigate, Ms.
    Nikakhtar, the complex national security and political concerns
    that surround the export of sophisticated U.S. technology.
        Mr. Steff is nominated to be Assistant Secretary of
    Commerce for Global markets and Director General of the U.S.
    and Foreign Commercial Service. Welcome. He will be responsible
    in that role for the ITA's work to advance U.S. business
    overseas and promote U.S. exports and fair trade rules. His
    current experience as Deputy Secretary for Manufacturing at
    Commerce and his prior experience working on economic
    development, providing an understanding of how to strengthen
    the competitiveness of U.S. industry. We count on you for that.
        Ms. Bowman, welcome. Good to see you again. She is
    nominated to be a member of the Board of Governors for a full
    14-year term, expiring in 2034. As a former State bank
    commissioner, she serves in the role designated for a Fed
    Governor with community bank experience.
        At her first nomination hearing, I was concerned that Ms.
    Bowman would be a rubber stamp for Wall Street. I think I was
    right to be concerned about that. This Administration looks
    like a retreat for Wall Street executives. Far too many people
    with Wall Street connections and Wall Street bias have been
    nominated by this Administration to key regulatory positions.
        I know you possess a deep understanding of community banks
    and are being nominated for a full 14-year term. I am concerned
    that you have too often taken the side on the Fed, the side of
    big banks and Wall Street, doing favors for Wall Street by
    relaxing capital standards and weakening stress tests and other
    postcrisis safeguards. That Federal Reserve and the Trump
    nominees seem to have a collective amnesia about what happened
    in this country 10 years ago and the number of people that lost
    savings, lost lifetime savings, lost their jobs, lost their
    home.
        I hope you will do, if confirmed, all that you can to
    ensure the regulatory system works for community banks, but for
    our financial system and protecting all consumers. So far, you
    have fallen short. I am hoping you will do better.
        Mr. Shmotolokha is the nominee to be First Vice President
    of the EXIM Bank.
        For 4 years, I have pushed EXIM to be fully reopened. The
    Vice President, apparently, and a handful of Republicans on
    this Committee have blocked the Export-Import Bank, costing
    thousands of manufacturing jobs in my State and tens of
    thousands, maybe hundreds of thousands of jobs around the
    United States because they have blocked--they have not seen fit
    to do what this Congress used to do bipartisanly, almost
    unanimously to support the Export-Import Bank.
        We are counting on you to push back when they try to slow
    it and stop it and cripple that agency. Your work is especially
    important as the final nominee to the bank's board to be before
    this Committee.
        Ms. Lee, welcome. She has been nominated to be Commissioner
    of SEC. If confirmed, she would return to the SEC at a critical
    time. I expect Ms. Lee to draw on her SEC enforcement
    experience while considering rules that would affect investor
    rights and remedies against wrongdoers and when weighing
    penalties in misconduct cases.
        Your work is especially important in light of what I said
    earlier that this Administration has such a strong bias toward
    the most privileged in this country, whether it is Wall Street,
    whether it is corporations that ship jobs overseas, whether it
    is special interests that take advantage of people. We really
    count on you, Ms. Lee, in that job.
        Thank you, Mr. Chairman.
        Chairman Crapo. Thank you, Senator Brown.
        I know I said I was not going to make an opening statement,
    but I do need to respond to two things that you said.
        Senator Brown and I do have an excellent working
    relationship. I just want to make it clear that there is plenty
    of precedent, both in this Committee as well as others, to have
    six nominees before us. Frankly, especially, I do not know of
    any significant controversy about any of the nominees before us
    today.
        Second, with regard to the comments you made about us being
    jammed by unreasonable pressure to push votes on the floor for
    nominations of judges, I guess this is one where we are just
    going to have to continue to disagree. I think that the reason
    we are having these kinds of extensive votes is because we have
    been stopped from having votes in what I consider to be a
    reasonably and orderly process for the last 2\1/2\ years, and
    we are now moving forward with more votes because we have been
    in a battle, if you will, on the floor the Senate over getting
    two votes.
        So, anyway, we have had this debate for many months and
    will continue to have it.
        With that, before we proceed to the nominees, I do need to
    administer the oath to you. So would each of you please rise
    and raise your right hands.
        Do you swear or affirm that the testimony you are about to
    give is the truth, the whole truth, and nothing but the truth,
    so help you God?
        Mr. Feddo. I do.
        Ms. Nikakhtar. I do.
        Mr. Staff. I do.
        Ms. Bowman. I do.
        Mr. Shmotolokha. I do.
        Ms. Lee. I do.
        Chairman Crapo. And do you agree to appear and testify
    before any duly constituted committee of the Senate?
        Mr. Feddo. I do.
        Ms. Nikakhtar. I do.
        Mr. Staff. I do.
        Ms. Bowman. I do.
        Mr. Shmotolokha. I do.
        Ms. Lee. I do.
        Chairman Crapo. All right. Thank you. You may sit down.
        With that, we will proceed in the order that I introduced
    you earlier, and so, Mr. Feddo, please make any remarks or
    introductions you would like to make.

     TESTIMONY OF THOMAS PETER FEDDO, OF VIRGINIA, TO BE ASSISTANT
              SECRETARY, TREASURY FOR INVESTMENT SECURITY

        Mr. Feddo. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Committee, I am honored to appear
    before you today. I am humbled to be nominated by the President
    to serve as Assistant Secretary of the Treasury for Investment
    Security, a new position created by the Foreign Investment Risk
    Review Modernization Act of 2018.
        Last August, FIRRMA was enacted with overwhelming
    bipartisan support from this Committee, both houses of
    Congress, and the Administration. In creating this position,
    specifically through an amendment by Chairman Crapo, the
    statute recognizes the need for dedicated, accountable
    leadership of the critical national security function executed
    by the Committee on Foreign Investment in the United States. I
    am confident that my professional background affords me the
    experience and knowledge to lead CFIUS and to effectively and
    faithfully implement FIRRMA over the coming months.
        I grew up with two younger sisters and attended public
    school near Buffalo, New York. We had a full-time mom and a dad
    who served in the Marine Corps and then worked for the local
    electric company for nearly 25 years. My dad worked long hours
    to make sure that our family had all that we needed and a
    little more than he had as a child. He suddenly passed away
    just months after seeing me graduate college, but I know that
    he would be pleased were he here today. My mom dedicated
    herself to building a warm and loving home for us, and she is
    watching the hearing from Buffalo. I am deeply grateful to my
    parents for laying the foundation that has brought me to this
    point. By example, they instilled the virtues in my sisters and
    me, and we came to know the value of hard work, loyalty, and
    family.
        I would not be here today without my extraordinary wife,
    Muffet. She has been an unwavering source of support and
    encouragement, while selflessly devoting her many talents to
    raising our three wonderful children, who are dispersed through
    the crowd, Emma, Kay, and Gus.
        Early in high school, I decided that I would serve our
    Nation in the military and sought to attend the Naval Academy,
    and I am honored to have my two Academy roommates in attendance
    today. Since taking the oath of office at Annapolis 33 years
    ago, it has been my privilege to spend literally half of my
    life in public service, including first as a lieutenant on a
    nuclear submarine and then with the Naval Criminal
    Investigative Service.
        After law school, I served as a counsel with the House
    Energy and Commerce Committee, before stints as an attorney at
    the Pentagon, and a civil servant at the Treasury Department. I
    have served in all three branches of the Federal Government,
    with nearly 20 years in a national security-related capacity.
        In the private sector, I practiced law as a patent and
    trademark litigator and most recently as a partner in a large
    firm's international trade group.
        By virtue of these professional experiences, I understand
    the importance of protecting American innovators' intellectual
    property, our Nation's vital economic engine.
        And as a Navy submariner, educated and trained as an
    engineer, I experienced firsthand how America's superior
    technology ensures our warfighting edge.
        As an attorney representing global businesses, large and
    small, I have gained a true appreciation for the importance of
    foreign investment to our strong and vibrant economy, as well
    as the benefits of regulatory certainty to business
    transactions.
        If I am confirmed, you have my unqualified commitment that
    I will work closely with this Committee and Congress as a whole
    to continue what I have been doing over the last year as Deputy
    Assistant Secretary, faithfully and transparently implementing
    FIRRMA, ensuring our national security is protected while
    foreign investment is fostered, and serving with humility and a
    deep and abiding respect for our dedicated and talented career
    professionals at Treasury and across the Government who
    diligently execute the CFIUS mission.
        Thank you again for the privilege and opportunity to appear
    before you today. I am happy to answer any questions that you
    may have.
        Chairman Crapo. Thank you, Mr. Feddo.
        Ms. Nikakhtar.

        TESTIMONY OF NAZAK NIKAKHTAR, OF MARYLAND, TO BE UNDER
             SECRETARY, COMMERCE FOR INDUSTRY AND SECURITY

        Ms. Nikakhtar. Mr. Chairman, Ranking Member Brown, and
    Members of the Committee, thank you for the opportunity to
    appear before you today.
        In 2018, I was honored to be confirmed as the Assistant
    Secretary for Industry and Analysis at the Department of
    Commerce, and today I am extremely honored to be nominated for
    the position of Under Secretary for Industry and Security.
        With me today are my husband, Gene Degnan, and my mother,
    Dr. Manijeh Nikakhtar. My father Bijan Nikakhtar passed away
    several months ago, but he would have been beaming with pride
    if he were here today, as an amateur political historian and
    one of the greatest American patriots I have ever known. I am
    proud to say that my parents and my husband have served our
    Government as Federal employees for many years.
        My husband served for over a decade at the Department of
    Commerce, and my parents served for over 40 years collectively
    as physicians at the VA hospital, taking care of our Nation's
    veterans.
        My brother, Nersi Nikakhtar, also a physician at the VA
    hospital, had work obligations today.
        I am proud to be part of a family that honors Government
    service.
        I immigrated to America with my family 39 years ago. I can
    remember from a very young age how proud I was to be an
    American and how I marveled at American innovation and
    ingenuity. I knew at an early age that I wanted to be part of
    the narrative of American growth.
        This is what prompted me to study law and economics after
    college. I obtained my Juris Doctor and Master's in Economics
    from Syracuse University, and in 2002, I began my career at the
    Commerce Department, first at the Bureau of Industry and
    Security and subsequently at the International Trade
    Administration.
        At the Department, I worked with and learned from
    incredibly smart and talented civil servants. Many of those
    dedicated professionals are still there today, and they are the
    pillars that shape our Government from Administration to
    Administration. I have great respect for them, and I am
    privileged to work with them again.
        I joined the private sector several years later as a trade
    and export control lawyer, representing industries in aerospace
    and steel sectors, in aquaculture, high-tech goods, chemicals,
    and minerals.
        In private practice, I worked to level the playing field
    for U.S. industries, and on exports, I conducted internal
    investigations to enforce clients' compliance agreements with
    the U.S. Government to address U.S. national security concerns.
        My training and experience, both as a lawyer and an
    economist, have given me the expertise to protect U.S. national
    security and simultaneously advance the economic interests of
    U.S. industries.
        Today national security no longer begins and ends with
    military strength. It is a fact in today's world that national
    security is dependent on our economic strength and our
    technological leadership. Yet advancements in technology and
    the interconnectedness of our economies make our national
    security challenges more complex than ever before.
        Economic integration has emboldened some foreign Nations to
    behave in ways that undermine our national security, expecting
    that the threats of economic retaliation will weaken our
    resolve to act. They have increased illicit procurement of
    items to build weapons of mass destruction and transshipped
    those items to terrorist organizations and regimes.
        We are witnessing illegal acquisitions of sensitive
    technologies to weaponize dual-use items and oppress millions
    of innocent citizens, and we have seen for years how rampant
    intellectual property theft has displaced U.S. industries,
    stifled innovation, and enabled the advancement of strategic
    competitors.
        The key to our success is maintaining U.S. technological
    superiority and economic interests through multilateral
    coordination that is more forward leaning, better use of
    intelligence analytics, robust enforcement of our laws, and
    tightly coordinated whole-of-Government approach that includes
    more proactive engagement with Congress.
        Time is of the essence, and during my 3\1/2\ months at the
    Bureau, I have been leading the Department's efforts to update
    our regulations to incorporate ECRA reforms and address global
    threats.
        We are engaging with industry to identify emerging
    technologies that undermine our national security.
        I have begun an initiative to work with like-minded allies
    on better export control coordination and wider end-use checks.
    It is imperative that we better coordinate multilateral
    policies on sensitive technology so U.S. companies can compete
    globally while Governments prevent technologies from being
    misused by adversaries.
        At the Bureau, I challenge my colleagues every day to
    rethink how we can modernize policies to stay ahead of new
    threats, and I have made it a priority to seek industry input,
    as today's complex challenges cannot be solved without close
    engagement with U.S. businesses. Our policies must advance
    America's technological and economic leadership.
        My parents immigrated to America knowing that this is the
    greatest country in the world, and as an American, it is my
    responsibility and honor to preserve this Nation's security for
    future generations.
        I thank you again for the opportunity to be here in front
    of this Committee, and I look forward to your questions.
        Chairman Crapo. Thank you, Ms. Nikakhtar.
        Mr. Steff.

       TESTIMONY OF IAN PAUL STEFF, OF INDIANA, TO BE ASSISTANT
     SECRETARY OF COMMERCE AND DIRECTOR GENERAL, UNITED STATES AND
                       FOREIGN COMMERCIAL SERVICE

        Mr. Steff. Chairman Crapo, Ranking Member Brown, Members of
    the Committee, it is the greatest of honors to sit before you
    today.
        If confirmed, it would be my privilege to serve as the
    Assistant Secretary of Commerce for Global Markets and Director
    General of the U.S. and Foreign Commercial Service.
        I thank President Trump for this nomination. So, too, I am
    grateful for the continued support of Vice President Pence,
    both in my former capacities in Indiana and now in Washington,
    DC.
        Speaking of Hoosiers, I am proud to be joined by my wife,
    Brittany. I remain forever grateful for your incredible
    encouragement, compassion, and flexibility as we serve the
    Nation we love and raise our two little stars, Daniel and Owen.
        I am also joined by my parents, Wayne and Lisa. Our
    childhood home was filled with love, faith, respect, hard work,
    and an enduring sense of service to one's country. Thank you,
    Mom, Dad, Gram, Aunt Lori, Aaron, and to all those family
    members, friends, and teachers who helped me along the way.
        My story started under a few feet of snow, 30 miles south
    of Buffalo, New York, on my grandparents' dairy farm. My two
    younger brothers, Eric and Levi, often reflect on the comradery
    we developed shoveling that never-ending lake-effect byproduct,
    raising our pet ducks, and commiserating over our beloved
    Buffalo Bills. Childhood summers encompassed exploring the
    pastures and woods, working on our neighbor's berry and plant
    farm, and waiting for the rumble of Dad's cycle as he returned
    home from his job in highway maintenance. This is a glimpse of
    our small slice of country and my upbringing in rural America.
        Rural? Yes. Encouraged to dream big? Every step of the way,
    and dream we did. I devoted nearly every penny earned on the
    farm to my stamp and coin collection. Years later, as I arrived
    at American University to begin my academic career in
    international affairs, I knew unequivocally that my future
    involved fostering relations with foreign markets and the
    people personified in that postage and currency I had
    accumulated. That dream and future continue here today.
        If confirmed, I would be incredibly honored to lead a
    world-class team of professionals providing export counseling
    to small- and medium-sized businesses, while identifying new
    foreign markets for their products and services; advocate on
    behalf of U.S. companies competing for foreign Government
    procurements; attract foreign direct investment, while working
    to grow the U.S. manufacturing base; and reduce, remove, and
    prevent foreign trade barriers that impede market access for
    U.S. goods in a free, fair, and reciprocal fashion.
        As the Deputy Assistant Secretary of Commerce for
    Manufacturing since June of 2017, I have seen the impact the
    Global Markets team has on U.S. manufacturers and service
    providers. This vast network of more than 1,300 trade and
    investment specialists in headquarters and the U.S. field,
    combined with the presence of the Foreign Commercial Service in
    over 70 markets deliver daily. Simply put, I have come to know
    the Global Markets team as a team that works, a team that
    chooses to compete, and a team that delivers. These
    professionals deliver one deal at a time and have a tremendous
    impact measured at over $120 billion in fiscal year 2018 in the
    areas I outlined.
        In my former professional capacities, I accrued experience
    in economic development, executive leadership, and trade
    policy. In my past economic development roles, I worked
    successfully to attract foreign direct investment.
        SelectUSA, which would be under my purview, if confirmed,
    is a valued economic development partner to many States.
        Likewise, during my time in the semiconductor industry, I
    witnessed the contributions of the Commerce Department to
    ensure foreign market access. I regularly engaged with the
    Commerce team while managing the leading chip industry
    association's international engagements and technology programs
    for a decade. I have seen the challenges posed by unfair
    foreign trade measures and massive market-distorting practices
    that have crippled companies looking to compete
    internationally.
        Earlier in my professional career, I worked on the Trade
    Subcommittee of the House Ways and Means Committee. I have a
    profound appreciation for the vital role of Congress when it
    comes to ensuring the global competitiveness of U.S. industry.
        While my stamp and coin collection are now the
    responsibility of my two young Hoosiers, I have no doubt that
    they and our country have a limitless and prosperous future
    based on the unparalleled accomplishments of the Global Markets
    team at Commerce. I aspire to help this team continue to
    achieve its mission. If confirmed, I will devote every working
    moment to its success on behalf of our Nation's exporters.
        Distinguished Members of the Committee, thank you for your
    consideration.
        Chairman Crapo. Thank you, Mr. Steff.
        Ms. Bowman.

    TESTIMONY OF MICHELLE BOWMAN, OF KANSAS, TO BE A MEMBER, BOARD
               OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

        Ms. Bowman. Chairman Crapo, Ranking Member Brown, and
    Members of the Committee, it has been just over a year since
    this Committee first recommended my nomination as a Federal
    Reserve Board Governor.
        While I am not the first community banker to serve on the
    Board, I am humbled by the opportunity you gave me to serve as
    the first Governor to fill the role Congress designated for
    someone with community banking experience on the Federal
    Reserve Board.
        I am deeply honored the President has renominated me to
    serve in that capacity. Thank you for the honor of this hearing
    today.
        I am also grateful to my family for their continued
    support. My husband, Wes, and our children, Jack and Audrey,
    are here with me today. The rest of my family are watching from
    home in Kansas.
        Since my confirmation last year, I have worked to fulfill
    my unique role on the Board by traveling widely and listening
    closely to community bankers, to consumers, small business
    owners, and community leaders. I have visited with farmers,
    workers, and business leaders from across the country to
    discuss the economy. I am making sure these unique perspectives
    are represented in the Federal Reserve's deliberations and
    decision making on both monetary policy and regulatory matters.
        During my time at the Board, I have also drawn on my
    experience as a community banker and regulator to ensure that
    our work is guided by a deep understanding of the practical
    realities confronting bankers and the communities they serve
    across the country. The work done after the crisis to address
    the weaknesses of the U.S. financial system and ensure its
    future resilience was essential.
        However, during my time in my family's community bank, I
    saw firsthand how the regulatory changes created in the
    aftermath of the crisis impacted community financial
    institutions. Small, solid institutions like this one are
    essential to so many of our citizens and communities. As
    regulators, we need to ensure that we are not imposing
    unnecessary burdens on community banks. That is why one of my
    priorities as a Governor has been to appropriately tailor our
    supervision and regulation to the size, complexity, capacity,
    and risks posed by an institution.
        To further this effort, I recently formed a working group
    of experts from across the Federal Reserve System to launch a
    comprehensive review of our supervisory work with smaller
    regional and community banks. While serving as the Kansas State
    Bank Commissioner, I was committed to treating every consumer
    and institution fairly and respectfully and fostering open
    communication. This working group will follow those same
    principles. We are looking for ways to optimize our supervision
    and regulation to ensure it adapts to the on-the-ground
    realities of an evolving industry and changing consumer
    expectations while maintaining the safety and soundness of our
    banking system.
        Let me close by saying a few words about monetary policy
    and the Federal Reserve's dual mandate. As a community banker,
    it was my job to support local businesses and consumers. I draw
    upon this experience often when thinking about monetary policy
    because it has given me a personal and practical understanding
    of how the Federal Reserve's goals of fostering maximum
    employment and stable prices directly affects individuals as
    well as the broader financial system and economy.
        The Congress has given the Federal Reserve independence to
    pursue these goals because our work is critical to our economy,
    to businesses, to families, and to communities, and I am deeply
    committed to fulfilling this mandate.
        If confirmed by the Senate, I will continue the important
    work I have begun and be committed to accountability,
    transparency, and clear communication in all of my
    responsibilities at the Federal Reserve.
        Thank you for the honor of this hearing, and I look forward
    to answering the Committee's questions
        Chairman Crapo. Thank you, Ms. Bowman.
        Mr. Shmotolokha.

    TESTIMONY OF PAUL SHMOTOLOKHA, OF WASHINGTON, TO BE FIRST VICE
           PRESIDENT, EXPORT-IMPORT BANK OF THE UNITED STATES

        Mr. Shmotolokha. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Committee, thank you for
    considering my nomination to serve as First Vice President of
    the Export-Import Bank of the United States.
        I am deeply thankful to President Trump for selecting me
    and humbled by the obligations that this role brings to
    American workers and taxpayers.
        I would like to introduce some family members who are with
    me today; first, my parents, Stephen and Christine, who made
    the trip from California. They came to America as child
    refugees of World War II, and I am always inspired by their
    contributions to our country.
        My father worked as an engineer in the defense industry for
    more than 40 years, and my mother served tirelessly as a nurse.
        I am also joined by my wife and best friend, Dania, who
    guided the family through multiple international moves and
    extensive overseas travels, and Max, my son, who is entering
    his senior year in college.
        My brother Adrian and many of my friends, family, and
    coworkers from around the world are also watching online.
        I sit before you as somebody who has spent the past 16
    years in the front lines of global trade, with a strong record
    in growing American exports. I also bear the battle scars of
    leadership in a time of unparalleled competition in global
    markets.
        I am here out of a sense of duty, honor, and the wish to
    use my experience to serve a wider grouping of American
    businesses to grow their exports, and I am also paying back a
    debt for all this country has given to my family.
        It is not simple for any manufacturer to export. They must
    overcome political risks, economic hazards, and many nontariff
    barriers. Sometimes they also need extra financial support,
    especially when there are over 100 export credit agencies that
    are upping the ante and creating new incentives for the end
    customer.
        I have experienced firsthand the circumstances requiring an
    ECA like EXIM to finance deals in a timely and relevant fashion
    when the private sector cannot.
        My deep commitment and my international experience on both
    the buying and the selling side of international trade over the
    last 30 years will allow me to contribute strongly to the team
    at EXIM.
        EXIM's mission is to help support and create jobs. I have
    experienced firsthand the thrill of walking assembly lines in
    Georgia and in Washington State and meeting the newest workers
    putting together products for export, thanks to deals that my
    team closed. These are some of my best experiences. My legacy
    and value as a business person comes from the people that I
    mentor and the jobs that I help create.
        By working with the president of the Bank, my fellow board
    members, and the talented staff at EXIM, I believe I can best
    serve America to multiply the job creation effects of EXIM.
        Having served on numerous private-sector boards in various
    capacities, I understand board responsibilities of proper
    corporate governance, the need for transparency, and how good
    strategic guidance and a positive leadership attitude can
    enable organizations to realize their full productive
    potential.
        The EXIM board needs to make sure it does not lose sight of
    its role as an important source for small businesses. Many of
    its financial products in this area resonate with those who are
    looking to expand to new markets.
        As an entrepreneur, I have worked in small companies and
    faced the pressure of making payroll. Speed to market and
    effective financing can make or break these companies. I built
    a significant export business in a medium-sized U.S.
    manufacturer that, while a very successful domestic business,
    had yet to find its legs overseas.
        All companies--small, medium, and large--need help at times
    in leveling the playing field in today's global economy.
        If confirmed, I will bring a fresh perspective and a
    fiercely competitive mindset to the Bank. My experience as an
    officer in the United States Army taught me to lead from the
    front, and I will work tirelessly to support the Made in
    America brand that we all share and support. I will ensure that
    American companies have full access to and understanding of the
    programs authorized by Congress to maximize their global reach
    and competitiveness.
        To this end, I would paraphrase Vince Lombardi. Winning is
    not everything; it is the only thing for American business and
    American workers. And I pledge to bring a can-do winning
    attitude and to win responsibly for the American taxpayer.
        Thank you for your consideration. I would be pleased to
    answer any questions.
        Chairman Crapo. Thank you, Mr. Shmotolokha.
        Ms. Lee.

