[Senate Hearing 117-343]
[From the U.S. Government Publishing Office]
S. Hrg. 117-343
NOMINATIONS OF MICHAEL S. BARR, JAIME E. LIZARRAGA, AND MARK TOSHIRO
UYEDA
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
MICHAEL S. BARR, OF MICHIGAN, TO BE A MEMBER AND VICE CHAIRMAN FOR
SUPERVISION OF THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
__________
JAIME E. LIZARRAGA, OF VIRGINIA, TO BE A MEMBER, SECURITIES AND
EXCHANGE COMMISSION
__________
MARK TOSHIRO UYEDA, OF CALIFORNIA, TO BE A MEMBER, SECURITIES AND
EXCHANGE COMMISSION
__________
MAY 19, 2022
__________
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
48-337 PDF WASHINGTON : 2022
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
----------
THURSDAY, MAY 19, 2022
Page
Opening statement of Senator Tester.............................. 1
Prepared statement........................................... 41
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 42
WITNESSES
Nancy Pelosi, Speaker of the U.S. House of Representatives....... 5
Debbie Stabenow, a U.S. Senator from the State of Michigan....... 6
Gary Peters, a U.S. Senator from the State of Michigan........... 7
NOMINEES
Michael S. Barr, of Michigan, to be a Member and Vice Chairman
for Supervision of the Board of Governors of the Federal
Reserve System................................................. 9
Prepared statement........................................... 43
Biographical sketch of nominee............................... 45
Responses to written questions of:
Chairman Brown........................................... 115
Senator Toomey........................................... 117
Senator Menendez......................................... 130
Senator Tester........................................... 131
Senator Warnock.......................................... 132
Senator Crapo............................................ 133
Senator Scott............................................ 137
Jaime E. Lizarraga, of Virginia, to be a Member, Securities and
Exchange Commission............................................ 11
Prepared statement........................................... 90
Biographical sketch of nominee............................... 92
Responses to written questions............................... 57
Chairman Brown........................................... 138
Senator Menendez......................................... 141
Senator Tester........................................... 142
Senator Warnock.......................................... 143
Senator Scott............................................ 144
Senator Hagerty.......................................... 144
Senator Moran............................................ 145
Mark Toshiro Uyeda, of California, to be a Member, Securities and
Exchange Commission............................................ 12
Prepared statement........................................... 102
Biographical sketch of nominee............................... 103
Responses to written questions............................... 57
Chairman Brown........................................... 146
Senator Menendez......................................... 154
Senator Tester........................................... 154
Senator Warnock.......................................... 156
Senator Scott............................................ 156
Additional Material Supplied for the Record
Letters submitted in support of Nominee Mark Toshiro Uyeda....... 158
Letter submitted by SIFMA and BPI................................ 171
(iii)
NOMINATIONS OF MICHAEL S. BARR, JAIME E. LIZARRAGA, AND MARK TOSHIRO
UYEDA
----------
THURSDAY, MAY 19, 2022
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, the Hon. Jon Tester presiding.
OPENING STATEMENT OF SENATOR JON TESTER
Senator Tester. Good morning, everybody. This is a day that
will live in infamy because I am Chairman of the Banking
Committee, but only temporarily, OK. Only temporarily.
Today's hearing is in a hybrid format. Our witnesses are in
person, but Members have the option to appear both in person or
virtually.
The Committee meets today to consider the nominations of
three important Presidential nominees. First, the Honorable
Michael Barr to be a Member and Vice Chairman for Supervision
of the Board of Governors of the Federal Reserve; next, Mr.
Jaime Lizarraga to be a Member of the Securities and Exchange
Commission; and finally, Mr. Mark Uyeda to be a Member of the
Securities and Exchange Commission.
We thank the nominees for appearing here today, and welcome
their families and their friends who are in attendance as well
as those watching at home.
I also want to extend a warm welcome to Speaker Pelosi who
is going to be here, if not already here, to introduce Mr.
Lizarraga and Senators Stabenow and Peters, our great Michigan
Senators, will introduce Mr. Barr. And my friend, Senator
Toomey, will introduce Mr. Uyeda.
To our nominees, I want to thank you for your willingness
to serve in these important roles.
We are here today to consider three nominees who, if
confirmed, will have a lasting impact on our economy. We know
who powers our economy. It is small businesses, folks on Main
Street who create jobs and prosperity for our communities. And
it is workers. It is our job as Members of this esteemed body
to support an economy that actually rewards their work.
The nominees before the Committee today will play important
roles in our efforts to support workers, small businesses, and
American families.
Michael Barr is the President's nominee to be Vice Chair
for Supervision. Mr. Barr is a well-respected expert on
financial regulation who currently serves as the dean for
public policy and a professor of law at the University of
Michigan. From 2009 to 2010, Mr. Barr served as Assistant
Secretary for Financial Institutions at the Department of
Treasury, where he played a key role in helping the Obama
administration work with Congress to craft and enact the Dodd-
Frank Act.
Mr. Barr previously served at the White House, and earlier
in his career, in the Treasury and State Departments under
President Clinton.
Mr. Barr, I want to thank you for your willingness to serve
our country again.
Mr. Lizarraga and Mr. Uyeda have been nominated by the
President to be Commissioners at the Securities and Exchange
Commission. If confirmed, they will join the SEC at a critical
time.
Jaime Lizarraga has worked on financial services policy in
Congress and played a key role in some of the most impactful
pieces of capital markets legislation passed by Congress to
support working families and our country's middle class. The
son of Mexican immigrants, he understands the important role
the SEC plays in protecting consumers.
He currently serves as a senior adviser to Speaker Pelosi,
who is here today to support his nomination. Prior to joining
the Speaker's office, Mr. Lizarraga served in senior level
positions on the House Financial Service Committee.
Mr. Lizarraga also served at the Treasury Department, as
well as the SEC, where he worked as the Deputy Director of
Legislative Affairs.
Mr. Lizarraga, we want to thank you for your willingness to
serve our country.
Mr. Uyeda has served at the SEC since 2006, and is
currently working on Ranking Member Toomey's staff helping our
Committee navigate some of the greatest financial challenges in
recent American history. At the SEC, Mr. Uyeda has served as
counsel for Commissioners Paul Atkins and Michael Piwowar. He
also served as a Senior Adviser to my good friend, Jay Clayton.
Earlier in his career, Mr. Uyeda worked in private law
practice, as well as for the California Department of
Corporations.
Thank you, Mr. Uyeda, for your willingness to continue to
serve.
Look folks, these positions are really, really, really
important. If confirmed, you all will be on the front lines at
a critical point in our Nation's history. We are facing
challenges that are unique, they are unprecedented, and we need
folks serving our country who will always put the needs of our
country before any personal or political ideology.
Hopefully the worst of the pandemic is behind us, but our
economy is not where it needs to be in terms of its recovery.
Families are seeing higher costs from the gas pump to the
grocery store, and while unemployment is at a record low, small
businesses in Montana and across the country are having trouble
finding and keeping workers.
This Committee, under the leadership of Chairman Brown and
Ranking Member Toomey, has confirmed a host of folks to
critical positions charged with guiding the economy back from
the brink. If confirmed, the three of you, that are here today,
will immediately join in that work.
But before these folks can do their jobs, we have to do
ours. Our institutions have to be fully staffed if they are
going to do their jobs and meet the challenges of our country.
We have a lot more work to do here to support workers, to
support small businesses, to lower costs for working families,
to increase transparency in the marketplace and to hold bad
actors accountable. So let us get to it.
Ranking Member Toomey, you are now recognized for your
opening statement.
OPENING STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman.
We are here to consider three nominations: Michael Barr to
be Fed Vice Chair for Supervision, and Mark Uyeda and Jaime
Lizarraga to be SEC Commissioners. These nominations remind us
of the importance of financial regulators abiding by their
respective statutory mandates. This principle really should be
nonpartisan.
A fundamental aspect of a properly functioning democratic
society is that important public policy decisions should be
made by elected, accountable representatives. Otherwise, what
is the point of the elections?
Unfortunately, I am deeply concerned that financial
regulators, including the Fed and the SEC, are increasingly
straying into contentious political issues wholly unrelated to
their mandates and expertise. These include issues like what to
do about global warming, social justice, and even education
policy. No doubt, these are important issues, but they are
wholly unrelated to the limited statutory mandates and
expertise of financial regulators.
The Fed, for instance, has been weighing in on every one of
these contentious issues. Some intend to use the Fed's expected
climate scenario analysis to steer capital away from carbon-
intensive industries.
All 12 of the reserve banks have sponsored a ``Racism in
the Economy'' series where invited speakers advocated
particularly politically controversial ideas, including race-
based reparations and defunding the police. And the Minneapolis
Fed has been actively lobbying to change Minnesota's
constitution on the issue of K-12 education.
Does anyone truly think these activities are within the
Fed's statutory mandates? Of course not.
In February, we held a hearing to consider Sarah Raskin's
nomination to be the Fed Vice Chair for Supervision. At that
hearing, I cautioned that the hearing was not just about
vetting Ms. Raskin. I noted that it was a referendum on the
independence of the Fed in the face of pressure from some on
the left who wanted to use the central bank to allocate capital
to address global warming.
Addressing contentious issues like global warming requires
political decisions involving tradeoffs, like how expensive
should credit be for oil drillers in order to make gas more
scarce and costlier for motorists? And if we limit domestic oil
and gas production, causing energy prices to rise and consumers
to pay more, how much more is appropriate?
In a democratic society, those tradeoffs must be made by
elected representatives who are accountable to the American
people, not unelected central bankers. Ms. Raskin's prior
advocacy that unelected financial regulators should use their
powers to address global warming led to the Senate's bipartisan
rejection of her nomination. That rejection sends a powerful
message to Fed nominees, including Professor Barr, and that is
that all Fed Governors must commit to not exceed the Fed's
limited statutory mandates and by doing so help to ensure the
continuing independence of the Fed.
The need for a Fed that is focused on its mandates is
especially critical with inflation at a 40-year high. Even
though wages are rising, prices are rising much faster, and
that is causing workers, especially lower-income workers, to
fall further and further behind.
I hope Professor Barr will acknowledge today that inflation
is severe and commit to doing ``whatever it takes'' to bring
inflation back down.
Professor Barr certainly has an impressive background and
relevant experience to serve as the Fed Vice Chair for
Supervision. However, some of his previous work raises some
concerns and questions about his views on financial regulation.
Professor Barr strongly opposed the bipartisan S. 2155 bill
that Senators Tester and Warner helped to craft, which merely
enacted modest and sensible reforms to Dodd-Frank. He has also
argued that ``climate change presents severe long-term risks to
the economy and financial stability that must be urgently
addressed today.'' As I have discussed, there is no systemic
risk to the banking system posed by the gradual changes in the
Earth's average temperature.
I will be interested in hearing Professor Barr describe the
actions he believes the Fed should take to address these
supposed risks.
Keeping financial regulators apolitical and independent is
as important now as it has ever been. To my Democratic
colleagues who favor using financial regulators to address
contentious political issues, I ask, how would you feel about a
future Republican administration, under the pretense of
``financial stability'' risk, using the Fed to allocate capital
toward maybe increased defense spending, or financing a border
wall, or offshore oil development?
Once the precedent is set, the potential for further abuse,
by both political parties, is limitless.
In addition to Professor Barr, today we will also hear from
two nominees for the SEC. Mr. Lizarraga has worked on financial
services issues on Capitol Hill for many, many years. I commend
him for his longstanding commitment to public service.
And, in a few moments, I will introduce Mr. Uyeda, who is
exceptionally well qualified to serve as an SEC Commissioner. I
look forward to hearing from all three of our nominees.
Senator Tester. Thank you, Senator Toomey.
We will now have the introductions of today's nominees.
First, Speaker Pelosi, it is an honor to have you in front of
the Senate Banking Committee, and you may introduce Mr.
Lizarraga.
STATEMENT OF NANCY PELOSI, SPEAKER OF THE U.S. HOUSE OF
REPRESENTATIVES
Ms. Pelosi. Good morning, Mr. Chairman. Good morning,
Ranking Member. I have great respect for the work of this
Committee, having served on the Banking Committee when it was
called the Banking Committee, before it became Financial
Services in the House, Banking, Housing, and Urban Affairs. I
take great pride in the fact that Mr. Toomey and Sherrod Brown
both came from the House of Representatives and now serve on
this great Committee. And thank you, Mr. Tester, Senator
Tester, for your leadership. I congratulate you and Mr. Moran,
Senator Moran, for your announcement the other day for our
veterans. The bipartisan nature of it is pretty exhilarating.
Today I here, as has been mentioned, with the greatest,
again, official respect for the work of this Committee, and it
is my privilege to introduce a devoted champion of working
families, a respected expert on financial services, and a
lifelong public servant, Jaime Lizarraga. He has served in my
office, the Office of the House Speaker and Leader for nearly
15 years, and for a long time as the highest senior advisor.
Every single day his brilliant, strategic mind, wide-
ranging expertise, and unending compassion have been central to
much of the work of the Congress, and if confirmed as a
Commissioner he will be an invaluable asset to the Securities
and Exchange Commission and its independent work.
One of the most important roles of the SEC is to secure
that the policies we enact in Congress protect consumers in
their everyday lives. Jaime is uniquely positioned to succeed
in this task, understanding how to transform legislation into
implementation, as was mentioned by Senator Tester, having
served on House Financial Services Committee, the Treasury
Department, and as a staffer at the SEC.
As Speaker, it has been my privilege to witnessed firsthand
his masterful leadership. Because of his immense talent and
vast knowledge, his portfolio has grown more expansive in the
Speaker's office as he played an integral role in crafting and
enacting some of the most consequential economic legislation in
a generation.
There are many things to say about him but one of them was
the troubled Asset Relief Program that we worked in a
bipartisan way with the Bush administration on, the Dodd-Frank
reform, the Financial Crisis Inquiry Commission, restructuring
Puerto Rico's debt and reforming our immigration system, among
other things, and multiple relief packages that we worked, in
large measure, in a bipartisan way to advance.
And so with that I again just say that Jaime is known and
adored by all as a family man. He comes here today strengthened
and inspired by the love of his family. The son of immigrants
from Mexico, as you mentioned, Senator Tester, he has never
forgotten his parents' hard work and sacrifices to give him and
his sister a brighter future. His story is the story of the
American dream. His parents, Esther and Enrique, and his
sister, Maria Esther, are beaming with pride as they watch this
hearing from home in California. And today Jaime is joined this
morning by his loving wife of 22 years, Kelly, his darling
children, Victoria, Diego, Elena, Samuel, and Alexandra, and
his dear mother-in-law, Paula.
While he would be deeply missed by Members of Congress,
this is a bittersweet moment for me, and he will be missed by
our colleagues who depend on him. If confirmed, Jaime would be
a powerful voice for families like his own at the SEC.
Thank you again for the opportunity to appear before you
and to introduce the nominee for SEC Commission, Jaime
Lizarraga. I do so with great pride and confidence that he will
do a great job, and I thank you for your leadership, all of
you, and for this opportunity to be here today.
Thank you, Mr. Chairman.
Senator Tester. Madam Speaker, we are honored with your
presence and we thank you for that introduction, and please
know you are certainly welcome to stay for the entire hearing
if you are not too busy.
[Laughter.]
Ms. Pelosi. I would like to do that, except that we have
the Prime Minister of Sweden and the President of Norway here
to talk about their entry into NATO. Only that would take me
away from this important hearing.
Senator Tester. We will give you that excuse. Thank you,
Madam Speaker.
Ms. Pelosi. Thank you.
Senator Tester. Next up we have two Senators from another
great M State, the great State of Michigan, to introduce Mr.
Barr. Senator Stabenow.
STATEMENT OF DEBBIE STABENOW, A U.S. SENATOR FROM THE STATE OF
MICHIGAN
Senator Stabenow. Well good morning, and Mr. Chairman, I
was thinking the last time we were together in a committee room
I was chairing the Agriculture Committee and you were
testifying about really important legislation. So it is great
to be back with you and Ranking Member Toomey and the entire
Committee. I appreciate the opportunity to be here also with my
partner from Michigan in the Senate, Senator Peters.
And I am really honored today to introduce Michael Barr, a
fellow Michigander whom President Biden nominated to serve as
Vice Chair for the Supervision of the Federal Reserve. I have
known Michael for many years. He is exactly the person we need
at the Federal Reserve as our Nation recovers from the pandemic
and rebuilds for the future.
Professor Barr has stellar credentials. He is currently
dean of the Gerald R. Ford School of Public Policy at the
University of Michigan. You would think that would keep him
busy enough but he is also a Frank Murphy Collegiate Professor
of Public Policy, Roy F. and Jean Humphrey Proffitt Professor
of Law at the University of Michigan Law School, and the
founder and faculty director of the University of Michigan
Center on Finance, Law, and Policy.
He has also taught financial regulation and international
finance. He cofounded the International Transactions Clinic and
cofounded the Detroit Neighborhood Entrepreneurs Project, which
is a wonderful program that has helped launch more than 115
small businesses in Michigan, and primarily owned by women. And
so it is exciting to see what is happening.
Giving small businesses and families the tools they need to
succeed really is nothing new for Michael Barr. His entire
career has been focused on protecting consumers and building an
economy that helps our entire Nation thrive.
And he is no stranger to the Senate, having previously been
confirmed on a bipartisan basis during the Obama
administration, and we so appreciated his service at that time.
He played an important role in creating the Consumer Financial
Protection Bureau and was a key architect of Dodd-Frank.
Professor Barr deeply understands how the 2008 financial
crisis hurt workers and families and businesses and
communities, particularly in Michigan. I am confident that in
this role he will work day and night to ensure that it never
happens again.
It is my honor to introduce Professor Barr, and I urge the
Members of the Committee to vote yes on this important
nomination. Thank you.
Senator Tester. Thank you, Senator Stabenow. We appreciate
the introduction and we appreciate your leadership. Thanks for
being in front of the Banking Committee. Senator Peters.
STATEMENT OF GARY PETERS, A U.S. SENATOR FROM THE STATE OF
MICHIGAN
Senator Peters. Thank you, Chairman Tester and Ranking
Member Toomey. It is wonderful to be here before your
Committee. And I join my colleague, Senator Stabenow, in
introducing Professor Michael Barr to the Committee, and I
think it shows how qualified he is, how we know him as an
individual, and the strong support that we have for him in this
nomination.
There is no question Federal Reserve Governors are meant to
lead an important agency with a long tradition of nonpartisan
decisionmaking based on simply what is best for the economy. It
is imperative that any nominee to join the Federal Reserve is
able to make sound decisions based on evidence, without
partisan bias, and the best interests of the American people.
Thankfully, Michigan's own Michael Barr has the experience
and the leadership needed to help strengthen our economy,
support our families across our State and our country, and it
is without reservations that I am proud to recommend him as
President Biden's nominee to serve as Vice Chair of Supervision
at the Federal Reserve.
I am confident that Professor Barr has the professional
qualifications, the independence, and the knowledge to protect
the stability of our economy, to make him worthy of the
Senate's favorable consideration.
As Senator Stabenow mentioned, Professor Barr has a rich
history of professional service, serving in both the Clinton
and Obama administrations in a variety of different roles. One
that I worked with him in particular with personally was in
2009, when President Obama was trying to navigate out of the
Great Recession. He nominated Professor Barr to serve as the
Department of Treasury's Assistant Secretary for Financial
Institutions. He was unanimously confirmed by this body to
serve in that position. And as Assistant Secretary for
Financial Institutions Professor Barr was responsible for
developing and coordinating Treasury policies on legislative
and regulatory affairs affecting financial institutions.
Most notably, he was the key architect of the Dodd-Frank
Wall Street Reform and Consumer Protection Act of 2010, which I
was very proud to work with him. I was a member of that
conference committee, as a freshman in the House, and I can
tell you that Professor Barr played a central role in
developing the Consumer Financial Protection Bureau and
policies to expand access particularly for small businesses
across the country.
In 2017, as a fitting recognition of his extensive
experience in developing, enacting, and implementing public
policies, Michael Barr was approved as the dean of the
University of Michigan's Gerald R. Ford School of Public
Policy, and in this role Professor Barr has committed to
helping the Ford School become even more inclusive, even more
collaborative with colleagues all across the university, and
even more engaged in making a policy impact at both the local,
the State, and national, and even global levels. The school is
certainly very lucky to have him serving as dean.
Throughout his career, Professor Barr has been an exemplary
public servant, a molder of young minds, and has worked hard to
serve the people of Michigan and across the State.
So, in conclusion, I am proud to recognize Professor Barr
today for his many, many professional achievements and for the
expertise that I know he will bring to the Federal Reserve.
Thank you again for this opportunity to recognize an
outstanding nominee.
Senator Tester. Senator Peters, thank you for that
introduction and thank you for your hard work. We appreciate
the Michigan delegation being here today in front of the
Banking Committee. Thank you both.
Senator Peters. Thank you.
Senator Tester. Finally, Ranking Member Toomey will
introduce Mr. Uyeda.
Senator Toomey. Thank you, Mr. Chairman. It is my privilege
to introduce Mark Uyeda today. In nominating Mr. Uyeda,
President Biden has chosen someone who is exceptionally well
qualified to serve as an SEC Commissioner.
Mark is a dedicated public servant and an extremely
talented securities lawyer. He has over 25 years of experience
in securities and corporate law. That includes experience of
regularly preparing prospectuses and 10Ks for public companies
filed with the SEC, which I am told is something that no other
current SEC Commissioner has done.
For nearly two decades Mark Uyeda has worked as a State and
Federal securities regulator, including the last 15 years as a
career attorney with the SEC. During his career, Mark has been
recognized with multiple SEC awards for his work, including the
SEC Chairman's Award for Excellence and the SEC Capital Markets
Award.
Having personally worked with Mark during his time as an
SEC attorney detailed to the Banking Committee, I know
firsthand that the depth of his knowledge on securities and
markets is unrivaled. Beyond his impressive credentials and
expertise, Mark is a smart, fair, diligent, and humble
colleague.
Given his exemplary record and reputation it is no wonder
that he has received multiple letters of support for his
nomination. These include letters from seven former SEC
Commissioners who have worked personally with Mark, three
former chief securities regulators for the State of California,
whom he directly advised, and multiple Asian American legal
groups.
Throughout his career, Mr. Uyeda has generously volunteered
his time to help promote diversity at the SEC and throughout
the legal community. For example, he previously served as the
Chairman of the SEC Asian Pacific American Employees Committee
and the President of the Asian Pacific American Bar Association
of the Greater Washington, DC, Area.
And Mark Uyeda's nomination is historic for the SEC. If
confirmed, he will be the first Asian Pacific American to serve
as an SEC Commissioner in the agency's 88-year history.
I am very confident that as an SEC Commissioner he will
faithfully carry out the agency's critical mission of
protecting investors, maintaining fair, orderly, and efficient
markets, and facilitating capital formation.
Our loss here on the Committee will be investors' across
America's gain. I am thrilled to support Mr. Uyeda's nomination
and I know he is destined to do great things. I hope he can be
swiftly confirmed.
Thank you, Mr. Chairman.
Senator Tester. Senator Toomey, thank you for that
introduction. I would ask the panelists to step up, the
nominees to step up. No need to sit down because we are going
to administer the oath.
So will you please 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. Barr. I do.
Mr. Lizarraga. I do.
Mr. Uyeda. I do.
Senator Tester. Let the record reflect that they all
answered in the affirmative.
Do you also agree to appear and testify before any duly
constituted committee of the Senate?
Mr. Barr. I do.