     TESTIMONY OF ALLISON HERREN LEE, OF COLORADO, TO BE A MEMBER,
                   SECURITIES AND EXCHANGE COMMISSION

        Ms. Lee. Chairman Crapo, Ranking Member Brown, and
    distinguished Members of the Committee, it is a tremendous
    privilege to appear before you today and to be considered for
    the position of Commissioner at the Securities and Exchange
    Commission, an agency in whose mission and dedicated staff I
    believe deeply.
        I am very fortunate today to be supported by a large
    contingent of family. I would like to introduce them: my
    husband, Jay Brown; four of the five children in our blended
    family, Tess, Beth, Josh, and Zoey. Also our granddaughter,
    Emerson, is here, and our son-in-law Colin, my sister Laurie,
    my brother Wil, my niece Emily, and my brothers-in-law, Jeff
    and Chris. Unfortunately, my mother could not be here today,
    but I know she will be watching.
        I have spent the bulk of my legal career at the SEC for a
    very simple reason. The SEC has a mission that is vital to the
    economic well-being of Americans and American businesses. It
    navigates the critical intersection between these two--between
    everyday Americans striving to build savings to buy a home, to
    send children to college, and eventually retire, and American
    businesses that need capital to grow and prosper. This
    reciprocal relationship must be nourished from both sides.
        We are a Nation of investors, both retail and
    institutional, and it is the SEC's job to protect them. This is
    especially important as we continue the shift away from
    employer pensions toward individual plans in which people must
    fund and select their own retirement assets and, importantly,
    manage their own risk.
        The SEC works to ensure that investors are taking the kinds
    of risk they sign up for, business and economic risk, not the
    risk of fraud and not the risk of poorly structured or opaque
    markets that may disadvantage investors. This instills
    confidence which in turn promotes capital formation.
        Beyond instilling investor confidence, the SEC works to
    ensure that American businesses of all sizes can access the
    capital they need to grow their businesses and thus create the
    kinds of opportunities that investors want and need. These
    businesses deserve thoroughly researched, well-tailored, and
    clear rules.
        I have seen, experienced, and understood this
    interdependence between investors and business from nearly
    every angle. I have worked in the oil business at both private
    and public companies. I have owned and run my own small
    business. Since law school, I have worked for over two decades
    as a securities lawyer, first in private practice as a
    litigator and partner, and then I was privileged to work on the
    staff of the SEC.
        Like many Americans, I have worn a lot of hats and juggled
    a lot of priorities, working my way through college and
    eventually through law school, raising children, paying the
    bills, and investing my savings for retirement. If I have the
    honor of being confirmed, I will bring all of these
    perspectives to bear in my role as commissioner, and I will
    reach out and listen to all constituencies served by the SEC to
    further its critical mission.
        Thank you for the opportunity to appear before you today,
    and I am happy to answer questions.
        Chairman Crapo. Thank you, Ms. Lee.
        And in the interest of time, I am going to forego my
    questions. We will go immediately to Senator Brown.
        Senator Brown. Thanks, Mr. Chairman.
        Mr. Shmotolokha, thank you. Thanks for sharing your story
    and your experience with us.
        Explain why U.S. companies in the technology and
    telecommunications sector look to EXIM to expand their sales
    abroad, and as you answer that, if you would also answer if
    EXIM is unavailable, assistance is unavailable, are companies
    able to complete foreign sales.
        Mr. Shmotolokha. If I could touch on the second one first?
        Senator Brown. Sure.
        Mr. Shmotolokha. In my own experiences, self-financing is
    the first thing any company looks for. It is the easiest, the
    quickest, and when you are doing a deal with somebody, you are
    looking to see if you can consummate it in the speediest of
    fashions and receive your payables.
        But next, I turn to private sector, and when you look to
    EXIM, that is largely when you start really expanding your
    business. You are looking at countries that have a higher
    degree of political risk or economic risk or legal systems in
    which you cannot recuperate your receivables.
        Probably the biggest challenge, though, that we face today
    is the fact that other ECAs or ECA-like institutions in several
    countries, specifically in the BRICS that are non-OECD
    countries, are using additional finance vehicles, especially
    long-term ones. So where we came up against this was in the
    telecommunications industry. Certain global vendors today
    create extremely attractive medium- to long-term financing
    situations for the same clients for which we are competing.
    Sometimes those clients do not have to even make a payment the
    first 2 years. They get extremely low interest rates, and it
    makes it very attractive for them just simply from a capital
    perspective where quality, trust, and good customer service
    sometimes are overcome.
        So, at that point, being able to seek institutions that can
    help bring about medium- to longer-term financing when
    sometimes private-sector institutions are not comfortable in
    many of those locations. I would add that today a lot of the
    game or a lot of the opportunities are actually in emerging
    markets. There are tremendous infrastructure builds going on in
    those markets. So to compete in the first-world markets, it can
    be relatively level, but today the opportunities are in Latin
    America, Africa, and parts of Asia. So that makes it a real
    challenge.
        And then having sort of the sense of approval of EXIM
    behind you makes many in those countries extra comfortable with
    a vendor.
        Senator Brown. Right.
        Mr. Shmotolokha. So that combination of public and private
    with those loan guarantees that EXIM does is sometimes very
    useful.
        Senator Brown. Thank you very much.
        Ms. Bowman, thank you for your service in Kansas and at the
    Federal Reserve.
        You have said that community banks, quote, ``were
    significantly affected by the global financial crisis, a crisis
    they did not cause.'' I think every member of this Committee on
    both sides would agree with that.
        Recently, though, the Fed has issues many rules that would
    weaken requirements for the largest U.S. and foreign banks, the
    same Wall Street banks that made risky bets and crushed the
    economy.
        I have a couple of yes or no questions. Have you voted
    against any of the Fed's proposals that weaken the rules for
    the largest Wall Street banks?
        Ms. Bowman. I would not characterize them as necessarily
    weakening the rules. I voted in favor of those proposals, but I
    would disagree with your characterization that they have
    weakened the requirements for banks.
        Senator Brown. They have scaled back the requirements. You
    would not disagree with that?
        Ms. Bowman. I would say that we have targeted the
    requirements more to the risk of the banks as they pose them.
        Senator Brown. This is another yes or no question. Does
    weakening rules for Wall Street banks help community banks?
    Putting aside how you voted, does actually weakening the rules,
    scaling back rules for Wall Street banks, does that help
    community banks?
        Ms. Bowman. I think with respect to community banks, it is
    important that we understand the risks that they pose to the
    system and target the regulations and rules that they are
    required to abide by to their risks that they pose, the size,
    the complexity, and the risks that they pose to the system.
    They are a separate category of banks from Wall Street banks,
    the largest of----
        Senator Brown. We are not arguing that the community banks
    pose--even in the aggregate pose much risk. It is the larger
    banks where this Fed and the FDIC have weakened rules. It is
    not the community banks that we focus on.
        Let me ask you another question. You said community banks
    are a priority, but the Fed's actions weakening the rules for
    Wall Street, opening the door for shadow banks and for Silicon
    Valley. The Fed is also considering a merger between two
    regional banks, each with over $200 billion in assets. They say
    it is too difficult for them to compete with the biggest banks'
    investment in technology.
        I hear from community bankers, some of your friends, I am
    sure, in my State and across the country that this leads to
    more consolidation making it harder for small banks to compete.
        So my question is, Do you believe that consolidation of the
    banking industry has an adverse effect on community banks?
        Ms. Bowman. As consolidation applies in the community
    banking space, my concern is more that the investment in the
    local communities are distributed instead of located where the
    charter was originally held, so as branches are acquired in
    rural communities that home investment in the community tends
    to be dissipated.
        Senator Brown. Real quick, Mr. Chairman.
        Yes or no. Will you support Fed actions and the FDIC votes
    in this too, such as approval of BB&T and SunTrust merger?
    Would you vote for that?
        Ms. Bowman. It would depend on how the outcome of the
    review of the application is. We have several statutory factors
    that we must consider as we are reviewing that application.
        If the statutory factors are met and a recommendation is
    for approval, I would certainly consider that, as I would cast
    a vote.
        Senator Brown. OK. Thanks.
        Chairman Crapo. Thank you.
        Senator Toomey.
        Senator Toomey. Thank you very much, Mr. Chairman. I
    appreciate this hearing, and I want to thank our witnesses for
    testifying today and coming before us.
        Ms. Nikakhtar, am I pronouncing that right?
        Ms. Nikakhtar. Yes, Senator.
        Senator Toomey. Thank you.
        I would like to start with you. My understanding is in your
    recent position as Assistant Secretary for Industry and
    Analysis at Commerce, you played a lead role in the Commerce
    Department's investigation into whether auto and auto part
    imports threaten U.S. national security.
        As you no doubt know, that report is still being kept a
    secret from the American public, but we now know that it
    contained an affirmative finding that foreign car imports and
    part imports were deemed to be a national security threat.
        First of all, it is highly objectionable to me that this
    report has not been disclosed to Congress and the American
    public.
        If Toyotas and Volkswagens really pose a national security
    threat to the United States so great that we have to tax my
    constituents when they purchase one, I think the American
    people ought to know why.
        So my first question to you, Ms. Nikakhtar, are you aware
    that Federal law and regulations actually require that the auto
    232 report be made public?
        Ms. Nikakhtar. Yes, Senator. It is in the statute.
        Senator Toomey. Yes. So do you know why it has not been
    made public?
        Ms. Nikakhtar. Senator, when we completed the report and we
    delivered it to the Secretary and then to the President, it
    sits with the White House right now, and per the statute, it is
    up to the President to determine when he wants to release it
    and when the timing for that.
        Senator Toomey. Well, let me just say the post to which you
    have been nominated obviously has a very significant national
    security component. Your signature recent effort in this space
    is that report, and it is hard for me to understand how
    Senators can properly judge your qualifications without being
    able to read that report.
        I understand that is not in your direct control, but it is
    important.
        The President's May 29th proclamation repeatedly states
    that--and I quote this phrase--``American-owned producers,''
    end quote, must be able to increase R&D spending in order to,
    quote, ``developing cutting-edge technologies that are critical
    to the defense industry.'' And, as such, the proclamation
    reaches the conclusion that, quote, ``Domestic conditions of
    competition must be improved by reducing imports.''
        So the conclusion that Toyotas and Volkswagens are a threat
    to our national security seems to be premised on the notion
    that the sales of those vehicles precludes sales that would
    otherwise occur at American-owned producers, which would then
    lead to additional, presumably sufficient R&D investment.
        So let me ask a factual question here. So despite the fact
    that foreign-headquartered auto companies have invested
    hundreds of billions of dollars in the U.S., building plants,
    hiring tens of thousands--hundreds of thousands of American
    workers, is it true that auto report considers, quote,
    ``American-owned'' to include only GM, Ford, and Tesla?
        Ms. Nikakhtar. Senator, I should put that in a little bit
    more context.
        Yes, American-owned is GM, Ford, and Tesla.
        Senator Toomey. OK. I am going to run out of time here. So
    you are confirming that it is only those three.
        So for the purpose of considering the R&D investment of
    American-owned companies, did you include in your analysis the
    investment made by companies like Google and Apple and Uber
    into the space, into especially automation of vehicles? Was
    that included in your analysis?
        Ms. Nikakhtar. Yes, Senator. A large part of our research
    did include that.
        Senator Toomey. Thank you.
        It would be nice to be able to see that.
        This very narrow definition of ``American-owned'', even
    accepting that definition for this purpose, between Tesla, GM,
    and Ford, my understanding is in 2017, they spent a combined
    investment of $17 billion in R&D alone. NASA's budget, by way
    of comparison, is about $16 billion. If the $17 billion is
    inadequate, what is the correct number? What do the people at
    the Defense Department tell you they need American-owned car
    companies to invest in R&D in order to be able to defend
    America adequately?
        Ms. Nikakhtar. Senator, what I was trying to get at earlier
    was the fact that the--to your point about the investments that
    foreign-made auto--foreign-headquartered automakers have made
    in the United States, without question, those contributions are
    significant.
        But because we allow for an open-investment climate, which
    we absolutely encourage--and we have the SelectUSA Summit
    forthcoming at the Department of Commerce--that is not the
    point. The point is the excessive imports have basically--the
    closed U.S. market now is being shared by American-owned and
    foreign-owned producers, and that is fine. We have lost market
    share here, but we have been unable to make up those lost sales
    in foreign markets when less than 1 percent of autos sold in
    Japan, for example, are from the United States, let alone
    American-owned.
        Senator Toomey. OK, OK. But we----
        Ms. Nikakhtar. That is the focus, and that is the R&D,
    erosion of the R&D that the report----
        Senator Toomey. But the R&D is at a record level. It is $17
    billion, and my question is, What did the Defense Department
    folks tell you they need for American-owned car producers to
    invest in R&D in order to be able to safeguard the United
    States?
        Ms. Nikakhtar. The Defense Department did not provide us a
    number. We looked at our shrinking share of R&D vis-a-vis
    Europe and Japan and our global competitors, and based on that,
    the Secretary's assessment was that we needed to increase R&D.
        And I should incidentally note that all of the surveys that
    we issued to all automakers and armored vehicle producers had
    inquired about their levels of R&D, and we took all of that
    information into account.
        Senator Toomey. Thank you, Mr. Chairman.
        Chairman Crapo. Senator Tester.
        Senator Tester. Thank you, Mr. Chairman, Ranking Member,
    and I want to thank all the folks who are here today on the
    panel. I appreciate it very much.
        I am going to start with you, Ms. Bowman. The 2018 farm
    bill decriminalized hemp and took it from the Controlled
    Substances List. It is now as legal as soybeans or wheat to be
    able to grow on the farms.
        Producers in Montana are hitting the fields. Some has been
    planted. It is kind of wet. Some has yet to be planted. The
    problem is they still face barriers to access the financial
    system, and not only the farms themselves who grow the hemp,
    but also input suppliers are facing barriers if they supply
    inputs for the growing of hemp as well as equipment dealers.
        I understand that FinCEN will have to update their
    guidelines, and I sent a letter to Director Blanco to tell him
    to get moving on it.
        As the primary regulators of our financial institutions,
    can you give me an update on what you are telling banks and
    credit unions today that will help them be able to do business
    in the hemp sector?
        Ms. Bowman. Senator, this is an important issue that when I
    meet with bankers from across the country, many States have
    engaged heavily in this crop for growth, and when we visit with
    them and speak with them about the treatment by the prudential
    regulators, the Federal Reserve, in particular, we refer them
    to BSA/AML guidance to ensure that they are understanding the
    risks of the customers that they face, and that those decisions
    about who they are working with or who they choose to serve as
    customers are appropriately vetted according to their business.
        Senator Tester. So are you telling them they can bank them,
    or are you telling them to go ahead, but you might end up
    upside-down?
        Ms. Bowman. No, we absolutely tell them that it is not our
    job or our role to tell them who their customers should be, and
    that they should understand what their business strategies and
    risks are with respect to any customer that they have.
        We do recognize that this is a challenging regulatory
    environment based on the relationship with----
        Senator Tester. When the Montana bankers were in a month-
    and-a-half ago, they said that they could not bank them because
    the regulators told them they could not bank them. Have you
    told them they could bank?
        Ms. Bowman. We have not told them that they cannot bank
    them. We have told them that there are regulations in place.
        Senator Tester. Let us be proactive about it because we
    decriminalized it in the farm bill. And this is not pot; this
    is hemp. Why not just tell them they can do it? Because, quite
    frankly, I would just tell you prices are in the tank. These
    tariffs are killing production of agriculture. I am not saying
    hemp is going to bail anybody out, because it is not, but it
    gives them another option.
        But they are not going to do it. I would not do it. If you
    cannot get the dough, you are not going to do it, and this
    economic time for production in ag, they need the banks, so----
        Ms. Bowman. I would agree with you, and we would not
    discourage banks from banking these types of customers.
        Senator Tester. OK. Well, maybe we are saying the same
    thing, but I am not sure bankers are hearing the same thing,
    OK?
        Ms. Bowman. We will try to clarify that. Hemp is not an
    illegal crop.
        Senator Tester. Right. That is what I wanted to hear.
        Thank you very, very much.
        Mr. Feddo, good to have you here. Under the current
    structure of CFIUS, you have been able to review--or the body
    has been able to review several large agribusiness transactions
    in recent years, including a biggie when Bayer acquired
    Monsanto. And I would just tell you, unequivocally, this
    company plays a huge role in production of agriculture across
    this country. I believe that food security is equivalent to
    national security. I do not think there is any debate about
    that.
        So do you believe CFIUS currently does enough to protect
    our food systems here in the U.S.
        Mr. Feddo. Senator Tester, I do. With respect to any
    transaction that implicates national security, we bring in the
    appropriate member agencies to assist us in that analysis.
        Senator Tester. So do you agree that food security and
    national security go hand-in-hand?
        Mr. Feddo. It can. It depends on the facts and
    circumstances. Yes.
        Senator Tester. So if you have got people starving to
    death, do you think that is good for national security? If you
    have got people starving to death, do you think that is good
    for national security?
        Mr. Feddo. Sir, we take a look at who the investor is.
        Senator Tester. Yeah, yeah, yeah. That is not the question.
        If you do not have adequate food supply, it is my
    contention that you have turned your national security on its
    ear. That is why these mergers are so critically important.
        And let me give you a statistic. Currently, with the
    merger, Bayer, Monsanto, whatever you want to call them,
    controls 25 percent of the seed supply, which if you control
    the seed, you control the food, and 23 percent of the
    chemicals.
        The question, does CFIUS think about this stuff? And then I
    will kick it back, but does CFIUS think about this stuff?
    Because it is real, and if for a second that I thought we were
    offshoring our food security to a foreign country, that is what
    it appears to me.
        Now, in retrospect, they may have offshored a lot of
    liability, but the truth is when it happened, we did not know
    that.
        Mr. Feddo. We do think about that. It is part of our risk-
    based analysis. We look at the threat from the actor, from the
    investor. That is the intent and capacity to exploit a weakness
    in our national security as well as the vulnerability of the
    U.S. business. So we look at both of those factors to determine
    the risk to national security.
        Senator Tester. Well, I would just say I think 25 percent
    is a lot. I mean, we are talking the whole shebang here, and so
    I would just ask for you to specifically ask some tough
    questions to the folks on that, OK?
        Thank you very, very much.
        Mr. Feddo. I will.
        Chairman Crapo. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chairman.
        Mr. Feddo, I am going to--first off, I share some of
    Senator Tester's concerns. I am not going to ask you questions.
        I am going to do a couple of questions for the record for
    you specifically around U.S.-controlled private funds,
    particularly when they are controlled by U.S. persons, because
    I have a concern about some scoping and focus there, but we
    will do that for the record.
        Mr. Steff, in your opening statement, you said you had pet
    ducks and a coin collection. I had a pet rooster named Pete and
    a coin collection. So I am glad to see we share--in the rural
    areas, so I am glad we share a common bound there.
        Ms. Bowman, I am going to spend most of my time talking
    with you, and some of this is--I do not normally speak from
    notes, but this is something important for us to get on the
    record because it is a priority that I hope I can get your
    commitment, and it has to do with interaffiliate margins.
        Number one, I think that we are out of step with the
    European Union, Japan, and most other G-20 jurisdictions.
    Number two, I think that we have a record across
    Administrations on the issue. In 2013, we had the CFTC chair
    provide an exemption. In 2015, we had the CFTC chair provide an
    exemption. And now we have a situation where the Fed has not
    provided an exemption from the initial margin from the 2016
    rules, and I think as a result, U.S. banking entities collected
    nearly $50 billion in initial margin from their own affiliates.
    That is capital that could be deployed that right now is
    sitting on the sidelines.
        In 2017, the Treasury noted that this rule puts U.S. firms
    at a disadvantage, both domestically and internationally,
    recommending that your agencies provide an exemption consistent
    with the margin requirements of the CFTC.
        Do you agree that an initial exemption--an exemption from
    initial margin is appropriate for interaffiliate transactions?
        Ms. Bowman. Senator Tillis, we are very aware of this issue
    and aware of your concern with respect to this issue.
        We are actively reviewing the application of margin
    requirements for interaffiliate transactions.
        Senator Tillis. I would like to get--and we can follow up
    and maybe give you an opportunity to respond to a question for
    the record, but I would like to get a commitment to prioritize
    the rule, to provide an exemption. And I think that it can be
    done expeditiously. I do not think it has to necessarily be
    done with Regulation W rewrite, which can take a couple of
    years. I think it is something that can be done relatively
    quickly.
        For the record, we will go through mechanically how we
    think we can get it done, and I would like to get your specific
    response. We have been talking about this for a while. We have
    met with a lot of the other Fed regulators. Everybody seems to
    think it is a good idea. It has been a policy that has
    transcended Administrations. So I do not think it is
    politically volatile, and I would like to figure out a way to
    expeditiously move and not have this be a 2- or 3-year matter.
    I think putting $50 billion back into play is something that is
    helpful and will let us continue our economic growth.
        The last thing I want to talk with you about has to do with
    the Fed payments proposal. It is another area where, again, I
    am going to honor the time commitment. It is another area where
    we will probably just submit context for the record, but I do
    not believe that we need two systems. I think that we have
    emerging opportunities that are in play with the private
    sector. I think it is something that the Fed should think
    seriously about not spending their time and resources on.
        And I have gotten mixed responses. It feels like when you
    go to a public hearing and you talk to some of the regulators,
    they say, ``Thank you very much for your input,'' and move on,
    but it gives me a sense that they are going to move in that
    direction. And I think they should step back and really decide
    if that is a good use of their resources.
        I will give you a few minutes to respond, and then we will
    put that as a question for the record for a more fulsome
    response.
        Ms. Bowman. Senator, this is an issue that has been active
    within the Federal Reserve since 2014 when we had a working
    group focused on this issue.
        The Fed has had historically a strong role in payments
    since its inception. This is something that we think is very
    important, and we issued questions last fall so that we could
    consider the comments back from the public regarding the
    appropriate place and structure for this type of initiative.
        We are continuing to review the work of the working group
    and the comments that we have received through that
    publication, and at this point, no decision has been made, but
    I would be happy to answer your question for the record.
        Senator Tillis. Thank you.
        This is something our office will spend a significant
    amount of time on.
        Thank you all very much. I look forward to supporting all
    of your confirmations.
        Chairman Crapo. Thank you.
        Senator Jones.
        Senator Jones. Thank you, Mr. Chairman, and thank you to
    all the witnesses that are here today. And thank you for your
    service.
        Mr. Feddo, I would like to talk to you a little bit about
    CFIUS. I think Congress last year passed FIRRMA because of some
    concerns, especially the rise of the way China has been doing
    business in this country. I think Ms. Nikakhtar--and I
    apologize for bumbling that--talked about that in her role.
        I want to raise a transaction that occurred last year and
    ask you about this, and when I do this, I am not making--
    casting any aspersions, but something that troubles me because
    it has an impact on Alabama and also I think national security
    implications.
        2018, a Chinese steel company formed a joint venture with
    an American company that is known for its supply of highly
    specialized stainless steel, which is used across defense and
    aerospace sectors.
        Now, stainless steel is a very technology-sensitive
    industry. There are a lot of different recipes, and there was
    no question that China was lacking in their ability to produce
    high-quality stainless steel.
        Given everything that we know about the Chinese practices,
    it seems pretty clear that at least some portion of this
    transaction was done simply to acquire manufacturing technology
    and know how by the Chinese, but there is no evidence
    whatsoever that CFIUS reviewed this transaction before it was
    closed.
        Again, I am not casting aspersions, but it seems--even
    though this deal was slightly before FIRRMA passed, can you
    confirm that this is actually the same kind of joint venture
    deal that CFIUS had the authority to review for whatever
    reason, resources or something did not? But this seems like the
    exact kind of thing that they had the authority to review. Can
    you confirm that for me?
        Mr. Feddo. Senator, so as you alluded to, I cannot comment
    in this venue on a particular transaction or whether a review
    occurred or a pending review is under way.
        I can talk about accomplished or completed reviews with you
    in a closed setting with classified information as well.
        But more to your point, though, it is important to protect
    America's critical technology.
        On the joint venture front, CFIUS can and does look at
    joint ventures when there is a U.S. business involved. We have
    the ability to look at investments in U.S. businesses engaged
    in interstate commerce. This is something that was talked about
    a great deal during the build-out of FIRRMA with respect to
    outbound joint ventures and where CFIUS might have a gap.
        Senator Jones. Can we do a look-back? If, for instance--and
    I can talk to you in a different setting. If CFIUS did not
    review this, can we do a look-back and review something that
    occurred last year if it now comes to your attention?
        Mr. Feddo. As a general matter, we do have the opportunity
    and ability to look back at transactions that have already been
    consummated and were not reviewed by the Committee. We call
    those ``non-notifieds'', and we certainly do that often.
        The one point I would make is that some joint ventures that
    do not contribute a U.S. business are more appropriately
    tackled through the export controls process, but I am happy to
    continue----
        Senator Jones. Well, I will get with you on that.
        Ms. Nikakhtar, I want to follow up on Senator Toomey's
    questions because I am exactly where he is on this automobile
    tariff stuff. My State is sitting on edge right now, waiting to
    determine whether or not the 60,000 jobs in Alabama are going
    to go away because of these tariffs.
        And did I understand your testimony earlier that with
    regard to national security, the Commerce Department did not
    contact or ask the Defense Department anything about the
    security implications for foreign automobiles and foreign auto
    parts?
        Ms. Nikakhtar. No, Senator. Well, thank you for that
    question.
        The response only was in terms of the quantitative level of
    R&D that we actually had a lot of proprietary information from
    survey results. So we did not need to ask them about that, but
    we have worked very closely, hand in glove, with the Department
    of Defense all past summer for months and months, and we had a
    really wonderful working relationship with them to understand
    the interconnectedness between the commercial and the defense
    needs for innovation.
        Senator Jones. Did the Defense Department believe that
    these foreign automobiles, the Volkswagens and the Mercedes-
    Benzes and the Toyotas, posed a national security threat?
        Ms. Nikakhtar. The Secretary of Defense submitted a letter
    to the Secretary of Commerce noting the importance of the
    commercial auto sector and the innovations they provide for the
    defense sector.
        Senator Jones. All right. Well, it sounded to me, with all
    due respect--and I agree with Senator Toomey that without
    having seen that in the analysis that went through that, it
    seems to me--because a lot of your answer was purely market
    driven. I mean, a lot of the answer that you gave Senator
    Toomey was about the markets, and I do not know how many
    foreign--I do not know how many American automobiles it would
    take in Japan to make it not a national security threat.
        But, with all due respect, it sounded to me in your answer
    that somebody said, ``We need to use this as leverage to get
    our market share up, and so let us find a way to make this
    national security.'' I hope I am wrong about that, and I hope I
    get to look at that report. I would love to be able to look at
    that report before your nomination comes to the vote here or
    certainly before the Senate, and I would encourage you to talk
    to the Secretary of Commerce and the President of United States
    to release that report to us, even in a closed setting that we
    can look at it before your nomination.
        Ms. Nikakhtar. And, Senator, I just wanted to assure you
    that trade leverage, none of that constituted any of our
    thinking when we were drafting the report. We used publicly
    available data, and all of that was corroborated by
    confidential survey information we received.
        Senator Jones. All right. Well, thank you.
        Thanks, Mr. Chairman.
        Chairman Crapo. Senator McSally.
        Senator McSally. Thank you, Mr. Chairman. Thanks for
    holding this hearing today to consider these nominations for
    many critical positions at a number of agencies.
        I do want to specifically focus on Governor Bowman's
    renomination to continue to be a member of the Federal Reserve
    Board. You are off to a good start representing community banks
    and being a voice to them, and I really appreciate that.
        Community banks are really vital for us in Arizona. By
    extending credit and other services to especially small
    businesses, they really reach a lot of rural and underserved
    populations that are just critical for our economy and
    continuing to support people that I represent.
        And we really feel the presence along the border of the
    importance of community banks, and when they close, the impact
    is severe. And the financial services that they provide are
    just very critical for us in Arizona. So I am pleased that you
    are providing that voice at the Federal Reserve Board with your
    perspective, and I hope you will continue to do so.
        Can you walk me through some problems you see that
    community banks are currently facing, even with some of the
    reforms that we have made and adjustments, and what the Federal
    Reserve is doing to make sure that regulations are properly
    tailored?
        Ms. Bowman. Senator McSally, thank you for that. Community
    banks are clearly important to our community, to our
    businesses, our families, and our communities.
        Let me first say that one of the first priorities for the
    Federal Reserve is to implement the provisions of S. 2155. So
    through my chairmanship of the Smaller Regional Bank and
    Community Bank Subcommittee at the Federal Reserve, we are
    working very diligently to finalize the CBLR, the Community
    Banking Leverage Ratio proposal, which simplifies capital
    requirements for community banks.
        We have revisited that proposal, reengaged our State bank
    supervisors for their input and participation in that process
    as well since I came on board.
        That proposal was issued prior to my joining the Board of
    Governors, so it is something that we are taking another close
    look at.
        We are also looking closely at the call report reduction,
    the burden for call report reduction and reduction of those
    burdens. That is a priority for our subcommittee as well.
        So there are many things that we are looking at. One thing
    that is probably important to your community banks is the BSA
    and AML procedure. So that is something that is on our agenda
    as well to look at examination procedures and see where we can
    find some efficiencies.
        Senator McSally. Great. Thank you.
        When Chairman Powell testified before our Committee, we
    spent a lot of time talking about the rural-urban divide and
    what is going on economically in the country. Again, I
    represent a lot of rural communities. So from your perspective,
    what does access to banking--or are there other factors that
    you think are really causation for that divide and the
    challenges for rural communities?
        Ms. Bowman. The differences between rural communities and
    urban communities is often vast. Ninety-seven percent of our
    country is rural. I am from a rural community as well. I
    recognize many of these economic challenges that we face in
    those rural communities.
        The importance of community banks in those communities is
    leadership that is provided to the community. It is access to
    credit for consumers and for small businesses. It is an
    important cornerstone of many of those communities.
        One of the concerns that we discussed earlier with Ranking
    Member Brown was the consolidation of those rural institutions
    and the continued commitment of the remaining entity in the
    community that they are serving.
        Senator McSally. Great. Thank you.
        We also have some unique cross-border challenges right at
    the border that are impacting our communities there, and we
    have talked a lot about this on the Committee already. But we
    need to continue to work across multiple agencies to make sure
    that our legitimate cross-border commerce still has access to
    banking.
        I do not know if you have any comments on specifically the
    border elements of that, but it is not just rural but also the
    cross-border.
        Ms. Bowman. Yes. We recognize that those are challenges for
    the banks that are on the border.
        I was recently in El Paso, Texas, and in Deming, New
    Mexico, where we were able to observe some of those and visit
    with bankers on the border. I would be happy to visit with you
    further about that and continue to work with you on those
    issues.
        Senator McSally. Great. Thank you.
        Yield back.
        Ms. Bowman. Thank you.
        Chairman Crapo. Senator Cortez Masto.
        Senator Cortez Masto. Thank you, Mr. Chair.
        Ms. Bowman, let me follow up on some of the conversation.
    You just said you were in Texas.
        I am curious. Friday, the regulators closed Enloe State
    Bank in Texas. I think it was a $36 million bank. What went
    wrong?
        Ms. Bowman. My understanding--that was an FDIC-regulated
    bank--was that there was fraud on behalf of one of the
    management, representatives of management.
        Senator Cortez Masto. OK. And my understanding is that the
    cost to the FDIC because of this closure is about $27 million.
        I guess my question to you, if this community bank had more
    assets, would the loss have been such as great?
        Ms. Bowman. I think the challenges when you are dealing
    with the closure of an institution, as I mentioned when I was
    testifying last May before this Committee as well, I closed a
    similar situation, institution in Kansas during my time as the
    State bank commissioner.
        When you have fraud that is resident in the institution,
    oftentimes it only comes to light during an examination. My
    understanding is that the call report information that was
    filed indicated that the bank was in good condition, and it was
    revealed when the FDIC came to do an examination that that was
    not the case.
        Senator Cortez Masto. But the intent is--and I guess this
    is my concern. Community banks, many have record profits, but
    the goal here is to ensure that if there is a fraud of if there
    is something happening, they have access, they have efficient
    capital or assets for just this very reason, so that there is
    not a big hit, and they have the ability to cover those costs.
        So I guess my concern with this process that is happening
    right now, in all due respect to the Chairman, there is no way
    I am going to get to ask every single one of you a question,
    but here is what I do know. Last time you were before us, we
    had a short, limited time to ask questions, and when I did not
    get the answers, I actually submitted questions for the record.
    But your questions that you responded to me were similar, word
    for word, to another individual that was on the panel at the
    same time.
        So I guess my concern is I do not have enough time to ask
    you questions the way this has been presented here, and this is
    ridiculous to me. These are important positions for every
    single one of you, and to not even be able to have 5 minutes
    with all of you, let alone a second, is outrageous to me.
        And let me jump over here. For the last 2 years, the
    Export-Import Bank has not been filled. We are finally filling
    these positions, and I will tell you the Export-Import Bank is
    important to Nevada. We have 21 firms that export electrical
    equipment, machinery, minerals, and other products to other
    Nations like Mexico, Turkey, and India, and we are now just
    putting in place individuals that can help finalize and start
    moving this forward.
        I think, Mr. Chairman, with all due respect, this is no way
    to conduct our business long term in the Senate. It is time for
    us to start working together and start putting people in
    positions but making sure we get the right people in these
    positions and not crowd everybody in because there is no way I
    am going to be able to ask everybody that is before us a
    question that is important for my State.
        So I appreciate you all being here, but at the same time, I
    am frustrated with how this process is moving forward. And I
    just do not think it does a service to anybody here in
    Congress, let alone the people that represent--are in my State
    that I am supposed to represent or any of the States that we
    are supposed to be represent. This is not how we should be
    doing business.
        Chairman Crapo. Senator Menendez.
        Senator Menendez. Let me echo the Senator from Nevada's
    concerns. I expressed this to the Ranking Member as well.
        Six people, major positions, in one hearing is almost an
    impossibility to get what you need, but I am going to try to
    get some of it. But I doubt I am going to get all of it.
        So let me start off with Ms. Nikakhtar. I appreciated your
    visit with me.
        Are you aware that 3D gun blueprints are already available
    online?
        Ms. Nikakhtar. Yes, Senator, and I understand that it is
    currently the subject of litigation.
        Senator Menendez. So my concern is, my understanding of the
    department which you have been nominated to takes the position
    that once something has been published, it can no longer seek
    to control it. So what will you do to allay the concerns of
    Americans who are worried about the Administration's actions
    that could make 3D gun blueprints more widely available?
        And if you cannot control the release of those designs
    under existing regulations, will you commit to changing those
    regulations or simply change the proposed transfer to leave
    such technical information under the purview of the State
    Department?
        Ms. Nikakhtar. Senator, I very much enjoyed our
    conversation yesterday. Thank you for taking the time.
        What you are referring to, it is the Cats I, II, III
    transfer from the Munitions List to the Commerce Control List.
    Once that happens--and I want to go on record saying it here
    and as I communicated to you--I am committed to working with
    every single Member of Congress to the extent that they would
    like to engage with me and my bureau to make sure that we are
    developing and implementing sound policies with respect to our
    export controls, rules, and procedures
        Senator Menendez. Well, I appreciate that, but that does
    not answer my question.
        So when it comes to 3D guns specifically, because of my
    understanding of the regulations as they exist, since they are
    supposedly published in some entity, they no longer can be
    controlled. But we do not need the widespread distribution of
    this.
        So I hope that you will do something, and I would like to
    see an answer in writing from you as to what you will do.
        As I will repeat to you what I said in private, it is no
    value, your offer to me, which I appreciate, to be engaged on
    transactions if I do not know the transaction exists. If I have
    no notification that you are in the midst of considering an
    arms sale to some entity, if I do not know it, unless I find
    out through some other source, I cannot comment on it. So there
    has to be some way, if this goes through, in which you, if
    confirmed, ultimately engage us in letting us know, at least a
    simple notification, so we can comment and take value of your
    offer. Otherwise, your offer is of no value. So I hope you
    understand it in that respect.
        Mr. Feddo, one of the provisions that I offered in FIRRMA
    was to require CFIUS to develop regulations to ensure that
    State-owned entities are declaring their transactions with
    CFIUS and not using complex financial structures to conceal
    their ownership or evade CFIUS review.
        We saw this situation at work in December when the Wall
    Street Journal reported that a firm owned by China's Ministry
    of Finance was able to use offshore subsidiaries to purchase a
    U.S. satellite firm and was thereby allegedly able to access
    information that may have been restricted under U.S. export
    controls.
        Do you agree that CFIUS needs to do more to evaluate the
    extent of foreign Government control or influence over foreign
    firms seeking to invest in the United States? And, second, will
    you commit to implementing this provision, which is law, of
    FIRRMA so that foreign Governments seeking to invest in
    critical American industries are required to file declarations
    with CFIUS?
        Mr. Feddo. Sir, I absolutely commit to implementing that
    provision. I think it is a very important piece of FIRRMA with
    respect to State-owned entities.
        As you are well aware, there is a real challenge in
    discerning ultimate beneficial owners, and so we are taking a
    great deal of energy and attention to building out a team to
    look at non-notified transactions and identify ultimate
    beneficial owners when appropriate.
        I cannot comment about the specific transaction that you
    raise, but I am absolutely committed to implementing this
    provision.
        Senator Menendez. Well, I appreciate it and look forward to
    working with you on that.
        Mr. Shmotolokha----
        Mr. Shmotolokha. ``Shmotolokha.''
        Senator Menendez. ``Shmotolokha.'' Thank you very much.
        I have always been a strong supporter of the Export-Import
    Bank. Given in your experience in the private sector, how
    important is it that we reauthorize a bank and do not let it--
    to shut it down as we did in 2015?
        Mr. Shmotolokha. It is critical, sir.
        Senator Menendez. And do you believe it is appropriate for
    Congress to increase the bank's exposure cap, the amount of
    loans it can finance in light of the increased resources some
    economic competitors like China are giving to their export
    credit agencies?
        Mr. Shmotolokha. Yes, sir.
        Senator Menendez. If everybody gave me answers like that, I
    could get through the whole process.
        [Laughter.]
        Senator Menendez. I have one last question, if I may, Mr.
    Chairman, I would like to ask Ms. Lee.
        I appreciate the conversation we had yesterday in my
    office.
        Do you believe that tough penalties are a successful
    deterrent for future lawbreakers? I am concerned that we often
    seem to have at the SEC a reticence to pursue the type of
    enforcement and penalties that are a deterrent and ultimately
    pursue what we want, which is conformance with the rules.
    Should such an effective enforcement strategy incorporate tough
    penalties as part of its strategy to prevent harm, deter bad
    actors, and punish wrongdoers?
        Ms. Lee. Yes. Thank you, Senator.
        I actually think that compliance is the overall goal of
    enforcement, and the best way to get at compliance is
    deterrence. I think that includes tough penalties where they
    are warranted on a case-by-case basis, but I do support strong
    penalties in the right case because I do think that has the
    best deterrent value.
        Senator Menendez. I have other questions, Mr. Chairman. My
    time has expired.
        Chairman Crapo. Senator Van Hollen.
        Senator Van Hollen. Thank you, Mr. Chairman.
        Thank all of you for your testimony.
        Governor Bowman, you and I have spoken about this. I think
    the fact that the United States does not have a real-time
    payment system is an embarrassment, and it is costing millions
    of Americans billions of dollars, especially Americans who do
    not have big balances in their bank accounts.
        Now, I heard some questions from Senator Tillis along these
    lines. I just want to point out to you an article by Thomas
    Hoenig, a former vice chair of the FDIC and former president of
    the Federal Reserve Bank of Kansas City, who wrote a recent
    editorial regarding this issue stating, and I quote, ``The
    needs of consumers and businesses and the depository
    institutions nationwide that provide them services will be best
    served by the Federal Reserve continuing to play its role as a
    payments processor.'' He goes on to say, ``The alternative is
    to award the clearinghouse a de facto monopoly resulting in a
    less competitive and less efficient market for immediate
    payments.'' Are you aware of that editorial?
        Ms. Bowman. Senator Van Hollen, I am familiar with the
    editorial, and I have read it. It is consistent with some of
    the comments that we have received during our request for
    comment on the questions we issued last fall.
        Senator Van Hollen. And do you share some of those
    concerns?
        Ms. Bowman. There are many factors that are in
    consideration as we are deliberating this issue within the
    Federal Reserve System. It is a live discussion, and we are
    actively in the process of considering all of the comments that
    we have received.
        Senator Van Hollen. All right. So part of your job, of
    course, is to look out for the community banks----
        Ms. Bowman. Yes, sir.
        Senator Van Hollen. ----and the concerns expressed about
    giving this monopoly to the clearinghouse come from community
    banks in large measure. You are aware of that, right?
        Ms. Bowman. Yes. I have heard from community banks about
    this issue.
        Senator Van Hollen. So, Ms. Nikakhtar, let me just follow
    up on the use of Section 232 because, in my view, it has been
    sort of a gross abuse of claims of national security when we
    use that to place tariffs on our allies like Canada and others.
        So count me in with those other Members who have said we
    really want to get this report with respect to Section 232 and
    automobiles.
        Where I do agree with some of the actions the
    Administration has taken is where I think we face a real
    strategic threat, which is China's theft of a lot of our IP and
    technology. So I supported the efforts that you at the Commerce
    Department took last year with respect to ZTE after it was
    found in violation of our sanctions. I was incredibly
    disappointed that the President then tweeted out that he is
    going to reverse the blocking order because he wanted to help
    his, quote, ``friend,'' President Xi.
        So now we have your measure putting Huawei on the entities
    list because of 5G, and as I read the explanation for that--and
    I think this is a move in the right direction, lots of
    complicated issues, but a move in the right direction--it was
    based not only on the finding that they violated the Iran
    sanctions but also other findings that they pose a national
    security threat. Is that right?
        Ms. Nikakhtar. Senator, yes, that is what we have
    indicated.
        Senator Van Hollen. OK. So I am with you in addressing this
    issue.
        What I am concerned about is you are trading off something
    that you agree is a national security issue as part of
    concessions over a tariff fight. Can you tell this Committee
    that you will not tradeoff legitimate national security
    concerns in order to get some better deal in a tariff fight
    with China?
        Ms. Nikakhtar. Senator, you raise very important points. If
    it is up to me, I want to make sure that we do everything we
    can to protect national security. Trade is not in my
    jurisdiction, national security.
        With respect to ZTE, I completely get your points. Under
    the compliance agreement, ZTE now is the most monitored company
    in the world.
        My commitment is to make sure that we never, ever
    compromise national security threats, and to the extent that
    you ever have any concerns, I am happy to engage with you or
    your staff directly to make sure those concerns are addressed.
        Senator Van Hollen. Right.
        And so the actions that you have taken with respect to the
    Huawei and 5G are a result of your conclusion that it poses a
    national security threat. Is that correct?
        Ms. Nikakhtar. A national security threat and undermining
    foreign policy interests of the United States.
        Senator Van Hollen. So I am going to be watching very
    carefully to see if we somehow are trading off that legitimate
    national security issue to try to get a better deal on some
    tariff issues. Not only do I think it is wrong in compromising
    our national security, it totally undermines our credibility
    when foreign countries think that we are using national
    security concerns as leverage in some other area like trade
    because that is a very, very dangerous path to go down. Would
    you agree with that?
        Ms. Nikakhtar. You have my commitment, and I want to go on
    the record that my singular focus is national security. That is
    the purview of my job, and that is what I am committed to.
        Senator Van Hollen. Thank you.
        Chairman Crapo. Thank you, Senator Van Hollen.
        That concludes our questioning for today's hearing. For
    Senators who wish to submit questions for the record, those
    questions are due to the Committee by the end of the day on
    Friday, June 7th.
        And we ask that our nominees respond to those questions no
    later than the close of business on Friday, June 14th.
        Senator Menendez. Mr. Chairman, may I make one remark
    before we close?
        Chairman Crapo. Yes. Yes, you may.
        Senator Menendez. I have other questions. I am going to
    submit them for the record. I would like to get substantive
    answers. If I do not get substantive answers, then I will do
    everything possible on the floor to impede the nominations
    moving forward. Since we do not have time to go through a
    second round here or have enough time, I would like to get
    substantive answers to those questions.
        Chairman Crapo. That is a fair request.
        We would like to thank our nominees for being here today.
    Thank you again for your willingness to serve. We have got a
    vote that is already 15 minutes under way, so we are going to
    wrap this up and leave quickly.
        I just want to again extend to each of you our thanks for
    your willingness to help keep our Country strong and to serve
    in your respective capacities.
        With that, this hearing is adjourned.
        [Whereupon, at 11:21 a.m., the hearing was adjourned.]
        [Prepared statements, biographical sketches of nominees,
    responses to written questions, and additional material
    supplied for the record follow:]
                   PREPARED STATEMENT OF CHAIRMAN MIKE CRAPO
        This morning we will hear testimony on six nominees to serve at
    five different agencies. Welcome, all of you.
        I see friends and family behind you, and I welcome them here today
    as well.
        If confirmed, I look forward to working with each of these nominees
    on many important issues within each of their respective policy areas,
    including: continuing efforts from last Congress to right-size
    regulations, making it easier for consumers to get mortgages and obtain
    credit; encouraging capital formation, reducing burdens for smaller
    businesses and improving corporate governance; exploring the proper
    role of the Export-Import Bank in providing finance in response to
    foreign Governments, like China, that provide aggressive subsidies and
    place U.S. exporters at a disadvantage; and preserving the
    technological edge and national security of the United States while
    also preserving an open U.S. investment environment and ability of our
    industry to export its products through the implementation of FIRRMA
    and export control rule.
        First we have, Mr. Thomas Peter Feddo, to be an Assistant Secretary
    of the Treasury for Investment Security.
        This is an important national security job that protects our most
    critical technology companies from foreign takeovers and influence.
        He currently leads the U.S. Department of the Treasury's Office of
    Investment Security in executing Treasury's statutory role as the Chair
    of CFIUS.
        He also spent 7 years at the Treasury Department's Office of
    Foreign Assets Control implementing and enforcing U.S. economic
    sanctions.
        As a graduate of the U.S. Naval Academy, Mr. Feddo served as a
    lieutenant in the Navy's nuclear submarine force and as an officer at
    the Navy Antiterrorist Alert Center.
        Next, The Honorable Nazak Nikakhtar, to be Under Secretary of
    Commerce for Industry and Security.
        She was previously confirmed by voice vote to be an Assistant
    Secretary of Commerce for Industry and Analysis
        She is currently serving as the Acting Under Secretary, evaluating
    and promulgating effective regulation of emerging U.S. technologies.
        She comes to the Bureau of Industry and Security from her role as
    Assistant Secretary for Industry and Analysis for the International
    Trade Administration, or ITA.
        While at ITA, she worked on policies to strengthen the
    competitiveness of U.S. companies globally.
        Previously, she was a trade attorney at several high profile
    Washington law firms and an industry analyst at the Bureau of Industry
    and Security.
        Next, we have Mr. Ian Paul Steff, to be Assistant Secretary of
    Commerce and Director General of the United States and Foreign
    Commercial Service.
        Mr. Steff's job is to open markets and sell whatever Mr. Feddo and
    Ms. Nikahktar do not control, which is about 98 percent of what America
    makes.
        Mr. Steff currently serves as Deputy Assistant Secretary for
    Manufacturing at the U.S. Department of Commerce's International Trade
    Administration.
        In that role, he oversees approximately 1,400 trade and investment
    professionals based in more than 100 U.S. cities and 70 markets around
    the world.
        Prior to joining the U.S. Department of Commerce, he worked as vice
    president of global policy and technology partnerships for the
    Semiconductor Industry Association for nearly a decade and he started
    his professional career as staff on the U.S. House of Representatives
    Committee on Ways and Means.
        Next, we have the Honorable Michelle Bowman, to be a Member of the
    Board of Governors of the Federal Reserve.
        Governor Bowman currently serves as a Governor on the Federal
    Reserve Board and is the first person to fill the Federal Reserve's
    community banking seat after her confirmation last year by a bipartisan
    vote of 64 to 34.
        While Governor Bowman's current 14-year term expires January 31,
    2020, President Trump has renominated her to the same position for a
    full 14-year term.
        Prior to serving as a Governor, she was the State bank commissioner
    of Kansas from January 2017 to November 2018, served as vice president
    of a Kansas-based community bank, Farmers & Drovers Bank, between 2010
    and 2017, and served in a number of Government roles.
        Next, we have Mr. Shmotolokha, who has been nominated to serve as
    First Vice President and Vice Chairman of the Export-Import Bank of the
    United States.
        As President Trump and other senior officials in his Administration
    have noted, a fully functioning Export-Import Bank has the ability to
    provide financing and level the playing field in response to
    Governments, like China, which can provide almost limitless subsidies
    from its Treasury, which places U.S. exporters at a disadvantage.
        His career in the private sector has focused on international
    business and trade, particularly in the fields of telecommunications,
    technology and renewable energy.
        He currently leads the international division for Alpha
    Technologies.
        Finally, we have Ms. Allison Lee who is nominated to serve as a
    Member of the Securities and Exchange Commission.
        As an SEC Commissioner, Ms. Lee would be responsible for helping
    the SEC fulfill its mission of protecting investors; maintaining fair,
    orderly and efficient markets; and facilitating capital formation.
        Ms. Lee is currently a consultant with Congress Park Consulting
    where she teaches courses on U.S. corporate and securities law in Spain
    and Italy, and works as a contributing author on treatises in corporate
    and securities law.
        She previously served as Senior Counsel in the Division of
    Enforcement's Complex Financial Instruments Unit, and as counsel to
    former Commissioner Kara Stein.
        Thank you all for your willingness to serve and for appearing
    before our Committee today.
                                     ______