Mr. Lizarraga. I do.
Mr. Uyeda. I do.
Senator Tester. Let the record reflect that they all
answered in the affirmative. Thank you. You may take your
seats.
If you would like to introduce your family members or
friends that are with you today I would invite you to do that
before beginning your testimony.
We will start with you, Mr. Barr, and we will just go right
down the line. Mr. Barr, you are now recognized to begin your
testimony.
STATEMENT OF MICHAEL S. BARR, TO BE A MEMBER AND VICE CHAIRMAN
FOR SUPERVISION OF THE BOARD OF GOVERNORS OF THE FEDERAL
RESERVE SYSTEM
Mr. Barr. Thank you, Senator Tester, Senator Toomey, and
other Members of the Committee. It is my honor to appear before
you today for this hearing. I am grateful to President Biden
for nominating me to serve as Vice Chair for Supervision and a
Governor of the Federal Reserve Board.
My wife of 28 years, Hannah Smotrich, joins me today in the
hearing room. I am grateful as well to be joined by my three
children--Etai is here with us in person, and Avital and Dani
are joining us online. I am thankful for their love and their
support. My parents, David and Debbie Barr, imbued in me the
deepest values of integrity and public service, and they are
here with us in spirit today.
For over 25 years, I have been working to help make the
financial system safer, fairer, and better focused on the needs
of businesses and households.
I began my Government career at the U.S. Department of
State, where I worked on international economic matters. I then
spent 6 years at the U.S. Department of the Treasury, helping
to strengthen the Community Reinvestment Act, build community
development financial institutions, support fair lending and
combat predatory lending abuses, and help bank the unbanked. I
also worked at the Office of Management and Budget, where I ran
an interagency task force advancing economic development in
Washington, DC.
I joined the faculty at the University of Michigan over 20
years ago, following the advice of my mentor and friend, Ned
Gramlich, former Director of the University of Michigan's
School of Public Policy and longtime Governor of the Federal
Reserve Board. At Michigan, I have taught domestic and
international financial regulation, conducted research about a
wide range of issues in finance, and coauthored a leading
textbook on financial regulation, law, and policy. Along the
way, I have also developed programs to help small business
owners in our local communities in Michigan.
In the wake of the global financial crisis of 2008, I
served as Assistant Secretary of the Treasury for Financial
Institutions, and I helped to develop and work with Congress to
enact the Dodd-Frank Wall Street Reform and Consumer Protection
Act of 2010. That basic framework is still with us today, and
it has helped make the financial system stronger and work
better for everyone. With the economy battered by the financial
crisis, my team and I also worked to support struggling small
businesses and households and community development financial
institutions.
After my time at Treasury, I stayed engaged in critical
issues affecting both national and international financial
policy, while also deepening my commitment to our local
communities in Michigan, working with community banks and
learning from advising private sector institutions.
For the last 5 years, I have served as dean of the Gerald
R. Ford School of Public Policy at the University of Michigan.
I have loved serving our community, and have worked hard to
advance bipartisan engagement, listening and talking to one
another across our differences in a way that can deepen our
democracy and get practical things done.
If confirmed as Vice Chair for Supervision, I would be
strongly committed to the Federal Reserve's responsibilities to
ensure that the financial system is robust and resilient, that
innovation flourishes with clear rules of the road, and that
the financial system operates fairly.
Additionally, an important part of the roles for which I
have been nominated is to serve on the Federal Open Market
Committee. Inflation is running far too high, hurting
communities all across our country. I would be strongly
committed to bringing down inflation to the Federal Reserve's
target, consistent with the Federal Reserve's dual mandate of
maximum employment and price stability.
If confirmed, I look forward to working with all of you on
this Committee, where I have spent much time learning from you
and collaborating with you on critical issues for our country.
I would be honored to be confirmed as Vice Chair for
Supervision and Governor. Thank you for your consideration, and
I look forward to your questions.
Senator Tester. Thank you for your testimony, Michael Barr.
Next we will go to Mr. Lizarraga. Please begin your
testimony.
STATEMENT OF JAIME E. LIZARRAGA, TO BE A MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION
Mr. Lizarraga. Chairman Brown, Ranking Member Toomey,
distinguished Members of the Committee, thank you for the
opportunity to appear before you today. It is an honor to be
nominated by President Joe Biden to serve as a Commissioner of
the Securities and Exchange Commission.
I would also like to thank House Speaker Nancy Pelosi for
introducing me. I am proud to have been part of her team for
nearly 15 years. Witnessing her extraordinary leadership up
close, and her dedication to building a more prosperous future
for America's working families has been the privilege of a
lifetime. It has also prepared me well for the role of SEC
Commissioner.
At its core, the SEC's mission is about the aspirations of
all working families to secure a prosperous financial future,
with the confidence that their interests will always be
protected.
To me, the SEC's mission is also deeply personal, dating
back to my days growing up in a Southern California working-
class community. Neither of my parents graduated from high
school. They immigrated from Mexico and began their life in the
United States as farm workers in California's Central Valley.
Like millions of families in our country, they sought
opportunity wherever they could.
In the absence of stable job prospects, my parents decided
to run a Mexican food business out of our home. On nights and
weekends, my sister and I helped them prepare the food, mostly
Mexican-style sandwiches called tortas. My father then sold the
food from his car at soccer games and at community shopping
centers.
Growing up, my father always encouraged me to study the
newspaper's financial pages. He taught me the importance of
saving and investing for long-term financial security. In those
years, and unlike now, access to safe and mainstream investment
opportunities was virtually nonexistent. This limited my
parents' wealth-building potential and their ability to grow
their small business into a more established enterprise.
My parents were also unable to save for retirement and
faced constant financial strains. Their goal was for my sister
and me to get an education. What little they had, they invested
in us. I often asked how our financial system could have served
their needs better.
This life experience inspired me to pursue a career in
public service. I focused on financial services policy, where
issues of investor protection, financial stability, and
economic security all come together.
In more than three decades of public service, both as a
House leadership and committee staffer, I played key roles in
all financial regulatory legislation moving through Congress,
from the Sarbanes-Oxley Act to the Dodd-Frank Act, and more. I
also served as a Presidential appointee at the U.S. Treasury
and at the SEC, working to ensure congressional mandates were
effectively implemented.
A key lesson from my long experience is that fair and
transparent markets benefit everyone, whether a pension plan
participant, a retail investor, or parents investing in their
children's future education.
The most enduring lesson is from the 2008 financial crisis:
poorly regulated markets can have devastating consequences for
working families and for the broader economy.
If confirmed, I look forward to bringing my experience and
unique perspective to the SEC. It would be an honor to work
with the agency's talented staff and with my fellow
Commissioners to uphold and strengthen the SEC's mission of
protecting investors, promoting fair, orderly, and efficient
markets, and facilitating capital formation.
I would approach the SEC's vital mission through the eyes
of working families like my own and work with my fellow
Commissioners to make sure congressional mandates are robustly
implemented. I would focus on making sure our regulations keep
pace with rapid technological changes in our markets. And I
would focus on facilitating capital formation for our job-
creating small businesses, particularly in underserved areas.
Our country's future prosperity depends on robust oversight
of our capital markets. To me, this means safe and transparent
markets that foster a level playing field for all market
participants, meaningful protections for investors, and broad-
based access to capital.
As the Speaker noted, my parents are here in spirit, and
are watching from home in California, and I am also proud to be
joined by my family today, behind me, my wife of 22 years,
Kelly Lizarraga, and our five children--Victoria, Diego, Elena,
Samuel, and Alexandra. Also joining us is my mother-in-law,
retired Reverend Paula Werner.
Thank you again for the opportunity to speak today, and I
look forward to answering your questions.
Senator Tester. Thank you, Jaime Lizarraga, and I
appreciate your testimony.
Next we will go to Mr. Uyeda.
STATEMENT OF MARK TOSHIRO UYEDA, TO BE A MEMBER OF THE
SECURITIES AND EXCHANGE COMMISSION
Ms. Uyeda. Mr. Chairman, Ranking Member Toomey, and Members
of the Committee, thank you for the opportunity to appear
before you today. With me in the hearing room is my wife,
Masae, and watching remotely from California are my parents,
sister, and extended family.
I greatly appreciate the kind words of Ranking Member
Toomey in introducing me to the Committee.
I am honored to have been nominated by the President to
serve as a member of the Securities and Exchange Commission. I
have a deep commitment to its mission to protect investors,
maintain fair, orderly, and efficient markets, and facilitate
capital formation.
My first job was spending summers on my grandfather's
produce route in Southern California. He drove a small truck,
and I would help him pull cartons of fruits and vegetables off
the truck to deliver them to small restaurants and retailers.
It was a family business, run by him and his two younger
brothers.
My grandfather kept up this physical labor well into his
70s. Every day, even during the hot summers, he would always
wear a collared, buttoned-down shirt and work trousers, which
were always neatly ironed. To me, that image of him has always
represented the dignity of work.
My grandfather had to build his business twice. First, in
the 1930s, when he dropped out of high school to support his
five younger siblings after both of his parents died. The
second time was after World War II, when he and his family,
including my mother, lost nearly everything when they were
forcibly incarcerated in internment camps pursuant to Executive
Order 9066 just because they were Americans of Japanese
descent. At the same time, my uncle was fighting in Europe with
the U.S. Army's segregated 442nd Regimental Combat Team, where
he was awarded the Bronze Star and served in Company ``E''
alongside future Senator Daniel Inouye.
Finding startup capital was difficult for my grandfather,
particularly in an era where racial discrimination was common.
Yet he persevered and accomplished the American dream. The
story of the immigrant family business has been often repeated
in the Asian American community--whether it is a restaurant,
dry cleaner, nail salon, or donut shop--and that perspective
has helped shape my views on the need for startup financing and
capital formation.
Since graduating law school in 1995, I have continuously
practiced corporate and securities law, spending the vast
majority of that time in public service. During my career, I
have advised on, and helped to implement, major securities
legislation, including the National Securities Markets
Improvement Act, the Private Securities Litigation Reform Act,
the Sarbanes-Oxley Act, the Dodd-Frank Act, and the JOBS Act.
In 2004, I became the chief advisor to California's
securities regulator, where we pursued an investor protection
agenda and worked with the SEC and other State regulators. If
confirmed, I would be one of the few State securities
regulators ever to serve as a member of the SEC.
During my past 15 years as an SEC civil servant, I have had
the privilege of advising Commissioners and Chairmen as part of
the executive staff and have been part of the Division of
Investment Management.
Since January of last year, I have been detailed by the SEC
to serve as securities counsel to Ranking Member Toomey as part
of this Committee, where it has been an honor to work with
staff on both sides of the aisle, including Chairman Brown's
staff.
Before I close, I want to express my gratitude to the
support and well wishes that I have received from my SEC
coworkers on this nomination. Their efforts to protect
investors have, and will continue to, inspire me every day.
Thank you and I look forward to your questions.
Senator Tester. Mark Uyeda, thank you very much for your
testimony. We will now proceed to questions, and please know
that some of the folks that are going to be asking questions
are on virtually, so you can work with that.
Mr. Barr, I am going to start with you. I want to thank you
for your willingness to serve. I appreciated the opportunity to
sit down with you in my office to hear more about your views
and priorities. I asked you about Fed's independence. The
Ranking Member talked about the Fed's independence in his
opening statement. Can you describe to me why the Fed's
independence is so important?
Mr. Barr. Thank you, Senator, for that question. The
Federal Reserve's independence is longstanding, and I think
quite critical to its effectiveness as a nonpartisan
institution, an institution that can make judgments purely
based on the evidence, the facts in front of it. That is
especially important with respect to its monetary policy
duties. The market needs to have confidence that the Federal
Reserve's decisions are made based solely on the evidence, and
the American public needs to have confidence that those
decisions are based solely on the evidence in front of it. So
its independence dramatically enhances its effectiveness.
I think you have seen, as other countries around the world
have moved to a model of independent central banking, that that
has also helped in their institutions as well.
Senator Tester. So why would it be a mistake to allow
politics to influence the Nation's monetary policy?
Mr. Barr. Thank you, Senator. If politics were to get
involved in monetary policy it would dramatically reduce the
effectiveness of what the Federal Reserve does and what it
says. It would reduce the effectiveness of what it does in the
sense that it could lead to wild swings in policy that are
based on politics rather than the evidence in front of it. And
it would affect the effectiveness of what the Federal Reserve
says because people would lose confidence that the judgments
that are being made are based on the evidence in front of it.
If confirmed as Vice Chair and Governor I absolutely assure
you that I am and will be firmly committed to the independence
of the Federal Reserve.
Senator Tester. In the last Administration, the President
got on TV and tried to influence the Chairman of the Fed. What
would you do if that were to happen now?
Mr. Barr. Thank you, Senator. I would ignore that.
Senator Tester. That is good enough for me.
Mr. Barr, I am very proud of the work that was done on
2155. I think it struck the right balance, and quite frankly
and maybe unfortunately, it was tested very, very quickly with
the pandemic. And, quite frankly, I think it showed that we
struck the right balance. I think the work that community banks
and the credit unions did across Montana, and I think across
the country, was exemplary.
So what is your view on the impact that S. 2155 has had on
our financial system?
Mr. Barr. Thank you, Senator. During the passage of S.
2155, I supported aspects of the legislation. I was concerned
about other aspects of it. I think the community bank
provisions of that legislation are quite good and strong, and I
also thought other protections added to the legislation on
veterans and servicemembers were spot on. And I think those
community bank provisions worked well, both at the time and
since.
I did have some concerns that I expressed as the bill was
being drafted that some aspects of the bill could weaken
capital or liquidity rules for larger firms. Some of the
concerns that I had were related to credit card banks and the
large U.S. operations of foreign firms.
A number of the concerns I had with the bill were actually
addressed by a manager's amendment that came in that, for
example, clarified that the U.S. operations of foreign firms
would still be required to have intermediate holding companies.
So overall, with the bill, I thought it was really quite
admirable the way Republicans and Democrats worked together on
that legislation, and I think if you look at the capital and
liquidity in the financial system today they are quite strong.
Senator Tester. All right. Thank you very much. I am going
to turn to Ranking Member Toomey now, but before I do that I
just want to express what a pleasure it has been working with
you, Ranking Member Toomey, during this Banking hearing.
Senator Toomey. And for so long.
[Laughter.]
Senator Toomey. Thank you, Mr. Chairman.
Professor Barr, thanks for meeting yesterday. I appreciate
your acknowledgment then and again this morning that inflation
is way too high. During our discussion you said that if
inflation persists you will do, and I quote, ``whatever it
takes,'' end quote, to get inflation under control. Even if it
were to unfortunately trigger a recession, which I know no one
wants or could precisely predict, and I hope is quite unlikely,
but just for the record this morning is that a fair
characterization of your view of fighting inflation?
Mr. Barr. Thank you, Senator. Yes, it is. I strongly
believe that inflation is far too high today, and I am
committed to bringing it down to the Federal Reserve's target
of 2 percent.
Senator Toomey. Great. Thank you. Now there are folks who
have openly argued that climate change poses such an
existential threat to humanity that we simply have to dispense
with democratic norms and use financial regulatory powers to
accelerate the transition to a lower carbon economy.
So Professor Barr, my question for you is, does the Fed's
mandate permit the Fed to use its power to accelerate the
transition to a lower carbon economy?
Mr. Barr. Senator, thank you for that question. The Federal
Reserve's authorities here are important but quite limited,
quite narrow.
Senator Toomey. Right.
Mr. Barr. And those are to assess risks to the financial
system from all sources, including climate.
Senator Toomey. I understand, Professor. I have got very
limited time.
Mr. Barr. Sorry.
Senator Toomey. So I understand what the Fed's powers are.
My question is do you believe that the Fed's mandate allows it
to use its power to decide to accelerate the transition to a
low-carbon economy?
Mr. Barr. No, Senator. I think that the Federal Reserve is
not able to allocate credit, should not be in the business of
telling financial institutions to lend to a particular sector
or not to lend to a particular sector.
Senator Toomey. Thank you for that. So would you agree that
that extends to the fact that the Fed does not have the
authority to use climate-related stress tests for the purpose
of penalizing banks for lending to energy companies, for
instance?
Mr. Barr. Thank you, Senator, for that question. The only
purpose of the Federal Reserve's scenario analysis or other
measures should be to understand risks that climate might pose
to the financial system and to work with financial institutions
on measures to manage those risks.
Senator Toomey. Great. Thank you. There have been, in some
quarters, a great deal of hostility to bank mergers, especially
in recent months where there appeared to be a de facto
moratorium on approving mergers that would result in a bank of
more than $100 billion in assets. Now it is clear to me that
bank regulators have no statutory authorization to impose a
universal moratorium on bank mergers. So do you agree that the
Fed does not have the authority to impose a blanket moratorium
on bank mergers?
Mr. Barr. Thank you, Senator. I am not aware of any
authority with respect to a blanket moratorium on bank mergers.
Senator Toomey. Yeah. I think if there were such an
authority I think you would be aware of it. I think that is
because there is no such authority.
But I do want to point out, I am concerned, Acting
Comptroller of the Currency, Michael Hsu, has proposed
conditional regional bank mergers on their commitment to meet
what would otherwise be inapplicable regulatory standards and
requirements. To me this is an attempt to establish this
requirement. This attempt exceeds the OCC's authority. And
ironically, making it more difficult for regional banks to
merge could actually decrease competition within the banking
industry by preventing larger regional banks from being able to
compete with very large banks.
So let me ask you this. Do you agree that regional bank
mergers can, in some circumstances, actually increase
competition in the banking industry by better enabling them to
compete with larger banks?
Mr. Barr. Thank you, Senator. I think that bank mergers can
have positive effects or negative effects on both competition,
convenience, and needs. Financial stability, I do not have an a
priori view. I think the merger reviews should be conducted
based on the evidence.
Senator Toomey. OK. Thank you. I do want to talk a little
bit about the SLR also. The Fed announced, in March of last
year, I think, that it would consider modifications to the SLR,
and the idea was to ensure that it serves as a backstop, not
the primary driver of capital requirements. So that is over a
year now and we have not seen a proposal, I think in part
because the seat to which you have been nominated had not been
filled.
If you are confirmed, would you commit to expeditiously
issuing a proposal to ensure that banks are not penalized for
holding risk-free assets like deposits at central banks?
Mr. Barr. Senator, I see that time has expired. May I
answer the question?
Senator Toomey. Sure.
Mr. Barr. Thank you. What I would like to do, if confirmed
as Vice Chair, is to come in and take a look at capital and
liquidity in the system, broadly speaking, to look at the SLR,
to look at the Basel III, so-called end game rules that need to
be proposed, and to try and take a look at this as a whole,
rather than piece by piece.
Senator Toomey. OK. Thank you, Mr. Chairman.
Senator Menendez. [presiding]. Senator Brown has asked me
to preside for a while so we will do that. I am going to
recognize myself.
Mr. Barr, there is a serious diversity problem at the
Federal Reserve. Latinos are the Nation's largest minority.
They make up 20 percent of the United States population, yet
they have no representation in Fed leadership. I have raised
this issue many times with nominees and sitting members of the
Federal Reserve, I have heard extensively about what the Fed is
supposedly doing, and I can just tell you right now that is
just not sufficient.
Sixty-two million Hispanic Americans in the United States
with a $2 trillion domestic marketplace impact deserve a seat
at the table where our Nation's most important economic
decisions are made. It is the reason that I voted against
Chairman Powell.
So I am eager to hear how you would deal with this
question. If confirmed, what steps would you take to improve
minority representation, particularly Latino representation in
leadership roles at the Fed?
Mr. Barr. Thank you, Senator, for that question. I agree
with you that diversity and equity and inclusion are important
goals for the Federal Reserve to pursue. In my experience in
prior jobs at the Treasury Department and at the Gerald R. Ford
School of Public Policy those have been really quite important
goals of mine as well.
And what I have been doing in my own work is to try and
build a pipeline of people who can then come in, get
increasingly senior jobs, positions. It starts in our work at
the Ford School, for example, we start in high schools now,
going out into high schools and educating students about the
opportunities of public policy. We run a summer program for
juniors in college to get them engaged in public policy and
prepare them for graduate training. We do a lot of work to
build out the graduate pool. We then work on the postdoctoral
pool, the faculty pool. And so really kind of a holistic
approach.
Senator Menendez. I appreciate that and preparing the
pipeline, obviously, is a one element. But the problem is there
are many qualified individuals now who could enter into the
Fed's system. There are qualified individuals who should be on
the regional banks. So will you commit to working with my
office to increase Latino representation at the Fed?
Mr. Barr. Yes, sir. I would be delighted to work with your
office on these issues.
Senator Menendez. You also have an important role to play
in the selection process for presidents and members of the
board of directors of the 12 Federal Reserve banks, which in
its 108-year history has never had a Latino sitting on it.
Would you commit to working to ensure that diverse candidates
are considered for these positions?
Mr. Barr. Yes, Senator. I think that is a quite important
goal for the Federal Reserve, and I would be delighted to work
on that.
Senator Menendez. And it is not just to do the right thing.
Study after study shows us that the more diverse boards, the
greater the profitability on the bottom line.
Mr. Lizarraga, congratulations on your nomination. If
confirmed, you would be the only Latino currently serving on
the SEC Commission or Senate-confirmed Federal financial
regulator, for that matter. And Mr. Uyeda, congratulations to
you as well in your historic nomination.
The asset management and investment advisory industries are
overwhelmingly White and male. Studies consistently show that
greater diversity leads to greater profitability, as I just
suggested. So in an effort to improve performance and thereby
benefit retail investors the SEC's Asset Management Advisory
Committee unanimously recommended that the SEC take concrete
actions to improve diversity in these industries.
So I want to ask both Mr. Uyeda and Mr. Lizarraga, can you
commit to bringing these recommendations before the Commission
for a vote so that we can bring transparency and diversity to
the industry and ultimately deliver better outcomes for
investors?
Mr. Lizarraga. Thank you, Senator, for that question, and I
embrace diversity and inclusion as fundamental values, and I am
proud of the work that I have done in Congress on that issue,
including in the setting up of the historic House Diversity
Office that serves the entire House of Representatives.
I am also aware that this is an issue that has received a
lot of attention in the shareholder proposals, and it is
something that, if confirmed, I intend to stay very active on.
Senator Menendez. All I am looking for is a vote. You guys
can vote it down if you want to. But the SEC Management
Advisory Committee unanimously--and this is a very broad
spectrum of individuals--made this recommendation. So all I am
looking for is a vote before the SEC. If you all do not think
it is a good idea you can vote it down. If you think it is good
idea you can support it.
So will you seek, if you are confirmed, to have a vote
before the SEC on this advisory committee's recommendations?
Mr. Lizarraga. If confirmed, I look forward to exploring
that possibility, recognizing that I would need to look into
the details of the process. But I agree with the sentiment that
is expressed by the advisory committee.
Senator Menendez. Mr. Uyeda.
Mr. Uyeda. When I was on the SEC staff, I had the privilege
of helping to stand up the Asset Management Advisory Committee.
I have seen the incredible amount of work they have put in on
these recommendations, and all of them, not only just for AMAC
but the other advisory committees, the recommendations seem to
be taken very, very seriously by the Commission. If confirmed,
I will commit to considering any item that Chair Gensler, who
oversees what items go on the agenda, are put up, on diversity,
and improving inclusion in the asset management area.
Senator Menendez. You are both learning your time in
Congress to be very cautious in your answers. I am going to
submit questions for the record. I would like to support both
of your nominations. But I just simply want to hear a yes or
no. If Chairman Gensler puts it up then, you know, you can be
advocates to Chairman Gensler to put it on, right? You are not
just stoic figures there. You have a role to play if you are
ultimately confirmed.