                  PREPARED STATEMENT OF SENATOR SHERROD BROWN
        Thank you, Chairman Crapo, for holding today's hearing on the
    nominations of Mr. Thomas Feddo, Ms. Nazak Nikakhtar, Mr. Ian Steff,
    Ms. Michelle Bowman, Mr. Paul Shmotolokha, and Ms. Allison Lee. I look
    forward to hearing their views and would like to welcome their families
    to the Committee.
        Mr. Feddo is the first nominee to be Assistant Secretary of the
    Treasury for Investment Security, a position created under the Foreign
    Investment Risk Review Modernization Act of 2018--the bipartisan
    legislation from this Committee that made major reforms to the
    Committee on Foreign Investment in the United States.
        We created this new position because of the critical role CFIUS
    plays protecting U.S. national security from increasing threats from
    certain foreign investments. Yesterday we heard about how China has
    adopted new tactics to acquire American technology in sectors that are
    vital to our national security. It's why we passed this bill, and it's
    why this job will be so important.
        Mr. Feddo is currently serving as deputy assistant secretary for
    investment security, he played a key role in formulating the reforms
    last year, and is now working to carry out the technical and structural
    changes required under FIRRMA, including finishing the rulemakings to
    expand CFIUS's scope, and filling new staff positions necessary for
    enhanced review of potential investments that could pose risks to
    national security.
        If confirmed, Mr. Feddo, you will need to continue this critical
    work. I know you've made progress, and I look forward to hearing from
    you about next steps.
        Ms. Nikakhtar has been nominated to serve as Under Secretary of
    Commerce for Industry and Security, responsible for a set of key U.S.
    national security, foreign policy, and economic objectives through
    application of effective U.S. and multilateral export controls and
    treaty compliance. Although Ms. Nikakhtar has extensive experience in
    international trade, including at the International Trade
    Administration, she has more limited experience in national security
    and export control matters.
        If confirmed, Ms. Nikakhtar will be responsible for administering
    critical U.S. export control laws and regulations that cover emerging,
    foundational, and other forms of sensitive technology--an area of
    increasing importance.
        Ms. Nikakhtar, I hope that you will work with your colleagues to
    navigate the complex national security and political concerns that
    surround the export of sophisticated U.S. technology.
        Mr. Steff is nominated to be Assistant Secretary of Commerce for
    Global Markets and Director General of the United States and Foreign
    Commercial Service. In that role, he will be responsible for the
    International Trade Administration's work to advance U.S. business
    overseas and to promote U.S. exports and fair trade rules.
        Mr. Steff's current experience as Deputy Assistant Secretary for
    Manufacturing at Commerce, and his prior experience working on economic
    development, in particular focusing on innovation and technology,
    provide him with an understanding of how to strengthen the
    competitiveness of U.S. industry, which ultimately should support
    American manufacturing and jobs. That's good for the economy and for
    workers.
        Ms. Bowman was renominated to be a Member of the Board of Governors
    of the Federal Reserve System for a full 14-year term, expiring in
    2034.
        As a former State bank commissioner, Ms. Bowman serves in the role
    designated for a Fed Governor with community bank experience.
        At her first nomination hearing, I was concerned that Ms. Bowman
    would be a rubber stamp for Wall Street. I was right to be concerned.
        Ms. Bowman, I know you possess a deep understanding of community
    banks and are being nominated for a full 14-year term based, in part,
    on that understanding.
        But, time and again, you have taken the side of the big banks as
    the Fed has done favors for Wall Street by relaxing capital standards
    and weakening stress tests and other postcrisis safeguards meant to
    protect taxpayers and the financial system.
        If you are confirmed to a full term, I expect that you will do all
    you can to ensure that the regulatory system works for community banks
    and protects their customers.
        Mr. Shmotolokha is the nominee to be First Vice President of the
    Export-Import Bank.
        For nearly 4 years, I have pushed for the EXIM to be fully
    reopened, and with the confirmation of three board members last month,
    the Bank is finally running at full capacity. To stay competitive as
    they pursue business abroad American manufacturers need a reliable
    Export-Import Bank that is authorized for the long term.
        Mr. Shmotolokha is the final nominee to the Bank's board to appear
    before our Committee. The full Senate needs to consider his nomination
    and the nomination of Claudia Slacik, who our Committee reported with
    overwhelming bipartisan support, so they can provide their expertise as
    the Bank resumes full operations.
        If confirmed, he would bring significant private sector experience
    in the export of U.S. products to the global telecommunications
    industry. When the EXIM Bank was fully functioning, it supported more
    than 164,000 jobs a year. I look forward to hearing how we can expand
    on the number of U.S. jobs supported by the Bank.
        Ms. Lee has been nominated to be a Commissioner of the Securities
    and Exchange Commission. If confirmed, Ms. Lee would return to the SEC
    at a critical time. The agency is considering several issues that will
    define the rights and protections for both individual and institutional
    investors.
        I expect Ms. Lee to draw on her SEC enforcement experience when
    considering rules that could affect investors' rights and remedies
    against wrongdoers and when weighing penalties in misconduct cases.
        The SEC needs to promote integrity and fairness in the capital
    markets so that investors can trust the markets and have faith in the
    regulator.
        I look forward hearing from all of you.
        Thank you, Chairman Crapo.
                                     ______

                    PREPARED STATEMENT OF THOMAS PETER FEDDO
          To be Assistant Secretary, Treasury for Investment Security
                                  June 5, 2019
        Chairman Crapo, Ranking Member Brown, and distinguished Members of
    the Committee, I am honored to appear before you today. I am humbled to
    be nominated by the President to serve as Assistant Secretary of the
    Treasury for Investment Security, a new position created by the Foreign
    Investment Risk Review Modernization Act of 2018 (FIRRMA).
        Last August, FIRRMA was enacted with overwhelming, bipartisan
    support from this Committee, both houses of Congress, and the
    Administration. In creating this position--specifically through an
    amendment by Chairman Crapo--the statute recognizes the need for
    dedicated, accountable leadership of the critical national security
    function executed by the Committee on Foreign Investment in the United
    States (CFIUS). I am confident that my professional background affords
    me the experience and knowledge to lead CFIUS, and to effectively and
    faithfully implement FIRRMA over the coming months.
        I grew up with two younger sisters, and attended public school near
    Buffalo, New York. We had a full-time mom, and a dad who served in the
    Marine Corps and then worked for the local electric company for nearly
    25 years. My dad worked long hours to make sure that our family had all
    that we needed, and a little more than he had as a child. He suddenly
    passed away just months after seeing me graduate college, but I know
    that he would be pleased were he here today. My mom dedicated herself
    to building a warm and loving home for us. I am deeply grateful to my
    parents for laying the foundation that has brought me to this point--by
    example, they instilled the virtues in my sisters and me, and we came
    to know the value of hard work, loyalty, and family.
        I would not be here today without my extraordinary wife Muffet. She
    has been an unwavering source of support and encouragement, while
    selflessly devoting her many talents to raising our three wonderful
    children.
        Early in high school, I decided that I would serve our Nation in
    the military, and sought to attend the Naval Academy. Since taking the
    oath of office at Annapolis 33 years ago, it has been my privilege to
    spend literally half of my life in public service--including first as a
    lieutenant on a nuclear submarine, and then with the Naval Criminal
    Investigative Service. After law school, I served as a counsel for the
    House Energy and Commerce Committee, before stints as an attorney at
    the Pentagon, and a civil servant at the Treasury Department. I have
    served in all three branches of the Federal Government--with nearly 20
    years in a national security related capacity. In the private sector, I
    practiced law as a patent and trademark litigator, and most recently as
    a partner in a large firm's international trade group.
        By virtue of these professional experiences, I understand the
    importance of protecting American innovators' intellectual property--
    our Nation's vital economic engine. And as a Navy submariner, educated
    and trained as an engineer, I experienced firsthand how America's
    superior technology ensures our warfighting edge.
        As an attorney representing global businesses large and small, I
    have gained a true appreciation for the importance of foreign
    investment to our strong and vibrant economy, as well as the benefits
    of regulatory certainty to business transactions.
        If I am confirmed, you have my unqualified commitment that I will
    work closely with this Committee, and Congress as a whole, to continue
    what I have been doing as Deputy Assistant Secretary over the past
    year: faithfully and transparently implementing FIRRMA; ensuring our
    national security is protected while foreign investment is fostered;
    and serving with humility, and a deep and abiding respect for our
    dedicated and talented career professionals at Treasury and across the
    Government who diligently execute the CFIUS mission.
        Thank you again for the privilege and opportunity to appear before
    you today. I am happy to answer any questions that you may have.

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                     PREPARED STATEMENT OF NAZAK NIKAKHTAR
           To be Under Secretary, Commerce for Industry and Security
                                  June 5, 2019
        Mr. Chairman, Ranking Member Brown, and Members of the Committee,
    thank you for the opportunity to appear before you today. In 2018, I
    was honored to be confirmed as the Assistant Secretary for Industry and
    Analysis at the Department of Commerce, and today I am extremely
    honored to be nominated for the position of Under Secretary for
    Industry and Security.
        With me today are my husband Gene Degnan and my mother Manijeh
    Nikakhtar. My father Bijan Nikakhtar passed away several months ago,
    but he would have been beaming with pride if he were here today, as an
    amateur political historian and one of the greatest American patriots I
    have ever known. I am proud to say that my parents and my husband have
    served our Government as Federal employees for many years. My husband
    served for over a decade at the Department of Commerce, and my parents
    served for over 40 years collectively as physicians at the VA hospital
    taking care of our Nation's veterans. My brother, Nersi Nikakhtar, also
    a physician at the VA hospital, had work obligations today. I am proud
    to be part of a family that honors Government service.
        I immigrated to America with my family 39 years ago. I can remember
    from a very young age how proud I was to be an American and how I
    marveled at American innovation and ingenuity. I knew at an early age
    that I wanted to be part of the narrative of American growth.
        This is what prompted me to study law and economics after college.
    I obtained my Juris Doctor and Master's in Economics from Syracuse
    University and, in 2002, I began my career at the Department of
    Commerce, first at the Bureau of Industry and Security and subsequently
    at the International Trade Administration. At the Department, I worked
    with, and learned from, the incredibly smart and talented civil
    servants. Many of those dedicated professionals are still there today,
    and they are the pillars that shape our Government from Administration
    to Administration. I have great respect for them and am privileged to
    work with them again.
        I joined the private sector several years later as a trade and
    export control lawyer, representing industries in the aerospace and
    steel sectors, in aquaculture, high-tech goods, chemicals, and
    minerals. In private practice, worked to level the playing field for
    U.S. industries and, on exports, I conducted internal investigations to
    enforce compliance agreements that clients with the U.S. Government to
    address the Government's national security concerns.
        My training and experience as both a lawyer and an economist have
    given me the expertise to determine how to protect U.S. national
    security and simultaneously advance the economic interests of U.S.
    industries.
        Today, national security no longer begins and ends with military
    strength. It is a fact in today's world that our national security is
    dependent on our economic strength and technological leadership.
        Yet, advancements in technology and the interconnectedness of our
    economies make our national security challenges more complex than ever
    before. Economic integration has emboldened some foreign Nations to
    behave in ways that undermine our national security, expecting that
    threats of economic retaliation will weaken our resolve to act. They
    have increased illicit procurement of items to build weapons of mass
    destruction and transshipped those items to terrorist organizations and
    regimes. We are witnessing illegal acquisitions of sensitive
    technologies to weaponize dual-use items and oppress millions of
    innocent citizens. And we've seen for years how rampant intellectual
    property theft displaces U.S. industries, stifles innovation, and
    enables the advancement of strategic competitors.
        The key to our success is maintaining U.S. technological
    superiority and economic interests through multilateral coordination
    that is more forward leaning, better use of intelligence data and
    analytics, robust enforcement of our laws, and a tightly coordinated
    whole-of-Government approach, that includes more proactive engagement
    with Congress.
        Time is of the essence, and during my 3\1/2\ months at the Bureau
    of Industry and Security, I have been leading the Department's efforts
    to update our regulations to incorporate ECRA reforms and address
    global threats. We are engaging with industry to identify emerging
    technologies that can undermine our national security. In addition, I
    have begun an initiative to work with like-minded allies on better
    export control coordination and wider end-use checks. It is imperative
    that we better coordinate multilateral policies on sensitive technology
    so U.S. companies can compete globally while Governments prevent those
    technologies from being misused by adversaries.
        At the Bureau, I challenge my colleagues every day to rethink how
    we can modernize our policies to stay ahead of new threats. And I have
    made it a priority to seek industry input, as today's complex
    challenges cannot be solved without close engagement with U.S.
    businesses; our policies must maintain and advance America's
    technological and economic leadership.
        My parents immigrated to America knowing that this is the greatest
    country in the world. As an American, it is my responsibility and honor
    to preserve this Nation's security for future generations. I thank you
    again for the opportunity to be here in front of this Committee. I look
    forward to your questions.

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                      PREPARED STATEMENT OF IAN PAUL STEFF
      To be Assistant Secretary of Commerce and Director General, United
                     States and Foreign Commercial Service
                                  June 5, 2019
        Good morning, Chairman Crapo and Ranking Member Brown, Members of
    the Committee. It is the greatest of honors to sit before you today. If
    confirmed, it would be my privilege to serve as the Assistant Secretary
    of Commerce for Global Markets and Director General of the United
    States and Foreign Commercial Service. I thank President Trump for this
    nomination. So too, I am grateful for the continued support of Vice
    President Pence, both in my former capacities in my home State of
    Indiana, and now in Washington, DC.
        Speaking of Hoosiers, I am proud to be joined by my wife, Brittany.
    I remain forever grateful for your incredible encouragement,
    compassion, and flexibility as we serve the Nation we love and raise
    our two little stars, Daniel and Owen. I am also joined by my parents,
    Wayne and Lisa. Our childhood home was filled with love, faith,
    respect, hard work, and an enduring sense of service to one's country.
    Thank you, Mom, Dad, Gram, Aunt Lori, Aaron, and to all those family
    members, friends, and teachers who helped me along the way.
        My story started under a few feet of snow, thirty miles south of
    Buffalo, New York, on my grandparents' dairy farm. My two younger
    brothers, Eric and Levi often reflect on the comradery we developed
    shoveling that never-ending lake-effect byproduct, raising our pet
    ducks, and commiserating over our beloved Buffalo Bills. Childhood
    summers encompassed exploring the pastures and woods, working on our
    neighbor's berry and plant farm, and waiting for the rumble of Dad's
    cycle as he returned home from his job in highway maintenance. This is
    a glimpse of our small slice of country and my upbringing in rural
    America.
        Rural? Yes. Encouraged to dream big? Every step of the way. And
    dream we did. I devoted nearly every penny earned on the farm to my
    stamp and coin collection. Years later, as I arrived at American
    University to begin my academic career in international affairs, I knew
    unequivocally that my future involved fostering relations with the
    foreign markets and the people personified in the postage and currency
    I accumulated. That dream and future continue to be realized.
        If confirmed, I would be incredibly honored to lead a world-class
    team of professionals that provide export counseling to small- and
    medium-sized businesses, while identifying new foreign markets for
    their products and services; advocate on behalf of U.S. companies
    competing for foreign Government procurements; attract foreign direct
    investment, while working to grow the U.S. manufacturing base; and
    reduce, remove, and prevent foreign trade barriers that impede market
    access for U.S. goods in a free, fair, and reciprocal fashion.
        As the Deputy Assistant Secretary of Commerce for Manufacturing
    since June of 2017, I've seen the impact the Global Markets team has on
    U.S. manufacturers and service providers. This vast network of more
    than 1,300 trade and investment specialists in headquarters and the
    U.S. Field, combined with the presence of the Foreign Commercial
    Service in over 70 foreign markets, deliver daily.
        Simply put, I have come to know the Global Markets team as: ``A
    Team that Works, a Team that Chooses to Compete, and a Team that
    Delivers.'' These professionals deliver ``one deal at a time'' and have
    a tremendous impact measured at over $120 billion in FY2018 in the
    areas outlined above.
        In my former professional capacities, I accrued experience in
    economic development, executive leadership, and trade policy. In my
    past economic development roles, I worked successfully to attract
    foreign direct investment. SelectUSA, which would be under my purview
    if confirmed, is a valued economic development partner to States.
        Likewise, during my time in the semiconductor industry, I witnessed
    the contributions of the Commerce Department to ensure foreign market
    access. I regularly engaged with the Commerce team while managing the
    leading chip industry association's international engagements and
    technology programs for a decade. I have seen the challenges posed by
    unfair foreign trade measures and massive market distorting practices
    that crippled companies looking to compete internationally.
        Earlier in my professional career, I worked on the Trade
    Subcommittee staff of the House Ways and Means Committee. I have a
    profound appreciation for the vital role of Congress when it comes to
    ensuring the global competitiveness of U.S. industry.
        While my stamp and coin collections are now the responsibility of
    my two young Hoosiers, I have no doubt that they and our country have a
    limitless and prosperous future based on the unparalleled
    accomplishments of the Global Markets team at Commerce. I aspire to
    help this team continue to achieve its mission. If confirmed, I will
    devote every working moment to its success on behalf of our Nation's
    exporters. Distinguished Members of the Committee, thank you for your
    consideration.

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                     PREPARED STATEMENT OF MICHELLE BOWMAN
        To be a Member, Board of Governors of the Federal Reserve System
                                  June 5, 2019
        Chairman Crapo, Ranking Member Brown, and Members of the Committee,
    it has been just over a year since this Committee first recommended my
    nomination as a Federal Reserve Board Governor. While I am not the
    first community banker to serve on the Board, I am humbled by the
    opportunity you gave me to serve as the first Governor to fill the role
    the Congress designated for someone with community banking experience
    on the Federal Reserve Board. I am deeply honored the President has
    renominated me to serve in that capacity.
        I am also grateful to my family for their continued support. My
    husband, Wes, and our children, Jack and Audrey, are here with me
    today. The rest of my family are watching from home in Kansas.
        Since my confirmation last year, I have worked to fulfill my unique
    role on the Board by traveling widely and listening closely to
    community bankers, consumers, small business owners, and community
    leaders. I have visited with farmers, workers, and business leaders
    from across the country to discuss the economy. I am making sure these
    unique perspectives are represented in the Federal Reserve's
    deliberations and decision making on both monetary policy and
    regulatory matters.
        During my time at the Board, I have also drawn on my experience as
    a community banker and regulator to ensure that our work is guided by a
    deep understanding of the practical realities confronting bankers and
    the communities they serve across the country. The work done after the
    crisis to address the weaknesses in the U.S. financial system and
    ensure its future resilience was essential. However, during my time at
    my family's community bank, I saw firsthand how the regulatory changes
    created in the aftermath of the crisis impacted community financial
    institutions. Small, solid institutions like this one are essential to
    so many of our citizens and communities. As regulators, we need to
    ensure that we are not imposing unnecessary burdens on community banks.
    That is why one of my priorities as a Governor has been to
    appropriately tailor our supervision and regulation to the size,
    complexity, capacity, and risks posed by an institution.
        To further this effort, I recently formed a working group of
    experts from across the Federal Reserve System to launch a
    comprehensive review of our supervisory work with smaller regional and
    community banks. While serving as the Kansas State Bank Commissioner, I
    was committed to treating every consumer and institution fairly and
    respectfully and fostering open communication. This working group will
    follow those same principles. We are looking for ways to optimize our
    supervision and regulation to ensure it adapts to the on-the-ground
    realities of an evolving industry and changing consumer expectations
    while maintaining the safety and soundness of our banking system.
        Let me close by saying a few words about monetary policy and the
    Federal Reserve's dual mandate. As a community banker, it was my job to
    support local businesses and consumers. I draw upon this experience
    often when thinking about monetary policy, because it has given me a
    personal and practical understanding of how the Federal Reserve's goals
    of fostering maximum employment and stable prices directly affects
    individuals as well as the broader financial system and economy. The
    Congress has given the Federal Reserve independence to pursue these
    goals, because our work is critical to our economy, to businesses, to
    families, and to communities. I am deeply committed to fulfilling this
    mandate.
        If confirmed by the Senate, I will continue the important work I
    have begun and be committed to accountability, transparency, and clear
    communication in all of my responsibilities at the Federal Reserve.
    Thank you for the honor of this hearing, and I look forward to
    answering the Committee's questions.

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                     PREPARED STATEMENT OF PAUL SHMOTOLOKHA
      To be First Vice President, Export-Import Bank of the United States
                                  June 5, 2019
        Chairman Crapo, Ranking Member Brown, and distinguished Members of
    the Committee, thank you for considering my nomination to serve as
    First Vice President of the Export-Import Bank of the United Sates. I
    am deeply thankful to President Trump for selecting me and humbled by
    the obligations that this role brings to American workers and
    taxpayers.
        I would like to introduce some family members who are with me
    today. First, my parents Stephen and Christine who made the trip from
    California. They came to America as child refugees of World War II and
    I am always inspired by their contributions to our country. My father
    worked as an engineer in the defense industry for more than 40 years
    and my mother served tirelessly as a nurse. I am also joined by my
    wife, and best friend, Dania, who guided the family through multiple
    international moves and extensive overseas travels and Max, my son, who
    is entering his senior year in college. My brother Adrian and many of
    my friends, family and coworkers from around the world are also
    watching online.
        I sit before you as someone who has spent the past 16 years on the
    front lines of global trade with a strong record in growing American
    exports. I also bear the battle scars of leadership in a time of
    unparalleled competition in global markets.
        It is not simple for any manufacturer to export. They must overcome
    political risks, economic hazards, import regulations and diverse
    marketing environments. It takes diplomacy and mutual respect to forge
    international customer relationships that help guide a business or an
    institution through the process of closing a successful deal. Sometimes
    it also takes extra financial support, especially when there are over
    100 export credit agencies that are upping the ante and creating new
    incentives for the end customer. In my travels, I have seen firsthand
    how critical it is to support the current needs of the market and for
    EXIM to be able to finance deals in a timely and relevant fashion when
    the private sector cannot. My demonstrated commitment to this mission
    and my international experience on both the buying and the selling side
    of international trade over the last 30 years will allow me to
    contribute strongly to the team at EXIM.
        EXIM's mission is to help support and create jobs. I have
    experienced firsthand the thrill of walking assembly lines in Georgia
    and in Washington State and meeting the newest workers putting together
    products for export, thanks to deals that my team closed. These are
    some of my best experiences. My legacy and value as a business person
    comes from the people that I mentor and the jobs that I help create. By
    working with the President of the Bank, my fellow board members and the
    talented staff at EXIM, I believe I can best serve America to multiply
    the job creation effects of EXIM. Having served on numerous private
    sector boards in various capacities, I understand board
    responsibilities of proper corporate governance, the need for
    transparency and how good strategic guidance and a positive leadership
    attitude can enable organizations to realize their full productive
    potential. I believe that every organization can do better and that
    constant advancements to American competitiveness should match changes
    in global market demand.
        The EXIM board needs to make sure it doesn't lose sight of its role
    as an important source of support for small businesses. Many of its
    financial products in this area resonate with those looking to expand
    to new markets. As an entrepreneur, I have worked in small companies
    and faced the pressure of making payroll. Speed to market and effective
    financing can make or break opportunities for these companies. I built
    a significant export business in a medium-sized U.S. manufacturer that,
    while a very successful domestic business, had yet to find its legs
    overseas. All companies--small, medium, and large--all need help at
    times in leveling the playing field in today's global economy.
        If confirmed, I will bring a fresh perspective and a fiercely
    competitive mindset to the Bank. My experience as an officer in the
    U.S. Army taught me to lead from the front and I will work tirelessly
    to support the ``Made in America'' brand that we all share and support.
    I will ensure that American companies have full access to and
    understanding of the programs authorized by Congress to maximize their
    global reach and competitiveness. To this end, I would paraphrase Vince
    Lombardi: ``Winning isn't everything, it is the only thing'' for
    American business and the American worker and I pledge to bring a ``can
    do'' winning attitude and to win responsibly for the American taxpayer.
        Thank you for your consideration. I would be pleased to answer any
    questions.

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                    PREPARED STATEMENT OF ALLISON HERREN LEE
               To be a Member, Securities and Exchange Commission
                                  June 5, 2019
        Chairman Crapo, Ranking Member Brown, and distinguished Members of
    the Committee. It is a tremendous privilege to appear before you today
    and to be considered for the position of Commissioner at the Securities
    and Exchange Commission, an agency in whose mission and dedicated staff
    I believe deeply.
        I'm very fortunate today to be supported by a large contingent of
    family. I'd like to introduce my husband Jay Brown, four of the five
    children in our blended family, Tess, Beth, Josh, and Zoey. Also, our
    granddaughter, Emerson, is here, and our son-in-law, Colin, my sister
    Laurie, my brother Wil, my niece Emily, and my brother-in-law, Jeff.
    Unfortunately, my mother could not be here today, but I know she will
    be watching.
        I have spent the bulk of my legal career at the SEC for one very
    straightforward reason: the SEC has a mission that is vital to the
    economic well-being of Americans and American businesses. It navigates
    the critical intersection between these two; between everyday Americans
    striving to build savings to buy a home, to send kids to college and
    eventually retire, and American businesses that need capital to grow
    and prosper. This reciprocal relationship must be nourished from both
    sides.
        We are a Nation of investors, both retail and institutional,
    protected by the SEC. This protection is especially important as we
    continue the shift away from employer pensions toward individual plans
    in which people must fund and select their own retirement assets and
    manage their own risk.
        The SEC works to ensure that investors are taking the kinds of risk
    they sign up for--business and economic risk--not the risk of fraud,
    and not the risk of poorly structured or opaque markets that may
    disadvantage investors. This instills confidence which, in turn,
    fosters capital formation.
        Beyond instilling investor confidence, the SEC works to ensure that
    American businesses of all sizes can access the capital they need to
    grow their businesses, and thus create the kinds of opportunities
    investors want and need. These businesses deserve thoroughly
    researched, well-tailored, and clear rules.
        I have seen, experienced, and understood this interdependence
    between investors and business from nearly every angle. I worked in the
    oil business, at both private and public companies. I've owned and run
    my own small business. Since law school, I've worked for over two
    decades as a securities lawyer, first in private practice as a
    litigator and partner, and then I was privileged to work on the staff
    of the SEC.
        Like many Americans, I've worn a lot of hats and juggled a lot of
    priorities, working my way through college and eventually through law
    school, raising children, paying the bills, and investing my savings
    for retirement. If I have the honor of being confirmed, I will bring
    all of these perspectives to bear in my role as a Commissioner, and I
    will reach out and listen to all constituencies served by the SEC to
    further its critical mission.
        Thank you for the opportunity to appear before you today, and I'm
    happy to answer questions.

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            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                        FROM THOMAS PETER FEDDO

    Q.1. One of the many reasons it was important to increase
    resources and staff at CFIUS with the FIRRMA reforms was to be
    able to better monitor information about completed mergers,
    acquisitions, or other investments where the parties to the
    transaction did not file with CFIUS.
        Has CFIUS been able to increase resources to this type of
    monitoring, and has it identified any non-notified transactions
    that need to be reviewed? How many transactions has CFIUS
    pulled into the process this way, and is this an increase over
    past efforts? Are you seeing any trends when it comes to
    companies that do not file with CFIUS but should?

    A.1. Since the enactment of FIRRMA, Treasury's Office of
    Investment Security has established a new Office of Mitigation
    and Enforcement whose mandate includes full-time monitoring for
    non-notified and nondeclared transactions that could impact
    national security. This team has dedicated resources to
    accomplish its mission and is working with CFIUS member
    agencies to refine the processes for identifying potentially
    covered transactions that may pose national security concerns.
    As Treasury and CFIUS dedicate further resources to this
    mission, the number of non-notified and nondeclared
    transactions screened by CFIUS will likely rise; it is
    anticipated that the dedicated and increased screening will
    consequently result in additional transactions being pulled in
    for review.
        In some cases when CFIUS contacts parties to transactions
    identified through the non-notified process, the parties
    indicate that they are planning to file. Because CFIUS filings
    are largely voluntary, it can be difficult to determine which
    cases were ultimately filed as a result of CFIUS initiating
    engagement and which would have been filed even without CFIUS
    contact. It is too early to discern any post-FIRRMA trends with
    respect to non-notified transactions. Anecdotal evidence
    suggests that FIRRMA has served to elevate the public's
    awareness both of CFIUS and emerging national security risks
    related to foreign direct investment. As a result, more
    companies may be filing transactions without contact from
    CFIUS, either as a declaration or a full notice, thereby
    allowing the non-notified screening to focus on transactions
    that in fact may be trying to evade CFIUS. The Office of
    Mitigation and Enforcement will help to ensure that CFIUS
    identifies and responds to any trends in parties attempting to
    evade CFIUS review.

    Q.2. The Government shutdown impacted CFIUS's ability to
    implement important reforms. The shutdown stopped and/or slowed
    down work on rulewriting, hiring, and implementation of the
    pilot program to review foreign investments in critical
    technologies.
        What is your assessment of where CFIUS is on implementation
    of FIRRMA, including the pilot program? Are you seeing any
    other investment trends emerge, particularly from countries
    like China that the 2018 reforms do not address?

    A.2. Treasury's Office of Investment Security is fully engaged
    with other CFIUS agencies in the rulemaking process necessary
    to implement FIRRMA. CFIUS has made substantial progress on the
    implementation of FIRRMA. In October 2018, CFIUS promulgated
    regulations to implement, and make updates consistent with,
    certain provisions of FIRRMA that were immediately effective.
    In November 2018, CFIUS through regulations commenced a
    tailored pilot program related to noncontrolling, nonpassive
    foreign investments in certain U.S. businesses with critical
    technologies, and simultaneously initiated the use of FIRRMA's
    declaration process, including the issuance of a standardized
    5-page ``short form'' for the more efficient electronic
    submission of the declarations. Post-FIRRMA, Treasury
    reorganized the Office of Investment Security into functional
    offices to execute the various mandates of the statute,
    including with respect to policy making and regulations
    writing, increased engagement with allies and partners, and
    enhanced mitigation and enforcement efforts. Since August 2018,
    CFIUS has timely submitted reports required by FIRRMA and
    conducted related briefings with Committee staff. Treasury is
    utilizing additional resources appropriated in FY2019, as well
    as FIRRMA's special hiring authority, to ensure that the Office
    of Investment Security is appropriately staffed to carry out
    new CFIUS authorities; this includes nearly tripling the
    Office's personnel to date, and commencing development of an
    end-to-end information technology infrastructure to support
    additional caseloads and related work streams. CFIUS member
    agencies are making similar resource upgrades and improvements
    to support the CFIUS mission.
        CFIUS anticipates publishing draft regulations for public
    comment in the coming months. The Office of Investment Security
    has engaged extensively with industry stakeholders throughout
    the implementation process, and this timeline will allow ample
    opportunity for public comment before these regulations become
    effective by February 2020.
        The pilot program, a tool provided by FIRRMA, was promptly
    implemented to confront CFIUS's inability to review certain
    noncontrolling investments in critical technologies, given the
    rapid changes in those technologies. Since November 2018, the
    pilot program has allowed CFIUS to review transactions that it
    would not otherwise have had the opportunity to evaluate, as
    well as to more fully understand the nature of foreign direct
    investment as it relates to these critical technologies. Some
    pilot program transactions have in fact raised potential
    national security concerns that warranted the parties filing a
    full written notice. CFIUS has also been able to clear a number
    of transactions based upon the information provided in the
    declarations. The critical technology pilot program continues
    to inform the full implementation of FIRRMA as regulations are
    being drafted.
        CFIUS will be able to assess FIRRMA's impact more fully
    including any resulting investment trends--after the
    legislation is fully implemented. One of the legislation's
    greatest strengths is that it provides important flexibility to
    address new risks to U.S. national security as they emerge.

    Q.3. One of the few ways that Congress is able to understand
    and oversee foreign direct investment in the U.S., and the
    national security threats posed by certain investments is the
    CFIUS annual report. It is also why FIRRMA added new
    requirements in the annual report going forward. The Department
    of Treasury has not submitted the CFIUS annual report to
    Congress since 2016 (covering transactions in 2015).
        Why have the annual reports been delayed, and if confirmed,
    what is your plan to ensure that annual reports are submitted
    to Congress in a timely manner going forward? What is your plan
    for submission of annual reports for years 2016, 2017, and
    2018?

    A.3. I agree that timely submission of CFIUS's annual report to
    Congress is important to its ability to understand and oversee
    CFIUS's execution of its national security mission. I am fully
    committed to ensuring that annual reports are timely submitted
    to Congress going forward. Having joined the Office of
    Investment Security in mid-2018, it is my understanding that in
    the past case volume and complexity strained the limited
    resources of CFIUS member agencies, including Treasury. Shortly
    thereafter, I identified the need to remedy the delay in
    reporting, and directed my staff to dedicate resources to
    complete the 2016 and 2017 annual reports as soon as possible.
    Treasury anticipates submitting to Congress these reports as a
    combined document by the end of July 2019. CFIUS anticipates
    submitting the 2018 annual report thereafter. The additional
    resources provided to implement FIRRMA will help to address
    this issue in the future.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
                        FROM THOMAS PETER FEDDO

    Q.1. During consideration of FIRRMA, Congress heard concerns
    that extended timelines for CFIUS procedures could change the
    economics of deals with U.S. companies, reduce their
    competitiveness, and shift investment overseas, undermining the
    pace of innovation in this country and possibly contributing to
    the speed of acquisition of sensitive technologies by our
    foreign adversaries. Regulations pursuant to FINSA and the
    ongoing pilot program temporarily implementing portions of
    FIRRMA require that CFIUS respond to notices and declarations
    ``promptly.''
        What do you think is a reasonable amount of time to have
    elapsed before taking initial action on a notice or
    declaration? Would you direct your staff to write a regulation
    codifying that window?

    A.1. Section 1704 of FIRRMA requires that CFIUS provide
    comments on a draft or formal written notice or accept a formal
    written notice of a covered transaction no later than 10
    business days after the date of submission of the draft or
    formal written notice. This requirement applies when parties
    stipulate that the transaction is a covered transaction. The
    regulations for FIRRMA will implement this requirement. More
    broadly, with the benefit of additional staff and resources, my
    goal is to respond to parties in a timely, efficient, and
    responsive manner on all written notices and declarations
    submitted to CFIUS.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
                        FROM THOMAS PETER FEDDO

    Q.1. When implementing FIRRMA, Treasury needs to clarify how
    the foreign entity definition will apply to U.S.-controlled
    private funds. I understand that much of the responsibility for
    implementing FIRRMA falls within your current position at
    Treasury.
        Do you agree with me that the final regulations should not
    treat a fund as a ``foreign entity'' if it is controlled by
    U.S. persons, even if a majority of the equity ownership is
    held by passive limited partners? Investments from such
    entities will not create a national security risk because of
    the nature of limited partners and structure of their passive
    investments.

    A.1. I agree that a fund that is organized and headquartered in
    the United States and is not controlled by a foreign person (as
    that term is defined in 31 CFR 800.216) should not be treated
    as a foreign person.
        With respect to CFIUS's new jurisdiction over certain
    nonpassive, noncontrolling investments, FIRRMA includes a
    clarification for investment funds that addresses the practice
    of foreign limited partners serving as members of a fund's
    advisory board or committee. FIRRMA clarifies that such
    membership does not, in and of itself, cause an investment by
    the fund to be subject to CFIUS jurisdiction.
        FIRRMA also carves out transactions involving investment
    funds that meet certain specified criteria from being subject
    to a mandatory declaration requirement. CFIUS is working to
    implement these provisions as part of the rulemaking to fully
    implement FIRRMA, and as part of this process, we are
    considering whether additional clarification would be
    appropriate.

    Q.2. Will you commit to meeting with me, my staff and industry
    representatives on this important issue and to follow up as
    necessary so we can get this issue addressed correctly to
    ensure that funds controlled by U.S. persons will not be
    considered ``foreign entities'' under the regulations?

    A.2. Since FIRRMA's enactment, my staff and I have met and will
    continue to meet with various industry stakeholders regarding
    this issue, among others. I also look forward to the
    opportunity to meet with you and your staff. When Treasury
    issues the proposed regulations implementing FIRRMA in the
    coming months, the public will have the opportunity to provide
    formal comments for CFIUS's consideration.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                        FROM THOMAS PETER FEDDO

    Q.1. When implementing FIRRMA, Treasury needs to clarify how
    the foreign entity definition will apply to U.S.-controlled
    private funds.
        Do you agree that the final regulations should not treat a
    fund as a ``foreign entity'' if it is controlled by U.S.
    persons, even if a majority of the equity ownership is held by
    passive limited partners? Investments from such entities will
    not create a national security risk because of the nature of
    limited partners and structure of their passive investments.

    A.1. I agree that a fund that is organized and headquartered in
    the United States and is not controlled by a foreign person (as
    that term is defined in 31 CFR 800.216) should not be treated
    as a foreign person.
        With respect to CFIUS's new jurisdiction over certain
    nonpassive, noncontrolling investments, FIRRMA includes a
    clarification for investment funds that addresses the practice
    of foreign limited partners serving as members of a fund's
    advisory board or committee. FIRRMA clarifies that such
    membership does not, in and of itself, cause an investment by
    the fund to be subject to CFIUS jurisdiction.
        FIRRMA also carves out transactions involving investment
    funds that meet certain specified criteria from being subject
    to a mandatory declaration requirement. CFIUS is working to
    implement these provisions as part of the rulemaking to fully
    implement FIRRMA, and as part of this process, we are
    considering whether additional clarification would be
    appropriate.

    Q.2. Will you commit to working with stakeholders and to follow
    up as necessary so that funds controlled by U.S. persons will
    not be considered ``foreign entities'' under the regulations?

    A.2. Since FIRRMA's enactment, my staff and I have met and will
    continue to meet with various industry stakeholders regarding
    this issue, among others. I also look forward to the
    opportunity to meet with you and your staff. When Treasury
    issues the proposed regulations implementing FIRRMA in the
    coming months, the public will have the opportunity to provide
    formal comments for CFIUS's consideration.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                        FROM THOMAS PETER FEDDO

    Q.1. As Vice Chairman of the Senate Intelligence Committee, I
    see how our competitors are accessing critical U.S.
    technologies through legal and illegal means, stealing our
    intellectual property, and dulling America's competitive
    advantage. This sustained, comprehensive, multiyear effort
    shows no sign of slowing, but is rather accelerating: we are
    seeing a ``whole of society'' effort on the part of some
    adversaries--cyberattacks to steal intellectual property that
    then mysteriously is fielded by our competitors, attempts to
    acquire critical technology companies, or, more recently,
    strategic investments that could be used to acquire technology.
    That is the threat we face.
        We are now 6-months into FIRRMA's pilot program. What are
    your thoughts on the efficacy of the pilot program?

    A.1. The pilot program has benefited U.S. national security.
    Since November 2018, the pilot program has allowed CFIUS to
    review transactions that it would not otherwise have had the
    opportunity to evaluate, as well as to more fully understand
    the nature of foreign direct investment as it relates to the
    critical technologies falling within its scope. Some pilot
    program transactions have in fact raised potential national
    security concerns that warranted the parties filing a full
    written notice. CFIUS has also been able to clear a number of
    transactions based upon the information provided in the
    declarations. The critical technology pilot program continues
    to inform the full implementation of FIRRMA as regulations are
    being drafted.
        CFIUS will be able to assess FIRRMA's impact more fully
    including any resulting investment trends--after the
    legislation is fully implemented. One of the legislation's
    greatest strengths is that it provides important flexibility to
    address new risks to U.S. national security as they emerge.

    Q.2. What is working and what challenges/gaps have come up?

    A.2. The critical technology pilot program has benefited U.S.
    national security. Since November 2018, the pilot program has
    allowed CFIUS to review transactions that it would not
    otherwise have had the opportunity to evaluate, as well as to
    more fully understand the nature of foreign direct investment
    as it relates to the critical technologies falling within its
    scope. The pilot program will terminate upon the full
    implementation of FIRRMA, but I anticipate that it will inform
    various substantive and administrative adjustments to the final
    regulations.

    Q.3. FIRRMA contains a requirement, based on an amendment I
    included, that Treasury exempt categories of investors from the
    expanded CFIUS screening of certain minority investments. As
    you know, the pilot program applies on a global basis and does
    not exclude categories of investors from the scope of the
    pilot. Is this authority being used to exempt investments made
    by investors from friendly countries?

    A.3. CFIUS appreciates the flexibility provided by FIRRMA's
    ``country specification'' authority. CFIUS is currently
    examining how best to use this authority to more effectively
    address national security concerns while maintaining the
    longstanding U.S. open investment policy. CFIUS developed the
    pilot program without exempting any country from the mandatory
    declaration requirement to comprehensively understand and
    examine the nature of foreign direct investment as it relates
    to critical technologies and the specified pilot program
    industries. CFIUS provided the public with an immediate
    opportunity to comment on the interim rule in the 30 days prior
    to the pilot program's effective date. The critical technology
    pilot program continues to inform the full implementation of
    FIRRMA as regulations are being drafted, including with respect
    to the country specification authority.

    Q.4. The pilot program identifies 27 ``critical technologies''
    that if a U.S. business is involved with, would require a
    filing with CFIUS in the event of a foreign investment. Through
    the lifetime of the pilot program to date, has that list of
    technologies been sufficient in providing the Committee the
    jurisdiction necessary to protect U.S. national security?

    A.4. FIRRMA defined the scope of ``critical technology'' as it
    pertains to CFIUS, and provides future flexibility as
    ``emerging and foundational'' technologies are identified by
    the Department of Commerce. The 27 pilot program industries
    identified in Annex A to the pilot program regulations were
    carefully developed by the U.S. Government to narrowly scope
    the pilot program to include only those industries in which the
    threat of erosion of technological superiority from some
    foreign direct investment required immediate action. The
    critical technology pilot program continues to inform the full
    implementation of FIRRMA as regulations are being drafted,
    including whether adjustments need to be made to the scope of
    declarations for U.S. businesses with critical technology.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                          FROM NAZAK NIKAKHTAR

    Q.1. Last year, there was bipartisan concern that when it came
    to ZTE the Administration allowed trade, economic and political
    considerations to drive what should have been exclusively law
    enforcement and national security decisions. ZTE had clearly
    repeatedly and willfully violated our export control laws, and
    Commerce enforcement officials in the Government had inflicted
    major punishments that were then reversed by the President.
        Many in Congress are concerned that we are preparing to see
    the same thing on Huawei, with the Administration making
    certain trade concessions to China in return for not pressing
    our national security concerns, including in developing 5G
    systems around the world.
        What is your view on this question? Do you think these
    concerns are justified? What should Congress be doing to
    reinforce our concern that law enforcement and national
    security considerations should be treated as separate--and
    paramount--in these situations?

    A.1. When an action taken by the Bureau of Industry and
    Security (BIS or the Bureau) is based on law enforcement or
    national security concerns, then that action should only be
    amended if the enforcement and security concerns which prompted
    that action are addressed by that amendment. In the case of
    ZTE, the 2018 superseding settlement agreement that replaced
    the denial order contained three interlocking elements, each in
    place for a decade and all of them enabling the Bureau to
    protect U.S. national security: a suspended denial order; $400
    million in escrow (in addition to the criminal and
    administrative penalties paid by the company in 2017 and the
    additional $1 billion penalty to the U.S. Treasury in the 2018
    superseding settlement agreement); and a special compliance
    coordinator selected by and accountable to the Department of
    Commerce.
        The facts and circumstances pertaining to the entity
    listing of Huawei are different from ZTE, and any change to
    Huawei's listing status will need to ensure that the national
    security and foreign policy concerns that led to the listing
    are no longer applicable or are addressed by the change. As a
    national security arm of the U.S. Government, BIS's mission--
    and my priority--is to protect the United States' national
    security interests at all times.