Senator Rounds is next.
Senator Rounds. Thank you, Mr. Chairman. First of all,
thank you all for placing yourselves within the nomination
process. This is very important that we have the opportunity to
look and to consider. My questions will primarily be to Mr.
Barr.
Mr. Barr, I have appreciated the opportunity to visit with
you in my office this week. This is an opportunity to review a
little bit of that. And I just wanted to begin, Senator Toomey
touched on this already, but just to clarify, and this will
save me from putting a question for the record in front of you,
it sounds like you are agreeing to considering permanent
modifications to the SLR. When do you think we could expect to
see action on that? I think this is really important that we
address it. We know that we have got other members on the board
that have already committed, but we would like to hear a
commitment that we move forward with this consideration.
Mr. Barr. Thank you, Senator Rounds, for that question. It
was wonderful to spend time with you in your office earlier.
As I said to Senator Toomey, what I would like to do is to
come into this position, if confirmed, and wrap my arms around
the whole capital and liquidity picture--that includes the SLR.
It includes the Basel III end game and stress testing and the
like--to make sure I understand the full package of potential
issues. I want to make sure that I understand how the
institutions are doing with respect to emergent risks as well.
Senator Rounds. Well, let us cut to the chase on that part
because even right now, in the middle of what is significant
inflation, the Federal Reserve has written, in its most recent
supervision and regulation report that was released on Friday,
and I will quote it, ``The banking system remains strong
overall with robust capital and liquidity and improved asset
quality.'' That would seem to point to the fact that the system
right now is working, and what we are suggesting is that the
modification to the SLR would be appropriate as well. We are
just hoping that--I guess what I am asking is that you would
move forward fairly quickly to address the SLR issue.
Mr. Barr. Thank you, Senator Rounds. I agree with you that
capital and liquidity in the system today is quite strong. But
what I would really like to do, and I think makes sense, is not
to think about the capital rule as piecemeal but to understand
them as a group.
Senator Rounds. But if you are talking about a long-term
study you are talking an extended period of time. I just want
to clarify that this is not going to take years to get done.
Mr. Barr. Senator, it will not take years to get done.
Senator Rounds. Will it take months to get done?
Mr. Barr. I cannot specify the exact time period, Senator.
I promise that I take the issues seriously. They are the reason
that I am focused on the resilience of the financial system,
and I promise to address the issues in a serious way.
Senator Rounds. OK. Just a few minutes ago as we were
looking at this, Senator Tester had started out and he talked
about the success that we had with 2155. You and I spoke about
2155 and the fact that I had questions whether or not you would
have supported a number of the changes that were in there.
Part of what 2155 did and focused on was the ability to
tailor based upon the size of the different banks and so forth.
Let's go back into that a little bit. It sounds like you still
feel that tailoring based on size and a risk profile is good
for banks, and it sounds specifically that, in particular,
community banks, but what about regional banks as well? It
seems to me that if you are tailoring, can you not apply that
to regional banks as well?
Mr. Barr. Thank you, Senator. Yes, I think that tailoring
or a graduated approach, a tiered approach makes sense for the
financial system. You want the strictest rules for the very
largest institutions, and you want gradually less restrictive
rules as you get to simpler, less complex, less risky
institutions. And you particularly want, with respect to
community banks, the simplest of rules given the potential for
regulatory burden being very high for them----
Senator Rounds. What about banks $50 billion and over,
regional banks?
Mr. Barr. I think that same principle of tailoring, or I
think of it as tiered approaches to regulation, make sense at
each of the kinds of size levels. I strongly agree with the
principle of a tiered approach. Where I had disagreement was on
whether that approach was exactly, you know, what I would have
done for each of those institutions. Obviously, Congress has
spoken on that.
Senator Rounds. Well, tailoring recognizes that you can
modify it based on the size.
Let me ask this, just in turning to another topic. I have
long pushed our U.S. representatives at the International
Association of Insurance Supervisors to advocate in favor of
the aggregation method as an alternative method to the ICS.
Before confirmation, Governor Brainard indicated unequivocal
support for this position and noted that the Fed continues to
advocate for the aggregation method internationally.
Mr. Barr, if confirmed, will you commit to the position
outlined by Governor Brainard in defending the use of the
aggregation method and the State-based system of insurance
regulation? This is a very important question.
Mr. Barr. Senator Rounds, I agree with Governor Brainard
about that approach.
Senator Rounds. Thank you. Thank you, Mr. Chairman.
Senator Menendez. I understand Senator Warner is with us
virtually.
Senator Warner. I am, Senator Menendez. Thank you so much,
and I say to my colleague, Senator Rounds, one of the reasons
we have tailoring is because we did the reforms in 2155. And
while Mr. Barr may not agree on exactly where the cut lines
should be, and there was some arbitrariness on that, I do think
it is the right approach.
Mr. Barr, I am going to start with you on CRA. This is a
topic I know you have written a lot about and talked a lot
about. I think you made a thoughtful review in 2019. The Fed,
FDIC, and OCC's recent proposal is extensive. How much have you
reviewed that so far? How do you think it will stand the test
of time? Are there areas that you would like to see moving
further on? Give us your take on CRA.
Mr. Barr. Thank you, Senator Warner, very much for that
question. I think that the draft proposal from the three
banking agencies is a good one. There was an enormous amount of
work that has been put into that, and I think it shows in the
proposal.
I was especially glad to see the three agencies working
together after there was a period of time where there was not
that kind of alignment. I think that the certainty that that
provides for the financial sector and for communities is really
important.
There are a few areas I just want to continue to review in
the rule, and I also look forward to reading, if confirmed, the
public comments that come in on that rule. I would like to be
sure that the rule is appropriately taking on issues of
financial inclusion. The rule has some tiering with respect to
application of rules. I would like to make sure that that also
is taking into account the needs of community banks in the
process.
But I was very much encouraged by what I read in the rule.
Senator Warner. Did I just disappear? Folks, did I--whoops.
Senator Smith. There you go. We can hear you. We can see
you.
Senator Warner. Am I looking as washed out? I think my
battery is running down, and it is a little embarrassing since
I invented cell phones, that I cannot figure out how to work a
computer.
Senator Toomey. I will send you some makeup.
Senator Smith. You are looking a little peaked, Senator.
Senator Warner. No matter how much kind of heckling from my
colleagues--Mr. Barr, CRA, in my mind, fits in with racial
wealth gap. It fits in with the whole questions of access to
capital. This is a topic that I have talked with you about and
every member of the Fed about how we can be more engaged with
CDFIs and MDIs. You know, everybody gives me ``Attaboy, I
agree, I agree, I agree.'' Frankly, the reality of the Fed
moving in a meaningful way on these questions I think has been
less than the rhetoric. There has not been as much there,
there. And I would point out again I think the first round of
PPP, while well-intentioned, showed huge lack of take-up by
minority-owned businesses. I know Senator Cortez Masto, this is
something she has worked on, Senator Van Hollen has worked on.
I really am going to need--you know, I look forward to
supporting you, but I think the Fed is going to really need to
lean in, and particularly from the regulatory standpoint,
regulatory supervision. There are lots of banks in the chain
who, even beyond CDFIs, that say they would like to do more.
And my fear, at times, is that you guys say one level comment
at the national level, and that never translates down to the
examiners. The examiners are still dinging institutions that do
not dot every I and cross every T, particularly when we are
trying to deal with underbanked communities.
So in my last minute can you put a little more meat on the
bones about when you get confirmed what you will do on this
access to capital issue for underserved communities and
particularly how CDFIs and MDIs can play a role.
Mr. Barr. Thank you, Senator, very much for that question.
I very much look forward to continuing to work with you on
these issues, if confirmed. I think that community development
based financial institutions and minority depository
institutions and other community banks have played critical
roles in expanding access to capital for underserved
communities, for low- and moderate-income communities, for
minority communities. And that, to my mind, is a critical role.
I think the Federal Reserve can play an important role, as
you suggest, in supervision and in regulation. And I have had
the same experience that you indicate about the disconnects
between Washington and the field I would be quite attentive to.
Senator Warner. I know my time is up. I just want to again
say thank you to so many of my Republican colleagues, frankly
led by Senator Crapo, who helped really work to get that $12
billion. It was the first time we put our money where our mouth
is in terms of support for CDFIs and MDIs.
Thank you, Senator Menendez.
Senator Smith [presiding]. Thank you, Senator Warner. And
now we will hear from Senator Moran for 5 minutes.
Senator Moran. Chairwoman, thank you. A couple of questions
for our SEC nominees, and thank you all for your willingness to
serve, and I look forward to developing a solid working
relationship with each of you.
For Mr. Lizarraga and Mr. Uyeda, this I hope is a yes-or-no
answer so I can get to other questions as well. Mr. Lizarraga,
do you agree that any change to the disclosure rules, which
would more than double the current cost of disclosures, with an
outsized impact on smaller companies should be subjected to
robust public debate, including in front of this Committee
before those rules are finalized?
Mr. Lizarraga. Yes.
Senator Moran. Mr. Uyeda.
Mr. Uyeda. Yes.
Senator Moran. Thank you. Mr. Lizarraga, do you support
competition among asset managers and believe that investment
firms should compete to manage investors' money?
Mr. Lizarraga. Senator, I believe in competition in all
segments of our markets.
Senator Moran. I will ask both of you, but let me add a
little to that question. It is related to the following. Do you
believe that smaller firms, such as those with less than $500
billion in assets, which seems less than small to me, should
have the same opportunities as the multitrillion-dollar firms
to list exchange-traded products in order to compete and serve
investors?
Mr. Lizarraga. I am not sure I understood the last part of
your question, sir.
Senator Moran. Do you believe that smaller firms should
have the same opportunities as multitrillion-dollar firms to
list exchange-traded products in order to compete and serve
investors?
Mr. Lizarraga. Thank you, sir. I believe small firms, small
issuers should be treated fairly, just like all market
participants should be. So yes, I agree that they should be
equitably treated.
Senator Moran. This is not a trick question. There is not
anything I am trying to capture here other than to make certain
that what I have seen where small firms have been excluded from
the ability to compete with larger firms due to decisions made
by regulators. I want to make certain that you have an
appreciation, that both of you have an appreciation for those
smaller firms and will not do anything to disadvantage them and
their capability of attracting and managing funds for clients
as compared to those large, multitrillion-dollar firms.
Mr. Lizarraga. Yes, sir. I agree with that principle,
generally, yes.
Senator Moran. Thank you. Mr. Uyeda.
Mr. Uyeda. Yes. And, in fact, I would point out that
consideration of competition is statutorily mandated by
Congress that the SEC consider. So efficiency, competency,
capital formation are three factors that, by law, the SEC must
consider in any rulemaking. In addition, the SEC has a mandate,
under the Regulatory Flexibility Act, to look at the impact on
small entities, and a number of those definitions, particularly
in the asset management space, I think are potentially outdated
and need to be looked at.
The current small entity definition is just $25 million of
assets under management or less, which, as you noted, $500
billion these days seems like quite a small amount, so that
would be something to think about updating those limits.
Senator Moran. Thank you both for your answer. The follow-
up to that, which I think--I will ask you if you will commit to
working with this Committee to ensure that smaller firms have
the opportunities and necessary infrastructure to compete with
largest management firms by allowing them to offer exchange-
listed products.
Mr. Lizarraga. Yes, sir. I commit to working with this
Committee on all issues before us today.
Senator Moran. That is a good answer.
Mr. Uyeda. Yes. I also commit to working with this
Committee on consideration of those issues.
Senator Moran. Mr. Barr, in June of 2020, you stated that
the continued reluctance of the Fed to force banks to preserve
capital in the face of global pandemic and economic collapse.
You talked about those circumstances. It seems that throughout
the pandemic and now capital liquidity levels in the banking
sector have been a key strength for our economy, and my
question is, does that fact, if you agree with that does that
fact lend credence to the banking sector being adequately
prepared for the next recession?
Mr. Barr. Thank you, Senator, for that question. The
statement I made was in the context of the global pandemic
having just hit the United States, and before Congress and the
Federal Reserve took the really extraordinary actions they took
to protect our economy, I was concerned that the paying out of
dividends and permitting the cash repurchase of shares was
dissipating capital when it needed to be preserved. But I agree
with you that capital and liquidity today is quite strong.
Senator Moran. Thank you. And I am out of time. Thank you.
Senator Smith. Thank you, Senator Moran.
We will next hear from Senator Cortez Masto, who is joining
us virtually, I believe.
Senator Cortez Masto. Thank you, Madam Chairwoman.
Congratulations to all three of the nominees. I so appreciate
your willingness to serve.
Let me start with Mr. Uyeda and Mr. Lizarraga. Thank you,
as well, for everything that you have done in the past
supporting [inaudible] committed to. Let me ask you this, and
this is a concern that I think many of us have. We have seen
social media play a growing role in market manipulation, and
the SEC has actually fined civil fines over tweets in the past
as a result of this.
So I am curious, for the two of you, what are your thoughts
about market manipulation on social media, and what role should
the SEC take to curb this practice? And Mr. Uyeda, let us start
with you.
Mr. Uyeda. So the SEC has longstanding authority to pursue
enforcement actions for manipulation of the securities markets.
Social media is definitely one avenue in which that
manipulation can occur. But the use of the internet to
manipulate prices, including in pump-and-dump schemes, is
nothing new. In fact, I think it was a couple of decades ago
when the first enforcement actions were brought for the use of
internet bulletin boards, as they were called during the time,
to disseminate false and misleading information.
My experience at the SEC is that there is an ever-expanding
set of technological tools to identify manipulative behavior,
and if confirmed, that is something that I would be interested
in working with to make sure that the hard-working staff have
all the tools at their disposal to investigate potential market
manipulation.
Senator Cortez Masto. Thank you. Mr. Lizarraga.
Mr. Lizarraga. Thank you, Senator, for your question. I
think robust enforcement of our securities laws lowers the risk
in our capital markets, protects investors, and lowers the cost
of capital. To the extent that there is fraud and market
manipulation, wherever it occurs, I think the SEC has an
obligation to pursue that.
Social media does facilitate, in some instances, these
violations of the law, and I believe in prioritizing
enforcement actions that address that. Recently, as you may be
aware, Chairman Gensler added some resources to the Enforcement
Division to address some issues related to the digital space,
which may also include monitoring what happens on social media.
Senator Cortez Masto. Thank you. Mr. Barr, let us talk
cybersecurity. We have not had a chance to talk that yet. As
you well know, banks and our other financial institutions in
many ways are on the front lines of the growing rise of crime
happening in cyberspace. Our Nation's banks must take
appropriate risk mitigation from incursions from bad actors,
both domestically and abroad.
So can you talk a little bit about your experience in
cybersecurity and data privacy and safety, and what role
cybersecurity plays in fostering stability, integrity, and
efficiency in our economy?
Mr. Barr. Thank you very much for that question, Senator.
Cybersecurity is really essential for risk mitigation, risk
management in the financial system. Cyberrisk is a very urgent
risk. It is with us today. And I think it is quite critical
that both the Federal Reserve and the other Federal regulatory
agencies, and the financial sector itself, continue to invest
and try and stay ahead of the curve. It is a constant process.
My own experience with cybersecurity relates to my work at
the U.S. Treasury Department where I oversaw, among other
things, the Office of Critical Infrastructure Policy. And I
have also done work with firms engaged in antifraud and other
measures, and I have written about the need for international
coordination on efforts to address risks from cybersecurity in
a way that continues competition and advances the ability of
financial institutions to serve countries around the world. So
it is an issue that is quite central and I would be focused on.
Senator Cortez Masto. Great. I am glad to hear that. Thank
you. Thank you again and congratulations.
Senator Smith. Thank you, Senator Cortez Masto.
We will now turn to Senator Daines for 5 minutes.
Senator Daines. Thank you much. Professor Barr, you have
previously voiced concerns regarding the regulatory relief put
in place following the enactment of Dodd-Frank. Specifically,
you were a very vocal critic of Senate Bill 2155. That was the
2018 Dodd-Frank rollback that thankfully passed the Senate with
overwhelming support. It had strong bipartisan support by a
more than 2-to-1 margin.
You stated at the time that passing the bill would be,
quote, ``a significant mistake.'' You mentioned earlier in this
hearing that many of your concerns were addressed by a
manager's amendment. My question is, do you still think that
passing that bill was a mistake?
Mr. Barr. Thank you, Senator Daines. As you mentioned, a
number of my concerns were addressed by the passage of a
manager's amendment as well as subsequent regulation, for
example, that made it clear that the custody bank provision
could only genuinely be used by custody banks, which was an
area of concern.
Senator Daines. Looking back, do you still believe passing
that bill was a mistake?
Mr. Barr. I think, you know, on balance, again, I would
have chosen a different balance. I think reasonable people can
disagree about that. It obviously garnered widespread support
in the Congress, and I would be quite committed to implementing
the law as written by the Congress in doing that.
And when you look at overall capital and liquidity level in
the system today, as I have said previously, it is quite
strong.
Senator Daines. Now what are your views on the regulatory
tailoring provisions that were included in that bill, 2155, and
how would you approach these provisions in terms of
implementation at the Fed?
Mr. Barr. Thank you, Senator, for that question. As I
indicated earlier, in response to Senator Rounds, I think a
tiered approach, a tailored approach to regulation makes a lot
of sense. I think the strictest rules ought to be applied to
the largest institutions, and there should be a graduated
approach below that. And especially care ought to be taken with
respect to community banks who have difficulty meeting the
regulatory burden.
So I am a strong supporter of the principle of tiered
regulation.
Senator Daines. I want to turn to CFPB for a moment. With
regard to the CFPB, you have stated, and I quote, ``A tax on
its structure, budget, director, and authorities are pretext
for weakening consumer protections, in general.'' You have also
stated that Republican opposition to the CFPB during the Dodd-
Frank debate was, and I quote you, ``all about not wanting
consumer regulation.''
Do you stand by those very partisan views?
Mr. Barr. Senator Daines, when I hear those remarks I think
they are exactly the kinds of things I tell my students not to
do. I think they were intemperate remarks, and I do not think
that is a good way to engage in productive dialogue with people
you disagree with, so I regret them.
Senator Daines. Thanks. In light of the Supreme Court's
decision, the CFPB's original governance structure, which you
helped to design, was unconstitutional. Do you acknowledge that
Republican concerns may have had some merit?
Mr. Barr. Thank you, Senator. My concern about the
constitutionality was not about whether the particular choice
was a good choice or a bad choice. It was about who gets to
decide, and my strong view is Congress gets to decide. So you
get to decide if you want to structure a Federal agency with a
commission or a board or a single director. I think Congress
ought to be given a great deal of deference in that by the
Judicial branch. And in history Congress has used a wide
variety of techniques to establish agencies. I think that is
the right approach.
Senator Daines. I want to switch to the issue of climate
change. Do you believe that climate change is among the top
three threats to financial stability, because we have heard
that from witnesses here at this Committee in the past? What
are your views? Is it one of the top three threats?
Mr. Barr. I think climate change is an interesting example
because it is a very long-term issue, but we need to figure out
how to wrap our arms around it today.
Senator Daines. Would it rise, as you assess priorities and
thinking through the lens of which you will, if confirmed,
governed, do you believe it is one of the top three threats to
financial stability?
Mr. Barr. Senator, I have not thought about a priority
ranking of the threats facing the financial sector. I think the
job of the Vice Chair, if confirmed, is to think about the
range of emergent threats to the financial system and then to
design a regulatory approach and work with financial
institutions so you can have a consistent risk management
framework.
You know, if you think back before the global pandemic, the
global pandemic was not on anybody's list of the next threat to
the financial sector. So I think it is just important to be
humble about our understanding of those sets of risks.
Senator Daines. All right. Thank you.
Senator Smith. Thank you, Senator Daines.
We will now hear from Senator Reed for 5 minutes.
Senator Reed. Thank you very much, Madam Chairman.
Mr. Uyeda and Mr. Lizarraga--I think I am close on both
scores--the SEC has recently proposed a rule for public
companies that would require cybersecurity expertise on the
board or some mechanism to ensure that cybersecurity is taken
into consideration. And starting with Mr. Lizarraga, do you
believe that is critical and should be implemented quickly?
Mr. Lizarraga. Thank you, Senator, for that question. I
think it is essential to bolster cybersecurity at the SEC and
its regulated entities as a matter of principle, yes.
Senator Reed. Thank you. Mr. Uyeda.
Mr. Uyeda. Yes, that is correct, Senator Reed. So without
prejudging the current proposal, which is out for public
comment, just generally I think cybersecurity is a very
critical threat, particularly facing the financial service
industry. There can be very significant fallout and
consequences from a breach, and the SEC has an obligation,
particularly for the broker dealers, transfer agents, clearing
firms, investment companies that it oversees, to ensure that
there is appropriate efforts to protect against cybersecurity
threats.
And I would also add it is very important for the SEC
itself, as an agency, to bolster its cybersecurity defenses.
The SEC, during my time there, has been subject to various
intrusion effects and the information clearing process, for
instance, that the EDGAR system provides is significant, and if
there was an outage that could have market consequences.
Senator Reed. Well thank you very much, both of you.
Mr. Barr, cryptocurrencies have been in the news recently.
Do you have concerns that they are inherently vulnerable to
crises like we are seeing? There has been a huge meltdown.
Could you give us an idea of your perspective on
cryptocurrencies?
Mr. Barr. Thank you, Senator Reed. I think advances in
technology, including cryptocurrency, have some potential for
upside in terms of economic benefit, and then also some
significant risks. And I think of those risks in functional
terms, depending on the particular kind of use that the
cryptocurrency is being undertaken for. So for example, with
respect to cryptoassets generally that are invested in as an
asset class, the primary concern is investor protection, and
that really is the responsibility of other agencies.
But an issue such as stablecoins, there could be financial
stability risks, and I think it is quite important that
Congress and regulatory agencies wrap their arms around those
financial stability risks and regulate so that we do not have
situations where people are holding an asset that they believe
is a cash instrument but it actually is not. That can have both
significant investor protection problems but also financial
stability risk, run risk.
Senator Reed. The Federal Reserve, I understand, has been
exploring whether to introduce a central bank digital currency
to facilitate the ability of people to make digital payments,
which are quite popular. Have you given any thought to that
issue?
Mr. Barr. Thank you, Senator. I think the development of a
central bank digital currency requires a lot more thought and
study. I think that the Federal Reserve's discussion paper on
this is a good starting point.
As Chair Powell previously indicated, if this is an area
that the Federal Reserve decides makes sense to move forward
on, it really should be with the buy-in of the Congress and the
Executive branch, not something undertaken lightly, and I think
that is the right view. If confirmed, that is the view I would
take as well.
Senator Reed. Thank you very much, Mr. Barr. Gentlemen,
thank you.
Senator Smith. Thank you, Senator Reed.
Senator Tillis is recognized virtually for 5 minutes.
Senator Tillis. Thank you, and thanks to the witnesses.
Congratulations on your nominations.
I want to start, very quickly, with having the SEC nominees
pronounce their names. I have got a little crisis of confidence
since I have heard four or five different pronunciations.
Mr. Lizarraga. My name is Jaime Lizarraga.
Senator Tillis. Lizarraga.
Mr. Uyeda. And my name is Mark Uyeda.
Senator Tillis. Uyeda. Thank you. OK. I got the phonetics
right. I just wanted to make sure they were the right ones.
I am going to come back to you all but I want to start with
Mr. Barr. Mr. Barr, I actually want to start where Senator
Daines did on Senate Bill 2155. I have heard your comments and
how some of the amendments allayed some of your concerns. I
played an active role in getting that bill passed and getting
strong bipartisan support. What aspects of the bill do you--and
I also heard you say that you would faithfully implement the
strong bipartisan support will of Congress. But what areas of
the bill are areas of concern for you as you move forward to
confirmation?
Mr. Barr. Thank you, Senator, for that question. Really, I
would like to take a look at capital and liquidity in the
system as a whole. I do not think it makes sense to be
backward-looking and analyzing, you know, this or that change
in the law from the past. What I would like to do, if
confirmed, is to look at capital and liquidity as a whole. And
as I said, capital and liquidity in the system today, I think,
is quite strong.
Again, I agree with the basic principles of the
legislation, the idea of tiering, a financial regulation based
on risk and based on size, and that is an approach that I would
bring to the implementation of that law, if confirmed.
Senator Tillis. OK. Another area I want to touch on relates
to climate. Are you aware of the Federal Reserve Bank of New
York, I believe it was a staff research paper that was titled,
``How Bad Are Weather Disasters for Banks?'' Are you familiar
with that staff report?
Mr. Barr. Yes, sir, I am familiar with it.
Senator Tillis. Do you recall the main takeaways of that
report?
Mr. Barr. It has been a while since I have looked at it,
but I think the main takeaway was that in the last couple
decades or so there have not been any weather events that have
led to the failure of a bank.
Senator Tillis. Yeah. I think the ones that stick in my
mind are the takeaway that larger banks were barely affected.
Smaller banks showed minor impact but nothing large enough to
even remotely threaten bank solvency. And then postdisaster, an
actual increase in loan demand.
So we have got two pieces. We have customers of banks who
probably have to look at it and see their own exposures, but
the banks themselves seem to be relatively safe against
disasters, at least in this story, and I think that has to be
instructive when we have regulators talking about climate
change being a major factor in future regulations. So that is
just a point of information. I am happy to let you comment. But
that is something I think we should take into account as we
weave in climate change in any regulatory regimen for the
banks.
And with that, Mr. Lizarraga and Mr. Uyeda, I want to ask
you all a little bit about resources. I know that the SEC is on
a really fast pace now--25-plus proposals this year, hundreds
of pages per proposal, with almost just as many questions,
coupled with short comment periods. It is moving very, very
quickly, so I have a question for you all on two fronts.
Number one, how would the SEC have the bandwidth and staff
support to get these proposals done right? So that is an
internal SEC question in resourcing. And just with the sheer
number of proposals, how can we make sure that some of the
smaller entities that would like to weigh into the process with
these abbreviated comment periods, how can we be sure that we
get the resource balance right, both at the SEC and among those
who have something to say about the proposed regulations?
Mr. Lizarraga. Thank you, Senator. With regards to the
first part of your question I have not been privy to the
internal decisionmaking so I am not in a position to comment on
that. But I do think that it is important for stakeholders to
have an opportunity to comment on these proposals.
In some instances, smaller issuers do have some relief
included for them. But as a general matter I believe in the
principle of stakeholders having an opportunity, a meaningful
opportunity, to comment on these proposals.
Senator Tillis. Mr. Uyeda.
Mr. Uyeda. Yes. I believe that the ability of all
stakeholders, whether large or small, to comment as part of the
Administrative Procedure Act notice and comment process is
critical to make informed decisions and have the rational basis
for those decisions as required by law.
Senator Tillis. Thank you. I do believe there has been some
positive discussions with the SEC to discuss this issue, and I
am going to continue to look at that. I have spoken with
Members on the other side of the aisle who share the concern.
Mr. Uyeda, thank you for your comments. Congratulations
again to all three of you for your nominations.
Senator Smith. Thank you, Senator Tillis.
Senator Warren is recognized for 5 minutes.
Senator Warren. Thank you, Madam Chairman.
Before I dive into my questions I would like to briefly
address the ethical standards to which we hold our Government
officials.
Mr. Barr, you are nominated to serve as one of the Nation's
most powerful regulators. Ethics rules require you to divest
your holdings in stocks and other investments, which include
investments in at least half a dozen cryptorelated companies,
if you are confirmed.
But I previously asked you if you would go further and make
the same historic ethics commitments that several other Fed
nominees have made. Will you commit not to seek employment or
compensation, including as a result of board service, from any
company that has a matter before the Fed or any financial
services company for 4 years after you leave Government
service?
Mr. Barr. Thank you, Senator Warren. I have committed to
doing that, and I will do that.
Senator Warren. I very much appreciate that. You know,
these commitments are important because one of the key
challenges that all three of you will face, if confirmed, is
crypto. Last week, the cryptocurrency market tanked, again. The
latest crash was triggered by a run on Terra, until recently
the third-largest so-called stablecoin by market cap. It turns
out it was not so stable. If you put $1,000 into Terra USD 10
days ago, while it was still being promoted as a safe bet,
today you would get $90 back.
And Terra is not alone. A thousand dollars invested in
Bitcoin in November would be worth $438 today. In fact, the
average investor who put money into this can't-miss investment
since last fall is underwater, a fact that the celebrity
endorsers seem to have skipped over.
But let us talk about who really lost money--not the rich
folks, not the insider. No, it is ordinary investors. Online
investor forums have been flooded with harrowing posts by
people who feel they have nothing left and no way out, some
with their life savings wiped out, and it smells a lot like
2008.
So what I would like to do is run through protections for
ordinary investors in the cryptomarket and how they compare to
protection in other financial markets. So Mr. Barr, if I can,
let us start with you. If I bought a company's stock, even the
most hyped-up, junkiest one listed on the New York Stock
Exchange, could I be reasonably confident that the company is
following basic rules that protect against fraud, insider
trading, and sloppy cybersecurity protocols?
Mr. Barr. Thank you, Senator Warren. The area of
jurisdiction obviously is within the expertise of the SEC, but
I think that is a reasonable basis for concluding that.
Senator Warren. OK. So there would be that protection,
because right now stablecoin and cryptotoken users are not
getting that same protection. Now some stablecoin boosters
claim they are safe because their stablecoins are backed by
real assets like treasuries and cash, not fake tokens and an
algorithm. But during last week's market turmoil Tether, the
world's largest stablecoin market cap, broke its dollar peg,
and that was scary, because it is an open secret that Tether is
not actually backed one-to-one by treasuries and cash, like it
claims.
So Mr. Lizarraga, let me turn to you. If you invested in a
money market fund would you generally have confidence that the
fund was actually backed by the liquid, high-quality assets
that it claimed it was?
Mr. Lizarraga. Thank you, Senator. Yes. SEC rules require
money market funds to disclose their assets and to have those
disclosures audited by independent third parties.
Senator Warren. All right. And now let us compare that to
stablecoins. Are stablecoins currently providing audited
disclosures that allow verification that they are backed by
quality assets?
Mr. Lizarraga. To the best of my knowledge, no.
Senator Warren. No. And, in fact, asked why they would not
produce audited financial disclosures, Tether's executive said
it is because they do not want to spill their, quote, ``secret
sauce.'' I believe them. Tether does not want investors to know
what is and what is not backing up this so-called stablecoin,
and that is a gigantic red flag.
So I am going to do this really fast. Let me do one more.
Mr. Uyeda, if you wanted to buy stock for a company listed on
the New York Stock Exchange, could you be reasonably confident
that the Exchange was not trading against you or had other
conflicts of interest that could put you at a disadvantage?
Mr. Uyeda. Yes. Exchanges have to have policies to mitigate
or eliminate any conflicts of interest.
Senator Warren. OK. Very much unlike what happens in
stablecoins.
So, you know, any investment involves risk. That is how
markets work. But a market without rules is theft, and right
now regular investors in stablecoins and crypto are not getting
the baseline protections available in other financial markets.
Count the ways that consumers can be cheated. No basic
protections to protect against fraud. No review of
cybersecurity. No audited financial disclosures. No protection
against conflicts of interest. No cop on the beat to police
market manipulation. There is not even any assurance that the
other person on the end of the transaction is not a terrorist,
a money launderer, or a Russian oligarch on the sanctioned
list.
I understand the three of you may differ on how to regulate
the cryptomarket, but addressing these kinds of risks will be
your responsibility. So while Congress is working to set up
guardrails on crypto, I urge you to use the tools you already
have at your disposal to protect investors, to protect our
financial system, and to protect our economy overall.
Thank you.
Senator Smith. Thank you, Senator Warren.
Senator Kennedy is recognized for 5 minutes.
Senator Kennedy. Thank you, Madam Chair. Congratulations,
gentlemen.
Professor Barr, you worked for Secretary Geithner. And
would it be fair to say that the two of you and others, as a
result of the meltdown in '07 and '08, you rewrote the rules
for Wall Street?
Mr. Barr. Senator, thank you for that question. I would say
that as a result of the meltdown Congress rewrote the rules for
Wall Street, and the regulators have been implementing those
rules since Congress rewrote them.
Senator Kennedy. I am not trying to put words in your
mouth, and I am not trying to trick you. You and Secretary
Geithner sort of provided the roadmap. Is that accurate?
Mr. Barr. Thank you, Senator. The Treasury Department
issued a white paper in the spring of the year after the
financial crisis, and that roadmap we then translated into
draft legislation, which we shared with the Hill.
Senator Kennedy. Professor Barr, do not stall me. I have
got a lot of other questions.
After you and Secretary Geithner rewrote the rules for Wall
Street, and Secretary Geithner left Government, where did he
go?
Mr. Barr. Senator, I believe that he went to work for a
private equity company.
Senator Kennedy. He is at Wall Street, right?
Mr. Barr. I will let you define what that is, sir.
Senator Kennedy. And I believe you just committed to
Senator Warren that you would not do that.
Mr. Barr. Senator, when I left the Government before I went
back to academia, and that is my plan, to return back to
academia.
Senator Kennedy. I appreciate that. Do we still have banks
that are too big to fail?
Mr. Barr. Senator, I think the answer to that question is
always a work in progress. I think capital and liquidity in the
system is very strong. The rules that Congress put in place
after the financial crisis make it much less likely that such a
financial firm could get itself into trouble in a way that
would cause problems for the broader economy.
Senator Kennedy. Well, if you are confirmed, if JPMorgan
came to you and said, ``We are going down,'' would you bail
them out?
Mr. Barr. Senator, that is not an available option after
the financial crisis rulebook was put in place. They would be
put into orderly liquidation under the rules that Congress laid
out.
Senator Kennedy. OK. Do you consider yourself a Keynesian?
Mr. Barr. Senator, I am not an expert either in
macroeconomics or in Keynesianism, but I would suggest that I
follow normal, modern rules of macroeconomics, including the
teachings of Keynes.
Senator Kennedy. Well, Professor Keynes said that in order
to get out of a recession he recommended having the Government
deficit spend in order to stimulate your economy. Do I have
that right?
Mr. Barr. That is one of the lessons, yes, sir, of his
history.
Senator Kennedy. OK. And a lot of people stop there. They
do not read the next page. He also said that once your economy
is recovering you should stop deficit spending, did he not?
Mr. Barr. Yes. I think the basic idea is that deficit
spending can be used to bolster the economy in bad times and
that Government debt should be reduced in good times.
Senator Kennedy. And we have not done that, have we?
Mr. Barr. It has been a very long time since the Congress
has reduced spending in line with expenditures.
Senator Kennedy. And I believe on the next page, after the
next page, in Professor Keynes' seminal work and others, he
said when the economy is recovering, not only do you stop
deficit spending, I believe he recommended paying the money
back, did he not?
Mr. Barr. Senator, I am not sure I can go page by page with
the precision you have.
Senator Kennedy. But he said once you stop deficit spending
in the economy's recovery you eliminate the deficits, did he
not?
Mr. Barr. The basic idea, as I said, and I think it is
consistent with what you are saying, is in good times you
should be paying things down.
Senator Kennedy. Yeah. We do not do that either, do we?
Mr. Barr. As I said, it has been a very long time since
Congress has had expenditures and revenues aligned.
Senator Kennedy. Right. All right. And we have got coming
soon a $250 billion bill--it may be more--to subsidize bit
tech. Lord have mercy.
Tell me what the community banks did wrong in '07 and '08.
You guys punished them pretty hard, and I never have been able
to figure out what they did wrong in the meltdown.
Mr. Barr. Thank you, Senator. I am not aware of community
banks doing something wrong in the financial crisis. There were
community bank failures----
Senator Kennedy. Why did you all regulate them so much? Why
did you put the hammer down on them? I mean, it was the larger
financial institutions that caused the meltdown, and I might
add, you all did not put anybody in jail among that group. But
in doing so, you really heightened regulation on community
banks, and I am just asking what they did wrong. Was that just
one of those Chicago drive-by shootings, or what?
Mr. Barr. Thank you, Senator. I have been always a strong
proponent of trying to protect community banks from excessive
regulation, and to work on the safety and soundness of the
community banking system. I think it is one of the things that
makes our financial system vibrant and diverse.
Senator Kennedy. Thank you, Madam Chair.
Senator Smith. Thank you, Senator Kennedy.
I now recognize Senator Ossoff virtually, from his office.
Senator Ossoff. Thank you, Madam Chair, and congratulations
to the nominees. Thank you for joining us.
Mr. Barr, have you given any consideration to, and what is
your assessment of, the distributional effects of monetary
policy decisions?
Mr. Barr. Thank you, Senator Ossoff, for that question. I
think that the Federal Reserve's tools with respect to monetary
policy are pretty simple ones, and they operate in pretty
simple ways, broadly, in the economy. So when the Federal
Reserve is getting its job done right, the economy is working
well for everyone. And that is especially true if you are a
low- and moderate-income worker who might be late to the job
market. If the Federal Reserve is able to, with price
stability, maintain lower rates, then that is helpful to you.
And conversely, if the Federal Reserve is not able to do that
and unemployment is too high or if inflation gets too high and
inflation begins to erode wage gains, as it is doing today,
then that is also harmful to working Americans.
Senator Ossoff. What is the impact on asset valuations of a
dovish stance by the Fed?
Mr. Barr. Well, in general, when interest rates are quite
low, asset prices tend to rise, and when asset prices tend to
rise those who have more assets have a greater ability to take
advantage of that opportunity. And conversely, when interest
rates tend to rise, asset prices tend to be more muted.
But the overall point is that with respect to monetary
policy if the Federal Reserve is getting its job done right the
economy is working for everybody, and I think that is the main
goal of monetary policy.
Senator Ossoff. Why, since 2007 and 2008, has the posture
of not just the Fed but many central banks, necessarily been
low rates and a lot of extraordinary bond buying that were not
previously normal policy tools? Why have monetary policymakers,
in your opinion, taken that posture or felt they needed to take
that posture in OECD economies, Western economies, since the
recession of '07, '08?
Mr. Barr. Thank you, Senator, for that question. In
general, when rates have been low and central banks have been
pursuing asset purchases, it is generally speaking for two main
reasons. One is to mitigate against financial stability risks
facing the economy at that time, and the second is to
effectuate an accommodative monetary policy.
Senator Ossoff. I guess my question is why, in your
opinion, has it been necessary, in the judgment of central
bankers for the last 15 or 20 years, to maintain such an
accommodative monetary policy, or to put it another way, what
has changed about the structure of the U.S. and the world
economy such that in order to achieve its dual mandate the Fed
has deemed it necessary to sustain lower rates than the
historical norm and more sustained bond buying than the
historical norm, which, as we have just discussed, one of the
impacts of that has been to pump up asset valuations, which has
distributional effects that we have discussed. Why has that
needed to be or been the posture for the last 15 years? What
has changed?
Mr. Barr. Thank you, Senator Ossoff. In general, there have
been a couple of periods where interest rates were rising, but
in general, when rates were low during those periods and when
bond buying was important it was because either financial
stability concerns facing the economies at those times or
because of the need for monetary policy accommodation given the
weakness of the economies during those times----
Senator Ossoff. Forgive me. I am not in the room so I do
not mean to interrupt you in a rude way. But my question is
what has changed structurally about our economy such that in
order to maintain financial stability and in order to sustain
what central bankers deem to be adequate aggregate demand it
has been necessary for rates to be aberrantly low and for bond
buying to be aberrantly high? Why has that been necessary in
the last 15 or 20 years, where it was not before? What changed
in the structure of our economy does that suggest or represent?
Mr. Barr. Thank you, Senator, and sorry for not
understanding the nature of your question before. But there is
significant debate in the academic literature about the answer
to your question. Some of it has to do with changing
demographics in advanced industrial economies. Some of it has
to do, likely, with perceived overall lower extent of potential
investment returns. Some of it has to do with a very high
savings rate in most but not all of the advanced industrial
economies. And people believe, academics believe that those
factors and others may have, for a long period of time, muted
effectively what the neutral interest rate it.
So that is a long answer to your question.
Senator Ossoff. Madam Chair, could I have the indulgence of
one more minute?
Senator Smith. Without objection.
Senator Ossoff. Thank you. Please proceed, Mr. Barr,
concluding the answer to that question, and then, just if you
would, answer the following question. How would you, or should
you, on the Open Market Committee consider the market effects,
the impact on asset valuations of your decisions? And I think
the answer cannot be not at all, because it is at least a
mechanism of action for monetary policy. But to what extent
should the Fed consider whether, for example, violating forward
guidance will have effects on volatility? Should that be part
of your decisionmaking calculus? How will it be?
So again, in sum, please finish the analysis, which I found
very interesting and I think the Committee needs to hear on why
rates have had to be low and bond buying has needed to be so
aggressive, and then talk to me about how you will think about
the markets when you make your decisions. And that will be my
final question.
Mr. Barr. Thank you, Senator. Very briefly, I think, again,
the tools of monetary policy are relatively simple and they
affect the economy primarily through the Federal Reserve's
targeting of the Federal funds rate, and secondarily through
adjustments to the balance sheet of the Federal Reserve, and a
third way through expression of forward guidance.
And the primary goal of all these efforts is to bring
inflation down to the target level of 2 percent. Again, it is,
I think, a pretty simple goal. It is hard to achieve, but being
clear about that objective I think is quite important.
Senator Smith. Thank you, Senator Ossoff.
I now recognize Senator Hagerty for 5 minutes.
Senator Hagerty. Thank you, Madam Chair and Ranking Member
Toomey. Thank you. And to our nominees, welcome.
I would like to start with you, Mr. Lizarraga, about SEC
rulemaking. Over the years we have seen the Commission propose
rules that interact with one another on outstanding proposals.
For instance, the Securities Lending Rule, the Securities-Based
Swap Rule, and the Short Disclosure Rule all impact similar
markets, but they were proposed individually by the Commission.
With such an interconnected financial system it is
important, I believe, to understand how these rules interact
with one another. I am first curious, do you believe, like I
do, that it is important to consider how rules interact with
one another when they are proposed by the Commission?
Mr. Lizarraga. Thank you, Senator. That is a good question,
and as a general principle I do believe that it is important to
assess whether there is any overlap among rulemaking without
prejudging anything that is pending currently. But if
confirmed, I do look forward to working with the Commission
staff on assessing just the overall makeup of the current
rulemaking.
Senator Hagerty. Yeah. I would encourage the Commission,
and if you are confirmed, your leadership on the Commission to
make certain that proper due diligence is undertaken, because
markets are highly interactive and the rules do overlap as they
touch various components of the market, but it needs to be
taken with a more holistic view, many times. And so I would
encourage you, and hope I could get your commitment to carry
out proper due diligence on the intersection of rules when they
occur, to make certain that they achieve the proper goal when
taken together.
Mr. Lizarraga. Sir, I am happy to take a deeper dive into
this question, if confirmed.
Senator Hagerty. Thank you. I appreciate it.
Mr. Barr, can I turn to you to talk about bank capital?
Looking back on the spring of 2020, when the economy was truly
in dire straits, our banking system weathered the storm, I
think, remarkably well. The Federal Reserve characterized the
banking sector at that point as, quote, ``a source of strength
in an otherwise tumultuous period.''
Mr. Barr, my question to you, in your answer earlier to
Senator Moran you seemed to agree that 2020 provided real-world
evidence that capital levels in our banking system were
sufficient. And my question now is will you commit to relying
on data and not ideology when assessing adding to regulatory
requirements from capital to liquidity and beyond?
Mr. Barr. Thank you, Senator. Yes, I would commit to being
evidence-driven, data-driven in my approach to capital and
liquidity regulation and in regulation more broadly.
Senator Hagerty. I think that is absolutely essential for
certainty in our marketplace. Having been on the other side of
this, having been regulated in the banking environment and
beyond, that is terribly important for certainty. So I
appreciate your answer to that question.
Next I would like to turn to an area that has just,
frankly, troubled me for some time, and it is an area that you
had a great deal to do with in a prior role, and that is
regarding the CFPB. And as a key author of the legislation that
created the CFPB you designed it in a way that made the Bureau,
in my view, accountable to the American people because you
placed it within the Fed and outside of the appropriations
process.
I serve on the Appropriations Committee. I appreciate very
much how this structure has actually shielded the CFPB from
necessary oversight, and it has allowed the CFPB, I think, to
become a politically polarizing body, perhaps one of the most
in Federal Government.
So I would like to hear your thoughts on why you believe
that the CFPB should be exempt from the appropriation process,
or do you have a different thought at this point in time?
Mr. Barr. Thank you, Senator, very much for that question.
I think there is always a balance in regulatory agencies
between fostering accountability and fostering independence,
and it is a judgment that Congress gets to make, and Congress
chose, in this particular case, exactly how to structure the
agency--the choices about placement, the choices about
approach.
Congress can make a different choice, but if you look at
the Federal Reserve, if you look at the OCC, if you look at the
FDIC, those institutions also are outside of the appropriations
process and that----
Senator Hagerty. Indeed, but they are very different type
of institutions, and the approach and the result has been quite
different. I will follow up given the lack of time, with
further questions for the record on this, but I would be very
interested in your perspective and thoughts because I am very
unhappy with the way things are working right now.
Thank you. Thank you, Chair.
Senator Smith. Thank you, Senator Hagerty.
So the Chair now recognizes herself for 5 minutes, and I am
going to be brief because I know it has been a long morning.
Congratulations to all of you and thank you so much for being
here.
Mr. Barr, I am going to direct my questions to you. I want
to follow up on the conversations that you and I had when we
met around CRA. I think, as I indicated, and as we spoke, I was
very happy to see the Fed and the FDIC and the OCC come
together earlier this month, I think it was, to propose new
rules for implementing the Community Reinvestment Act. I think
this is long overdue, something that is very important to do.
And I want to just follow up on this. You know, I think the
pandemic has really shown us how stark the need is and how the
challenges of our economy have not fallen disproportionately on
everybody in our economy because of the pandemic, that it is
rural and majority minority communities that have had the
greatest impact, which is what the CRA was designed to really
address.
So could you talk to me a little bit, talk to us a little
bit, about if you were confirmed, you would be joining the Fed
midway through the rulemaking progress. I would like to
understand a little bit about what your focus would be and what
your priorities would be with regard to CRA implementation?
Mr. Barr. Thank you very much, Senator. I appreciate the
question. I think the Community Reinvestment Act has played an
important role in helping banks and thrifts around the country
over the years to serve all their communities, and I was very
encouraged by the Community Reinvestment Act draft rule. If
confirmed as Vice Chair and as a Governor I would be working
with my colleagues, both at the Fed and at the other agencies,
to seek and to understand and to evaluate all the public
comment that I hope the agencies get, to understand the effects
on the banking sector and the effects on communities and civil
rights organizations. I think all of that public comment would
be very helpful.