    Q.2. One of the most significant changes in last year's export
    control reforms required the President to establish an
    interagency process to identify emerging and foundational
    technologies critical to U.S. national security--areas like
    artificial intelligence, advanced computing, certain forms of
    biotechnology, and the like. Commerce then was to establish a
    licensing policy for those items. That is moving forward.
        What do you think the Committee should be looking for in
    the coming months as we assess whether these lists are
    targeting the right technologies, and appropriately balancing
    critical national security concerns vs. commercial
    considerations? What has been the reaction of industry to the
    preliminary lists already published?

    A.2. The Bureau is working with interagency partners (including
    the Department of Defense, Department of Energy, Department of
    State, and the intelligence community) to identify emerging and
    foundational technologies that are essential to U.S. national
    security interests. As part of this work, BIS has also been
    consulting with U.S. industry, research facilities, and
    universities, and will be seeking input from its Emerging
    Technology Technical Advisory Committee (ETTAC) this summer. I
    also welcome engagement with Congress to ensure that the Bureau
    is targeting the right technologies.
        Additionally and consistent with the requirements of the
    Export Control Reform Act of 2018, as well as the Bureau's
    mandate to encourage technological innovation while also
    protecting U.S. national security, the Bureau has been
    evaluating the impact of export controls on such technologies.
    Our evaluation includes the identification of any foreign
    sources of such technologies both in like-minded countries and
    countries of concern, and the effectiveness of various types of
    controls on these technologies.
        The public comments in response to the Advanced Notice of
    Proposed Rulemaking (ANPRM), which were collected from November
    2018 through January 2019, generally supported the need to
    address national security threats arising from emerging
    technologies. However, commenters stressed that national
    security concerns should be balanced by the impact that
    controls may have on innovation, the United States' competitive
    position globally, foreign direct investment in the United
    States, and the United States' ability to achieve multilateral
    controls. These important factors are informing our analysis.
        On the latter point, I have been actively working on a
    multilateral initiative with like-minded allies to implement
    controls on emerging technologies in a consistent manner. This
    is particularly important, given that export controls are most
    effective and better able to promote the growth of innovation
    when applied with the same rigor across Nations.
        Finally, BIS will be publishing an ANPRM for foundational
    technologies in a few weeks. Our analysis of controls on
    foundational technologies will also be informed by the above
    outlined considerations.

    Q.3. If confirmed, you will be part of the interagency CFIUS
    review process. As you know, CFIUS is able to look at joint
    ventures when there is a U.S. business involved. In the
    confirmation hearing, Senator Jones asked Mr. Feddo about a
    Chinese steel company that formed a joint venture with an
    American stainless steel component parts company key to U.S.
    national defense and aerospace sectors.
        If a joint venture results in the Chinese company gaining
    access to sensitive steel manufacturing technology and trade
    secrets important for U.S. national security, and it
    potentially disrupts the U.S. supply chain, should CFIUS review
    it? If the same company's request for a Section 232 tariff
    exclusion was denied, is that information relevant to the CFIUS
    review? What experience and perspective would you bring to
    CFIUS on matters similar to this one and as well as others
    considered by the Committee?

    A.3. In my current role performing the nonexclusive duties and
    functions of the Under Secretary for Industry and Security and
    as the current Assistant Secretary for Industry and Analysis, I
    am deeply involved in the Department's CFIUS work, leading a
    team of industry and policy experts at both BIS and the
    International Trade Administration (ITA) that reviews CFIUS
    transactions to analyze their impact on U.S. national security.
    As part of the interagency CFIUS team, we work collaboratively
    with the Department of the Treasury (chair) and the Departments
    of State, Defense, Justice, Energy, and Homeland Security, as
    well as the Office of the United States Trade Representative
    and the White House Office of Science and Technology Policy, to
    analyze each transaction and understand the potential national
    security risks involved.
        Further, I have encouraged the BIS and ITA CFIUS teams to
    review transactions not only through the lens of presently
    identifiable national security risks but also by accounting for
    potential risks that may result from those transactions. This
    analytical exercise requires that the Department of Commerce,
    in partnership with other CFIUS agencies, keep abreast of
    developments in U.S. supply chains, monitor influence by
    foreign adversaries over the development of international
    standards, and identify predatory patterns of investment that
    may impede the growth of the domestic industrial base and
    thereby threaten U.S. national security.
        These considerations underscore the important role that
    CFIUS reviews play, and the need to ascertain all relevant
    information about each transaction under review. The
    transaction described in the question raises national security
    concerns, and I am committed to ensuring that the U.S.
    Government has the tools to, and does, effectively respond to
    all transactions that pose national security risks. All
    relevant information should be considered in a U.S. Government
    review.
        CFIUS is one of my most important responsibilities at the
    Department of Commerce, and I am committed to ensuring that we
    continue to be forward-leaning in our analysis. The U.S.
    Government must continue to encourage an open investment
    climate in the United States, but we must also proactively
    bring all transactions that undermine our national security
    interests under CFIUS review. My combined experiences at BIS
    and ITA, as well as my experiences as a lawyer and economist,
    provide me with a comprehensive understanding of how to assess
    foreign investments in the United States while protecting
    national security so that the United States can continue to
    attract capital to support technological advancements and the
    growth of our industries.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR PERDUE
                          FROM NAZAK NIKAKHTAR

    Q.1. USML to CCL Transition--Ms. Nikakhtar, as I'm sure you are
    aware, the previous Administration implemented the transfer of
    export licensing authority for dual-use items from the U.S.
    Munition List to Commerce Control List to modernize our cold-
    war era export licensing controls to enhance our national
    security and to improve the ability of U.S. companies to better
    compete in an increasingly global marketplace, increasing the
    amount of U.S. exports and creating more American jobs. One of
    the ECR's objectives was to rationalize the control lists and
    pursuant to its authority under the Arms Export Control Act,
    transfer export licensing authority for commercial or dual-use
    items to the Commerce Department--Bureau of Industry Security
    (BIS) and its Commerce Control List (CCL) from the State
    Department's Directorate of Defense Trade Controls (DDTC) and
    its U.S. Munitions List. The prior Administration moved
    commercial and dual-use products covered in 18 of the 21 USML's
    categories to the BIS's CCL.
        However, 3 of the 21 categories--USML categories I, II, and
    III (commercial and sporting firearms and ammunition
    products)--were purposely singled out by the past
    Administration for transparent political reasons and have not
    realized the benefits of the USML to CCL Initiative. I am very
    concerned of the impact this is having on our small businesses
    and national security. Each day that passes with no action
    taken on Categories I, II, and III American businesses are at a
    competitive disadvantage and our national security is at risk
    because the State Department is having to dedicate time on
    commercial articles rather than on controlling those sensitive
    articles with national security implications. Approximately 25
    percent of DDTC's current export licensing workload now
    involves Category I products like the single shot bolt action
    .22 caliber rifle that are used at summer camps. I know that
    several of my colleagues from both sides of the aisle share
    these same concerns, and 29 Senators and 145 members of the
    House sent bipartisan letters to Secretary Ross and then-
    Secretary Tillerson urging the completion of the ECR
    initiative. BIS published the proposed rule on May 24, 2018,
    which was then opened up for public comment. The congressional
    committees of jurisdiction received formal 30-day Section 38(f)
    notification in February of the final rules, and it was our
    understanding that the final rules were expected to be
    published in about mid-March.
        It is now June 5th--more than a year after the proposed
    rules were published and 3 months since Congress received
    notification. When can we expect the final rules to be
    published to transfer to BIS the export licensing
    responsibility for commercial and sporting products currently
    on the USML categories I, II, and III? I am looking for a date
    certain by which the final rules will appear in the Federal
    Register.

    A.1. The finalization of these rules is dependent on a White
    House-led interagency review that is still under way. Because
    this process is not under BIS's jurisdiction, I am regrettably
    unable to give you a firm date for publication.

    Q.2. If confirmed by the Senate, will you commit to having the
    Commerce Department expeditiously as possible publish the final
    rule to transfer from the State Department to the Commerce
    Department the export licensing responsibility of dual-use,
    commercial and sporting firearms and ammunition products
    currently on the USML categories I, II, and III?

    A.2. Yes, as noted above, I will work to quickly bring the
    final rule into effect, once the White House-led interagency
    review is finalized.

    Q.3. What steps will BIS take to work with members of the
    firearms and ammunition industry to ensure a smooth transition
    to BIS from DDTC? It is my understanding that the industry's
    trade association, the National Shooting Sports Foundation, has
    done joint seminars and industry outreach with BIS, to ensure a
    smooth transition. Can you commit that BIS will continue those
    public-private cooperative efforts that work toward achieve
    compliance with the legal and regulatory requirements under the
    Export Administration Regulations (EAR)?

    A.3. BIS will work with industry to make the transition from
    the DDTC to BIS seamless and efficient. Once the transition
    occurs, training on these Commerce-controlled items will become
    part of BIS's regular outreach activities, which includes
    direct engagement with industry through seminars as well as
    online training. Moreover, like with other industries with
    items subject to the EAR, BIS will support joint training
    events with private industry upon request and consistent with
    Federal ethics rules to continue its long-standing practice of
    public-private cooperation to promote compliance with the EAR.
    It is one of BIS's primary responsibilities to ensure that
    industries comply with our export control laws and regulations.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
                          FROM NAZAK NIKAKHTAR

    Q.1. This Committee shepherded to passage the Export Control
    Reform Act (ECRA), which enjoyed a strong bipartisan consensus
    due to its careful approach toward pursuing important U.S.
    national security objectives while preserving U.S. leadership
    in technological innovation. The Commerce Department is now
    leading implementation of export control reforms for emerging
    and foundational technologies called for in the legislation.
        If confirmed as Under Secretary, what steps will you take
    to ensure that any new export controls do not undermine the
    ability of U.S. companies to innovate and compete on at the
    frontiers of technology?

    A.1. This question touches the core of BIS's mission, which is
    to counter national security threats while protecting the
    United States' ability to innovate. Innovation, in turn,
    results from global competition and the accumulation of revenue
    that is invested to develop next-generation technologies. I
    have represented many industries in my career and I understand
    the direct relationship between access to global markets and
    its impact on remaining at the forefront of technological
    innovation. At the same time, I appreciate and fully support
    the need for controlling exports to prevent adversaries from
    using U.S. technologies to threaten our national security. This
    is why BIS regulations must be carefully developed, and
    encourage multilateral support, to protect U.S. national
    security and foreign policy interests without impeding U.S.
    technological leadership. At the intense pace of global
    competition, U.S. companies cannot afford to take any step
    backwards.
        This reality underscores the importance of establishing
    controls on emerging and foundational technologies with the
    support of key allies and partners. My approach for a
    multilateral framework consists of three critical components:
    (1) the identification of dual-use technologies that pose
    significant national security risks when misused by
    adversaries, (2) the implementation of controls (e.g.,
    licensing requirements) that are multilateral to the maximum
    extent possible, and (3) fulsome information sharing among
    allies to minimize potential circumvention and to maximize the
    enforcement of controls. These three components are key to a
    successful export control system, and further advance the
    creation of an efficient and secure trading ecosystem among
    like-minded allies and partners. By establishing a secure
    ecosystem for trade and research in emerging technologies, the
    United States and its partners will be able to continue to make
    significant strides in technological advancements while
    impeding our adversaries' attempts to exploit differences in
    control frameworks among countries to obtain controlled items.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR MENENDEZ FROM NAZAK NIKAKHTAR

    Q.1. If export control of the technical information to produce
    handguns using 3D printers is transferred from the jurisdiction
    of the Department of State to the Department of Commerce, can
    the Bureau of Industry and Security prevent the posting of such
    information on the Internet by U.S. persons without a license
    from BIS? If not, why not?

    A.1. Under BIS's Export Administration Regulations (EAR) as
    currently written, information posted on the Internet on a site
    available to the public is considered ``published'' and thus
    not subject to the EAR. Since I began my role at BIS, I have
    discussed this provision and other provisions of the EAR with
    my colleagues across the U.S. Government to determine how to
    best conform the EAR to the Export Control Reform Act of 2018,
    how to use the export control regulations of other U.S.
    Government agencies to complement the EAR, and, importantly,
    how to modernize our regulations to keep pace with emerging
    national security threats. I welcome your office's perspective
    on improvements to our export control authorities to ensure
    that we are keeping pace with all national security risks.

    Q.2. If the Export Administration Regulations prevent that--
    especially if someone has previously, illegally, posted such
    information--why won't BIS seek to change such regulations?

    A.2. As set forth above, I am actively engaged in an effort to
    modernize our regulations to keep pace with existing and
    emerging national security threats. I am also mindful of my
    obligation to ensure that BIS's regulations are consistent with
    U.S. law. To this end, I would welcome your office's input on
    the effectiveness of our regulatory authorities.

    Q.3. Should U.S. law be changed in order for BIS to maintain
    control in all instances?

    A.3. It is my responsibility at BIS to ensure that our
    regulations on export controls are fully compliant with U.S.
    law, including the statutory requirements of the Export Control
    Reform Act of 2018. I am also committed to working through the
    interagency process to provide input to Congress on any
    amendments it proposes to update U.S. export control laws.

    Q.4. If BIS will not be able to maintain positive export
    controls over such information in all instances, then why does
    Commerce seek to acquire regulatory control over such
    information if it ultimately cannot control it? Isn't that
    effectively the decontrol of such 3D gun printing information?

    A.4. In May 2018, an announcement was made to transfer firearms
    under the International Traffic in Arms Regulations' U.S.
    Munitions List (USML)--Categories I-III including 3D gun
    printing technology--to the Commerce Control List (CCL). That
    transfer is ongoing and, once the transfer occurs, BIS will not
    be seeking to decontrol the technology. Pursuant to the current
    regulatory framework under the EAR, BIS will control and
    license technology for the development, production, operation,
    installation, maintenance, repair, overhaul, or refurbishing of
    firearms that are moved from the USML to the CCL. In addition,
    EAR license requirements will apply to the export of firearms
    themselves.

    Q.5. The Export Control Reform Act states that the Secretary of
    Commerce shall control emergent technology for national
    security purposes, and in a public notice for comment last year
    in the Federal Register, identified 3D printing or ``additive
    manufacturing'' as an example of an emergent technology. So,
    shouldn't the use of such an emergent technology to produce
    lethal weapons be controlled in all instances? If not, why not?

    A.5. 3D printing and ``additive manufacturing'' are activities
    currently being reviewed closely as part of the process of
    identifying emerging technologies that may warrant control as
    required by the Export Control Reform Act of 2018. This review
    is ongoing, and BIS notes that discussions are presently
    underway with partner countries on where multilateral controls
    are warranted. As noted above in the response to Question 4,
    BIS, under current regulations, would regulate ``technology''
    for the ``production'' of firearms, as well as the other
    elements of ``technology'' that are subject to the EAR.

    Q.6. The Congress has acted to place heightened oversight over
    the sale of lethal firearms to ensure that they are not going
    to dangerous or unreliable end-users. They have also been
    subject to a decades-long informal process of consultation,
    which has in the past prevented just such sales. BIS could
    inform the Congress, specifically the Senate Foreign Relations
    Committee, which has jurisdiction over the export of lethal
    arms abroad, before licenses are granted, if it chooses to do
    so. Will you so inform us?

    A.6. In May 2018, at the time of the Department of Commerce's
    and the Department of State's publication of the proposed rules
    to transfer firearms and related items from the USML to the
    CCL, the Export Administration Act (EAA) did not include a
    Congressional notification requirement for firearms, nor did
    any other governing statute. On August 13, 2018, the President
    signed the National Defense Authorization Act for Fiscal Year
    2019, which included the Export Control Reform Act of 2018.
    Congress did not include in the Act a specific requirement for
    Congressional notification for firearms and related items
    exports. Should Congress wish to issue such a requirement, BIS
    will certainly comply.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                          FROM NAZAK NIKAKHTAR

    Q.1. As Commerce compiles its emerging and foundational
    technologies list, are there sectors concerned may not receive
    enough coverage or inclusion?
        What areas of China's Made in China 2025 priority list or
    in terms of the gaps in their military capabilities development
    are not covered?

    A.1. China's Made in China 2025 strategy contains a broad swath
    of technologies, some of which are more easily identifiable as
    military-related or military-enabling. \1\ To initiate the
    review of emerging and foundational technologies mandated by
    the Export Control Reform Act of 2018, BIS published a November
    2018 Federal Register notice that listed 14 emerging technology
    categories for which the Bureau sought industry input on
    controls. \2\ This list was developed after receiving technical
    insight from interagency colleagues based on subject matter
    experts' evaluation of technology categories that were
    considered to be most critical to U.S. national security
    interests, for example due to potential uses as conventional
    weapons, conduits for intelligence collection, use as weapons
    of mass destruction, or facilitators of terrorist activities.
    Technologies that could potentially provide the United States
    with a qualitative military or intelligence advantage were also
    identified. Many of these technology categories fall under one
    of China's 2025 priority sectors.
    ---------------------------------------------------------------------------
         \1\ The China 2025 ten priority sectors are: (1) new advanced
    information technology; (2) automated machine tools and robotics; (3)
    aerospace and aeronautical equipment; (4) maritime equipment and high-
    tech shipping; (5) modern rail transport equipment; (6) new-energy
    vehicles and equipment; (7) power equipment; (8) agricultural
    equipment; (9) new materials; and (10) biopharma and advanced medical
    products.
         \2\ The 14 categories were: (i) biotechnology; (ii) artificial
    intelligence; (iii) Position, Navigation, and Timing (PNT) technology;
    (iv) microprocessor technology; (v) advanced computing technology; (vi)
    data analytics technology; (vii) quantum information and sensing
    technology; (viii) logistics technology; (ix) additive manufacturing;
    (x) robotics; (xi) brain-computer interfaces; (xii) hypersonics; (xiii)
    advanced materials; and (xiv) advanced surveillance technologies.
    ---------------------------------------------------------------------------
        At the same time, BIS recognizes that the technologies
    listed in the Federal Register notice do not, by themselves,
    represent the full range of emerging technologies that warrant
    control. There are numerous additional technologies on the
    China 2025 priority list that also may warrant evaluation for
    control. Further to this point, China's civil-military
    integration strategy is a national strategy that incentivizes
    virtually the entire civilian sector to enter the defense
    market. This whole-of-Government effort by China now informs
    BIS's analysis of dual-use emerging technologies and how
    commercial technologies may be used as weapons. Of course,
    China is not the only country that poses this type of
    technological threat through the integration of its civil and
    military sectors.
        Given these realities, we are actively engaging with U.S.
    industry, interagency colleagues, and academia, as well as
    ETTAC members, to assess the full range of emerging
    technologies that warrant control and their potential
    commercial and military applications. We are also assessing the
    level of development of each of these technologies in the
    United States and in foreign countries to determine when those
    technologies are expected to mature into real-use applications.
    Finally, we are analyzing potential harmful uses of these
    technologies by foreign adversaries.
        We are mindful of the fact that our identification of
    emerging technologies is a complex exercise, and so we have
    been actively collaborating with industry, interagency
    colleagues, and academia to obtain all pertinent information
    for our analysis. The answers we are pursuing will help us
    determine the range of technologies that warrant control, and
    given the nature of each technology, the most effective mode of
    control. We encourage engagement with all members of the
    Legislative Branch to ensure that we are able to benefit from
    Congress' insight as well.

    Q.2. What steps should be considered to address the problem of
    companies seeking to redefine the technologies or products to
    skirt review?

    A.2. Since my start at BIS, I have stressed the need to
    modernize our mechanisms for control. In light of the ever-
    changing nature of technology, controls must be implemented in
    ways that adapt to technological advancements over time. For
    example, we have seen adversaries forego the acquisition of
    high-tech items subject to controls and opt for lower-tech
    items that fall outside of current controls but can be used to
    create the functional equivalent of the controlled item. While
    we intend to define controls with sufficient specificity to
    allow industry to identify what is regulated from what is not,
    controls on technologies need to be better fashioned with
    flexibility to avoid loopholes or circumvention of the
    controls.
        Of course, the manner by which each control is defined is
    dependent on the particular type of technology, but I am
    confident that with continued and proactive engagement on this
    issue, BIS is developing effective controls that keep pace with
    the evolution of technology. Just as important, we must make
    every effort to ensure that our controls are implemented
    multilaterally so that U.S. industries are able to complete on
    a global playing field that is level. I have already begun
    proactive engagement with foreign-Government counterparts to
    secure multilateral cooperation on emerging technologies.

    Q.3. As one of the most persistent critics of Huawei's
    concerning relationship with the Chinese Government and its
    pattern of behavior, I was pleased to see the Trump
    administration finally take steps to place Huawei on the Entity
    List.
        At the same time, I have concerns that this move reflects a
    haphazard and not-coherent approach to these issues--
    particularly when we see the President suggest that the
    designation could simply be a bargaining chip, to be trade away
    in the context of a trade deal. Huawei represents a real--not
    speculative--security risk and one that will not be resolved in
    the context of a trade agreement.
        We see a number of technology companies that boast
    unusually intimate relationships with the Chinese Government,
    are instrumental in domestic efforts within China to harness
    technology to conduct in censorship, surveillance and social
    control, and that receive significant support--in the form of
    digital infrastructure grants and loans--to help China export
    its model of tech-enabled authoritarianism abroad. We even see
    municipalities in the U.S. buying security cameras from
    companies like Hikvision because--as in the case of Huawei--
    it's artificially priced below products from legitimate
    vendors.
        Would you support entity list designations with other
    technology providers, such as Hikvision and Dahua, that are
    engaged in activities that are contrary to the U.S. national
    security and U.S. foreign policy interests?

    A.3. BIS continually evaluates information from multiple
    sources to assess possible additions to the Entity List that
    meet the criteria specified in part 744 (Control Policy: End-
    User and End-Use Based) of the EAR. When BIS or any other
    member of the End-User Review Committee (ERC) identify
    activities by a party that meet the criteria set forth in
    Section 744.11(b) of the EAR (acting contrary to the national
    security or foreign policy interests of the United States) and
    a majority of ERC members approve its addition, BIS will add
    that party to the Entity List.

    Q.4. Given the pattern of behavior we've seen from a company
    like Huawei--with well-documented allegations of a concerted
    effort to evade sanctions on Iran, a longstanding and
    comprehensive strategy of IP theft from U.S. companies, and a
    close relationship with the Chinese Communist Party and Chinese
    military--would it be appropriate for the President to roll
    back the Entity List designation in exchange for minor trade
    concessions by the Chinese Government?

    A.4. When an action taken by the Bureau of Industry and
    Security (BIS or the Bureau) is based on law enforcement or
    national security concerns, then that action should only be
    amended if the enforcement and security concerns which prompted
    that action are addressed by that amendment.
        Huawei and its affiliates were added to BIS's Entity List
    (Supplement No. 4 to part 744 of the EAR) on the basis of
    activities that were contrary to U.S. national security or
    foreign policy concerns. Any change to Huawei's listing status
    will need to ensure that the national security and foreign
    policy concerns that led to the listing are no longer
    applicable or are addressed by the change. As a national
    security agency, BIS's mission is to uphold the United States'
    national security and foreign policy interests; that is and
    will continue to be our focus specific to the Huawei listing.

    Q.5. What is your view on the scope of the Temporary General
    License the Trump administration issued with respect to Huawei?
        Are there areas where a more relaxed policy would be
    warranted?

    A.5. BIS implemented the Temporary General License to provide
    U.S. companies impacted by the listing time to adjust and BIS
    continues to evaluate the scope of the Temporary General
    License based on information from a variety of sources,
    including input from U.S. companies and other potentially
    affected parties. We want to ensure the scope of the Entity
    List listing and Temporary General License are appropriate to
    address the national security and foreign policy concerns and
    are well-understood by industry.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR CORTEZ MASTO FROM NAZAK NIKAKHTAR

    Q.1. Would you agree that trade and international cooperation
    have a direct impact on tourism?

    A.1. Fostering long-term mutually beneficial trade relations
    and cooperation with Nations has been one of my priorities as a
    U.S. Government official and, as we seek to expand jobs in our
    economy, we have been intimately aware of the impact that
    international travel and tourism has had on this objective. In
    2018, international visitors supported 1.2 million American
    jobs and spent a record-breaking $255.5 billion experiencing
    the United States, an increase of nearly 2 percent when
    compared to the previous record set in 2017. Additionally,
    these travel trade exports accounted for 31 percent of total
    U.S. services exports and 10 percent of all U.S. exports, goods
    and services alike. Spending by international visitors who stay
    one night or more in the United States for leisure, business,
    education, or medical purposes is counted as a U.S. travel and
    tourism export. Our two largest visitor markets (defined by
    country of residence) both increased last year: Canadian
    visitation to the United States was up 4.9 percent and
    visitation from Mexico increased 3.9 percent. Despite the fact
    that the number of Chinese visitors to the United States
    decreased last year by 5.7 percent, visitation from western
    European countries--France, Spain, the U.K., and Italy--also
    increased between 3.9 and 6.0 percent. In 2018, the United
    States finished the year with a trade in travel surplus of more
    than $69 billion. As we forge closer trade ties with our
    allies, we expect to see continued increases in inbound tourism
    numbers and greater positive contributions to the U.S. economy.
    I am committed to encouraging such growth.

    Q.2. What specifically will you do on a regular basis in this
    role to help expand the interests of bringing international
    visitors to one of America's best destinations for both indoor
    and outdoor activities, namely Nevada--where we saw over eight
    million international visitors in Las Vegas alone in 2016,
    accounting for $11 billion in spending?

    A.2. Having grown up in California, Nevada was a frequent
    travel destination for my family, friends, and me. Through many
    frequent visits, I have watched Nevada flourish as a tourist
    destination for international travelers. Nevada's bourgeoning
    tourism industry has not only boosted U.S. economic growth, but
    it has also encouraged a greater understanding of U.S. culture
    and values, which are important components of fostering better
    international cooperation between the United States and its
    global partners.
        During my time at the International Trade administration, I
    worked to support the long-term growth and competitiveness of
    the travel and tourism sector and to encourage more
    international visitors to the United States. I worked with my
    colleagues across the agency to connect U.S. companies and
    destinations to opportunities in growth markets of interest to
    Nevada and other U.S. destinations. For example, while in
    India, my staff at the National Travel and Tourism Office
    (NTTO) met with Herb Santos, Jr., Nevada Tourism Commissioner,
    and Carson City Culture and Tourism Authority Executive
    Director David Peterson, to discuss a number of issues
    important to the State of Nevada.
        Additionally, in 2018, I personally worked with U.S.
    Customs and Border Protection to resolve an issue related to
    the country of residence data it was collecting so that ITA
    NTTO's statistical program could provide the most accurate
    traveler data to U.S. businesses in order to improve their
    competitiveness and effectiveness in the international travel
    marketplace. Many State tourism offices and convention and
    visitors' bureaus are dependent upon the program as the source
    for comparable State and city visitation and international
    traveler trend information. In my former ITA role and current
    BIS role, I continue to be committed to advancing policies that
    will encourage tourism across the United States, including the
    State of Nevada.

    Q.3. Can you provide us a sense of how we can continue to
    improve our outreach worldwide?

    A.3. The Department of Commerce proactively examines all export
    markets to identify opportunities for future growth. The
    Department's NTTO and U.S. Foreign Commercial Service Officers
    (including professionals in embassies worldwide) work together
    as a focused travel and tourism team, to increase U.S. exports
    in the travel and tourism sector.
        One particular example is India. Under the U.S.-India
    Commercial Dialogue, we have a travel and tourism work stream
    where the NTTO and India's Ministry of Tourism collaborate on
    opportunities to increase tourism between our Nations. The
    Department of Commerce also works directly with the private
    sector both in the United States and in our source markets to
    support efforts to secure more business for companies and
    destinations across the United States.

    Q.4. During your consideration by the Senate Commerce Committee
    last Congress, you stated in your response to me the importance
    of ``initiatives that facilitate travel to the United States,
    such as aviation liberalization, the streamlining of visa
    application processes, improvements to customer service at
    ports of entry, and the enhancement of passenger screening.''
    How do you reconcile that statement with the lack of progress
    in these areas under the current Administration, even going so
    far to employ the questionable tactic of moving passenger
    screeners from the Transportation Security Administration (TSA)
    to the southern border where they have not been trained and are
    vacating their security posts at our Nation's airports and
    surface transportation outlets?

    A.4. The Department of Commerce welcomes international visitors
    and forward-thinking policies that may be implemented to
    increase travel and tourism to the United States. An example of
    a recent initiative that ITA has undertaken to facilitate the
    travel process is its work with CBP to develop a pilot a
    biometric entry and exit system that, once fully deployed, will
    help create a more secure and seamless travel experience. To
    this end, the United States Travel and Tourism Advisory Board,
    an advisory committee established pursuant to the Federal
    Advisory Committee Act and overseen by ITA, is tasked with
    providing recommendations on how the public and private sectors
    can collaborate to accelerate progress on the implementation of
    the biometric entry and exit system at U.S. ports of entry. The
    Board provided recommendations on this topic in April 2019, and
    Department officials are reviewing them with interagency
    partners to determine how to best implement the
    recommendations. We welcome further engagement with your office
    on initiatives that the Department may pursue to further
    facilitate travel to the United States.