And then, again, if confirmed, my thought would be to work
with colleagues to get that rule in place expeditiously.
Senator Smith. And do you think that the current economic
conditions that we are seeing, the challenges that they
present, do you think that elevates the urgency and the need to
modernize our approach with implementing the CRA?
Mr. Barr. Thank you, Senator. Yes, I do think that when
there is greater economic uncertainty, when there is greater
difficulty for people navigating the financial system, it is
important to have certainty in these areas.
Senator Smith. Thank you very much.
In the interest of time I am going to cede back my time,
and I recognize Senator Lummis for 5 minutes.
Senator Lummis. Thank you very much, Madam Chairman, and
during the course of my 5 minutes I would like to invite
members of the families of our nominees to take a breath,
remove your masks for 5 minutes if you wish. I know it can be a
long haul with those masks on.
Mr. Uyeda, great to see you again. Thanks for being here.
Congratulations on your nomination.
The SEC recently released Accounting Bulletin 121. This is
the SEC staff. And they stated that reporting companies, and
most importantly, their custodians should hold digital assets
as an on-balance-sheet liability. I am really concerned about
that because I think that actually weakens investor protections
because in the event of insolvency customer assets are safer
from creditors being held off balance sheets and further
segregated from the company's assets.
Do you have any thoughts on this?
Mr. Uyeda. Thank you for your question on this. So am
familiar with the Staff Accounting Bulletin, or SAB as they
like to call them, the SAB 121, just at a very high level, and
have not had time to become well-versed in the details or to
have discussions with the SEC staff about it.
I will note it was a staff position. It was not approved by
a vote of the members of the Commission. There has been a
tremendous amount of concern raised, that I have seen in the
past week alone, about it. And so if confirmed, it is something
that I would want to look much more into and have a discussion
with the staff.
One of the other concerns, I think, is we have a process
for whenever there is any new rule of general applicability or
you attack new conditions or requirements on existing rules to
approve those through the notice and comment process under the
Administrative Procedure Act. And when you have something that
is effectively a rule that calls into question whether it
should go through that process--and that also raises questions
about the ability of this Committee to engage in oversight
under the Congressional Review Act of any rule.
So if confirmed, I would want to talk with the staff. I
would also want to talk with the Federal and State banking
regulators as to how this interplays with their regulatory
regimes. And then, lastly I would just note that the SAB, the
bulletin itself expressly states that it is just the position
of the staff. It is not a rule of the Commission nor has it
received the official approval of the SEC.
Senator Lummis. Thank you for your response. I would note
that the Securities Industry and Financial Markets Association
and Bank Policy Institute sent me a really detailed letter this
morning, concerned about the lack of public comment around this
big shift in policy, and highlighting how this guidance could
weaken important safeguards around custody of client assets.
Madam Chairman, I ask for unanimous consent that it be
entered into the record.
Senator Smith. Without objection.
Senator Lummis. And I urge everyone to take a look at it.
Thank you for your response.
Mr. Barr, switching to you, good to see you against too. My
question for you is, do the Basel III capital standards
establish a separate prudential capital treatment relating to
on-balance-sheet custody accounts?
Mr. Barr. Senator, there are particular rules, yes, in the
Basel framework. Capital treatment is different for customer
accounts, in general.
Senator Lummis. It is my understanding that with regard to
the capital standards at Basel III regarding this subject that
they do not, but we can discuss that at another time. And that
is because custody accounts are generally off balance sheet,
from an accounting perspective. Correct?
Mr. Barr. Yes, that is correct.
Senator Lummis. Are you familiar with the Bank for
International Settlements' proposed prudential treatment of
cryptoasset exposures?
Mr. Barr. I have not read the BIS proposal in this area.
Senator Lummis. OK. Well, I will let you know. To my
knowledge it is correct that this proposed capital framework
explicitly declined to create prudential requirements for
custody of digital assets, and we would be happy to just send
that to you. If U.S. bank regulators were to impose separate
requirements around bank custody activities for digital assets
or if they were required to be accounted for as a liability on
a bank's balance sheet, that would be different from
international norms, as I understand them. And so I worry that
that might make them uncompetitive.
Can you commit to discussing this further with me?
Mr. Barr. Yes. I would be happy to discuss this further
with you, Senator.
Senator Lummis. Thank you. Thank you, Madam Chairman. I
urge all Members to look at this important issue as we might
need to address at this some point. But to all of our nominees,
again, congratulations. Thank you.
Senator Smith. Thank you, Senator Lummis.
So thank you to our nominees for being here today and
providing testimony. I do not believe we have any other
Senators who are present and wanting to ask questions. I hope
that we can work together as a Committee to move forward
quickly on these nominations of today's nominees.
For Senators who wish to submit questions for the hearing
record these questions are due close of business on Monday, May
23rd, at 5 p.m. To the nominees, we would like to have your
responses on Tuesday, May 31st, at 5 p.m.
Thank you again for your testimonies today, and with that
this hearing is adjourned.
[Whereupon, at 12:10 p.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 SENATOR JON TESTER
Good morning, everyone.
Today's hearing is in a hybrid format. Our witnesses are in-person,
but Members have the option to appear both in-person or virtually.
The Committee meets today to consider the nominations of three
important Presidential nominees:
First, the Honorable Michael Barr to be a Member and Vice Chairman
for Supervision of the Board of Governors of the Federal Reserve
System.
Next, Mr. Jaime Lizarraga to be a Member of the Securities and
Exchange Commission.
And finally, Mr. Mark Uyeda to be a Member of the Securities and
Exchange Commission.
We thank the nominees for appearing here today, and welcome their
families and friends who are in attendance as well as those watching
from home.
I also want to extend a warm welcome to Speaker Pelosi who is here
to introduce Mr. Lizarraga and Senators Stabenow and Peters who will
introduce Mr. Barr.
Senator Toomey will introduce Mr. Uyeda.
To our nominees, thank you for your willingness to serve in these
important roles.
We are here today to consider three nominees who, if confirmed,
will have a lasting impact on our economy.
We know who powers our economy. It's small businesses, folks on
main street who create jobs and prosperity for our communities.
And it's workers.
It's our job as Members of this esteemed body to support an economy
that actually rewards their work.
The nominees before the Committee today will play important roles
in our efforts to support workers, small businesses, and American
families.
Michael Barr is the President's nominee to be Vice Chair for
Supervision.
Mr. Barr is a well-respected expert on financial regulation who
currently serves as the dean for public policy and a professor of law
at the University of Michigan.
From 2009 to 2010, Mr. Barr served as Assistant Secretary for
Financial Institutions at the Department of Treasury, where he played a
key role in helping the Obama administration work with Congress to
craft and enact the Dodd-Frank Act.
Mr. Barr previously served at the White House, and earlier in his
career, in the Treasury and State Departments under President Clinton.
Mr. Barr, thank you for your willingness to serve our country
again.
Mr. Lizarraga and Mr. Uyeda have been nominated by President Biden
to be Commissioners at the Securities and Exchange Commission. If
confirmed, they will join the SEC at a critical time.
Jaime Lizarraga has worked on financial services policy in Congress
and played a key role in some of the most impactful pieces of capital
markets legislation passed by Congress to support working families and
our country's middle class. The son of Mexican immigrants, he
understands the important role the SEC plays in protecting consumers.
He currently serves as a senior adviser to Speaker Pelosi, who is
here today to support his nomination. Prior to joining the Speaker's
office, Mr. Lizarraga served in senior level positions on the House
Financial Service Committee.
Mr. Lizarraga also served at the Treasury Department, as well as
the SEC, where he worked as the Deputy Director of Legislative Affairs.
Thank you, Mr. Lizarraga, for your willingness to continue to
serve.
Mr. Uyeda has served at the SEC since 2006 and is currently working
on Ranking Member Toomey's staff helping our committee navigate some of
the greatest financial challenges in recent American history. At the
SEC, Mr. Uyeda has served as counsel for Commissioners Paul Atkins and
Michael Piwowar. He also served as a Senior Adviser to my good friend,
Chair Jay Clayton.
Earlier in his career, Mr. Uyeda worked in private law practice, as
well as for the California Department of Corporations.
Thank you, Mr. Uyeda, for your willingness to continue to serve.
Look folks, these positions are really, really important.
If confirmed, you all will be on the front lines at a critical
point in our Nation's history. We are facing challenges that are unique
and unprecedented, and we need folks serving our country who will
always put the needs of our country before personal or political
ideology.
Hopefully the worst of the pandemic is behind us, but our economy
is not where it needs to be in terms of its recovery.
Families are seeing higher costs from the gas pump to the grocery
store, and while unemployment is at a record low, small businesses in
Montana and across the country are having trouble finding and keeping
workers.
This Committee, under the leadership of Chairman Brown and Ranking
Member Toomey has confirmed a host of folks to critical positions
charged with guiding the economy back from the brink. If confirmed, the
three of you here today will immediately join in that work.
But before these folks can do their jobs, we have to do ours. Our
institutions have to be fully staffed if they're going to do their jobs
and meet the challenges facing our country.
We have a lot more work to do here to support workers, to support
small businesses, to lower costs for working families, to increase
transparency in the market place and to hold bad actors accountable.
Let's get to it.
Ranking Member Toomey.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman.
We're here today to consider three nominations: Michael Barr to be
Fed Vice Chair for Supervision, and Mark Uyeda and Jaime Lizarraga to
be SEC Commissioners.
These nominations remind us of the importance of financial
regulators abiding by their respective statutory mandates. This
principle should be nonpartisan.
A fundamental aspect of a properly functioning democratic society
is that important public policy decisions should be made by elected,
accountable representatives. Otherwise, what's the point of the
elections?
Unfortunately, I'm deeply concerned that financial regulators,
including the Fed and SEC, are increasingly straying into contentious
political issues wholly unrelated to their mandates and expertise.
These include issues like what to do about global warming, social
justice, and even education policy.
No doubt, these are important issues. But, they're wholly unrelated
to the limited statutory mandates and expertise of financial
regulators.
The Fed, for instance, has been weighing in on every one of these
contentious issues. Some intend to use the Fed's expected climate
scenario analysis to steer capital away from carbon intensive
industries.
All 12 Reserve Banks have sponsored a ``Racism in the Economy''
series where invited speakers advocated for race-based reparations and
defunding the police. And the Minneapolis Fed has been actively
lobbying to change Minnesota's constitution--on the issue of K-12
education policy.
Does anyone truly think these activities are within the Fed's
statutory mandates? Of course not.
In February, we held a hearing to consider Sarah Raskin's
nomination to be Fed Vice Chair for Supervision. At that hearing, I
cautioned that the hearing was not just about vetting Ms. Raskin. I
noted that it was a referendum on the independence of the Fed in the
face of pressure from the left to use the central bank to allocate
capital to address global warming.
Addressing contentious issues like global warming requires
political decisions involving tradeoffs, like how expensive should
credit be for drillers in order to make gas scarcer and costlier for
motorists? And if we limit domestic oil and gas production, causing
energy prices to rise and consumers to pay more, how much more is
appropriate? And if we limit production but other countries do not,
warming won't slow--but should we do it anyway?
In a democratic society, those tradeoffs must be made by elected
representatives, who are accountable to the American people--not
unelected central bankers.
Ms. Raskin's prior advocacy that unelected financial regulators
should misuse their powers to address global warming led to the
Senate's bipartisan rejection of her nomination. That rejection sends a
powerful message to Fed nominees like Professor Barr: all Fed Governors
must commit to not exceed the Fed's limited statutory mandates and by
doing so help to ensure the continuing independence of the Fed.
The need for a Fed that's focused on its mandates is especially
critical with inflation at a 40-year high. Even though wages are
rising, prices are rising faster, which is causing workers-especially
lower-income workers-to fall further and further behind.
I hope Professor Barr will acknowledge that inflation is severe and
commit to doing ``whatever it takes'' to bring inflation back down.
Professor Barr certainly has an impressive background and relevant
experience to serve as the Fed Vice Chair for Supervision. However,
some of his previous work raises some concerns about his views on
financial regulation.
He strongly opposed the bipartisan S. 2155 bill that Senators
Tester and Warner helped craft, which merely enacted modest and
sensible reforms to Dodd-Frank. For example, Professor Barr was
critical of a provision meant to relieve financial institutions from
having to retain capital on deposits at central banks. But, after all,
central bank deposits are risk free.
He has also argued that ``climate change presents severe long-term
risks to the economy and financial stability that must be urgently
addressed today.'' As I've discussed, there is no systemic risk to the
banking system posed by gradual changes in the Earth's average
temperature.
I'll be interested in hearing Professor Barr describe the actions
he believes the Fed should take to address these supposed risks.
Keeping financial regulators apolitical and independent is as
important now as it has ever been. To my Democratic colleagues who
favor using financial regulators to address contentious political
issues, I ask: how would you feel about a future Republican
administration, under the pretense of ``financial stability'' risk,
using the Fed to allocate capital toward defense spending, financing a
border wall, or offshore oil development?
But once the precedent is set, the potential for further abuse--by
both political parties--is limitless.
In addition to Professor Barr, today, we'll also hear from two
nominees for the SEC. Mr. Lizarraga has worked on financial services
issues on Capitol Hill for many years. I commend him for his
longstanding commitment to public service.
And, in a few moments, I will introduce Mr. Uyeda, who is
exceptionally well qualified to serve as an SEC Commissioner. I look
forward to hearing from both of them.
______
PREPARED STATEMENT OF MICHAEL S. BARR
To Be a Member and Vice Chairman for Supervision of the Board of
Governors of the Federal Reserve System
May 19, 2022
Chairman Brown, Ranking Member Toomey, and other Members of the
Committee, it is my honor to appear before you today for this
confirmation hearing. I am grateful to President Biden for nominating
me to serve as Vice Chair for Supervision and a Governor of the Federal
Reserve Board.
My wife of 28 years, Hannah Smotrich, joins me today in the hearing
room. I'm grateful as well to be joined by my three children--Etai is
here with us in person, and Avital and Dani are joining us online. I'm
thankful for their love and support. My parents, David and Debbie Barr,
imbued in me the deepest values of integrity and public service, and
they are here with us in spirit today.
For over 25 years, I have been working to help make the financial
system safer, fairer, and better focused on the needs of businesses and
households.
I began my Government career at the U.S. Department of State, where
I worked on international economic matters. I then spent 6 years at the
U.S. Department of the Treasury, helping to strengthen the Community
Reinvestment Act, build community development financial institutions,
support fair lending and combat predatory lending abuses, and help bank
the unbanked. I also worked at the Office of Management and Budget,
where I ran an interagency task force advancing economic development in
Washington, DC.
I joined the faculty of the University of Michigan over 20 years
ago, following the advice of my mentor and friend Ned Gramlich, former
Director of the University of Michigan's School of Public Policy and
longtime Governor of the Federal Reserve Board. At Michigan, I've
taught domestic and international financial regulation, conducted
research about a wide variety of issues in finance, and coauthored a
leading textbook on financial regulation, law, and policy. Along the
way, I've also developed programs to help small business owners in our
local communities in Michigan.
In the wake of the global financial crisis of 2008, I served as
assistant secretary of the Treasury for financial institutions, and I
helped to develop and work with Congress to enact the Dodd-Frank Wall
Street Reform and Consumer Protection Act of 2010. That basic framework
is still with us today, and it has helped make the financial system
stronger and work better for all of us. With the economy battered by
the financial crisis, my team and I also worked to support struggling
small businesses and households and community development financial
institutions.
After my time at Treasury, I stayed engaged in critical issues
affecting both national and international financial policy, while also
deepening my commitment to our local communities in Michigan, working
with community banks in the region, and learning from advising private
sector institutions.
For the last 5 years, I've served as dean of the Gerald R. Ford
School of Public Policy at the University of Michigan. I've loved
serving our community, and have worked hard to advance bipartisan
engagement, listening and talking to one another across our differences
in a way that can deepen our democracy and get practical things done.
If confirmed as Vice Chair for Supervision, I would be strongly
committed to the Federal Reserve's responsibilities to ensure that the
financial system is robust and resilient, that innovation flourishes
with clear rules of the road, and that the financial system operates
fairly.
Additionally, an important part of the roles for which I have been
nominated is to serve on the Federal Open Market Committee. Inflation
is running far too high, affecting communities all across our country.
I would be strongly committed to bringing down inflation to the Federal
Reserve's target, consistent with the Federal Reserve's dual mandate of
maximum employment and price stability.
If confirmed, I look forward to working together with all of you on
this committee, where I have spent much time learning from you and
collaborating with you on critical issues for our country.
I would be honored to be confirmed as Vice Chair for Supervision
and Governor. Thank you for your consideration, and I look forward to
your questions.
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PREPARED STATEMENT OF JAIME E. LIZARRAGA
To Be a Member, Securities and Exchange Commission
May 19, 2022
Chairman Brown, Ranking Member Toomey, distinguished Members of the
Committee: Thank you for the opportunity to appear before you today. It
is an honor to be nominated by President Joe Biden to serve as a
Commissioner of the Securities and Exchange Commission.
I would also like to thank House Speaker Nancy Pelosi for
introducing me. I am proud to have been part of her team for nearly 15
years.
Witnessing her extraordinary leadership up close, and her
dedication to building a more prosperous future for America's working
families, has been the privilege of a lifetime. It has also prepared me
well for the role of SEC Commissioner.
At its core, the SEC's mission is about the aspirations of all
working families to secure a prosperous financial future, with the
confidence that their interests will always be protected.
To me, the SEC's mission is also deeply personal--dating back to my
days growing up in a southern California working-class community.
Neither of my parents graduated from high school. They immigrated
from Mexico and began their life in the United States as farm workers
in California's Central Valley.
Like millions of families in our country, they sought opportunity
wherever they could.
In the absence of stable job prospects, my parents decided to run a
Mexican food business out of our home. On nights and weekends, my
sister and I helped them prepare the food, mostly Mexican-style
sandwiches called tortas. My father then sold the food from his car at
soccer games and at community shopping centers.
Growing up, my father always encouraged me to study the newspaper's
financial pages. He taught me the importance of saving and investing
for long-term financial security.
In those years, and unlike now, access to safe and mainstream
investment opportunities was virtually nonexistent. This limited my
parents' wealth-building potential and their ability to grow their
small business into a more established enterprise.
My parents were also unable to save for retirement and faced
constant financial strains. Their goal was for my sister and me to get
an education. What little they had, they invested in us. I often asked
how our financial system could have served their needs better.
This life experience inspired me to pursue a career in public
service. I focused on financial services policy, where issues of
investor protection, financial stability, and economic security all
come together.
In more than three decades of public service, both as a House
leadership and committee staffer, I played key roles in all financial
regulatory legislation moving through Congress--from the Sarbanes-Oxley
Act to the Dodd-Frank Act, and more. I also served as a presidential
appointee at the U.S. Treasury and at the SEC, working to ensure
congressional mandates were effectively implemented.
A key lesson from my long experience is that fair and transparent
markets benefit everyone--whether a pension plan participant, a retail
investor, or parents investing in their children's future education.
The most enduring lesson is from the 2008 financial crisis: poorly
regulated markets can have devastating consequences for working
families and for the broader economy.
If confirmed, I look forward to bringing my experience and unique
perspective to the SEC.
It would be an honor to work with the agency's talented staff and
with my fellow commissioners to uphold and strengthen the SEC's mission
of protecting investors, promoting fair, orderly, and efficient
markets, and facilitating capital formation.
I would approach the SEC's vital mission through the eyes of
working families like my own and work with my fellow commissioners to
make sure congressional mandates are robustly implemented. I would
focus on making sure our regulations keep pace with rapid technological
changes in our markets. And I would focus on facilitating capital
formation for our job-creating small businesses, particularly in
underserved areas.
Our country's future prosperity depends on robust oversight of our
capital markets. To me, this means safe and transparent markets that
foster a level playing field for all market participants, meaningful
protections for investors, and broad-based access to capital.
While my parents, Esther and Enrique Lizarraga, and my sister,
Maria Esther, were unable to be here in person today, they're with me
in spirit and are watching at home in California.
I am proud to be joined today by my wife of 22 years, Kelly
Lizarraga, and our five children--Victoria, Diego, Elena, Samuel, and
Alexandra. Also joining us is my mother-in-law, retired Rev. Paula
Werner.
Thank you again for the opportunity to speak today, and I look
forward to answering your questions.
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PREPARED STATEMENT OF MARK TOSHIRO UYEDA
To Be a Member, Securities and Exchange Commission
May 19, 2022
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, thank you for the opportunity to appear before you today.
With me in the hearing room is my wife Masae and watching remotely from
California are my parents, sister, and extended family.
I am honored to have been nominated by the President to serve as a
member of the Securities and Exchange Commission (SEC). I have a deep
commitment to its mission of protecting investors, maintaining fair,
orderly, and efficient markets, and facilitating capital formation.
My first job was spending summers on my grandfather's produce route
in Southern California. He drove a small truck, and I would help him
pull cartons of fruits and vegetables off the truck to deliver them to
small restaurants and retailers. It was a family business, run by him
and his two younger brothers.
My grandfather kept up this physical labor well into his 70s. Every
day, even during the hot summers, he would wear a collared, button-down
shirt and work trousers, which were always neatly ironed. To me, that
image of him has always represented the dignity of work.
My grandfather had to build his business twice. First, in the
1930s, he dropped out of high school to support his five younger
siblings after both of his parents died. The second time was after
World War II, when he and his family--including my mother--lost nearly
everything when they were forcibly incarcerated in internment camps
pursuant to Executive Order 9066 because they were Americans of
Japanese ancestry. At the same time, my uncle was fighting in Europe
with the U.S. Army's segregated 442nd Regimental Combat Team, where he
was awarded the Bronze Star and served in Company ``E'' alongside
former Senator Daniel Inouye.
Finding startup capital was difficult for my grandfather,
particularly in an era where racial discrimination was common. Yet he
persevered and accomplished the American dream. The story of the
immigrant family business has been often repeated in the Asian American
community--whether a restaurant, dry cleaner, nail salon, or donut
shop--and that perspective has helped shape my views on the need for
start-up financing and capital formation.
Since graduating law school in 1995, I have continuously practiced
corporate and securities law, spending the vast majority of this time
in public service. During my career, I have advised clients on, and
helped to implement, major securities legislation, including the
National Securities Markets Improvement Act, the Private Securities
Litigation Reform Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, and
the JOBS Act.
In 2004, I became chief advisor to California's securities
regulator, where we pursued an investor protection agenda and worked
with the SEC and other State regulators. If confirmed, I would be one
of the few State securities regulators ever to serve as a member of the
SEC.
During my past 15 years as an SEC civil servant, I have had the
privilege of advising Commissioners and Chairmen as part of the
executive staff and have been part of the Division of Investment
Management.
Since January of last year, I have been detailed by the SEC to
serve as securities counsel to Ranking Member Toomey as part of this
Committee, where it has been an honor to work with staff on both sides
of the aisle, including Chairman Brown's staff.
Before I close, I want to express my gratitude to the support and
well-wishes that I have received from my SEC coworkers on this
nomination. Their efforts to protect investors have, and will continue
to, inspire me every day.
Thank you and I look forward to your questions.
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RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM MICHAEL S. BARR
Q.1. Where have you excelled in past positions in attracting,
hiring, and promoting people of color in positions in your
organization? Where might there be room for improvement?