    Q.5. While I received your assessment during consideration of
    your nomination last Congress, can you please provide an update
    to the trends we are currently seeing in international tourism
    given the rhetoric and policies toward some Nations or groups,
    of this Administration?

    A.5. International visitation and international visitor
    spending both set records in 2018. A record 79.6 million
    international visitors enjoyed the United States and spent a
    record-setting $255.5 billion. International tourism supports
    1.2 million jobs in the United States. Thirty-one percent of
    all services exports in 2018 were travel and tourism-related
    and travel and tourism accounted for 10 percent of all exports,
    goods and services alike, in 2018. In terms of growth in
    visitation by residents from specific markets, the United
    States saw increases from the two biggest visitor markets,
    Canada (4.9 percent) and Mexico (3.9 percent). South America
    was up 8.5 percent with Brazil up 15.5 percent and Colombia up
    12 percent, among our biggest gainers. Western Europe saw
    increases in several key markets--U.K. (3.9 percent), France (6
    percent), Spain (6 percent), and Italy (4 percent). Visitation
    by residents of countries in Asia was mixed. Down markets
    included China (5.7 percent), South Korea (5.3 percent) and
    Japan (2.8 percent). Visitation from India increased by 7.2
    percent.

    Q.6. I also previously asked you for your thoughts on the
    Federal Brand USA program, for which I didn't receive a
    specific answer to whether you supported Federal funding of
    this specific successful program?

    A.6. The Administration understands the value of travel and
    tourism to the economy. The Department continues to be very
    engaged with Brand USA; the Secretary has appointed the Brand
    USA board of directors, approved Brand USA's annual objectives,
    and transmitted the Brand USA annual report to Congress. The
    Department is committed to exploring all ways to increase
    travel and tourism to the United States.

    Q.7. In your previous response on Brand USA, you stated ``I
    will commit to being a strong advocate for public-private
    partnerships that promote the United States as a tourist
    destination, and will do so based on the Administration's and
    Congress' approved budgets and policies.'' From that statement,
    please help me reconcile what your position will be toward that
    program as the Trump administration has again proposed to cut
    funding for Brand USA in their FY20 budget?

    A.7. For the reasons described above, the Department and I
    fully support travel and tourism to the United States, and we
    will continue to advocate for the economic growth that such
    tourism brings, including through private-public partnerships.
    I will faithfully execute the budget that Congress passes and
    that the President signs into law, and should that budget
    include funding for Brand USA or some other type of public-
    private partnership, I and the Department will support Brand
    USA and continue to work to leverage all possible resources to
    maximize international travel to the United States.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                  SENATOR MENENDEZ FROM IAN PAUL STEFF

    Q.1. The Foreign Commercial Service is critical to many U.S.
    exporters who struggle to navigate complex foreign markets and
    need advocates on the ground to help them succeed. I've been
    disheartened to see President Trump propose to slash this trade
    office's funding in the last couple of budgets. This office
    deserves a leader who will advocate for its programs and staff,
    and communicate its importance to Administration leadership and
    the public.
        Do you believe in the mission of Foreign Commercial
    Service?

    A.1. If confirmed, I would be incredibly honored to lead the
    U.S. and Foreign Commercial Service, with its global network of
    more than 1,300 international trade and inward-investment
    professionals at our U.S. Embassies and Consulates in 76
    countries and 108 cities across the United States. I
    wholeheartedly believe in their mission to help business create
    jobs and grow our economy through exports and inward
    investment. I also know unequivocally that our U.S. and Foreign
    Commercial Service is unique and the only group in the U.S.
    Government that is equipped, experienced, and capably dedicated
    to lead the charge on behalf of U.S. exporters, particularly
    small- to medium-sized companies, into a future of increasingly
    aggressive and competitive global business. I have the utmost
    respect for this global team of professionals who deliver daily
    on behalf of our Nation's exporters. I also know that in terms
    of value, no organization within the U.S. Government has a
    greater return on its investment on behalf of U.S. exporters
    than the U.S. and Foreign Commercial Service. I believe in
    their mission, and I plan to help grow that value.

    Q.2. Can you commit to me today to work toward strengthening
    the office and fight against the President's budget cuts?

    A.2. I stand behind the President's budget and will direct the
    use of our appropriation to its maximum efficiency and
    effectiveness for our exporters. I commit to working with you
    and your colleagues throughout the budget and appropriations
    process. My top priority will be to dedicate those allocated
    resources to make the U.S. and Foreign Commercial Service the
    strongest advocate it can be for U.S. companies doing business
    in an increasingly competitive world, while equipping the team
    with the tools they need to compete.

    Q.3. Building stronger economic links with our neighbors in
    Latin America has always been a priority of mine. The region
    presents tremendous opportunity for the U.S. to develop export
    markets and to form partnerships to boost our Nation's
    competitiveness as we look to compete in the global economy
    with China and others.
        If confirmed, will you prioritize developing relationships
    with our partners in Latin America?

    A.3. I share your view that Latin America presents many
    important growth opportunities for the United States. The
    Commerce Department has led productive engagements, talks, and
    visits with their respective counterparts in the region,
    enhancing our commercial and economic relationship. The fact
    that the United States has sought to bring the NAFTA into the
    21st century by way of the new U.S.-Mexico-Canada agreement,
    demonstrates a strong commitment to the Americas. Modernizing
    and rebalancing our trade relationship with Mexico will foster
    a better investment climate for reciprocal trade, that supports
    high-paying jobs for Americans and will grow the overall North
    American economy.
        Creating a more level playing field for American workers to
    boost our Nation's competitiveness is an important first step
    in expanding opportunities for U.S. exports in Latin America,
    and as we look to compete in the global economy with China and
    others. In addition, I look forward to continuing Global
    Markets' strong focus on Latin America through our advocacy and
    Select USA efforts. We've seen many strong delegations from
    Latin America looking to invest in the United States.

    Q.4. Will you commit to expanding the Foreign Commercial
    Service's footprint in the region?

    A.4. I recognize that the increasing heat of global competition
    faced by our U.S. exporters is right in our back yard in Latin
    America. Over the last decade, many of our exporters have lost
    ground to Government-supported foreign competitors in Latin
    America and other markets around the world. We cannot afford to
    cede further ground, and we need to show our trading partners
    around the world that we choose to compete, and that we mean
    business on behalf of our Nation's exporters.
        If confirmed, I will strategically allocate those resources
    available to us to ensure our companies pursue opportunities to
    compete for and gain back market share and win new business in
    Latin America and around the world. I commit to working with
    you and your colleagues to find opportunities where we can
    further strengthen our effectiveness and services in the
    region, while supporting a multitude of action oriented
    commercial dialogues in Latin America. Likewise, I look forward
    to working with the private sector to grow our commercial
    relationship in sectors of mutual interest in the region.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                          FROM MICHELLE BOWMAN

    Q.1. Please provide to the Committee a detailed list of all
    meetings with individuals or groups not directly affiliated
    with the agency you serve, from the date of your confirmation
    by the Senate to present.

    A.1.

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Q.2. In a recent speech entitled ``Community Banking in the Age
    of Innovation'', you explained that ``FinTech firms originate a
    larger share of personal loans than banks,'' but ``we should
    not simply assume that gains by FinTech lenders are necessarily
    at the expense of banks.'' You highlight the opportunities for
    community banks to partner with fin tech firms.
        Do you support these same FinTech firms competing directly
    with community banks through industrial loan company (ILC)
    charters or OCC special purpose national bank charters?

    A.2. I support innovations in financial services because I
    believe it can benefit consumers and small businesses through
    expanded access to financial services, greater efficiency,
    increased convenience, or potentially reduced transaction
    costs. The question of FinTech companies operating through
    industrial loan company (ILC) charters requires careful
    consideration. As you know, the Federal Reserve does not
    supervise ILCs or their holding companies.
        The Office of the Comptroller of the Currency's (OCC)
    proposed special purpose national bank charter raises
    interpretive and policy issues for the Federal Reserve Board
    (Board), for example, questions relating to Federal Reserve
    membership, status under the Bank Holding Company Act, access
    to Federal Reserve accounts and services, or access to the
    discount window. The Board would have to analyze these issues
    closely if any FinTech firm was to obtain a special purpose
    national bank charter.

    Q.3. During your testimony, in response to my question about
    consolidation making it harder for small banks to compete, you
    said that your concern was investment in local communities and
    that as branches are acquired in rural communities, home
    investment in the community tends to be dissipating.
        What actions is the Fed taking to ensure that acquiring
    banks continue to invest in communities where all acquired
    branches are located?
        How will you ensure that banks distribute their investments
    in all communities, not only the location in which the charter
    is held?
        Would you support requirements for banks to continue to
    invest in these communities after an acquisition?

    A.3. My interest is to see credit flowing to consumers and
    businesses in all communities consistent with safe and sound
    lending. This includes meeting credit needs in low- and
    moderate-income areas and furthering economic development and
    financial inclusion. The Community Reinvestment Act (CRA) is
    one of the tools we have to accomplish this goal. The CRA
    encourages banks to serve their entire community, in particular
    the credit needs of low- and moderate-income communities. To
    ensure that this is accomplished, the Federal Reserve evaluates
    the records of State member banks in helping to meet the credit
    needs of their communities. The CRA regulations define a bank's
    ``assessment area''--the area within which we evaluate their
    CRA performance--as those areas around the bank's branches and
    deposit taking ATMs. We are currently in discussions with the
    OCC and Federal Deposit Insurance Corporation (FDIC) regarding
    possible revisions to the CRA regulations. One aspect of the
    regulation that we are discussing is a better way to delineate
    the community served by a bank to provide better incentives for
    providing credit in every assessment area, not just its major
    markets.
        When two banks merge, we evaluate the CRA performance of
    the resulting bank in all the areas where they retain a branch
    presence. In evaluating the convenience and needs of the
    communities to be served following a merger, an institution's
    most recent CRA performance evaluation is a particularly
    important consideration in the applications process because it
    represents a detailed on-site evaluation of the institution's
    performance under the CRA by its appropriate Federal
    supervisor. In addition to CRA performance, Federal Reserve
    System staff considers recent actions taken to improve CRA
    performance, comments submitted by interested parties and the
    applicant's response to those comments, and the potential
    effects of the proposal on the convenience and needs of the
    communities to be served.

    Q.4. In your remarks at the Conference of State Bank
    Supervisors in April, you said that ``we must continue to
    ensure that the institutions we supervise are proactively
    managing their risks to remain strong'' and that ``it's the
    [financial supervisors'] job to identify emerging risks to
    community banks and to ensure bankers are identifying and
    managing their risks appropriately.''
        What are the emerging risks to community banks today?

    A.4. Despite generally favorable economic and financial
    conditions, community banks continue to manage a moderate level
    of risk. Some emerging risks include cybersecurity, deposit
    competition, and agricultural and commercial real estate ( CRE)
    lending.
        Cybersecurity continues to be an area of elevated risk
    across the banking system as threats evolve and the banking
    industry continues to face challenges in establishing and
    maintaining adequate cyberdefenses. Threat actors are active
    and innovative in seeking ways to exploit weaknesses in people,
    processes, and technology.
        Agricultural-based lending remains an area of concern. Net
    farm income has declined since 2012 and continues to be an
    issue. Low commodity prices, trade uncertiainty, and recent
    unfavorable weather conditions in the Midwest have added to an
    already challenging situation. Lower incomes and increasing
    debt-servicing costs are impacting borrowers management of
    operational debt. Weaknesses in credit at agricultural banks
    can be seen in the form of carryover debt from prior operating
    years, increasing levels of nonperforming assets, and modest
    increases in the number of problem banks with significant
    agriculture-related exposure.
        CRE risk is an area of elevated risk, mainly due to the
    widening gap between real estate values and property income
    used to service outstanding debt. For most property types, the
    primary driver of price appreciation appears to be new investor
    demand rather than increasing rents or other property-level
    fundamentals.

    Q.5. Please describe what specific proactive measures the Fed
    is taking to ensure that banks are managing these risks.

    A.5. With respect to these risks, the Federal Reserve has
    adopted common work programs to help examiners assess overall
    IT operations, including cybersecurity of community banks. The
    Federal Reserve also has included mandatory training for all
    community bank examiners in the area of IT in order to
    consistently identify and provide feedback to the banks
    supervised by the Federal Reserve.
        Building on earlier supervisory guidance on managing
    agricultural lending, the Federal Reserve has sponsored a
    number of training and educational opportunities for examiners.
    In addition, the Federal Reserve closely monitors and provides
    updates on farming conditions and agricultural lending
    conditions to examiners.
        As discussed in SR letter 19-9, Bank Exams Tailored to Risk
    (BETR), the Federal Reserve has revised its procedures for
    credit and liquidity risk to better identify risk and tailor
    exam procedures based on the risk profile of a particular bank.
    CRE concentrations and a bank's use of volatile funding sources
    are among the factors that examiners consider in determining
    whether a bank's activity is low, moderate, or high risk, which
    will determine the procedures examiners will complete during
    the examination.

    Q.6. What additional steps should the Fed take to address these
    risks?

    A.6. With respect to cybersecurity, we continue to review our
    program and have placed a high priority on building our
    expertise to ensure we and the institutions we supervise
    understand and manage the associated risk. With respect to
    agriculture lending, the Federal Reserve will continue to
    gather current information on industry factors that (1) affect
    the ability of farm producers to repay loans, (2) influence
    collateral values, and (3) affect the ability of producers and
    banks to hedge potential losses. We will continue to focus on
    examining banks with concentrations in agricultural lending,
    with particular emphasis on ensuring banks hold capital
    commensurate with their portfolio compositions. And, as
    mentioned, with respect to CRE concentrations, this remains to
    be an area of focus.

    Q.7. In your capacity as community bank designee, what is your
    definition of a community bank?
        What is the largest firm, by assets, that you consider to
    be a community bank?
        In how many States can a bank operate and still be
    considered a community bank?
        Are there any financial activities that you think
    disqualify a firm from inclusion as a community bank?
        What is the maximum number of distinct subsidiaries and
    affiliates at a bank or bank holding company that you would
    still consider to be a community bank?

    A.7. There are a number of statutory definitions for community
    banking organizations, but the Board uses $10 billion in total
    assets as the threshold for its supervisory and regulatory
    purposes. It is my view that $10 billion is a reasonable
    ceiling. However, various statutes tailor requirements for
    community banks using differing threshold. For example, the
    Small Bank Holding Company policy statement provides relief for
    firms under $3 billion, while banks under $10 billion would be
    eligible for Community Bank Leverage Ratio.
        While no formal restriction on financial activities exists
    that would disqualify a firm from being considered a community
    bank, community banks tend to have more traditional, low-risk
    banking operations. Additionally, there is no formal limit on
    the number of subsidiaries and affiliates a community bank may
    have and no restrictions exist on the number of subsidiaries
    and affiliates, according to the Federal Reserve's current
    operating practices. That said, as noted above, community banks
    tend to have simpler banking operations than large banks.
        In general, I do not believe a community bank should be
    defined by the number of States in which it operates. Rather, a
    bank's size, risk profile, capacity, and complexity, tend to be
    more important factors.

    Q.8. If confirmed to a full 14-year term, what will be your top
    priorities as a member of the Board of Governors that serves as
    the community bank designee?

    A.8. My top priority as a member of the Board of Governors will
    continue to be fulfilling the vital responsibilities Congress
    has given us: to support full employment and stable prices,
    regulate and supervise the banking system to ensure it remains
    safe and sound, enforce consumer protection laws that require
    everyone be treated fairly, and carry out the Board's important
    payments-related responsibilities.
        As the first governor to fill the role the Congress
    designated for someone with community banking experience on the
    Board, I will continue to travel widely and listen closely to
    community bankers, consumers, small-business owners, and
    community leaders. I will make sure these diverse perspectives
    are represented in the Federal Reserve' s deliberations and
    decision making on both monetary policy and regulatory matters.
        As I noted in my testimony, I firmly believe that, as
    regulators, we need to ensure that we are not imposing
    unnecessary burdens on community banks. That is why one of my
    priorities as governor has been to tailor appropriately our
    supervision and regulation to the size, complexity, and
    capacity and risks posed by an institution. To further this
    effort, I recently formed a working group of experts from
    across the Federal Reserve System to launch a comprehensive
    review of our supervisory work with smaller, regional and
    community banks.
        In carrying out each of my responsibilities, I am committed
    to accountability, transparency, and clear communication.

    Q.9. Systemic regulatory failures, like the savings and loan
    crisis and 2008 financial crisis, have been the largest
    contributors to community bank failures over the last 30 years.
    What actions are you taking to ensure that excessive risk-
    taking in corporate debt will not result in harm to the
    financial sector broadly and community banks specifically?

    A.9. Widespread failures of community banks are indeed risks to
    economic growth, particularly in the communities they serve.
    The wave of community bank and savings and loan failures in the
    late 1980s and early 1990s was a strong headwind to the
    economy, requiring coordinated action by Congress and bank
    regulatory agencies. We absolutely want to avoid the need for
    such extraordinary measures in the future.
        Community banks emerged from the financial crisis
    substantially more resilient than they were in the precrisis
    period. Their regulatory capital ratios are higher, and they
    now rely more on capital instruments with greater loss
    absorbency. There is no substitute for high quality capital in
    limiting stress on institutions from the risks they take in the
    normal course of the bank. The use of wholesale funding--
    another source of pressure during stressful periods--by
    community banks remains significantly below the levels that
    were typical prior to the financial crisis. We continue to
    closely monitor the solvency and liquidity risks among
    community banks.
        Community banks traditionally have little exposure to
    leveraged loans, and legal lending limits combined with the
    minimum participation sizes would limit most banks of that size
    from becoming significantly active in that market. Community
    banks are exposed to the small business sector as well as
    unincorporated businesses through traditional commercial and
    industrial lending. The current credit performance in the small
    business sector is quite strong, and during the past two
    downturns, small business lending has not generated outsized
    losses after accounting for the size of the economic
    contraction. We also closely monitor community banks that do
    have high concentrations of business-related debt to ensure
    they have appropriate risk management processes in place.
        That said, some community banks do have significant
    concentrations of CRE loans. We pay close attention to this
    sector, because it has played a role in previous episodes of
    widespread banking stress. The Commercial Real Estate Guidance
    issued in 2007 includes expectations that banks with
    concentrations in CRE have in place enhanced risk management
    programs, and the fraction of banks with large CRE
    concentrations is much lower than it was heading into the 2008
    financial crisis. Moreover, our financial stability assessment
    highlights the attention we have given to CRE prices and
    lending standards. We will continue to closely monitor this
    sector as well as supervised banks with concentrated exposure
    to CRE.

    Q.10. Are you concerned that the deregulation of foreign
    banking organizations (FBOs) as proposed in April will create
    additional competitive pressures on community banks? Are FBOs
    direct competitors with community banks in activities like
    small business and residential mortgage lending? If not, what
    activities do FBOs engage in that distinguish their business
    and risk profile from community banks?

    A.10. Most branches and agencies of foreign banks are not
    direct competitors of community banks, as foreign banking
    organizations (FBOs) tend to have a wholesale business model
    focused on large borrowers and home country customers operating
    in the U.S. FBOs generally engage in limited residential
    mortgage lending, most of which flows to employees of the bank.
        Some U.S. commercial banks owned by FBOs may directly
    compete with community banks. Of the 4,751 commercial banks
    operating in the U.S. as of year-end 2018, FBOs operate 39 of
    them.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                          FROM MICHELLE BOWMAN

    Q.1. The community bank leverage ratio (CBLR) created pursuant
    to S. 2155 is of paramount interest to community banks in South
    Dakota. I am particularly concerned about how the CBLR was
    created because the current CBLR includes changes to the Prompt
    Corrective Action framework that would effectively eliminate
    any relief achieved from the creation of the leverage ratio.
    I've heard from several institutions in my State that they will
    decline to take advantage of the CBLR as a result.
        Why was 9 percent chosen for the community bank leverage
    ratio?

    A.1. The Federal banking agencies jointly issued a proposal
    that would allow community banking organizations that meet
    certain qualifying criteria to opt into a simple, leverage-
    based capital framework. Firms that opt into the framework
    would not be subject to the capital rule's risk-based capital
    requirements.
        Under the proposal, a qualifying community banking
    organization may elect to use the community bank leverage ratio
    (CBLR) framework if its CBLR is greater than 9 percent. A 9
    percent CBLR should generally maintain the current level of
    capital held by these banking organizations, while supporting
    the banking agencies' goals of reducing regulatory burden for
    community banking organizations and retaining safety and
    soundness in the banking system. Before finalizing the CBLR
    rule, I, along with my Federal Reserve Board (Board) colleagues
    will consider all public comments received as well as the input
    received from State bank supervisors.

    Q.2. S. 2155 required Federal regulators to engage in a
    dialogue with State banking regulators regarding how the
    leverage ratio should be set. How did the Federal Reserve
    fulfill this requirement?

    A.2. The banking agencies have worked closely with State bank
    supervisors over the past several months to inform the
    rulemaking process, and are considering their constructive
    input and feedback as we work to finalize the CBLR framework.

    Q.3. What changes will be made to the community bank leverage
    ratio so that community banks can actually avail themselves of
    this relief?

    A.3. The banking agencies are still considering the public
    comments received on the proposal as well as the input received
    from State bank supervisors. Moving forward in the rulemaking
    process, the banking agencies will strive to develop a CBLR
    framework that is consistent with congressional intent.

    Q.4. I am honored to be the sponsor of the Financial Stability
    Oversight Council Improvement Act of 2019, which would require
    FSOC to determine whether potential nonbank threats to
    financial stability could be better solved by allowing
    companies to work with their primary regulator or through the
    development of a risk reduction plan. This legislation is
    important because most FSOC members are banking regulators and
    applying banking regulations to nonbank companies would be
    harmful to our capital markets and to Main Street investors.
        Do you agree that FSOC should focus on empowering primary
    regulators so that true systemic risks can be addressed?

    A.4. I believe that the Financial Stability Oversight Council
    (FSOC) should work closely with the relevant primary regulators
    when addressing systemic risks, and my understanding is that
    the proposed activities-based approach to nonbank designation
    strengthens such coordination.

    Q.5. Do you agree that it's important for FSOC to consult with
    primary regulators before voting on a SIFI designation?

    A.5. Yes, I agree on the importance of consultation with
    primary regulators before any FSOC vote on a systemically
    important financial institution designation to leverage the
    expertise of that regulator and explore alternative solutions
    to mitigate systemic risk. The activities-based approach
    envisions close cooperation between the FSOC and the relevant
    regulators.

    Q.6. Do you agree that addressing nonbank risk does not always
    have to include a SIFI designation?

    A.6. Yes, I believe that there are ways to address nonbank
    risks other than through designating firms as systemically
    important. Indeed, it is my understanding that the proposed
    amendments to the nonbank designation guidance are intended to
    capture instances where designating an entity may not
    effectively address the risk to the system.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR TILLIS
                          FROM MICHELLE BOWMAN

    Q.1. The Federal Reserve's (Fed) regulatory approach to
    interaffiliate margin transactions is an outlier. The margin
    requirements have the effect of locking up capital that could
    otherwise be used for economic growth and they discourage
    centralized risk management practices among firms. In addition,
    the current approach results in the movement of collateral out
    of the U.S. insured depository institutions. These are all
    suboptimal policy outcomes. Regulatory authorities in the
    European Union, Japan, and most other G20 jurisdictions each
    currently provide such an exemption for these transactions. You
    have indicated you are aware of the issue but, to date, I've
    seen no official action from the Fed to fix the problem.
        The recognition for the need for an exemption began under
    regulators nominated by President Obama. In 2013, CFTC Chairman
    Gary Gensler provided an exemption for central clearing and
    trade execution. In 2015, CFTC Chairman Tim Massad provided an
    exemption, determining that initial margin was not warranted
    and it was a ``very costly and not very effective way'' to
    enhance risk management. Yet, the Fed did not provide an
    exemption from initial margin in the 2016 margin rules, and as
    a result, as of the end of last year, U.S. banking entities
    collected nearly $50 billion in initial margin from their own
    affiliates. In 2017, the Treasury Department noted that this
    rule puts U.S. firms at a disadvantage both domestically and
    internationally, recommending that your agencies provide an
    exemption consistent with the margin requirements of the CFTC.
        Do you agree that an exemption from initial margin is
    appropriate for interaffiliate transactions?

    A.1. The Board is actively discussing this aspect of the rule
    with the other prudential regulators. The goal is to assess
    what, if any, changes can be made consistent with the statutory
    directive that margin requirements help ensure the safety and
    soundness of covered swap entities and are appropriate for the
    risk associated with noncleared swaps.

    Q.2. Will you prioritize a rule to provide an exemption for
    interaffiliate transactions, separate from any broader
    regulatory effort such as a Regulation W rewrite?
        Please provide an explicit timeline for when the Fed will
    take action.

    A.2. Discussions with the other prudential regulators as
    mentioned above are separate and apart from any broader
    regulatory efforts. While I am not able to provide a specific
    timeline for you, we will strive to address the issue as soon
    as possible as we coordinate with other relevant agencies.

    Q.3. The reason a ``Reg W'' rewrite is suboptimal is that it
    will be counterproductive and slow. Most believe it will take 5
    to 6 years to complete. This capital needs to be released soon
    because we have geopolitical risk emerging over the world that
    could destabilize markets. If we have a Brexit, the number of
    entities will double and more capital will be unfairly
    sequestered. With potential trade volatility, Middle East
    uncertainty, and other risks, our banks need to be able to use
    capital for risk management, not have it trapped for no reason.
        Could a Reg W action be done outside of providing an
    exemption?

    A.3. The swap margin rule, codified in the Board's Regulation
    KK, is different than and separate from Regulation W. I
    understand this question to be asking about the treatment of
    interaffiliate transactions in the swap margin rule. The swap
    margin rule requires that a covered swap entity collect initial
    margin from an affiliate. If the Board were to change this
    requirement, it would do so through the normal public notice
    and comment rulemaking process consistent with the
    Administrative Procedure Act.

    Q.4. Please explain any reasoning for not allowing this
    exemption this year.

    A.4. While we are actively discussing this aspect of the rule
    with the other prudential regulators, I am not able to confirm
    a timeline on the result of our collaboration. I understand the
    importance of moving as quickly as possible.

    Q.5. In October of last year, the Fed issued a request for
    public comment on ``actions the Federal Reserve could take to
    support faster payments in the United States.'' We understand
    the Fed has been working collaboratively with the banks and
    other private sector stakeholders for years on how best to
    facilitate faster payments. As Chairman Powell noted at a
    recent press conference, the Fed has thus far been ``more of a
    convener, bringing industry and the public and public interest
    groups . . . around the table and . . . playing a constructive
    role'' in encouraging the private sector in this area. In
    October, however, the Fed issued a request for public comment
    indicating that ``it will probably enter the market for faster
    payments as a direct competitor of the private sector solutions
    with its own Real-Time Gross Settlement'' (RTGS) system.
        Is it possible the Fed's proposal could hamper and delay,
    rather than facilitate, the arrival of real-time payments?

    A.5. In its 2018 Federal Register Notice (2018 Notice) request
    for public comment, the Board of Governors (Board) requested
    feedback on the impact of Federal Reserve action(s) in faster
    payments settlement. In particular, the 2018 Notice
    specifically asked whether Federal Reserve action would help or
    hinder adoption of faster payment services by the financial
    services industry. This matter is still pending before the
    Board, and we are carefully reviewing the comments received.

    Q.6. Please explain why the Fed is proposing the creation of a
    Government-run real-time payments system when the private
    sector has already created one that is up and running?

    A.6. The Federal Reserve has not committed to any action at
    this time. Any decision made by the Board will consider
    carefully the importance of the views of the private sector on
    this issue.

    Q.7. The Fed's own policy statement on ``The Federal Reserve in
    the Payments System'' requires that the Fed satisfy three
    conditions before proposing a new service.
        Among those is a finding that the private sector ``cannot
    be expected to provide such service with reasonable
    effectiveness, scope, and equity.'' Has the Fed made this
    finding, and, if so, on what grounds was it made?

    A.7. The Board has not made a determination at this time.
    However, throughout the Board's deliberations, it will adhere
    to the requirements of the Federal Reserve Act, the Monetary
    Control Act (MCA), and longstanding Federal Reserve policies
    and processes.

    Q.8. How long would it take for the Fed to create its real-time
    system?

    A.8. At this time, the Federal Reserve has not committed to any
    action. If the Board determines to pursue a Real-Time Gross
    Settlement (RTGS) service for faster payments, a subsequent
    Federal Register notice would be issued that outlines
    additional details of the proposed service.

    Q.9. Would the Fed's proposed RTGS and the existing private
    sector real-time payments network be interoperable and, if so,
    why--specifically--do you believe that will be the case?

    A.9. The Board's request for comment asked for feedback on
    several areas, including interoperability with existing or
    potentially new Real-Time Gross Settlement (RTGS) service
    providers. Various commenters responded to such questions. The
    Board is assessing these comments and seriously taking them
    into account.

    Q.10. If you believe the systems would interoperate, would such
    interoperability require the private sector system to
    significantly alter its current design?

    A.10. As I mentioned above, the Board is reviewing the comments
    received on the proposal, including those comments on
    interoperability, and will take this feedback into account
    throughout its deliberation.