A.1. In my role as Dean of the Gerald R. Ford School of Public
Policy, I have taken a holistic approach to diversity, equity,
and inclusion, including making it a top priority to attract,
hire, retain, and promote people of color, while adhering to
Michigan and Federal law. We expanded our pipeline approach,
including working with local high schools, expanding our
programs for juniors in college, recruiting in our
undergraduate and graduate programs, developing predoctoral and
postdoctoral diversity programs, diversifying our Ph.D.
program, and hiring diverse faculty and staff. I took a similar
approach in my roles at the United States Department of the
Treasury, where during both the Clinton and Obama
administrations I prioritized diverse hiring, starting with
internships and working all the way through senior policy
positions. There is always room for improvement in this work.
Q.2. What specific measures will you use to evaluate the
success of the Federal Reserve in understanding and addressing
the needs of Black, Indigenous, and people of color (BIPOC)?
And, will you work with the Chair and Board to keep Congress
apprised, as appropriate, on the progress being made on these
measures?
A.2. If confirmed, I will work with Chair Powell and other
members of the Board to keep Congress apprised, as appropriate,
on the progress being made to understand and address the needs
of BIPOC communities. When evaluating the Federal Reserve's
success in understanding and addressing the needs of BIPOC
communities, I will consider measures of employment and price
stability, fair lending enforcement, financial inclusion, staff
hiring and retention, diverse leadership at the Board and
Reserve Banks, outreach to civil rights and community
organizations, and other measures to ensure that Federal
Reserve policies help all Americans.
Q.3. What is your plan for creating an inclusive working
environment for employees within your office?
A.3. If confirmed, I would continue my long-standing commitment
to a holistic approach to diversity, equity, and inclusion,
including through staff hiring and retention, research, public
engagement, and other activities.
Q.4. With global uncertainty because of Putin's illegal
invasion of Ukraine, increased cybersecurity risk, the rise in
highly volatile and unregulated cryptoassets, and the
existential threat of climate change--understanding the
interconnectedness of our global financial system is critical.
Do you agree we need to make sure global systemically
important banks are prepared to weather all types of economic
shocks with strong capital requirements and stress tests?
A.4. Yes.
Q.5. How will you ensure that risky bets by Wall Street
megabanks do not end up hurting workers and businesses on Main
Street?
A.5. I think it is critical that large, complex financial
institutions have strong capital and liquidity positions, are
well supervised, and operate within clear rules of the road.
Stress testing and living wills, together with requirements for
total loss absorbing capacity and orderly liquidation
procedures, help to reduce the risks that such large, complex
institutions might pose to workers and businesses on Main
Street.
Q.6. As Assistant Treasury Secretary for Financial Institutions
following the 2007-2008 financial crisis, you saw firsthand
that when regulators do not proactively limit risks to the
entire financial system and keep Wall Street firms in check,
workers, homeowners, and consumers pay the price. What are the
biggest risks to our financial system right now, and what will
be your approach to addressing them?
A.6. There are a wide variety of potential risks to the
financial system including cyberrisk, Russia's invasion of
Ukraine and the accompanying global risks to commodities, food,
and energy, disruptions to global supply chains from the
pandemic, inflation, and measures to combat inflation,
fragilities in Treasury markets, the rise of cryptoassets,
including stablecoins, potential declines in asset prices
across a wide range of asset classes including housing and
commercial real estate, nonbank financial intermediation
including money market mutual funds and nonbank mortgage
servicing, risks associated with climate change, and other
factors. If confirmed, my approach would be to focus on the
need for humility about our ability to predict such events and
how they would stress the system; therefore, I would focus on
the resiliency of the financial system in the face of evolving
uncertainties.
Q.7. I have long been concerned about the risks of shadow firms
that provide products and services like banks, but don't play
by the same tough rules that promote fair competition and
protect consumers. Stablecoins have been billed as ``safe'' and
``innovative'' ways to invest in volatile cryptoassets, but as
we've seen time and again, it's another wild speculation scheme
that ends in disaster. What parallels do you see between the
risky derivatives that led to the subprime mortgage crisis and
the growing risks to our financial system from crypto,
stablecoin, and decentralized finance?
A.7. When new innovations arise in the financial sector,
financial regulators and the market are often slow to
understand emerging risks. Our fragmented system of regulation
means that financial innovation can arise in unregulated or
lightly regulated spaces in the cracks between existing
financial regulation. New technologies are creating financial
products and services that do not fit easily into existing
regulatory categories. If confirmed, I would be highly focused
on keeping abreast of financial innovations and determining
appropriate ways in collaboration with interagency partners to
mitigate financial risks while fostering innovation.
Q.8. A recent OIG Report found weaknesses in the Federal
Reserve's approach to fair lending enforcement. And over the
years, we see story after story of another Wall Street bank
that is discriminating against Black and Brown borrowers and
customers. If confirmed, what are your plans to strengthen the
Fed's oversight and ensure that the Nation's banks are not
engaging in discrimination? What are your plans to improve the
Fed's fair lending examination and enforcement program to
ensure compliance with all fair lending and antidiscrimination
laws?
A.8. If confirmed, I would work with Chair Powell and other
members of the Board to ensure fair lending enforcement is a
top priority. Regulators need to improve best practices in
supervision and enforcement, and advance cooperation across the
regulatory agencies and the Department of Justice.
Q.9. During his January 2022 nomination hearing before the
Committee, in response to a question from Senator Tester about
the importance of maintaining Federal Reserve independence,
Chairman Powell stated, ``it's essential that we work for all
Americans, and that's what we do. And it's essential that we do
that without regard to political considerations like the
election cycles or particular political party's views on issues
that are outside our mandate. You know, we have to focus on the
job Congress has given us, which is maximum employment and
price stability and also the payment system and financial
stability and other things.''
Do you agree with Chairman Powell?
A.9. Yes, I agree with Chair Powell.
Q.10. Please describe why Federal Reserve independence is
important.
A.10. Independence is critical for the Federal Reserve to
effectively carry out its congressional mandate to promote
maximum employment and price stability. Politics should play no
role in setting monetary policy. If politics were to come into
play in Federal Reserve decision making, it could undermine
effective and objective policy making, and both the market and
the public would lose confidence in the Federal Reserve. I am
committed, if confirmed, to adhere strictly to a nonpolitical,
data-driven, independent approach to policymaking.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TOOMEY
FROM MICHAEL S. BARR
Q.1. Monetary Policy--Federal Open Market Committee (FOMC)
participants have reevaluated their views on the appropriate
path of policy in light of recent inflation. In the March 2022
Summary of Economic Projections, all participants see inflation
slowing. The median FOMC participant sees headline PCE
inflation falling to 4.3 percent this year. However, the median
FOMC participant only projects raising the Federal funds rate
to 1.9 percent by year end. In real terms, interest rates would
still be sharply negative. While these projections are not a
committee forecast, these numbers suggest that participants
generally believe that inflation will fall despite real
interest rates remaining in negative territory.
How can the Fed curtail inflation when real interest rates
remain negative?
Does this imply that the neutral interest rate is now
negative, and so a less negative rate can be contractionary?
A.1. Inflation remains far too high, and that's hurting
families and businesses across the country. If confirmed, I am
fully committed to bringing inflation down to the Federal
Reserve's target of 2 percent. Changes to the Federal funds
rate, as well as forward guidance, and reductions to the
Federal Reserve's balance sheet, affect market interest rates
across the yield curve and financial conditions more broadly.
Tighter financial conditions, which help bring down demand,
will put downward pressure on inflation. Easing of supply
constraints would also tend to put downward pressure on
inflation. While there is academic debate about the precise
level of the neutral interest rate, and uncertainty about the
precise rate at any given point in time, that rate is positive
over the long term.
Q.2. In August 2020, the FOMC revised its ``Statement on
Longer-Run Policy Goals and Monetary Policy Strategy'' to adopt
flexible average inflation targeting. \1\ This policy entails
that, ``following periods when inflation has been running below
2 percent, appropriate monetary policy will likely aim to
achieve inflation moderately above 2 percent for some time.''
Inflation now far exceeds the Fed's 2 percent target and has
hit a 40-year high. CPI inflation was 8.3 percent over the past
12 months. Over the past 3 years, CPI inflation has averaged
about 4 percent. In your testimony, you acknowledged that this
inflation is not consistent with the Federal Reserve's
congressional mandate. In January 2022, despite this tremendous
failure, the FOMC unanimously reaffirmed its ``Statement on
Longer-Run Goals and Monetary Policy Strategy''. The reaffirmed
statement is identical to the version initially adopted in
August 2020.
---------------------------------------------------------------------------
\1\ ``2020 Statement on Longer-Run Policy Goals and Monetary
Policy Strategy'', Board of Governors of the Federal Reserve System,
available at https://www.federalreserve.gov/monetarypolicy/review-of-
monetary-policy-strategy-tools-and-communications-statement-on-longer-
run-goals-monetary-policy-strategy.htm.
---------------------------------------------------------------------------
What should the Fed have done differently in 2020 and 2021?
How would you modify the Fed's framework so that it
produces outcomes consistent with the dual mandate?
A.2. In retrospect, the FOMC should have tightened monetary
policy sooner. If confirmed, I would be fully committed to
bringing inflation down to the Federal Reserve's target of 2
percent. The FOMC's framework was developed during a time of
persistent low inflation, and during which time inflation
consistently came in lower than the Fed's forecasts despite
accommodative monetary policy. It may be appropriate to revisit
the framework after a review of the current inflationary
environment and the effectiveness of the Fed's response to it.
If confirmed, I would look forward to ensuring that the Fed's
framework is best suited to achieve the dual mandate in a
variety of economic circumstances.
Q.3. Roughly how much of the 8.3 percent CPI inflation over the
past 12 months was due to the Fed keeping monetary policy too
loose for too long? For example, how much, if any, was due to
the Fed keeping overnight rates at zero and buying bonds long
after the economic emergency had passed?
A.3. It is difficult to apportion the causes of inflation
across monetary policy, fiscal policy, supply constraints, the
pandemic, the war in Ukraine, and other factors. If confirmed,
I would be committed to using the Federal Reserve's monetary
policy tools to bring inflation down to the Federal Reserve's
target of 2 percent.
Q.4. Bank Capital Requirements--In April 2020, the Federal
Reserve temporarily amended the supplementary leverage ratio
(SLR) to allow banks to continue taking deposits, lending, and
conducting other financial intermediation during the COVID-
related period of stress. \2\ That relief expired on March 31,
2021, and, as a result, banks cannot exclude central bank
deposits or U.S. Treasury securities from the denominator of
the SLR. In conjunction with announcing the expiration of the
relief, on March 19, 2021, the Federal Reserve announced that
it would ``soon be inviting public comment on several potential
SLR modifications.'' \3\
---------------------------------------------------------------------------
\2\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20200401a.htm
\3\ https://www.federalreserve.gov/newsevents/pressreleases/
bcreg20210319a.htm
---------------------------------------------------------------------------
Over 1 year later, the Federal Reserve still has not issued
this proposal. At the same time, the Federal Reserve purchased
trillions of dollars of securities, flooding the banking system
with reserves. It appears that without adjustments the SLR is
serving as a binding capital constraint and restricting banks'
ability to accommodate customer deposits and intermediate in
Treasury markets. The Federal Reserve has long believed that
leverage capital requirements should serve as a backstop to
risk-based capital requirements, a position adopted by both
Chair Jerome Powell \4\ and then-Governor Daniel Tarullo, \5\
among others.
---------------------------------------------------------------------------
\4\ https://www.federalreserve.gov/newsevents/speech/
powell20170623a.htm
\5\ https://www.federalreserve.gov/newsevents/press/bcreg/
bcreg20140408a-tarullo-statement.htm
---------------------------------------------------------------------------
Do you agree that leverage capital requirements, including
the SLR, should serve as a backstop to risk-based capital
requirements?
If so, do you believe the SLR should be modified to ensure
that it does not serve as the binding capital constraint?
A.4. Yes, leverage capital requirements, including the SLR,
should serve as a backstop to risk-based capital requirements.
With the significant rise of reserves in the system in the wake
of the global pandemic, the SLR has become more binding than
when the SLR was finalized. If confirmed, I commit to
undertaking an evidence-based approach to U.S. capital rules. I
would review the SLR promptly, together with other capital and
liquidity rules, to ensure that the rules are efficient,
effective, and keep capital in the system strong.
Q.5. During the hearing, you expressed the intent to ``look at
[capital and liquidity] as a whole rather than piece by piece''
and noted that this holistic review would include both the SLR,
stress testing, and the Basel III ``end game.''
Given your view that current capital in the banking system
is ``quite strong,'' will you commit that any changes to these
regulations will seek capital neutrality?
If non-U.S. jurisdictions implement a less stringent
version of Basel III, do you believe that U.S. regulators
should adjust their rules accordingly to maintain the
competitiveness of U.S. banks?
A.5. Capital in the banking system today is quite strong. I
commit to undertaking an evidence-based approach to U.S.
capital rules. While considering what other jurisdictions are
doing, the United States should implement capital rules that
make sense for the United States and keep our financial system
vibrant and strong.
Q.6. Stablecoins--In April 2022, I released a discussion draft
of a bill that would establish a new regulatory framework for
payment stablecoins. \6\ Specifically, the bill would authorize
three different regulatory options for payment stablecoin
issuers: (1) a bank charter, (2) a State-based money
transmitter or similar license under State law, and (3) a new
Federal license designed specifically for payment stablecoins.
In addition, the bill would establish new, standardized public
disclosure requirements for all three categories of issuers,
including what assets back the payment stablecoin.
---------------------------------------------------------------------------
\6\ https://www.banking.senate.gov/newsroom/minority/toomey-
announces-legislation-to-create-responsible-regulatory-framework-for-
stablecoins
---------------------------------------------------------------------------
Do you believe that stablecoins offer potential benefits
for consumers? If so, please describe those benefits.
Do you agree that it is possible to design a regulatory
framework for payment stablecoins without requiring all issuers
to be insured depository institutions?
A.6. Properly regulated stablecoins might provide benefits for
consumers by facilitating settlement of transactions,
effectuating crossborder, crosscurrency trade transactions, or
other use cases. At the same time, stablecoins present investor
protection and financial stability risks that require a
comprehensive regulatory framework. The President's Working
Group report on stablecoins provides a reasonable basis for
discussion of these issues, although other approaches might be
possible that would meet core regulatory objectives.
Q.7. Cryptocurrencies Central Bank Digital Currencies--In
November 2021, the Federal Reserve, FDIC, and OCC stated that
they intend to provide banks greater clarity around a series of
cryptorelated activities by 2022. If confirmed, do you commit
to working with the FDIC and OCC in fulfilling this commitment
by the end of 2022?
A.7. If confirmed, I commit to working with fellow regulators
to provide banks with greater clarity on cryptorelated
activities as soon as is practicable.
Q.8. Central Bank Digital Currencies--If the Federal Reserve
receives authorization from Congress for the creation of a
CBDC, there will still be many crucial decisions that the Fed
will have to make regarding its design and implementation. If a
CBDC is not adaptable, poorly designed, or excessively
manipulated by the Government, the public will have other
options to secure their privacy and ensure low-cost payment
services.
Could well-regulated, privately issued stablecoins serve as
a check on the design and management of any American CBDC?
A.8. I view well regulated, privately issued stablecoins and a
central bank digital currency (CBDC) as complementary products,
rather than substitutes, for a number of possible use cases. It
would be important to get the design issues right for
regulation of stablecoins and for the development of a CBDC
regardless of the presence or absence of the other product. I
think a CBDC requires significant additional study and
research. I agree with Chair Powell that the Federal Reserve
should only move forward with a CBDC with the buy-in of
Congress and the Executive branch.
Q.9. Do you think that the Federal Reserve should provide
direct retail accounts to individual Americans for use with a
CBDC, or for any other purpose?
A.9. I think the Federal Reserve's discussion paper on CBDC,
which focuses on an intermediated model, is an appropriate
focus for further research and development.
Q.10. In a 2020 paper that you cowrote, you stated that
``Emerging technologies from virtual currencies to mobile
payments and QR codes present opportunities for central banks
to advance'' important work on reversing ``troubling
inequality,'' reducing ``fragmentation,'' and eliminating
``predatory practices.'' \7\ Your paper specifically discusses
central bank digital currencies (CBDCs) as an example of such
an emerging technology. The paper identifies the activities of
the People's Bank of China (PBOC) in digital financial
transactions as potential models to use CBDCs to enhance
financial inclusion.
---------------------------------------------------------------------------
\7\ M. Barr, A. Harris, L. Menard, and W. Xu, titled ``Building
the Payment System of the Future: How Central Banks Can Improve
Payments to Enhance Financial Inclusion'' (Jul. 31, 2020).
---------------------------------------------------------------------------
Should the Federal Reserve use the activities of the PBOC
and the Chinese Government as a model for financial inclusion
and a CBDC? Please explain why or why not.
A.10. No. The Chinese model is not a useful starting point for
the United States. We have very different political and
economic systems, and the Chinese model raises privacy and
other concerns.
Q.11. Community Reinvestment Act (CRA)--During the hearing, you
expressed support for the recent proposed rule issued by the
Federal Reserve, FDIC, and OCC to update the regulations
implementing the CRA. \8\
---------------------------------------------------------------------------
\8\ https://www.federalreserve.gov/consumerscommunities/files/cra-
npr-fr-notice-20220505.pdf
---------------------------------------------------------------------------
Will you commit to ensure that any changes to the CRA
regulations provide clarity, transparency, and objectivity to
supervised institutions?
Will you commit to work with me to increase the
transparency of any CRA-related agreements between banks and
community groups reached in connection with pending bank
mergers? If so, will you incorporate those transparency
measures into any final rule implementing the CRA regulations?
A.11. Yes, if confirmed, I would commit to working with my
fellow governors and colleagues at the OCC and FDIC in pursuing
CRA regulations that provide clarity, transparency, and
objectivity to supervised institutions and communities. I would
be pleased to work with your office with respect to the
transparency of CRA-related agreements reached in connection
with pending bank mergers.
Q.12. Consumer Banking and Credit Fees--In a paper entitled,
``Behaviorally Informed Regulation'', you and your coauthors
proposed allowing financial firms to ``deter consumers from
paying late or going over their credit card limits with
whatever fees they deemed appropriate, but the bulk of such
fees would be placed in a public trust to be used for financial
education and assistance to troubled borrowers.'' \9\
---------------------------------------------------------------------------
\9\ M. Barr, S. Mullainathan, and E. Shafir, ``Behaviorally
Informed Regulation'' (2012).
---------------------------------------------------------------------------
Why should financial firms have a ``bulk'' of the fees they
charge for servicing consumer accounts confiscated by the
Federal Government so that the Government bureaucrats can use
that money to pursue their social goals?
Do you still support this proposal?
If confirmed, will you use your position at the Federal
Reserve to try to advance this proposal?
A.12. My paper was a thought experiment with illustrative
examples designed to highlight how various issues in the
consumer marketplace could be addressed. The particular thought
experiment in the paper was designed to highlight the
difference between the behavioral effects of contingent fees
and the revenue-generating effects. I would not seek to advance
this thought experiment as a policy proposal if confirmed to
the Federal Reserve.
Q.13. Financial Stability Oversight Council (FSOC) Secondary
Market Review--Section 10 of the Federal Reserve Act (12 U.S.C.
242) provides that ``[t]he Vice Chairman for Supervision shall
develop policy recommendations for the Board [of Governors of
the Federal Reserve System] regarding supervision and
regulation of depository institution holding companies and
other financial firms supervised by the Board, and shall
oversee the supervision and regulation of such firms.'' Section
113 of the Dodd-Frank Act authorizes FSOC to determine that a
U.S. nonbank financial company shall be supervised by the Board
of Governors of the Federal Reserve System.
Under what circumstances should FSOC determine under
section 113 of the Dodd-Frank Act that Fannie Mae or Freddie
Mac (each a GSE or Enterprise) should be supervised by the
Board of Governors of the Federal Reserve System?
A.13. It would not be appropriate for me to comment on the
possibility of designation of any particular firm or firms.
Q.14. On September 25, 2020, FSOC released a statement on its
activities-based review of the secondary mortgage market. Do
you agree with FSOC's finding in that statement that ``any
distress at the Enterprises that affected their secondary
mortgage market activities, including their ability to perform
their guarantee and other obligations on their MBS and other
liabilities, could pose a risk to financial stability, if risks
are not properly mitigated''?
A.14. Given their scale and centrality to home mortgage
markets, the GSEs are vitally important to the U.S. financial
system and national economy. It is therefore essential that the
GSEs be properly regulated and supervised, including with
strong capital and liquidity rules.
Q.15. FSOC's statement also affirmed the overall quantity and
quality of the regulatory capital required by the Federal
Housing Finance Agency's (FHFA) June 30, 2020, proposed rule to
establish a new regulatory capital framework for the GSEs.
Specifically, FSOC stated that ``risk-based capital
requirements and leverage ratio requirements that are
materially less than those contemplated by the proposed rule
would likely not adequately mitigate the potential stability
risk posed by the Enterprises.'' FSOC also concluded ``it is
possible that additional capital could be required for the
Enterprises to remain viable concerns in the event of a
severely adverse stress.'' (emphasis added [Ed.--not added.)
FSOC committed to ``continue to monitor . . . FHFA's
implementation of the regulatory framework to ensure potential
risks to financial stability are adequately addressed.'' On
December 17, 2020, FHFA finalized the regulatory capital
framework for the GSEs largely along the lines of the June 30,
2020, proposed rule.
Do you accept each of the findings and recommendations made
in the FSOC statement? If not, please identify each finding or
recommendation with which you disagree and your rationale for
the disagreement.
In particular, do you accept FSOC's finding that ``risk-
based capital requirements and leverage ratio requirements that
are materially less than those contemplated by the proposed
rule would likely not adequately mitigate the potential
stability risk posed by the Enterprises''?
Do you accept FSOC's finding that ``[t]he alignment of
market participants' credit risk capital requirements across
similar credit risk exposures would mitigate risk to financial
stability by minimizing market structure distortions''?
Do you accept FSOC's recommendation that ``FHFA and other
regulatory agencies . . . coordinate and take other appropriate
action to avoid market distortions that could increase risks to
financial stability by generally taking consistent approaches
to the capital requirements and other regulation of similar
risks across market participants, consistent with the business
models and missions of their regulated entities''?
A.15. It is essential for the GSEs to have strong capital and
liquidity rules. The GSEs had woefully inadequate capital going
into the global financial crisis of 2008, and that lack of
capital caused widespread disruption.
Q.16. Reduction in the GSE Capital Requirements--On September
27, 2021, FHFA proposed amendments that would have materially
reduced the GSEs' regulatory capital requirements. On February
25, 2022, FHFA finalized those amendments largely as proposed.
The amendments reduced the tier 1 capital that must be
maintained by a GSE to avoid restrictions on capital
distributions from 4 percent to roughly 3 percent of the GSE's
adjusted total assets. The amendments also reduced Freddie
Mac's combined capital requirements from 4 percent to 3.6
percent as of September 30, 2021, with further reductions
likely to follow due to continued house price appreciation,
among other things. Fannie Mae's combined capital requirements
also could further decline as it reverts to prepandemic levels
of credit risk transfer coverage (about twice the year-end 2021
levels according to its annual reports on Form 10-K).
What steps do you think FSOC should take with respect to
FHFA's now-finalized amendments to fulfill FSOC's commitment to
``continue to monitor . . . FHFA's implementation of the
regulatory framework to ensure potential risks to financial
stability are adequately addressed''?
In light of FSOC's commitment, does the absence of any
comment by FSOC on FHFA's now-finalized amendments pose a risk
to the credibility of FSOC or risk politicizing FSOC?