    Q.11. My understanding is that the Fed seeks to justify this
    potential action in part on a perceived need for
    ``resiliency''. The notion that having two systems would
    provide resiliency necessarily assumes that every bank in the
    country (or at least an overwhelming majority of them) would
    have to connect to two systems: the private sector system and
    the yet-to-be-built Government-run system, which would create
    enormous inefficiencies and impose needless costs on the
    American taxpayer and the private sector.
        Have you done any cost-benefit analysis, particularly in
    light of the other faster payment options currently in the
    market that already serve as near substitutes, like payments
    over the card networks, same-day ACH, PayPal, Venmo, Zelle,
    Fedwire Funds Service itself, to determine whether or not this
    proposal makes any sense?

    A.11. The Board is considering the comments of the broad range
    of stakeholders throughout its deliberation, including the
    points you raise on resiliency and costs. We note that the
    Monetary Control Act of 1980 requires that Federal Reserve
    services must be priced to recover actual expenses associated
    with providing the services as well as certain imputed costs,
    including the taxes and cost of capital that would be paid by a
    private sector competitor. Importantly, the Board is
    considering the comments from the broad range of stakeholders
    throughout its deliberation.

    Q.12. Doesn't the Fed already regulate and supervise the
    private sector real-time payments operator, which we understand
    has an impressive track record for resiliency, operating with
    multiple data centers, redundant systems, etc? Are you
    contending that your regulatory and supervisory powers over the
    private sector operator are deficient in terms of your
    supervising the private sector's plans to ensure resiliency?

    A.12. The Board does not have plenary regulatory or supervisory
    authority over the U.S. payment system. Rather, the Board has
    limited authority to influence the operations of private sector
    retail payment services providers in certain circumstances and
    pursuant to specific laws. For example, assuming the private
    sector operator is subject to the Bank Service Company Act
    (BSCA), the Board and other Federal banking agencies would have
    authority to regulate and exam third party service providers
    that perform certain services for depository institutions that
    the agencies regulate. The BSCA, however, does not grant
    enforcement authority to the Board or other Federal banking
    agencies over the third party service providers.

    Q.13. In light of the recent Fedwire Funds outage, which we
    understand came at a critical part of the day when private
    sector settlement relies on Fedwire, should the Fed's
    resiliency focus perhaps be on the Fedwire Funds system, which
    has vital systemic importance, rather than committing time and
    resources to standing up new infrastructure that may or may not
    provide resiliency?

    A.13. I recognize the critical role that the Fedwire Funds
    Service plays in the financial system. Maintaining and
    enhancing the resilience of this service is, and will continue
    to be, an area of focus for the Board. The Board, through its
    oversight of the Reserve Banks, holds the Fedwire Funds Service
    to the standards included in Part 1 of the Federal Reserve
    Policy on Payment System Risk, which include robust operational
    resilience expectations. These expectations are consistent with
    the international standards applicable to systemically
    important financial market infrastructures operated by the
    private sector. The Federal Reserve Banks strive to not just
    meet these standards, but to continuously strengthen Fedwire
    Funds' resiliency posture, and doing so will remain an ongoing
    area of focus.
        The Fedwire Funds Service has historically provided a very
    high level of operational reliability. Having responded to the
    outage's immediate cause, efforts are underway to identify,
    understand, and respond to the outage's proximate causes so
    that the same high levels of operational reliability continue
    going forward.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                 SENATOR MENENDEZ FROM MICHELLE BOWMAN

    Q.1. My home State of New Jersey is moving toward legalization
    of recreational marijuana, and I have concerns that these new
    businesses as well as existing medical marijuana businesses in
    the State will continue to find themselves shut out of the
    banking system. And when these businesses are forced to operate
    exclusively in cash, they create serious public safety risks in
    our communities.
        I've already heard support from Chair Powell and
    Comptroller Otting on this issue, but I'd also like to know if
    you agree that financial institutions need legislative clarity
    on this issue?

    A.1. Yes, I do. However, only Congress can provide financial
    institutions legislative clarity on the conflict between
    Federal and some State laws on the legalization of marijuana
    and whether banks can service marijuana businesses that are
    legal under State law. The Federal Reserve is monitoring the
    various legislative proposals Congress is considering to
    resolve this issue.

    Q.2. Closely related to the provision of banking services is
    the ability for such businesses to access insurance products, a
    necessity for those looking to secure financing. Would it be
    helpful for Congress to also consider the role of insurance
    companies as States move toward legalization?

    A.2. Access to insurance products is an important aspect of
    commerce. If Congress decides to address the conflict between
    Federal laws and some State laws on the legalization of
    marijuana and whether banks can service State legal marijuana
    businesses, it would likely be helpful to also address any
    similar issues related to insurance companies and products.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                          FROM MICHELLE BOWMAN

    Q.1. The Federal Reserve Board of Governors is engaged in an
    interagency process to rewrite the Community Reinvestment Act
    (CRA) rules.
        In your view, what is problem with the current Community
    Reinvestment Act (CRA) regulations?

    A.1. The Federal Reserve Board of Governors (Board) takes our
    Community Reinvestment Act (CRA) responsibilities seriously and
    strives to conduct meaningful CRA evaluations. There has been
    considerable change since the time the regulations implementing
    the law were last revised. The Board supports modernizing CRA
    to improve the clarity, consistency, and predictability of how
    CRA performance is assessed, as well as the predictability of
    which community development investments and loans qualify for
    CRA consideration. While there is a lot that is good about the
    current regulations, many stakeholders have said that they are
    too complicated and that if they were made simpler and more
    transparent both banks and communities would benefit.
        I believe that the regulations should recognize that banks
    serve communities with different credit needs. Additionally,
    the regulations should be tailored to evaluate a bank's CRA
    performance in light of its size, business strategy, capacity,
    and constraints as well as its community's demographics,
    economic conditions, and credit needs and opportunities. I also
    understand the need to update assessment areas to reflect how
    technology and other advancements have significantly changed
    how financial services are accessed and delivered.
        My Board colleagues and I support working with the Federal
    Deposit Insurance Corporation and the Office of the Comptroller
    of the Currency (OCC) to modernize CRA and believe the agencies
    should find a way to preserve this statutory intent in any
    future update of the regulation. We are continuing to evaluate
    public input from a wide range of stakeholders on ways to
    modernize the CRA, including through the OCC's Advanced Notice
    of Proposed Rulemaking and the roundtables that the Federal
    Reserve held across the country from October 2018 through
    January of this year. \1\
    ---------------------------------------------------------------------------
         \1\ See https://www.federalreserve.gov/publications/files/
    stakeholder-feedback-on-modernizing-the-community-reinvestment-act-
    201906.

    Q.2. Currently, more than 98 percent of banks pass their CRA
    examinations but lending discrimination and banking deserts
    still exist in communities all across the country. Does this
    ---------------------------------------------------------------------------
    suggest that CRA examinations are too early?

    A.2. The CRA regulations are very specific with respect to the
    criteria necessary to achieve a ``Satisfactory'' or
    ``Outstanding'' rating. In general, banks work to avoid poor
    CRA ratings, which can lead to community relations and public
    reputational issues, result in more frequent CRA evaluations,
    and pose a significant barrier to any future plans for
    expansion. Ratings also are made public, giving banks
    additional incentives to establish effective CRA programs.
    Given these factors, I believe that our CRA examination process
    is robust and rigorous.

    Q.3. More than half of mortgages are now made by nonbank
    mortgage companies. Should these nonbank lenders have CRA or
    other similar obligations to serve the whole communities in
    which they are located?

    A.3. I have heard this concern expressed in my meetings with
    community bankers. As you know, decisions about which financial
    institutions to exempt from certain laws or rules are a matter
    for Congress or, if granted the authority by Congress, by the
    regulator with responsibility for promulgation of regulations,
    which in this case is the Consumer Financial Protection Bureau.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR CORTEZ MASTO FROM MICHELLE BOWMAN

    Q.1. I am very concerned about climate-related financial risks.
    The most recent National Climate Assessment said the U.S.
    Southwest could lose $23 billion per year in region-wide wages
    as a result of extreme heat. Since you joined the Federal
    Reserve Board, what have you done to prepare community banks
    for long-term shifts in climate patterns, like increasing
    extreme heat and more severe and more frequent storms?

    A.1. Congress has placed the responsibility to address climate
    change within other agencies. The Federal Reserve Board's
    (Board) supervisory framework guides supervisors in their work
    with these institutions on a wide range of risk management
    practices, including those around severe weather events. To
    supplement that broad framework, the Board also has issued
    guidance on lending to sectors where assessments of severe
    weather-related risks are especially critical, such as
    agriculture and energy lending. I can assure you that I
    appreciate the distinct concerns of community banks in this
    space, because of both their size and their important social
    role; I will continue to urge Federal Reserve examiners and
    supervisors to do the same in their daily work.

    Q.2. In March, Glenn Rudebusch published an economic paper on
    Climate Change and the Federal Reserve. The paper notes that
    droughts, floods, and hurricanes amplified by climate change
    could result in more infrastructure damage, agricultural
    losses, and commodity price spikes. Rudebusch notes that ``some
    have advocated that central banks use their balance sheet to
    support the transition to a low-carbon economy, for example, by
    buying low-carbon corporate bonds.''
        Do you think Congress should consider changing the law to
    support ``green'' quantitative easing as an option for the Fed?

    A.2. The Federal Reserve conducts monetary policy to promote
    its statutory goals of maximum employment and stable prices.
    Decisions about how to foster new technologies, new industries,
    or about channeling credit to particular sectors of the economy
    inevitably involve competing political interests. The Congress
    and the Administration are in the best position to make
    judgments balancing those interests on behalf of the U.S.
    taxpayer.

    Q.3. Which other Central Banks allow green quantitative easing?
    Do you believe those models could translate to the American
    financial system and economy?

    A.3. I am not aware of any advanced-economy central bank that
    has a ``green quantitative easing'' program. As I noted in my
    response to Question 2, Congress and the Administration are in
    the best position to evaluate this question.

    Q.4. In the Federal Reserve's Supervisory Report released
    November, there was a section on merger and acquisition risks.
    The banking law passed last year changed the asset threshold
    for a small bank holding company from $1 billion to $3 billion.
    It also reduced capital requirements and other rules for banks
    above $50 billion. We have seen more bank mergers since the law
    passed.
        Do you expect to see more bank mergers this year and next
    year than in previous years?
        How much of merger activity is due to changes from S. 2155
    and other regulatory actions?

    A.4. Merger activity is affected by a number of factors,
    including economic environment, industry outlook, and factors
    unique to particular institutions or business models. As such,
    I am not able to draw conclusions on the effect of S. 2155 or
    other regulatory actions at this time. Following the
    implementation of S. 2155, we have not seen a significant
    change in applications for bank acquisitions and mergers
    submitted to the Federal Reserve System to date. In fact, the
    number of these types of applications submitted to the Board is
    lower now than in the years before the financial crisis.
        Between May 24, 2018, the enactment date of S. 2155, and
    December 31, 2018, the Federal Reserve System received 113
    applications for the proposed merger and acquisition of banking
    organizations under the Bank Holding Company Act, the Bank
    Merger Act, and the Home Owners Loan Act. This number is lower
    than the number of merger and acquisition applications
    submitted during the same period for each year from 2006 to
    2017.

    Q.5. What do you see as the risks from mergers and acquisitions
    beyond the impacts on the customer?

    A.5. Like any firm, a variety of risks are always present, but
    when firms merge or make acquisitions, the chief risk is
    operational. Operational risk could present during the
    integration of systems related to risk management, information
    technology, Bank Secrecy Act/Anti-Money Laundering, and the
    Community Reinvestment Act. In reviewing bank merger and
    acquisition proposals, the Federal Reserve considers the
    applicant's plans for implementing the proposal and its
    capacity to do so effectively.

    Q.6. What are the risks to communities when banks merge?

    A.6. Congress has given the Federal Reserve a set of statutory
    factors to use during the evaluation of a merger or acquisition
    application, one of which is the convenience and needs of the
    communities to be served and public benefits. Furthermore, the
    Federal Reserve also must analyze the competitive effects of
    the proposal, including whether the proposal would
    substantially lessen competition in any section of the country.
    In addition, the Board considers the applicant institution's
    business model, its marketing and outreach plans, and the
    institution's plans following consummation of the proposal. I
    take this role seriously and intend to be thorough in my review
    of all current and future applications.

    Q.7. Are you concerned about a loss of branches? Types of
    products? Jobs?

    A.7. I understand and am sympathetic to the concerns raised
    with respect to the potential loss of branches, products and
    services and jobs following financial institution mergers. In
    evaluating convenience and needs factors in bank acquisition
    and merger proposals, the Board considers all relevant
    information, including the addition of new products, extended
    hours of service, or additional branch locations that will be
    subsequently available to the public. With respect to branch
    closures, banks are required to adhere to Federal Deposit
    Insurance Act public notice requirements \1\ before closing
    branches, which include the following:
    ---------------------------------------------------------------------------
         \1\ Section 42 of the Federal Deposit Insurance Act (12 U.S.C.
    183 1r-1), as implemented by the Joint Policy Statement Regarding
    Branch Closings (64 FR 34,844 (1999)). The Joint Policy Statement
    Regarding Branch Closings states that the Federal banking agencies will
    examine institutions for compliance with branch closure requirements in
    accordance with each agency's consumer compliance examination
    procedures.

        The bank is required to provide reasons and other
            supporting data for the closure, consistent with the
    ---------------------------------------------------------------------------
            institution's written policy for branch closings.

        For branches to be closed in low- or moderate-
            income geographies, affected persons have the ability
            to request a public meeting to explore the feasibility
            of obtaining adequate alternative facilities and
            services for the area.

        The bank also is required to provide the public
            with at least 30 days' notice, and the appropriate
            Federal supervisory agency with at least 90 days'
            notice, before the date of a proposed branch closing.

        A pattern of branch closures in minority communities also
    may be relevant in determining whether a bank is in compliance
    with fair lending laws. For example, it may be a consideration
    in determining whether a bank is engaging in redlining.
    Branching is one of the factors that is considered in a
    redlining analysis, along with the bank's CRA assessment area,
    lending, marketing, and outreach practices. In evaluating
    branching for these purposes, we analyze whether there are bank
    branches in majority-minority census tracts.
        The Federal Reserve considers applicants' plans for
    products and services to be offered by the combined
    institution, including significant anticipated changes to
    products and services currently offered by the individual
    institutions and plans to offer new, replacement, or enhanced
    products and services. Many acquiring banks plan to offer the
    products and services of both the acquiring bank and the target
    bank throughout the footprint of the combined bank, resulting
    in increased availability of products and services for
    customers of each bank.
        The Federal Reserve reviews applications for consistency
    with the applicable statutory factors. These factors include
    the applicant's current and pro forma financial condition and
    future prospects, managerial resources, the convenience and
    needs of the communities to be served and public benefits, the
    competitive effects of the merger or acquisition, and impact of
    the proposal on financial stability.

    Q.8. At a time when community banks are earning record profits,
    why have you voted repeatedly to lower the amount of regulatory
    capital they hold?

    A.8. The Board has not acted on any proposals to lower capital
    levels for community banks. However, as I stated in my
    testimony, as regulators, we need to ensure that we are not
    imposing unnecessary burdens on community banks. This is why I
    believe we must tailor our supervision and regulation to the
    size, complexity, capacity, and risks posed by an institution.
    Community banks are critical to so many local economies, which
    is why it is important to adapt our approach to supervision and
    regulation as the industry evolves.

    Q.9. Why have you never joined Governor Brainard in a dissent
    of all these deregulatory actions, including those that
    weakened rules for the biggest banks?

    A.9. As I stated in my testimony, the core reforms that
    resulted from the crisis were crucial to ensure the resilience
    of the U.S. financial system. At the same time, I believe that
    our regulatory and supervisory framework should be tailored
    according to banking firms' size, complexity, and risk profile,
    in a way that minimizes costs and is consistent with statutory
    provisions. I have appreciated the value placed on getting a
    broad range of external and internal views throughout our
    deliberative process.

    Q.10. How does your support for revising the capital and
    liquidity requirements for large banks help community banks?

    A.10. One of the key goals of the recent tailoring proposals is
    to better reflect the differences in risk profiles between
    firms that qualify as U.S. global systemically important banks
    and other large banking organizations. U.S. firms with the most
    significant risk profiles would remain subject to the most
    rigorous existing requirements under the proposals. These
    proposals build on the Board's existing efforts to tailor its
    rules and experience implementing those rules, and account for
    changes to the enhanced prudential standards made by S. 2155,
    the Economic Growth, Regulatory Relief, and Consumer Protection
    Act.

    Q.11. How does your support for weakened stress test regimes
    for large banks help community banks?

    A.11. I believe that a strong, resilient financial sector is
    important to banking institutions regardless of their size.
    Stress testing remains a core tool for the Federal Reserve. Our
    proposal aligns compliance requirements for firms with less
    risk while maintaining more stringent requirements for firms
    with more risk and more systemic importance. The proposal also
    provides banking organizations with additional transparency, so
    that they can better comply with the tests.

    Q.12. How does your support for changing the formula for
    derivatives so that less capital is held against derivative
    positions help community banks?

    A.12. The Board, the Federal Deposit Insurance Corporation
    (FDIC), and the Office of the Comptroller of the Currency (OCC)
    (together, the agencies), estimate that the proposal would not
    significantly change the amount of regulatory capital in the
    banking system. The proposal updates standards for how large
    banking organizations measure counterparty credit risk posed by
    derivative contracts under the agencies' regulatory capital
    rules. The proposed changes are designed to better reflect the
    current derivatives market and incorporate risks observed
    during the 2007-2008 financial crisis. The new approach, called
    the ``standardized approach for measuring counterparty credit
    risk'', or SA-CCR, is intended to better reflect the current
    derivatives market and to provide important improvements to
    risk sensitivity, resulting in more appropriate capital
    requirements for derivative contracts exposure. The proposal
    would require large banks to adopt SA-CCR, but permit smaller
    firms to use the existing current exposure methodology (CEM).
        While the agencies recognized that the proposed
    implementation of SA-CCR would offer several improvements to
    CEM, it may require, particularly for firms with relatively
    small derivatives portfolios, internal systems enhancements and
    other operational modifications that could be costly and
    present additional burden.

    Q.13. How does your support for reducing resolution plans for
    big banks from once a year to every 4 or 6 years help community
    banks?

    A.13. Changing the frequency of resolution plan submissions for
    large firms will not have an impact on community banks.
    Community banks have total assets of $10 billion or less and
    therefore, are not subject to the Dodd-Frank Wall Street Reform
    and Consumer Protection Act (Dodd-Frank Act) resolution
    planning requirement. The change in resolution plans is
    consistent with the Board's broader efforts to tailor
    supervisory expectations to the size and complexity of our
    supervised firms.

    Q.14. How does your support to end risk-reducing margin
    requirements for derivatives transactions between affiliates of
    large complex banks help community banks?

    A.14. The banking agencies have not taken action on this
    matter. However, I believe it is sensible to review our
    regulatory requirements periodically to assess whether they can
    be made more efficient, consistent with the Dodd-Frank Act and
    considering other regulatory requirements applicable to the
    firm.
        If the U.S. prudential regulators (the Board, FDIC, OCC,
    Farm Credit Administration, and Federal Housing Finance Agency)
    propose to eliminate interaffiliate margin requirements, that
    change would likely have limited effects on community banks
    because community banks are already exempt from the swap margin
    rule. Community banks and other small financial institutions do
    not have to post margin for their noncleared swap transactions.
    On August 1, 2016, the prudential regulators announced their
    final rules exempting banks, savings associations, Farm Credit
    System institutions, and credit unions with $10 billion or less
    in total assets from the OTC margin requirements under the
    Dodd-Frank Act. This relief is designed to allow such firms to
    use OTC derivatives to hedge normal business activity as they
    have done in the past (e.g., hedging the interest rate risk of
    loans).

    Q.15. If a fair lending exam detects a violation after a bank
    has been graded for its Consumer Reinvestment Act exam, do you
    think the bank should receive a retroactive downgrade?

    A.15. I find discriminatory and other illegal credit practices
    unacceptable and they have no place in civil society. Moreover,
    such practices can have a negative effect on a bank's CRA
    rating. The Board's current regulation is explicit about how to
    consider illegal credit practices when assigning ratings.
    Consistent with the regulation, our process entails a fact-
    specific review of the matter before deciding whether it should
    prompt a downgrade of a CRA rating, including the nature of the
    practices, any corrective actions taken to address them, and
    the policies and procedures in place to prevent them.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR BROWN
                         FROM PAUL SHMOTOLOKHA

    Q.1. As First Vice President of the Export-Import Bank (EXIM),
    how will you work to assist Congress in reauthorizing EXIM's
    charter, which expires on September 30, 2019?

    A.1. If confirmed, I will work with Congress on any issue of
    concern and provide insight from 30 years of business
    experience in export and managing overseas market conditions
    and customers. If confirmed, I would participate in areas where
    I have the most prior experience, so I would seek to ensure
    that the small business perspective is considered as well as
    the views of the international customer base. I would advocate
    a sense of urgency for having the Bank be fully able to fulfill
    its mission of creating American jobs, and follow the direction
    of the Chairman in my work.

    Q.2. EXIM President Kimberly Reed has pledged to make reforms
    to improve the Bank's operations and to address certain
    concerns with regard to credit assistance offered by the Bank,
    such as ensuring that EXIM does not compete with private
    financing.
        As the Bank pursues reforms, whether through proposals for
    action by EXIM's board of directors or a proposal for
    reauthorization of the Bank's charter, will you pledge to
    provide transparency in reform efforts?

    A.2. Yes, I would provide transparency in reform efforts within
    the parameters of the position of First Vice President and in
    accordance with EXIM's Charter and Bylaws, as well as with my
    experience of best business practices.

    Q.3. If confirmed, are there any specific policies or
    procedures of the Export-Import Bank that you would work to
    alter or change?

    A.3. If confirmed, I look forward to reviewing EXIM's policy
    and practices and to reviewing implementation of all reforms
    previously mandated by Congress and to ensure that EXIM
    complies with all provisions in the Charter and Bylaws. As I do
    not currently have access to internal EXIM information
    concerning policies and procedures, I do not currently have
    specific proposals to alter EXIM's policies or procedures. If
    confirmed, I am interested in looking closely at what can be
    done to improve small business application processes to
    potentially reduce turnaround times while maintaining or even
    improving EXIM's risk management practices. Additionally, given
    my background, I would be interested in reviewing business
    development, operations efficiency, customer service, brand
    perception and values, product management, performance metrics
    and goal setting, ethical standards, transparency, strong risk
    management practices, and maintenance of client confidentiality
    at appropriate times during a deal cycle. I would also like to
    support EXIM's strategic plan and work collaboratively to chart
    a new future for the Bank.
        In order to make recommendations, I expect that my
    colleagues and I on the Board of Directors would conduct a
    review process that could involve congressional and EXIM staff
    meetings, a review of EXIM-related GAO reports, surveys of U.S.
    manufacturers (including those who are not clients of EXIM),
    private sector financing sources (including community banks,
    regional, and multinational banks), foreign EXIM customers,
    United States Foreign Commercial Service staff in key markets
    and U.S. and International Development Banks.

    Q.4. Do you believe it is important to seek public comment from
    EXIM customers and the general public before making any changes
    that would significantly affect the availability of credit from
    EXIM for certain products or economic sectors?

    A.4. Yes, I believe that listening to the ``voice of the
    customer'' is a critical tool to ensure best practices are
    being followed in any organization. Public comments from
    American manufacturers, international customers and taxpayers
    add value in any decision-making process and I would seek to
    combine that with input from Congress and the Administration
    before making any changes that would significantly affect the
    availability of credit from EXIM for certain products or
    economic sectors.

    Q.5. If confirmed, will you publicly defend the Export-Import
    Bank against false or misleading charges of fraud?

    A.5. Yes, I would publicly defend EXIM Bank against false or
    misleading charges of fraud.

    Q.6. Do you see a need to impose an upper limit on doing
    business with any particular industry or commercial sector,
    like aerospace manufacturing, that has previously relied
    heavily on EXIM to access foreign markets? Or should EXIM's
    lending be driven by demand from qualified applicants, to the
    extent permitted by the Bank's charter?

    A.6. If confirmed, I will faithfully execute all laws
    consistent with the intent of Congress and within the authority
    of my office. I will review each transaction independently, on
    its merits, and in accordance with the EXIM Charter established
    by the Congress, the Bylaws approved by EXIM's Board, and other
    policies and procedures established by the Bank for review of
    individual transactions. It is my understanding that Congress
    has established EXIM to serve as a demand-driven institution.
    EXIM must also consider the risks associated with individual
    transactions and its overall portfolio. If transactions meet
    the requirements as laid out in the Bank's Charter and the
    risks can be appropriately managed, I do not see the need
    currently to put a limitation on financing for sectors that
    support American jobs.

    Q.7. If confirmed, would you work to ensure that the comment
    process for environmental and social impacts from projects is
    properly structured and adequately resourced to ensure that
    comments from concerned parties are meaningfully considered?

    A.7. Yes, I would work with fellow Board members and EXIM staff
    to ensure that the comment process for environmental and social
    impacts from projects is properly structured and resourced to
    ensure that comments are meaningfully considered.

    Q.8. If confirmed, do you commit to providing all documents and
    materials that the Office of Inspector General requests?

    A.8. Yes. I believe that Inspector General requests are
    critical to good governance, transparency, and ensuring
    compliance. I would provide all documents and materials that
    the Office of Inspector General requests of me.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                         FROM PAUL SHMOTOLOKHA

    Q.1. The EXIM Bank is one of the most underutilized tools in
    our toolkit for supporting U.S. exports and protecting our
    national security interests. As of 2017, the export credit
    agencies of Japan and Korea had $187 billion in medium and
    long-term exposures; Canada, Germany, France, Italy, and the
    United Kingdom had $306 billion; and China had an estimated
    $363 billion.
        By comparison, America's EXIM has an exposure of about $70
    billion--about one dollar for every five of China's.
        Do you agree that the EXIM Bank is an important piece of
    our trade infrastructure that will help us compete with foreign
    ECAs?

    A.1. Yes, EXIM Bank is a critical part of our trade
    infrastructure and it should assist in levelling the playing
    field.

    Q.2. Do you agree that the lack of a quorum at the EXIM Bank
    over the past several years has had significant negative
    consequences for U.S. competitiveness in markets like nuclear
    energy and aerospace?

    A.2. Yes, working for a company that was a supplier to large
    power generation manufacturers I have personally observed the
    negative consequences of the lack of a quorum at EXIM and the
    inability to approve transactions over $10 million.

    Q.3. As we go into reauthorization at the end of 2019, what are
    your top priorities for the Bank?

    A.3. Should I be confirmed, I expect that my top priorities
    will include, but not be limited to: compliance with the
    mandates in the Charter and Bylaws of the Bank and implementing
    reforms mandated by Congress. I would also expect to focus on
    improving transparency, reviewing the existing pipeline of
    deals, and ensuring that EXIM is available to provide financing
    that will help support and create jobs across the country.
        In order to do so, I believe outreach to small, medium, and
    large businesses and building closer cooperation with regional
    and community banks will be necessary to revitalize the brand
    and confidence in EXIM as a stable partner both inside and
    outside the USA. Constant improvement is necessary to improve
    EXIM's relationships and support for small business. Should I
    be confirmed, I would expect to explore how cooperation with
    other funding sources such as regional or national development
    banks can help American business win supply contracts in
    emerging markets, especially for infrastructure projects that
    may require closer cooperation with private sector lenders.
        Finally, should I be confirmed I would be interested in
    working with the business divisions of the Bank to develop more
    medium term financing opportunities, and examining what can be
    done to improve small business application processes to
    potentially reduce turnaround times while maintaining or even
    improving EXIM's risk management practices. I believe EXIM can
    continue to strengthen efforts to educate owners, finance
    teams, and management at more American manufacturers on EXIM
    products in order to respond to more aggressive tactics being
    used by foreign competition.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
               SENATOR CORTEZ MASTO FROM PAUL SHMOTOLOKHA

    Q.1. Can you give me a few examples of U.S. companies you
    worked with that financed deals with the Export-Import Bank?

    A.1. While being respectful of business confidentiality
    considerations, I can share the following anecdotes.
        A regional cable TV company owned by a media group in
    Brazil wanted to purchase quality American-made products and
    turned to a global distributor of broadband network products
    located in Florida, who worked with EXIM and put together
    financing for a basket of products from several American
    manufacturers. Financing from a private bank coupled with a
    medium-term (5-year) loan guarantee from EXIM allowed the
    company to source American products, including powering
    equipment from my current employer, Alpha Technologies. This
    Florida-based company is working to secure contracts for
    additional opportunities in South America. Those transactions
    will require financing from a Government-backed export credit
    agency because the private sector is unwilling to finance such
    transactions in certain markets.
        In my own circumstances at Alpha Technologies, we had
    decided to turn to EXIM Bank in 2017 for export financing
    support. In order to continue to grow our export business, we
    needed to balance the growing demand for our products with the
    risks of exporting to certain fast-growing emerging markets in
    Central and South America, Africa, and Asia. Private sector
    export insurance was not readily available. Alpha had two
    options: require that customers pay in advance of shipment or
    offer to finance the transactions at lower values and assume
    all the risk. An export credit insurance policy could have
    helped Alpha offer more competitive terms at less risk to the
    company's bottom line and would have increased deal sizes
    significantly. Ultimately, due to an unrelated issue, Alpha's
    internal resources were diverted from this initiative and
    foreign buyers either purchased fewer products or moved to
    other suppliers.
        As a manufacturer of critical back up power systems for
    large capital equipment, we sold these systems to a U.S.
    manufacturer who then bundled it into their multimillion dollar
    solutions that they marketed worldwide, often with EXIM
    financing. In 2015, when EXIM lost its ability to provide
    financing over $10 million, we noticed that the U.S.
    manufacturer moved some of its procurement sourcing locations
    overseas and utilized the export credit agencies of other
    countries. We lost some sales to foreign competitors as a
    result of these developments.
        In my work in international sales, I have also been
    informed by a number of leading international
    telecommunications companies who, despite a desire to purchase
    U.S. goods, have made purchases from other countries, including
    China, because of the financing made available.