Do you agree that these new risk-based capital requirements
and leverage ratio requirements, as amended by FHFA, are
``materially less than those contemplated by the proposed
rule'' and are not adequate to ``mitigate the potential
stability risk posed by the Enterprises''?
A.16. Given their scale and centrality to home mortgage
markets, the GSEs are vitally important to the U.S. financial
system and national economy. It is therefore essential that the
GSEs be properly regulated and supervised, including with
strong capital and liquidity rules.
Q.17. GSE Resolution Framework--FSOC's statement on its
activities-based review of the secondary mortgage market
encouraged FHFA to continue its efforts to enhance the GSEs'
regulatory framework, including resolution planning
requirements. In May 2021, FHFA finalized a rule that requires
each GSE to develop a plan to facilitate its rapid and orderly
resolution in the event FHFA is appointed receiver. These
resolution plans are intended to, among other things,
``foster[] market discipline by making clear that no
extraordinary Government support will be available to indemnify
investors against losses or fund the resolution of an
Enterprise.'' Specifically, ``[i]n developing a resolution
plan, each Enterprise shall: . . . [n]ot assume the provision
or continuation of extraordinary support by the United States
to the Enterprise to prevent either its becoming in danger of
default or in default (including, in particular, support
obtained or negotiated on behalf of the Enterprise by FHFA in
its capacity as supervisor, conservator, or receiver of the
Enterprise, including the Senior Preferred Stock Purchase
Agreements entered into by FHFA and the U.S. Department of the
Treasury on September 7, 2008, and any amendments thereto).''
Related to this, Treasury's Housing Reform Plan released in
September 2019 recommended that ``[a] credible resolution
framework can ensure that shareholders and unsecured creditors
bear losses, thereby protecting taxpayers against bailouts,
enhancing market discipline, and mitigating moral hazard and
systemic risk.''
In light of the risks to financial stability that could be
posed by a future insolvency event at GSE, do you agree with
the recommendation in Treasury's September 2019 Housing Reform
Plan that ``[a] credible resolution framework can ensure that
shareholders and unsecured creditors bear losses, thereby
protecting taxpayers against bailouts, enhancing market
discipline, and mitigating moral hazard and systemic risk''?
Do you agree with FHFA's requirement that ``each Enterprise
shall: . . . [n]ot assume the provision or continuation of
extraordinary support by the United States to the Enterprise to
prevent either its becoming in danger of default or in default
(including . . . the Senior Preferred Stock Purchase Agreements
entered into by FHFA and the U.S. Department of the Treasury on
September 7, 2008, and any amendments thereto)''?
A.17. I agree that a credible resolution plan for the GSEs
should ensure that shareholders and unsecured creditors bear
losses and that the GSEs should not assume the provision of
extraordinary support by the United States in developing such a
credible resolution plan.
Q.18. As Secretary Yellen noted in her hearing opening
statement on May 10, 2022, FSOC has issued a statement to
express support for the Securities and Exchange Commission's
efforts to reform money market funds and its work to consider
potential reforms of open-end funds. Given FHFA's policy that,
notwithstanding the PSPAs, unsecured creditors of each GSE
should be at risk of loss upon an insolvency event affecting
the GSE, do you think the Securities and Exchange Commission's
regulations governing money market mutual funds, registration
requirements, or other market activity should continue to give
the GSEs special treatment (e.g., by treating them as
Government securities for certain purposes)?
A.18. This is a matter that is squarely within the purview of
the SEC.
Q.19. Credit Risk Capital Requirements for Securitization
Exposures--The Federal Reserve is considering amendments to the
regulatory capital requirements for Federal Reserve-regulated
banks and bank holding companies in connection with the Basel
III ``End Game'' effort. The Federal Reserve's current capital
requirements impose operational criteria for securitization
exposures that are in some respects stricter than those
required under the Basel III standards, as well as minimum
credit risk capital requirements (minimum risk weights) that
are greater than those required under the Basel III standards.
As part of the Federal Reserve's Basel III ``End Game''
rulemakings, will you commit to revisiting the operational
criteria and minimum credit risk capital requirements for the
securitization exposures of Federal Reserve-regulated
institutions?
A.19. If confirmed, I commit to taking an evidence-based
approach to capital and liquidity standards, including with
respect to securitization exposures.
Q.20. Related to this, FHFA has finalized amendments to the
regulatory capital requirements for the GSEs that adopted,
relative to the Federal Reserve's requirements, a more lax
approach to the operational criteria, and a smaller minimum
credit risk capital requirement (a 5 percent risk weight), for
the securitization exposures of the GSEs (known as retained
credit risk transfer exposures under FHFA's framework).
In light of FSOC's finding in its statement on its
activities-based review of the secondary mortgage market that
``[t]he alignment of market participants' credit risk capital
requirements across similar credit risk exposures would
mitigate risk to financial stability by minimizing market
structure distortions,'' would you also commit to assessing the
stability or other risks that might arise out of the Federal
Reserve finalizing stricter operational criteria or greater
minimum credit risk capital requirements for securitization
exposures than those applied by FHFA to the retained credit
risk transfer exposures of the GSEs?
A.20. I agree with the general principle that similar risks
should be treated in similar ways. If confirmed, I commit to
taking an evidence-based approach to capital and liquidity
standards, including with respect to securitization exposures.
Q.21. Records Requests--I made a series of records requests
approximately one year ago to the Federal Reserve Banks of San
Francisco, Boston, Atlanta, and Minneapolis seeking records
pertaining to some of these Federal Reserve Banks' activities
that are outside the Fed's mandate.\10\ \11\ In response to my
records requests, none of these four Federal Reserve Banks have
produced even a single requested record to date.
---------------------------------------------------------------------------
\10\ ``Toomey Expands Review of Woke Mission Creep by Regional
Federal Reserve Banks'', Senate Banking Committee (May 24, 2021),
https://www.banking.senate.gov/newsroom/minority/toomey-expands-review-
of-woke-mission-creep-by-regional-federal-reserve-banks.
\11\ ``Toomey Launches Review of Mission Creep by Regional Federal
Reserve Banks'', Senate Banking Committee (Mar. 29, 2021), https://
www.banking.senate.gov/newsroom/minority/toomey-launches-review-of-
mission-creep-by-regional-federal-reserve-banks.
---------------------------------------------------------------------------
Do you think it is appropriate for a Fed Regional Bank to
stonewall legitimate Congressional records requests? Please
answer ``yes'' or ``no.''
If ``yes,'' please explain fully explain your answer.
If ``no,'' what steps will you take, if confirmed, to
ensure that the Fed Regional Banks are responsive to
Congressional records requests?
A.21. I think the Federal Reserve should respond promptly to
congressional record requests. If confirmed, I would work with
Chair Powell and fellow governors, as well as the presidents of
the Reserve Banks, on this important issue.
Q.22. Politicization of the Fed--In 2019, Neel Kashkari, the
President of the Minneapolis Fed, initiated a grassroots
lobbying effort to support the ``Page Amendment''--a proposed
amendment to Minnesota's State constitution dealing with
education policy. President Kashkari has utilized--and
continues to utilize--Minneapolis Fed resources to lobby for
this amendment.
These political lobbying activities of President Kashkari
and the Minneapolis Fed obviously jeopardize the Fed's
independence and, moreover, are prohibited by the Minneapolis
Fed's own code of conduct, which forbids Minneapolis Fed
employees from engaging in political activity in their official
capacities or using Minneapolis Fed resources. \12\
---------------------------------------------------------------------------
\12\ https://www.banking.senate.gov/imo/media/doc/ranking-member-
toomey-letter-to-minneapolis-fed-president-kashkari.pdf
---------------------------------------------------------------------------
Do you believe it is appropriate for the Minneapolis Fed--
or any component of the Federal Reserve System--to be engaged
in political lobbying activities, such as lobbying for an
education amendment to a State constitution? Please answer
``yes'' or ``no.'' If your answer is ``yes,'' please explain
fully explain your answer.
If confirmed, will you commit to using your position as
Vice Chair of Supervision at the Fed to rein in the Minneapolis
Fed's political lobbying activities? Please answer ``yes'' or
``no.'' If your answer is ``no,'' please explain fully explain
why you will not do so. If your answer is ``yes,'' what steps
will you commit to take to rein in the Minneapolis Fed's
political lobbying activities?
A.22. No, I do not think it is appropriate for the Federal
Reserve to engage in political lobbying activities. If
confirmed, I would work with Chair Powell and my fellow
governors, as well as the presidents of the Reserve Banks, on
this important issue.
Q.23. All 12 Regional Fed Banks have been sponsoring a ``Racism
and the Economy Series'' since October 2020 to ``examine the
ways in which structural racism manifests in America and
advance actions to dismantle structural racism.'' According to
the Minneapolis Fed's website, this series is premised upon the
subjective opinion that ``[r]acism forms the foundation of
inequality in our society.'' \13\
---------------------------------------------------------------------------
\13\ ``Racism and the Economy'', Federal Reserve Bank of
Minneapolis (accessed Feb. 4, 2022), https://www.minneapolisfed.org/
policy/racism-and-the-economy.
---------------------------------------------------------------------------
Is it appropriate for the ostensibly independent and
nonpartisan Federal Reserve to espouse divisive political
rhetoric like the subjective opinion that ``racism forms the
foundation of inequality in our society''? Please fully explain
your answer.
If confirmed, will you use your position at the Federal
Reserve to ensure that the Federal Reserve System is not
spending its time and resources focused on divisive,
politicized events like the Racism and the Economy series?
Please fully explain your answer.
A.23. I believe that the Federal Reserve System should be able
to engage in independent research on a wide range of topics
consistent with the Federal Reserve's mandates.
Q.24. If confirmed, will you commit to protecting the
independence of the Fed by using your position as Fed Governor
to rein in any and all political advocacy that is currently
taking place across the Federal Reserve System? Please answer
``yes'' or ``no.''
If your answer is ``yes,'' what steps do you plan to take
to rein in any and all political advocacy that is currently
taking place across the Federal Reserve System?
If your answer is ``no,'' fully explain your answer.
A.24. I do not think it is appropriate for the Federal Reserve
to engage in political lobbying activities. If confirmed, I
would work with Chair Powell and my fellow governors, as well
as the presidents of the Reserve Banks, on this important
issue.
Q.25. Recent Public Statements--On June 2, 2020, you issued a
public statement as Dean of the Ford School of Public Policy
that ``it is important to acknowledge that the violence and
inequality in our systems are the result of centuries of laws,
policies, and institutions that entrenched and enforced racist
inequality.'' \14\
---------------------------------------------------------------------------
\14\ Michael Barr, ``Dean Michael Barr Addresses Racist
Violence'', Ford School of Public Policy at the University of Michigan
(Jun. 2, 2021), https://fordschool.umich.edu/news/2020/dean-michael-
barr-addresses-racial-violence.
---------------------------------------------------------------------------
What role can and should the Federal Reserve play in
addressing the U.S. systems and institutions that you have
identified as having ``entrenched and enforced racist
inequality''?
If confirmed, what specifically do you intend to do at the
Federal Reserve, if anything, to address the U.S. systems and
institutions that you have identified as having ``entrenched
and enforced racist inequality''?
A.25. The Federal Reserve has an important, but clearly defined
set of responsibilities, and other parts of Government and
society are responsible for policies to address issues related
to inequality. The Federal Reserve has a role to play by
conducting monetary policy in pursuit of its dual mandate of
price stability and maximum employment, which benefits the
economy as a whole, enforcing fair lending and related laws,
and seeking to diversify the staff and leadership of the
Federal Reserve Board and Banks.
Q.26. In that same public statement from June 2, 2020, you
wrote that ``in the aftermath [of George Floyd's killing by a
police officer] many, many police officers and departments
engaged in violent confrontations all over the country. \15\
---------------------------------------------------------------------------
\15\ Id.
---------------------------------------------------------------------------
What did you mean by your statement that ``many, many
police officers and departments engaged in violent
confrontations all over the country''?
Were you asserting by this statement that ``violent
confrontations'' during the protests and riots that occurred in
the United States in the aftermath of George Floyd's murder
were instigated by police officers and police departments?
Please answer ``yes'' or ``no.''
If your answer is ``yes,'' please provide the evidence you
are relying on to justify your belief that ``many, many police
officers and departments'' were the ones instigating violent
confrontations all over the country.
A.26. These issues are not within the mandate of the Federal
Reserve, and I would not be working on them if confirmed. At
the time I wrote the statement, in the wake of George Floyd's
death and the massive protests that ensued, police officers
faced enormous challenges in their roles of protecting public
safety, speech, and assembly.
Q.27. While serving as the dean of the University of Michigan's
Gerald R. Ford School of Public Policy (Ford School), on
September 26, 2020, you tweeted that ``I join @umich
@DrMarkSchlissel & Provost Susan Collins in condemning White
House's recent Executive order'' aimed at combating critical
race theory and race and sex stereotyping in Federal
contracting and the Federal workforce (E.O. 13950). \16\ You
then elaborated that ``@fordschool, we teach about systemic &
structural racism because in order to form a more perfect
union, one has to acknowledge its flaws & work every day to
correct them.''
---------------------------------------------------------------------------
\16\ Tweet of Michael Barr, Twitter (Sept. 26, 2020).
---------------------------------------------------------------------------
Given that Section 10(b) of the Executive order explicitly
provides that ``Nothing in this order shall be construed to
prohibit discussing, as part of a larger course of academic
instruction, the divisive concepts listed in section 2(a) of
this order in an objective manner and without endorsement,''
\17\ how specifically did the Executive order affect the Ford
School, if at all?
---------------------------------------------------------------------------
\17\ Section 2(a) of E.O. 13950 states: ``(a) `Divisive concepts'
means the concepts that (1) one race or sex is inherently superior to
another race or sex; (2) the United States is fundamentally racist or
sexist; (3) an individual, by virtue of his or her race or sex, is
inherently racist, sexist, or oppressive, whether consciously or
unconsciously; (4) an individual should be discriminated against or
receive adverse treatment solely or partly because of his or her race
or sex; (5) members of one race or sex cannot and should not attempt to
treat others without respect to race or sex; (6) an individual's moral
character is necessarily determined by his or her race or sex; (7) an
individual, by virtue of his or her race or sex, bears responsibility
for actions committed in the past by other members of the same race or
sex; (8) any individual should feel discomfort, guilt, anguish, or any
other form of psychological distress on account of his or her race or
sex; or (9) meritocracy or traits such as a hard work ethic are racist
or sexist, or were created by a particular race to oppress another
race. The term `divisive concepts' also includes any other form of race
or sex stereotyping or any other form of race or sex scapegoating.''
---------------------------------------------------------------------------
Section 5 of the order requires the recipient of a Federal
grant to certify that it will ``not use Federal funds to
promote the concepts that (a) one race or sex is inherently
superior to another race or sex; (b) an individual, by virtue
of his or her race or sex, is inherently racist, sexist, or
oppressive, whether consciously or unconsciously; (c) an
individual should be discriminated against or receive adverse
treatment solely or partly because of his or her race or sex;
(d) members of one race or sex cannot and should not attempt to
treat others without respect to race or sex; (e) an
individual's moral character is necessarily determined by his
or her race or sex; (f) an individual, by virtue of his or her
race or sex, bears responsibility for actions committed in the
past by other members of the same race or sex; (g) any
individual should feel discomfort, guilt, anguish, or any other
form of psychological distress on account of his or her race or
sex; or (h) meritocracy or traits such as a hard work ethic are
racist or sexist, or were created by a particular race to
oppress another race.''
Do you believe it is appropriate for the Ford School or any
recipient of Federal funds to use Federal funds to promote any
of the above concepts? Please fully explain your answer.
A.27. I support the tradition of free academic debate in higher
education, which is a long-standing tradition in American
discourse.
Q.28. Congressional Oversight--If confirmed, do you intend to
respond to information requests differently depending on who is
making the Congressional information request (whether it's the
chair of the Congressional committee, the Ranking Member, or
another member of Congress)? Please answer ``yes'' or ``no.''
If your answer is ``yes,'' please explain.
A.28. If confirmed, I look forward to working with you and all
Members of Congress on information requests.
Q.29. Will you commit that, if confirmed, you will respond in a
timely manner and fully comply with all information requests
from me? Please answer ``yes'' or ``no.'' If your answer is
``no,'' please explain.
A.29. If confirmed, I look forward to working with you and all
Members of Congress on information requests.
Q.30. Will you commit that, if confirmed, you will make
yourself and any other employee of the Federal Reserve
expeditiously available to provide oral testimony (including
but not limited to briefings, hearings, and transcribed
interviews) to the Committee on any matter within its
jurisdiction, upon the request of either the Chairman or
Ranking Member? Please answer ``yes'' or ``no.'' If your answer
is ``no,'' please explain why.
A.30. If confirmed, I look forward to working with you and all
Members of Congress on information requests.
Q.31. Answering Questions for the Record--Please describe with
particularity the process by which you answered these questions
for the record, including identifying who assisted you in
answering these questions along with a brief description of
their assistance.
A.31. I drafted all answers myself. I shared my draft answers
with Federal Reserve and interagency staff for review.
Q.32. Did any person on the board of, or employed by, a
501(c)(4) organization, provide advice to you, oral or written,
on your responses to these questions? If so, please list those
individuals and organizations.
A.32. No.
------
RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM MICHAEL S. BARR
Q.1. If confirmed as Vice Chair for Supervision you would be a
key figure in implementing overdue regulations, such as the CRA
update and an incentive-based executive compensation rule.
If confirmed, will you make it a top priority to work with
the other financial regulators to finalize and implement the
new CRA rule recently proposed by the Fed, OCC, and FDIC?
Will you also commit to working with the other financial
regulators to develop and swiftly implement a strong incentive-
based compensation rule, as required by the Dodd-Frank Act?
A.1. Yes, if confirmed I will make it a top priority to work
with the other financial regulators to finalize and implement
Community Reinvestment Act regulations. I will also work with
the other financial regulators to develop incentive-based
compensation rules as required by the Dodd-Frank Act.
Q.2. The Class B Directors at the Federal Reserve Banks are by
statute supposed to represent the public, but they are
predominantly White, male, and come from banks and large
businesses. Part of the problem is that the selection process
for these directors lacks transparency, and therefore the
predominately White, male, and corporate-centered member banks
that choose Fed Directors continue to select people that look
and think like they do.
Given that Class B directors are supposed to represent the
public, would you support changing the process for selecting
these directors to solicit greater public input, including but
not limited to (a) timely public notification of general
selection criteria and estimated timeline, (b) engagement with
minority professional organizations, when it comes to public
notification of vacancies and general selection criteria, (c)
opportunity for the public to submit comments on the overall
process?
If confirmed will you commit to working with my office to
bring greater transparency and public input the Class B
selection process?
A.2. If confirmed, I will prioritize increasing diversity
across the Federal Reserve system, including at the Federal
Reserve Banks. Under the Federal Reserve Act, Class B directors
of the Reserve Banks are nominated and elected by the member
banks in each district. I would be pleased to work with your
office on potential ways to bring greater transparency and
public input into the Class B director selection process.
Q.3. The Federal Reserve just finalized a rule governing its
payment service FedNow. I've heard a lot of concerning stories
of fraud and scams running rampant on Zelle, an instantaneous
payment service owned and operated by some of the Nation's
largest banks, and I've seen consumer groups raising similar
concerns about FedNow.
How will you ensure users of FedNow are adequately
protected from scams and fraud?
A.3. Consumer confidence and trust are essential for the
effective functioning of financial markets and payments
infrastructure. If confirmed, I would be committed to learning
more about the work carried out thus far in developing FedNow
and working with the Federal Reserve staff and my fellow
governors to discuss approaches to FedNow that would protect
consumers from scams and fraud.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
FROM MICHAEL S. BARR
Q.1. Risks to Economic Stability--It is critically important
that both the Fed and the SEC continue to gather as much
information as possible on the risks to our financial system.
It's critical for the safety and soundness of the institutions
the Fed and the SEC regulates, our economy, and protecting the
American taxpayer. Cybersecurity and cyberattacks will be among
many risks you, if confirmed, will need to track and evaluate
in these positions,
How will you work to address cyberthreats? How will you
evaluate when new risks are arising and how to address them?
A.1. I agree that cyberrisk is a critically important risk for
the financial sector and financial regulators to understand and
address. If confirmed, I will make cyberrisk a top priority for
Federal Reserve supervisors. Together with Chair Powell and
other members of the Board, I will ensure that the Federal
Reserve coordinates with private financial institutions, other
financial regulators, Treasury, the FBI, the National Security
Agency, the Department of Homeland Security, global
coordinating bodies, and other cybersecurity experts to
understand and mitigate these risks.
Q.2. Innovation--As new financial products and technologies are
developed and existing products evolve the Federal Reserve and
the Securities and Exchange Commission will have opportunities
to shape the ecosystem around cryptocurrencies and other
``FinTech'' products and companies, and as regulators have a
responsibility to provide adequate protections for our
financial system and consumers.
What is your view of the current regulation and oversight
in this space? What do you believe works well and what would
you change?
A.2. When innovations arise in the financial sector, they offer
potential benefits, but financial regulators and the market can
be slow to understand emerging risks, including consumer and
investor protection, financial stability, cybersecurity, and
illicit finance. Our fragmented system of regulation means that
financial innovation can arise in unregulated or lightly
regulated spaces in the cracks between existing financial
regulation. If confirmed, I would be highly focused on keeping
abreast of financial innovations and determining appropriate
ways in collaboration with interagency partners to mitigate
financial risks while fostering innovation.
Q.3. Community Banks--What more should be done to make sure
that community banks can serve the Main Street businesses,
workers, and families in their communities?
A.3. I think a tiered approach to regulation makes a lot of
sense. The strictest rules ought to be applied to the largest
and riskiest institutions, and there should be a graduated
approach below that. Especially, care ought to be taken with
respect to community banks, which have difficulty meeting
regulatory burdens. It is critically important that the Federal
Reserve look at ways to reduce regulatory burden on community
banks, while fostering safety and soundness in the community
banking system. The wide diversity of sizes of banks in our
financial system is a source of strength, helping to foster
financial stability, competition, and service to Main Street
businesses and households.
Q.4. Generally, what is your view and approach to the
regulatory responsibilities of the Federal Reserve Board?
A.4. If confirmed, I would focus on maintaining the resilience
of the financial system; ensuring appropriate regulation of
financial innovation that balances risks and benefits of new
technologies; and promoting fairness so that our financial
system works better for all of us.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM MICHAEL S. BARR
Q.1. The Boston Fed has reported that Black, Hispanic, and
Asian borrowers were significantly less likely to refinance to
take advantage of the large decline in interest rates spurred
by the Federal Reserve's large-scale mortgage-backed security
purchase program during the Covid-19 pandemic, which
potentially widened the racial home ownership and wealth gaps.
If confirmed, does the Fed have a plan to mitigate these
discrepancies? What tools does the Fed currently have to extend
these benefits to these groups of homeowners?
A.1. The racial home ownership and wealth gaps are critically
important issues facing our country. When the Federal Reserve
does its monetary policy job right, it helps the economy grow
for everyone. The Federal Reserve can also play a role by
fostering financial inclusion, advancing financial education,
enforcing fair lending and related laws, conducting outreach
with civil rights and community organizations, finalizing
Community Reinvestment Act rules, and helping ensure the
financial system is operating safely and fairly for all
households. If confirmed, I would be committed to advancing
these policies.
Q.2. According to U.S. Bureau of Economic Analysis, post-tax,
corporate profits have increased 25 percent year over year. To
what extent do you believe corporate behavior has contributed
to the upward price pressure faced by American consumers? How
has this behavior affected low-income Americans?