    Q.2. Now that we have President Reed, and Commissioners Bachus
    and Pryor, the board has a functioning quorum. How quickly do
    you think the Export-Import Bank can finance the backlog of
    sales--about $40 billion--that have been delayed over the past
    4 years?

    A.2. As my nomination is still pending and I am not involved in
    EXIM's internal decision making, I cannot give an exact
    timeline. To answer this question, I would need to know more
    about the quality of the transactions in the pipeline and the
    status of the deals as they have been in suspension for some
    time. What I can say is that working through a large backlog
    takes a solid plan based on resource availability and
    priorities but no business has anything more important than
    customers waiting for their products or services. Should I be
    confirmed, I would seek to ensure that the Bank is being
    diligent in its underwriting of current and new transactions
    and is processing transactions efficiently, while being mindful
    of the statutory obligations of EXIM's financing and our role
    as responsible stewards of taxpayer dollars. I would also be
    mindful of my own experience: that customers are impatient and
    the market is efficient, and that suppliers may turn to other
    means that are not necessarily in the American worker's best
    interests.

    Q.3. At any given time, the bank can have only $135 billion in
    loans, loan guarantees, and other types of financing assistance
    outstanding. After 4 years of restricted operations, it has
    about $60 billion in credit out, leaving about $75 billion
    available. The Export-Import Bank needs to be reauthorized by
    September 30 of this year. Do you think Congress should raise
    the credit exposure cap?

    A.3. As I said when I testified before the Committee, I do
    think that Congress should raise the overall financing
    authority of the Bank. The exposure cap should be set at a
    level that is based on forecasted need and that enables EXIM to
    meet its statutory mandate to support U.S. jobs by facilitating
    exports, to level the playing field for U.S. exporters, and to
    supplement private sector capital. Regardless of where the
    exposure cap is set, EXIM must maintain its robust risk
    management procedures and be responsible stewards of taxpayer
    dollars.

    Q.4. There are more than 100 foreign export credit agencies
    providing their companies with billions of financing. What have
    you learned about how other Nations assist their companies with
    exporting goods that we should emulate?

    A.4. The most significant development that I have seen is the
    increased provision of medium-term loans at terms that are
    extremely aggressive. I believe it is worthwhile for EXIM to
    consider how its medium-term program can continue to be
    enhanced while maintaining alignment with the Organization for
    Economic Cooperation and Development's Arrangement on
    Officially Supported Export Credits. Globally, I have observed
    an increase in large scale funding for infrastructure projects
    that is then tied to exports. Should I be confirmed, I look
    forward to learning more about the ways in which other
    countries are using export financing and how EXIM can best
    fulfill its mission of supporting U.S. jobs through exports.
    Should I be confirmed, I believe it will continue to be
    important to partner with like-minded countries to ensure
    companies are competing on the price and quality of the product
    rather than the terms of Government-backed financing.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR SINEMA
                         FROM PAUL SHMOTOLOKHA

    Q.1. What ideas do you have to improve EXIM's visibility and
    outreach to small businesses? If confirmed, what metrics would
    you use to measure the Bank's success in doing so?

    A.1. In my personal experience, the EXIM network of outreach
    professionals performs an admirable job with their resources. I
    have personally been marketed at trade shows, and through in-
    person visits to our company and via digital means. I cannot
    provide ideas to my fullest extent to improve EXIM's visibility
    and outreach to American small business without having the
    benefit of working internally with the staff. However, should I
    be confirmed I would set this goal as a priority and advocate
    for the proper allocation of resources to succeed. Based on my
    own experience, I believe that any strategy should include
    outreach to both the U.S. and international customer base. The
    education of EXIM product features and benefits should be
    amplified through cooperation with export promotion agencies
    such as U.S. Trade Development Agency and U.S. Foreign
    Commercial Service.
        Education needs to reach more small business owners,
    salespeople, and finance teams. All those stakeholders have to
    buy into the need to invest the time, energy, and resources in
    order to engage effectively. Most companies do a great job in
    marketing their products, but focusing on the customers'
    ``why'' and linking that to EXIM's products and services
    increases the chance for success. In my experience, a focus on
    digital marketing can be the best multiplier to reach wide-
    ranging customer base nationally and globally. I would also
    advocate that EXIM continue to enhance its efforts to work with
    community and regional banks as multipliers as they are closer
    to local businesses.
        Metrics development and measurement is an essential tool
    for achieving success, especially for specific initiatives or
    campaigns. Metrics should be linked to strategic plans and
    annual goal setting. Should I be confirmed, I would make it a
    priority to understand which, if any, Customer Relationship
    Management (CRM) platforms or tools are being used so that we
    can improve visibility of the customer among EXIM's units,
    measure organizational performance, and help staff gain key
    insights about which businesses could benefit from utilizing
    EXIM's financial tools. These platforms can also be used to
    make course corrections or adjustments without having to wait
    for lengthy research and reports. The power is at the keyboard
    and the data is the data.
        Without internal EXIM information available to me, based on
    my previous experience, I expect there are several metrics that
    could be used to measure the Bank's success in tracking its
    outreach and visibility to small businesses. These include:
    measurement from the source of the lead generation, lead
    assignment, qualifying leads from follow up and indication of
    interest, total applications submitted, total approved
    applications, total nonapproved applications (and reasons why),
    status of lead before closing, total number of transactions
    closed, reasons transactions are not closed, and customer
    surveys at the end of any successful or unsuccessful process.
    Should I be confirmed, I would also be interested in tracking
    the timeline from lead generation to close, and application
    submission to close. Having different metrics by product, size
    of company and approvals process, will help Bank staff assess
    where changes ought to be made. Average deal size, average
    number of employees per transaction or dollar deployed,
    analysis by product, specific market segment targets,
    geographic spread and reach, and many other customer oriented
    metrics can be added.
        Accurate metrics tracking can help EXIM ensure it is
    meeting its congressional mandate to support small business
    exports, could help identify areas where product improvements
    can be made, and could also be helpful in new lead generation
    (defined as new leads from existing accounts or new account
    leads).
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR ROUNDS
                        FROM ALLISON HERREN LEE

    Q.1. I am pleased to be the sponsor of the Financial Stability
    Oversight Council Improvement Act of 2019, which would require
    FSOC to determine whether potential nonbank threats to
    financial stability could be better solved by allowing
    companies to work with their primary regulator or through the
    development of a risk reduction plan. The SEC is the only FSOC
    member that focuses on capital markets. In order to protect
    investor access to our markets, the SEC must guard against a
    blunt SIFI designation when other more appropriate methods of
    remediation are available.
        Do you agree that the SIFI designation process needs to be
    reformed to prevent unnecessary designations?

    A.1. The Financial Oversight Stability Council was created in
    the aftermath of the 2008 financial crisis in part to help
    identify and reduce systemic risks confronting the financial
    system.
        I agree that the improper designation of a nonbank SIFI
    unnecessarily imposes heightened regulatory oversight without
    necessarily reducing systemic risk. It is the Chair of the
    Commission who acts as the voting member from the SEC on FSOC,
    and if confirmed, I would be interested in understanding his
    and others' views as to whether changes could be made to reduce
    any risk of an improper designation while continuing to
    adequately protect against systemic risk. I am open to
    considering all facts and data, and to hearing from and working
    with you, your staff, Members of this Committee and all
    relevant constituencies on this issue.

    Q.2. Do you agree that it's important for FSOC to consult with
    primary regulators before voting on a SIFI designation?

    A.2. In general, yes. It is likely that primary regulators will
    have significant information and expertise relevant to a SIFI
    determination. Moreover, it is my understanding that FSOC rules
    provide for such a consultation.

    Q.3. Do you agree that addressing nonbank risk does not always
    have to include a SIFI designation?

    A.3. A SIFI designation, and the consequences that flow
    therefrom, represent one method of addressing systemic risk in
    the financial system. Primary regulators overseeing nonbank
    institutions may also be in a position to implement certain
    changes that can address systemic risk.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
                SENATOR MENENDEZ FROM ALLISON HERREN LEE

    Q.1. I worked to include the honest broker provision in the
    Wall Street Reform law, and Congress' clear intent was for the
    SEC to establish a uniform standard of conduct. However, the
    SEC's ``best interest'' proposal fails to establish a uniform
    standard of conduct for broker-dealers and investment advisers,
    and it puts the burden on the retail investors to understand
    the difference between brokers and investment advisers.
    Moreover, the SEC's own Investor Advisory Committee recommended
    in November that everyone--investment advisers and brokers--be
    held to a uniform standard.
        Do you believe the average retail investor understands the
    difference between brokers and investment advisers?

    A.1. No. I agree with Chairman Clayton who stated ``it has long
    been recognized that many investors do not have a firm grasp of
    the important differences between [broker-dealers] and
    [investment advisers]--from differences in the variety of
    services that they offer and how investors pay for those
    services, to the regulatory frameworks that govern their
    relationship.''

    Q.2. Do you believe retail investors should bear the burden of
    trying to decipher complex legal relationships to understand
    whether they are making good investment decisions?

    A.2. No. I believe that both investors and registered entities
    deserve rules that clearly delineate the nature and extent of
    requirements regarding their relationship. Retail investors
    should receive a full, fair, and simple explanation of these
    requirements, including, among other items, how any differing
    standards compare to one another, so as to allow them to make
    well-informed choices.

    Q.3. Do you believe the SEC can do more to encourage brokers to
    put retail investor's interest first?

    A.3. Yes. In my view, there are approaches the SEC can consider
    to encourage brokers, where needed, to focus on ensuring that
    retail investors' interests are paramount. These can include,
    among others, working closely with FINRA in implementing and
    interpreting Regulation BI in a manner that optimizes the
    protection of retail investors, and focusing enforcement
    efforts through programs such as the Enforcement Division's
    Retail Strategy Task Force.

    Q.4. In its post-mortem of the financial crisis, the Financial
    Crisis Inquiry Commission concluded that ``compensation
    structures were skewed all along the mortgage securitization
    chain, from people who originated mortgages to people on Wall
    Street who packaged them into securities.''
        What is your view on the impact of incentive-based
    compensation structures in the years leading up to the
    financial crisis?

    A.4. In my view, compensation structures at financial
    institutions in the period leading up to the financial crisis
    in 2008 often incentivized and rewarded short-term results,
    with little accountability for long-term success. This
    encouraged the creation of excessive levels of risk that later
    proved damaging to these financial institutions and, in some
    cases, to the entire financial system.

    Q.5. If confirmed as Commissioner, would you push the SEC to
    finish the incentive-based compensation rule required by Dodd-
    Frank?

    A.5. Yes. If confirmed, I would work with the Chairman, the
    other Commissioners, the staff and, where appropriate, other
    regulatory agencies to encourage completion of the Joint Agency
    Proposed Rule on Incentive-Based Compensation Arrangements.

    Q.6. If so, what you think this rule should look like?

    A.6. Given the pending rulemaking, I do not want to prejudge
    the final rule. That said, the areas I would want to consider
    closely in any final rule would include, among others (a)
    whether the rule is broad enough to cover the appropriate
    institutions, the appropriate persons within those
    institutions, and the appropriate types of compensation; (b)
    whether the rule is appropriately tiered and tailored between
    smaller and larger institutions; (c) whether restrictions on
    excessive compensation are adequate and clearly defined; (d)
    whether enhanced requirements at larger institutions are
    adequate with respect to areas such as downward adjustments,
    deferrals, forfeitures, clawbacks, and various other
    limitations; (e) whether the rule adequately addresses
    governance and compliance issues such as board oversight,
    control, policies, and recordkeeping.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNER
                        FROM ALLISON HERREN LEE

    Q.1. In an article published in 2016 in the Cornell Law Review,
    Professor Urska Velikonja called the SEC enforcement measures
    deeply flawed. She identified numerous problems, including
    double or triple counting of enforcement actions and defendants
    and counting tangential or follow on proceedings that do not
    meaningfully reflect a separate action, etc. Given your
    extensive experience at the SEC and background in enforcement,
    do you believe the SEC consistently follows the same policies
    and procedures with respect to enforcement statistic reporting,
    from year to year?

    A.1. I believe that enforcement statistics should be gathered,
    analyzed, and reported in a consistent and transparent manner
    that provides a depth of information on the nature, extent, and
    success of enforcement activities. Such an approach supports
    well-informed internal assessments at the SEC, and equally
    important, public assessment and accountability. I have read
    Professor Velikonja's article on SEC enforcement statistics,
    and if confirmed, would look forward to hearing the staff's
    views and exploring the areas she has highlighted as
    potentially revealing inconsistencies, as well as considering
    more broadly whether changes that increase consistency should
    be made.

    Q.2. Could the SEC could improve the quality, reliability, and
    consistency of its enforcement statistics?

    A.2. Improvement in each of these areas merits careful
    attention and consideration. Identifying and understanding the
    nature of, and trends in, enforcement over time is critical to
    instilling investor confidence. Moreover, consistent and
    reliable data is necessary to support the public's confidence
    in regulators, and to aid Congress in its oversight
    responsibilities. If confirmed, I would look forward to hearing
    from the staff, you, your staff, Members of this Committee, and
    all interested constituencies on how improvements may be made
    to the quality, reliability, and constituency of SEC
    enforcement statistics.

    Q.3. If confirmed, will you commit to looking closely at this
    issue and to the extent possible, work with the GAO--which is
    conducting a study on this issue at my request--to provide more
    transparency into enforcement statistic reporting?

    A.3. Yes.

    Q.4. As you know, on June 5, 2017, the Supreme Court in Kokesh
    v. Securities Exchange Commission (SEC) ruled that the SEC only
    has 5 years to bring disgorgement claims against bad actors to
    try to compensate harmed Main Street investors. The practical
    effect of this Supreme Court decision for retail investors who
    have been harmed in fraud, pump-and-dump schemes, and other
    malicious activity is significant. The SEC, in its 2018 annual
    enforcement report, said that with respect to matters already
    filed by the Commission, ``the court's ruling in Kokesh may
    cause the Commission to forgo up to approximately $900 million
    in disgorgement, of which a substantial amount likely could
    have been returned to retail investors.'' As you know, I have a
    bill with Senator Kennedy that would address this problem by
    giving the SEC new authority to seek restitution for harmed
    investors, subject to a statute of limitations of 10 years.
        I understand that you can't comment directly on the
    legislation, but I am interested to get your views--as a former
    enforcement attorney--regarding the impact of the Kokesh case
    on the Commission's ability to effectively carry out its
    mission to protect investors?

    A.4. The ruling in Kokesh has significantly diminished the
    SEC's ability to recover and return funds to investors. The
    $900 million in forgone disgorgement is money left in the hands
    of fraudsters that will never be returned to their victims. By
    its nature, fraud is often well concealed for many years, thus
    under this ruling, some serious misconduct will go unaddressed.
    For example, while at the SEC, I helped bring a case against a
    broker who had been paying secret cash kickbacks to a State
    treasurer in exchange for business over a 6-year period. The
    misconduct was by its nature hidden, and not uncovered until
    years after the scheme ended.
        Accordingly, most of the misconduct had occurred more than
    5 years prior. The SEC was able to obtain a judgment requiring
    the broker to disgorge all of the profits from kickback scheme,
    but likely could not have done so had it been subject to a 5-
    year statute.
        In addition, during my time in the Enforcement Division, I
    spent many hours meeting with and talking to the victims of
    fraud--people who were tricked into emptying their retirement
    accounts, maxing out their credit cards and even taking out a
    second mortgage on their homes on the false promise of high
    returns. I once spoke at length with a couple, a retired
    teacher and a retired insurance agent, who had to take jobs in
    a fast food restaurant just to keep a roof over their heads
    after being defrauded in a ponzi scheme. The statistics on
    foregone disgorgement are striking, and the real-world stories
    behind those numbers are equally jarring.

    Q.5. One of my top SEC priorities is improving public
    disclosures around human capital management. I've had a good
    dialogue with the Chairman on this issue, specifically around
    improving Reg S-K disclosures to require public companies to
    provide more qualitative and quantitative information regarding
    their human capital management policies and practices.
        Do you believe there's value to be gained by investors to
    have additional information on human capital management and
    practices at reporting companies?

    A.5. Yes. Increasingly, the value of public companies is driven
    by the nature, quality, and skill of their workforces.
    Understanding human capital management policies and practices
    can thus provide an important basis for investors to assess the
    nature of, and risks associated with, a company's business.
    Indeed, investors have indicated strong interest in additional
    information regarding human capital. As Chairman Clayton has
    noted, ``the historical approach of disclosing only the costs
    of compensation and benefits often is not enough to fully
    understand the value and impact of human capital on the
    performance and future prospects of an organization.'' In
    addition, Regulation S-K contains no specific obligation to
    disclose this type of information other than the number of
    employees at a company. While periodic reports also must
    include information deemed material to investors, this
    requirement generally has not led to human capital disclosures
    that are sufficiently robust, consistent, or comparable.

    Q.6. If confirmed, would you push for the SEC to dedicate
    resources to explore this topic or otherwise undertake a
    rulemaking?

    A.6. Yes, if confirmed, I will work with the Chairman, the
    other Commissioners, and the staff to identify methods of
    improving the quality, extent, and comparability of human
    capital disclosures, including potential rulemaking.
                                    ------

            RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARREN
                        FROM ALLISON HERREN LEE

    Q.1. On the June 5, 2019, the Securities and Exchange
    Commission (SEC) voted to adopt new rules on standards of
    conduct for investment advisers and broker dealers.
        How would you have voted on this rule package had you been
    a Commissioner on the SEC?
        Why?

    A.1. I have not had the benefit of discussions with the
    Chairman, other Commissioners, or staff on the choices made in
    this rule package, or their views and analysis of the
    voluminous comments filed. That said, based on my reading of
    the final rule, I do have serious concerns.
        They include, among others, the adequacy of the standard
    for broker-dealers. I am concerned that the new, but undefined,
    ``best interest'' standard fails to establish a higher standard
    of conduct than that which was required of broker-dealers
    before the rule. The reason for the rulemaking was to improve
    on the prior standard which experience had shown often led to
    increased costs to retail investors. In my view, and depending
    on how the new rule is interpreted and implemented, it appears
    that the undefined standard may not improve the prior standard
    to a measurable degree.
        My concerns also include the Commission interpretation
    related to the standards applicable to investment advisers, and
    specifically the removal of proposed language that interpreted
    the duty of loyalty as requiring investment advisers to put
    their client's interest first. In addition, I am concerned that
    Form CRS may fail to adequately inform investors regarding all
    relevant conflicts, and lacks comparative information regarding
    the types of choices investors have. The information on Form
    CRS should provide relevant, meaningful, and understandable
    information to investors at a critical juncture in their
    decision-making process.

    Q.2. In a departure from the proposed rule, which described
    current law as ``require[ing] an investment adviser to put its
    client's interest first,'' the final rule said an investment
    adviser ``must not place its own interest ahead of its client's
    interest.'' Do you understand there to be a meaningful
    difference between those two standards? Which do you think
    better describes the standards of conduct in place before the
    new rule was finalized on June 5?

    A.2. I am concerned that the changed language could be read as
    meaningfully different and used by some to justify practices
    that are not in the best interest of investors.
        As to the standard in place prior to the final rule
    package, in my view, the state of the law, as well as its
    interpretation by many, supported the concept that investment
    adviser fiduciaries must put their clients' interests first. If
    confirmed, I would look forward to obtaining a better
    understanding of the staff's views regarding the changed
    language, including how the SEC will enforce compliance with
    the standard.

    Q.3. Based on your understanding of the new standards of
    conduct for broker-dealers, are there any instances that would
    have been permissible under the previous standards that are now
    unlawful?

    A.3. As suggested by the concerns expressed in your July 20,
    2018, letter to FINRA, the interpretation and enforcement of
    the new rule will be a pivotal factor in achieving a higher
    standard for broker-dealers. Based on my reading of the rule, I
    believe there are areas where the new rule could accommodate
    such an outcome, including, among others, precluding some types
    of sales contests, requiring mitigation of certain conflicts,
    and requiring certain disclosures related to conflicts. If
    confirmed, I would support efforts to interpret and enforce the
    new rule in a manner that would preclude certain types of
    conduct that were previously permitted under the suitability
    standard.

    Q.4. The SEC uses fines to punish companies for violating the
    law and deter future bad behavior. According to a recent report
    in the Wall Street Journal, the SEC had only collected 55
    percent of fines assessed from 2013-2018 and 60 percent of
    fines for the previous 5 years. Apparently ``unpaid fines are
    written off as uncollectable after 2 years.''
        How would you ensure that fines are collected from people
    of companies that have violated the law?

    A.4. I share the concerns indicated by your question.
    Maximizing the collection of disgorgement and penalties at the
    SEC is essential. This is particularly important because the
    funds collected come straight out of the hands of bad actors,
    and a substantial amount can go straight to harmed investors.
    Few endeavors could be more worthwhile in terms of fairness,
    accountability, and deterrence. If confirmed, I would look
    forward to working with the Chairman, the other Commissioners,
    and the staff to better understand what factors contribute to
    difficulties in collections and to develop approaches that
    could increase the collection rate. Staffing levels and
    expertise in the collections area must meet current needs.
    Collection difficulties also arise when, as can frequently
    occur, fraudsters hide or dissipate assets. The use, where
    feasible, of asset freezes, contempt motions, and
    whistleblowers may help increase the availability of funds to
    be collected after a judgment has been obtained.

    Q.5. Who at the SEC is responsible for collecting delinquent
    fines?

    A.5. My understanding is that there is a specific group of
    attorneys and staff tasked with the job of collecting and
    disbursing, either to investors or to the U.S. Treasury,
    penalties and disgorgement from enforcement matters.
    Ultimately, however, it is the Commission that is responsible
    for maximizing the collection of these funds.

    Q.6. What tools does the SEC have to pursue delinquent fines?

    A.6. It is my understanding that the SEC can and does institute
    legal proceedings to seek property liens against, and seize
    certain assets of, those owing disgorgement and/or penalties.
    If confirmed, I would look forward to learning more about
    additional specific tools and approaches that can be taken. As
    fraudsters often dissipate or hide assets, there may be steps
    that staff can take that could help reduce collections issues.
    I know, for example, that SEC Enforcement Division staff works
    hard to seek, where appropriate, orders freezing ill-gotten
    gains in the early stages of an investigation, but courts
    rightly require a high standard of proof in order to grant such
    requests. Careful monitoring of asset freezes that are granted,
    and seeking contempt motions where violations occur could, in
    some cases, further prevent dissipation. In addition,
    whistleblowers can often provide assistance in preventing asset
    dissipation and locating hidden or improperly transferred
    assets. If confirmed, I would work with the Chairman to ensure
    that staff has the resources and support they need to maximize
    collections.

    Q.7. Are there any additional authorities or resources that
    would be helpful for the SEC to have in pursuing companies that
    owe fines?

    A.7. If confirmed, I would look forward to gaining a deeper
    understanding from the staff as to whether greater resource
    allocation and/or specialized staff training could be of help.
    I would welcome the opportunity to work with you, your staff,
    and Members of this Committee to identify any additional
    authorities or resources that may assist in the collections
    effort.
                                    ------

                   RESPONSES TO WRITTEN QUESTIONS OF
              SENATOR CORTEZ MASTO FROM ALLISON HERREN LEE

    Q.1. Last week, Stephen Brandon Anderson, who previously ran
    River Source Wealth Management LLC, agreed to pay about
    $405,000 in disgorgement and another $100,000 in civil fines.
    The SEC has a critical role to holding people accountable who
    cheat or lie to investors. I'm worried about recent press
    articles that only a bit over half of the fines assessed in
    settlements or court judgments is collected by the SEC. Why do
    you think the SEC has had trouble collecting fines?

    A.1. I am aware of the recent press articles, and I share your
    concerns. Maximizing the collection of disgorgement and
    penalties at the SEC is essential. This is particularly
    important because the funds collected come straight out of the
    hands of bad actors, and a substantial amount can go straight
    to harmed investors. Few endeavors could be more worthwhile in
    terms of fairness, accountability, and deterrence. As a former
    enforcement attorney, I know that collection difficulties can
    arise when, as can frequently occur, fraudsters hide or
    dissipate assets. And I would want to ensure that SEC staffing
    levels and expertise in the collections area meet current
    needs. If confirmed, I would look forward to working with the
    Chairman, the other Commissioners, and the staff to better
    understand what factors contribute to difficulties in
    collections and to develop approaches that could increase the
    collection rate.

    Q.2. If you are confirmed as an SEC Commissioner, what can you
    do to ensure fines assessed are fines collected and paid to
    victims of fraudsters?

    A.2. If confirmed, I would look forward to gaining a deeper
    understanding as to what specific factors contribute to
    collection difficulties so that solutions can be well-tailored
    toward improvement. For example, I would be interested in
    understanding whether greater resource allocation and/or
    specialized staff training could be of help. Further,
    fraudsters often dissipate or hide assets so there may be steps
    that staff can take that could help reduce collections issues.
    I know, for example, that SEC Enforcement Division staff works
    hard to seek, where appropriate, orders freezing ill-gotten
    gains in the early stages of an investigation, but courts
    rightly require a high standard of proof in order to grant such
    requests. Careful monitoring of asset freezes that are granted,
    and seeking contempt motions where violations occur could, in
    some cases, further prevent dissipation. In addition,
    whistleblowers can often provide assistance in preventing asset
    dissipation and locating hidden or improperly transferred
    assets. If confirmed, I would work with the Chairman to ensure
    that staff has the resources and support they need to maximize
    collections.

    Q.3. Do you think the newly enacted Regulation Best Interest
    appropriately protects retail investors from being overcharged
    by their financial advisors? Would you support a fiduciary
    standard?

    A.3. I have not had the benefit of discussions with the
    Chairman, other Commissioners, or staff on the choices made in
    Regulation BI, or their views and analysis of the voluminous
    comments filed. That said, based on my reading of the final
    rule, I do have serious concerns. They include, among others,
    the adequacy of the standard for broker-dealers. I am concerned
    that the new, but undefined, ``best interest'' standard may
    fail to establish a higher standard of conduct than that which
    was required of broker-dealers before the rule. The reason for
    the rulemaking was to improve on the prior standard which
    experience had shown often led to increased costs to retail
    investors. In my view, and depending on how the new rule is
    interpreted and implemented, it appears that the undefined
    standard may not improve the prior standard to a measurable
    degree.
        A fiduciary standard, on the other hand, could have relied
    on longstanding legal precedent that traditionally emphasizes
    placing the interests of investors over those of fiduciaries.
    Such a standard would need to be carefully considered, weighing
    all costs and all benefits, but could lead to better, less
    costly and less conflicted financial advice for retail
    investors.

    Q.4. The hiring freeze at the SEC has led to a 10 percent
    reduction in staff and an inadequate number of administrative
    judges. What do you recommend to ensure adequate staffing at
    the SEC?

    A.4. Although an agency's efficiency and use of assets cannot
    be judged solely on the basis of a headcount, I am nonetheless
    concerned that the SEC's resource requests and allocations keep
    pace with the vast complexity, technological advances and
    resources in the specific markets it oversees. Moreover, a
    hiring freeze can subject the agency to arbitrary changes in
    resource allocations overall, and between and among divisions,
    that flow from random attrition. While I am pleased to see that
    the Congress' recent funding of the SEC allowed it to lift the
    hiring freeze, if confirmed, I would look forward to obtaining
    a better understanding as to how the budget requests are
    developed and supported, and would support efforts to ensure
    that any decisions regarding such requests are based on a
    careful analysis of the facts related to specific needs in each
    division.

    Q.5. Are you concerned about the decline in SEC enforcement
    actions, the lower monetary settlements and low average
    settlement amount in the past 2 years? If so, what will you do
    to ensure bad actors are held accountable?

    A.5. An effective enforcement program requires both a
    sufficient number, as well as sufficient quality and scope, of
    actions. Effective enforcement is critical to the SEC's mission
    because it instills investor confidence, ensures
    accountability, and deters misconduct. During my time working
    in Enforcement at the SEC, I spent many hours meeting with and
    talking to the victims of fraud--people who were tricked into
    emptying their retirement accounts, maxing out their credit
    cards, and even taking out a second mortgage on their homes on
    the false promise of high returns. In my view, the broader goal
    of compliance with the securities laws, and thus deterring
    potential bad actors, is critical. Individual accountability
    for misconduct is an important deterrent, and should be
    carefully considered and actively sought, particularly in cases
    involving fraud. This can involve a number of approaches
    including, among others: (1) efforts to work closely with
    cooperating companies to identify and gather evidence relating
    to culpable individuals; (2) working to sustain and, where
    possible, improve the whistleblower program which can often be
    a vital component in uncovering evidence of individual
    culpability; (3) shifting resources toward litigation in
    certain cases when a settlement with a culpable individual
    cannot be reached; and (4) in certain cases, accepting greater
    litigation risk.
                  Additional Material Supplied for the Record
     LETTER SUBMITTED BY SENATOR BOB DOLE IN SUPPORT OF THOMAS PETER FEDDO

    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

      LETTER SUBMITTED BY THE INDEPENDENT COMMUNITY BANKERS OF AMERICA IN
                           SUPPORT OF MICHELLE BOWMAN

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