A.2. Inflation is far too high, and that's hurting families and
businesses across the country. Low-income Americans face rising
prices that in many cases are rising much faster than wages,
making it much harder to make ends meet. With demand for goods
and services far outstripping supply, prices have risen
significantly, which is especially hard on low-income
Americans. If confirmed to the Federal Reserve Board, I am
fully committed to bringing inflation down to the Federal
Reserve's target of 2 percent.
Q.3. If confirmed, how will you promote and grow the Fed's
racial equity policies? Will this impact how you approach the
scheduled regulatory updates to the Community Reinvestment Act
(CRA)?
A.3. For over 25 years, I have worked to make the financial
system safer and fairer, and better focused on serving
households and businesses, including through my academic
research and work at the United States Treasury Department on
the Community Reinvestment Act, community development financial
institutions, fair lending, financial inclusion, and other
policies. If confirmed, I look forward to working with my
fellow governors as well as the OCC and the FDIC to finalize
Community Reinvestment Act regulations, which include important
provisions relating to fair lending, minority depository
institutions, and the provision of financial services in low-
to-moderate income communities. The Community Reinvestment Act
was put in place to combat a history of redlining in the United
States and to encourage banks and thrifts to meet the needs of
all communities, including low- and moderate-income
communities, and I look forward if confirmed to updating these
rules.
In addition, the Federal Reserve has an important role to
play in helping the economy work well for everyone, by
conducting monetary policy in pursuit of its dual mandate,
through its monetary and financial regulatory policies,
enforcement of fair lending and related laws, as well as
seeking diversity in Federal Reserve Board and Bank staff and
leadership, fostering financial inclusion, and advancing
financial education.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR CRAPO
FROM MICHAEL S. BARR
Q.1. Before withdrawing her nomination, Governor Raskin
received criticism for advocating that regulators act to
counter climate-change risk and called for the Fed to pressure
financial institutions to ``choke off'' credit to traditional
energy companies. As I am sure you know, ``choking off'' credit
to industries viewed as unfavorable and controlling the
allocation of capital is not a new concept. We can recall
Operation Choke Point from the Obama administration years.
Do you share this same view, that the Fed should pressure
financial institutions to ``choke off'' credit to counter
climate change risk? How do your views differ from Raskin's?
A.1. No, it is not appropriate for the Federal Reserve to
prohibit financial institutions from lending to particular
firms or sectors, or to require financial institutions to lend
to particular firms or sectors. Those business decisions should
be made by the private sector.
Q.2. Through regulation and so-called risk assessments,
Treasury and probably the Fed are looking for reasons to find
risks to financial stability from climate change. Some of those
risks are self-created, such as risks to companies that
Government officials have strongly suggested should disappear,
such as oil and gas or ``extractive'' industries.
Banks have also, using shareholder activism, been pressured
into choking off credit to legal industries that may be
disfavored by activist groups, such as gun manufacturers.
It appears that there is a high risk of having Federal
regulators and certain activists' pressure banks and other
providers of capital into withholding lending and capital to
industries or activities that are disfavored by some according
to their political views.
That means, effectively, that financial regulators are
working with politically active groups to engineer yet another
round of Operation Chokepoint.
Would you use Fed regulation to channel credit or choke off
credit to companies and industries that engage in legal
activities, but may do things that are disfavored by certain
groups based on their individual political and social
preferences?
A.2. No, it is not appropriate for the Federal Reserve to
prohibit financial institutions from lending to particular
firms or sectors, or to require financial institutions to lend
to particular firms or sectors. Those business decisions should
be made by the private sector.
Q.3. In March, the SEC issued for comment proposed rule changes
that would require all publicly traded companies to include
certain climate-related risk disclosures in their registration
statements and periodic reports. There is speculation that the
Fed may soon follow suit and encourage the use of ESG data to
explore climate change exposure as a part of stress tests for
banks.
The actions taken by the SEC are a clear attempt to
influence U.S. energy policy through regulation and is beyond
the scope of the agency. If confirmed would you encourage
similar action by the Fed?
A.3. The Federal Reserve has an important but narrow role with
respect to climate risk. The primary responsibility in the
Government for addressing climate change rests with elected
officials. If confirmed, I would be focused on identifying
potential risks to the financial system from all sources,
including climate-related risks. If the Federal Reserve were to
conduct climate scenario analyses, in my view the purpose
should be to understand risks that climate might pose to the
financial system and to work with financial institutions on
managing those risks.
Q.4. You have been critical of the Economic Growth, Regulatory
Relief and Consumer Protection Act, or S. 2155. The primary
purpose of S. 2155 was to spur economic growth by right-sizing
regulations for financial institutions, including community
banks and credit unions, midsized banks, and regional banks so
that they could redirect important financial resources to
individuals, households and businesses. Since the enactment of
Dodd-Frank over a decade ago, these institutions had been
crushed under undue regulation.
Vice Chair Quarles implemented S. 2155 in a pretty
straightforward way, do you agree?
Do you plan to make changes to any enhanced prudential
regulations or standards that S. 2155 amended?
What are your views on Total Loss Absorbing Capacity (TLAC)
for regional banks? Michael Hsu (Acting OCC Comptroller) has
stated (most recently at a UPenn Wharton speech) that the
regulators should implement TLAC for regional banks. Is this
something you agree with?
A.4. I support important elements of S. 2155, particularly with
respect to easing regulatory burden on community banks. I also
support the principle of tiered regulation so that the largest,
most complex firms are subject to the strictest oversight, and
gradually less restrictive rules apply as to smaller, simpler,
less complex firms. At the time, I was concerned that the draft
legislation went too far in relaxing oversight of larger firms;
many of those concerns were addressed in a manager's amendment
and in subsequent Federal Reserve rulemakings.
If confirmed, I commit to faithfully implement the laws
that Congress passes. I would be forward-looking toward
emerging risks and work to support the continued resiliency of
our financial system. With respect to your question regarding
TLAC, I have not had the opportunity to carefully study the
ideas contained in Acting Comptroller Hsu's speech.
Q.5. In the FDIC's release of its RFI regarding bank merger
transactions, the FDIC appears intent on creating a role for
the CFPB in approving bank M&A transactions that do not
otherwise exist under the Bank Merger Act. In fact, when the
CFPB was created, this was not the congressional intent or the
purpose of the CFPB. Rather, this would broaden the CFPB's
scope.
Do you think that the CFPB should have a role in bank
merger approval?
A.5. I think it would be appropriate for the Federal Reserve
and other agencies to review the existing interagency bank
merger guidelines, which have not been updated since 1995. I
have not had the opportunity to consider the role of other
agencies, if any, in the bank merger review process.
Q.6. In December, CFPB Director Chopra and FDIC Director
Gruenberg issued a joint statement that the FDIC approved a
Request for Information (RFI) on bank mergers. However, shortly
thereafter, the FDIC clarified that no such document had been
approved by the FDIC and that there was no valid vote by the
FDIC board. This hostile action by Directors Chopra and
Gruenberg undercut the integrity of the FDIC board and resulted
in the resignation of Chairwoman McWilliams.
What is your view of the actions taken by Directors Chopra
and Gruenberg?
A.6. I do not have any comment on the FDIC. With respect to the
Federal Reserve, if confirmed, I would be committed to
preserving its long tradition of collegial, collaborative, and
apolitical decision-making.
Q.7. During Dodd-Frank, you supported the creation of the CFPB,
an agency with no accountability to Congress. What are your
views on transparency and accountability to Congress?
Will you confirm that you will be responsive and
transparent in your responses to this Committee?
A.7. Yes. I strongly believe in transparency and accountability
to Congress and if confirmed I will be responsive and
transparent in my responses to this committee.
Q.8. What are your views on inflation and do you believe in
modern monetary theory?
A.8. Inflation is far too high today, and I am committed to
bringing inflation down to the Federal Reserve's target of 2
percent. Generally, I believe traditional macroeconomic
analysis provides a good basis for understanding macroeconomic
issues, and that existing tools provide an adequate basis for
conducting monetary policy. I am strongly committed to the
independence of the Federal Reserve from fiscal policy.
Q.9. There are significant concerns about a Central Bank
Digital Currency (CBDC), including privacy and Fed control of
payments.
It is hard to see how a CBDC housed at the Fed could
overcome privacy concerns, and it would not be appropriate to
have a Federal agency have access to transactions histories of
private citizens.
There is also a concern about a CBDC with the digital
currency possibly having smart contracting features. A clear
risk would be that users of a CBDC could be prevented, through
smart contracts programmed into the currency, from making
transactions that may be legal but not favored by political
interests. That is, CBDC could be a high-tech way for the
Government to engage in something like what we saw with
Operation Chokepoint.
Do you support a CBDC and, if so, how would you propose to
address privacy issues and risks of things like Operation
Chokepoint?
A.9. I think a CBDC requires significant additional study and
research. The Federal Reserve's discussion paper on this is a
good starting point, including its analysis of privacy and
other policy issues. I do not think a CBDC should be used to
prohibit or require financial institutions to conduct business
with particular firms or sectors. I agree with Chair Powell
that the Federal Reserve should only move forward with a CBDC
with the buy-in of Congress and the Executive branch.
Q.10. Your July 31, 2020, paper with A. Harris, L. Menard, and
W. Xu, titled ``Building the Payment System of the Future: How
Central Banks Can Improve Payments to Enhance Financial
Inclusion'' discusses central bank digital currency, and uses
efforts at the People's Bank of China (PBOC) as one example.
The paper argues that: ``Emerging technologies from virtual
currencies to mobile payments and QR codes present
opportunities for central banks to advance'' important work on
reversing ``troubling inequality,'' reducing ``fragmentation,''
and eliminating ``predatory practices.'' While many of those
terms have loose definitions, enhancement of financial
inclusion via central bank accounts ought not to involve
unacceptable sacrifices of privacy and allowances for
Government monitoring and control of private citizens'
financial accounts and transactions. The paper appears to
highlight PBOC activities in digital financial transactions, in
the interest of identifying potential models to enhance
financial inclusion via central bank digital currencies, but
does not appear to have much to say about privacy concerns with
PBOC activities.
Do you believe that China and the PBOC provide a useful
model for the Federal Reserve to use to pursue individual
Federal Reserve officials' beliefs about financial inclusion?
A.10. No, the Chinese model is not a useful starting point for
the United States. I share your privacy concerns about the
Chinese model, among other concerns.
Q.11. A 2012 paper with S. Mullainathan and E. Shafir, titled
``Behaviorally Informed Regulation'', discusses a proposal from
you and your coauthors where financial ``firms could deter
consumers from paying late or going over their credit card
limits with whatever fees they deemed appropriate, but the bulk
of such fees would be placed in a public trust to be used for
financial education and assistance to troubled borrowers.'' The
proposal, in effect, would have the Government mandate maximum
percentages of late or over-limit fees that financial firms
could ``retain,'' with the remainder taken by Government
regulators for whatever they deem to be appropriate social
goals.
Do you continue to support a proposal to allow financial
firms to ``retain'' a Government-determined fraction of costs
they incur in servicing accounts in order to allow penalties to
have ``behavioral'' effects, with the remaining fraction
socialized and used for Government- or regulator-preferred
social programs?
A.11. My paper was a thought experiment with illustrative
examples designed to highlight how various issues in the
consumer marketplace could be addressed. The particular thought
experiment in the paper was designed to highlight the
difference between the behavioral effects of contingent fees
and the revenue-generating effects. I would not seek to advance
this thought experiment as a policy proposal if confirmed to
the Federal Reserve.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM MICHAEL S. BARR
Q.1. As you are likely aware, banks that calculate capital
using the standardized approach may not recognize the capital
benefits of collateral securing an extension of credit if a
bank's right to foreclose on the collateral may be stayed or
avoided under applicable insolvency law. The U.S. Bankruptcy
Code broadly applies an automatic stay with few exceptions.
This means that U.S. banks using the standardized approach
cannot recognize the capital benefits of collateral securing
many loans, even if the banks have a first priority, perfected
security interest in high quality collateral that would,
therefore, be at the top of the creditor stack.
This treatment of collateralized transactions deviates from
the approach in place in other jurisdictions (e.g., U.K., EU)
and adopted by the Basel Committee on Banking Supervision. As
such, U.S. banks subject to the standardized approach may be at
a competitive disadvantage.
If confirmed, are you willing to review the current
framework and, as may be necessary, propose technical
adjustments to ensure that high quality collateral securing
extensions of credit receive the same capital treatment across
regulated entities to appropriately account for the underlying
risk?
A.1. If confirmed, I would be attentive to the issues that you
raise, and I would take a holistic approach to bank capital and
liquidity standards to ensure that the framework provides a
consistent, transparent, competitive, and strong approach to
resiliency in the financial system.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM JAIME E. LIZARRAGA
Q.1. Where have you excelled in past positions in attracting,
hiring, and promoting people of color in positions in your
organization? Where might there be room for improvement?
A.1. In my 31-year career in public service, diversity and
inclusion have served as fundamental values guiding my work. I
am proud to have been involved in, among other efforts, the
historic establishment of a House Office of Diversity and
Inclusion that now serves the entire House of Representatives,
House diversity and inclusion initiatives that preceded it, and
changes to House Democratic Caucus rules to promote House staff
diversity. I worked closely with other House leadership
offices, the Congressional Hispanic Caucus, other House
Caucuses, House staff associations, and outside stakeholders on
all these initiatives
In my role as Director of Member Services in the Speaker's
office and in the Office of the House Democratic Leader (2008-
2018), I led a team that served as a resource to new Member
offices in their recruitment of staff. Our team maintained an
internal resume bank and advised incoming Member offices
regarding best practices on diversity and inclusion.
As a House Financial Services Committee staff member, I was
involved in initiatives to promote diversity and inclusion in
the financial services industry and at financial regulatory
agencies. In 2006, I oversaw efforts to recruit diverse staff
for senior Committee positions.
I currently serve as a member of the Congressional Hispanic
Staff Association advisory board, and routinely mentor
congressional staff on career advancement and best practices
for workplace success.
In December 2020, I received an award from the
Congressional Hispanic Caucus Institute Alumni Association for
my leadership and commitment to advancing diversity and
inclusion on Capitol Hill.
In my experience, awareness of the value of diversity and
inclusion on Capitol Hill has increased markedly in recent
years, but more work remains to be done. If confirmed, I intend
to work closely with the Commission's Office of Minority and
Women Inclusion to ensure the SEC consistently upholds the
values of diversity and inclusion in its hiring practices.
Q.2. What specific measures will you use to evaluate the
success of the Securities and Exchange Commission in
understanding and addressing the needs of Black, Indigenous,
and people of color (BIPOC)? And, will you work with the Chair
and other Commissioners to keep Congress apprised, as
appropriate, on the progress being made on these measures?
A.2. If confirmed, I plan to review the agency's most recent
efforts to meet the needs of Black, Indigenous, and people of
color. I plan to engage with the Office of Minority and Women
Inclusion to measure progress in fulfilling the Dodd-Frank
Act's mandates of fostering diversity and inclusion in the
SEC's workforce and at SEC-regulated entities, and in promoting
expanded opportunities for BIPOC businesses.
I also plan to review progress in achieving the goals of
the Diversity and Inclusion Strategic Plan and the SEC's
benchmarks for measuring progress on these goals.
A rule on corporate board diversity is on the SEC's
Regulatory Flexibility agenda, and I want to be careful not to
prejudge any future rulemaking. However, if confirmed, I look
forward to working with my fellow Commissioners, Commission
staff, and Congress to ensure that the principles of diversity,
inclusion and equity are being fully integrated into the
agency's mission.
Q.3. What is your plan for creating an inclusive working
environment for employees within your office?
A.3. If confirmed, and consistent with my long-standing
commitment to diversity and inclusion, I intend to hire and
retain a diverse workforce and to foster an inclusive work
environment in my own office.
Q.4. Please describe your general views on enforcement and
detail what the SEC can do to better protect savers and
investors from risks in volatile markets.
A.4. Robust SEC enforcement reduces risk in our capital
markets, protects investors, and lowers the cost of capital. It
is crucial to prioritize enforcement actions that shape market
behavior and, critically, deter fraud and other future bad
behavior.
Enforcement actions should be brought to hold individuals
accountable. Consistent with the SEC's authorities, the agency
should seek tough penalties, like admissions and bars, for
those who engage in wrongdoing. Lastly, it is important to me
that the agency prioritize tackling affinity fraud--wrongdoing
against seniors, servicemembers, retail investors, small
businesses, and other vulnerable populations. If confirmed, I
commit to following the law and the facts and to working
closely with the agency's capable professional enforcement
staff to ensure the robustness of the SEC's enforcement
program.
Q.5. The SEC has a role to play in ensuring that its reporting
requirements are broadly aligned with workable, effective and
broadly supportive standards, when such existing standards
exist. Not only does this help provide consistency and
comparability for investors and other stakeholders, but
especially for companies that are publicly listed in multiple
jurisdictions, this can also alleviate additional costs of
complying with different requirements. In examples of SEC rules
where the U.S. standard is considered to be far weaker than
that of the prevailing international standard, would you
consider steps to align the U.S. reporting requirements with
the international standard?
A.5. It is essential for the SEC to engage in robust dialogue
and coordination with international standards-setting bodies,
such as the Financial Stability Board and the International
Organization of Securities Commissioners. Harmonization and
convergence of standards play important roles in fostering
investor access to comparable and consistent data and leveling
the playing field for all market participants. Where
international standards differ from current SEC rules, I
believe it merits assessing whether and how aligning our rules
can advance the SEC's mission. Moreover, lessons from other
jurisdictions' experiences can enhance our own expertise in
crafting our own rules. In assessing these issues, I will be
guided by the fact that U.S. capital markets are unique and
vibrant, and I will do all I can to ensure they remain the
deepest and most liquid in the world. If confirmed, I look
forward to engaging actively on these issues and in working
with Congress and the SEC's Office of International Affairs.
Q.6. Over a decade ago, the U.S. led the world in the fight
against corruption in the extractives industries. Implementing
the bipartisan Cardin-Lugar amendment to the Dodd-Frank Act, a
landmark transparency provision, the SEC developed a
significant new disclosure standard for payments made to
Governments by mining, oil, and gas companies that catalyzed
global change in combating corruption. As a result, over thirty
countries adopted nearly identical public reporting
requirements for project-level payments and the international
Extractive Industries Transparency Initiative, now being
implemented by 56 countries, uses that same reporting standard.
This has resulted in unprecedented transparency, with many
companies publicly disclosing project-level payments to
Governments each year. But under the Trump administration much
of this progress was reversed. Despite many years of reporting
by companies outside the U.S., U.S.-listed companies remain
among the least transparent as they still are not reporting
project-level payments. Indeed, after years of delay, the SEC
put out a new, substantially weaker version of the rule in 2020
that fell far short of the standard already being implemented
around the world. The rule goes against the weight of evidence
in the record in its failure to promote international
transparency, in its failure to ensure consistent reporting
obligations for companies, its inability to effectively fight
corruption, and its failure to protect investors. In its
current form, it does not satisfy the underlying statute's
anticorruption and accountability purposes. Will you recommit
the SEC to fulfilling the leadership role in combating
corruption as Congress intended when it adopted new statutory
transparency standards, and ensure consistency and
comparability in reporting standards to better protect
investors?
A.6. I support the Cardin-Lugar amendment's overall goal of
promoting market transparency through the disclosure of
decision-useful information to investors on payments to
Governments by resource extraction issuers. A rule on
disclosure of payments by resource extraction issuers is on the
SEC's Regulatory Flexibility Agenda, and I want to be careful
not to prejudge any matter that might come before me. That
said, I believe this congressional mandate should be robustly
implemented. I look forward to reviewing the staff's
recommendations on the issue, and I will be guided by the
general principle that any rule remain faithful to the mandate
in the Dodd-Frank Act and congressional intent.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM JAIME E. LIZARRAGA
Q.1. Corporate America has a diversity problem-boards and
executive offices across the U.S. do not look like the people
of this country. The SEC's 2009 diversity disclosure rule fails
to address this problem or even define ``diversity.''
Leadership diversity has been shown by McKinsey and others to
lead to greater profitability for shareholders.
Do you agree that the demographic breakdown of a company's
executive board, as well as what policies the company has in
place for promoting diversity, is material information that
should be disclosed to shareholders?
A.1. I agree that women and people of color remain
underrepresented in the management of public companies. A rule
on corporate board diversity is on the SEC's Regulatory
Flexibility agenda, and I want to be careful not to prejudge
any future rulemaking. However, given strong investor interest
as demonstrated by the increasing number of shareholder
proposals on corporate board diversity, I believe this is an
area in which the SEC should consider acting. If confirmed, I
look forward to engaging with my fellow Commissioners and
Commission staff on this matter generally and to reviewing
stakeholder comments in any future rulemaking.
Q.2. Political spending is another area where disclosure
standards need to be improved. More than 1.2 million securities
experts, institutional and individual investors, and members of
the public have pressed the SEC for a political spending
disclosure rule.
Do you agree that political contributions made by publicly
traded companies are material information that should be
disclosed to shareholders of those companies?
A.2. The lack of transparency in corporate political disclosure
precludes investors from knowing whether corporate management
is spending shareholder money in a way that diverges from
shareholder interests. Investors see disclosure of this
information as material for their investment decisions, as
evidenced by the fact that proposals on the subject are
regularly among the top at annual meetings. That said, as a
long-time congressional staffer, I deeply respect the role of
Congress and congressional directives. If Congress were to lift
the appropriations rider barring the SEC from engaging in any
rulemaking on corporate political disclosures, I believe it
would be appropriate for the SEC to consider acting to provide
investors the information they have been seeking on this
matter.
Q.3. On July 7, 2021, the SEC's Asset Management Advisory
Committee unanimously issued four recommendations that would
help promote diversity among asset managers and thereby lead to
greater returns for investors. \1\
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\1\ https://www.sec.gov/files/amac-recommendations-di-
subcommittee-070721.pdf
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If confirmed, would you support holding a vote to consider
these recommendations?
A.3. Yes. I was particularly struck by the AMAC's finding that
less than 1 percent of the $70 trillion of global assets under
management is managed by women- and minority-owned asset
management firms. This glaring underrepresentation of women and
people of color in ownership interests and in boards and senior
management of asset management firms is very concerning. This
is an issue that I first examined nearly 20 years ago as a
House Financial Services Committee staffer and it is
disheartening to see relatively little progress since then.
If confirmed, and without prejudging a matter that may come
before me, I look forward to working with Commission staff to
carefully evaluate the AMAC's recommendations, which I believe
are critically important to advancing diversity and inclusion
in the asset management industry. I also look forward to
working with my fellow commissioners and the Chair, who
controls the regulatory agenda of the agency, to consider a
vote on the staff's recommendations.
Q.4. Section 13(d) of the Securities Exchange Act of 1934
requires investors who become the beneficial owners of more
than 5 percent of an issuer's equity securities to report
certain identifying information to the SEC. While I appreciate
that the Commission issued a proposed rule to modernize these
requirements in February, enforcement of these rules needs to
be a priority.
How would you propose to strengthen SEC enforcement in this
area to make sure that investors who acquire significant stakes
in a company are reporting their ownership accurately and in a
timely fashion?
A.4. The SEC has proposed a rule that, among other things,
would accelerate the filing deadlines for beneficial ownership
reports under Section 13(d) which is designed to notify the
public and target companies when an investor rapidly acquires a
substantial stake in the company. Without prejudging this
proposed rule, any time the SEC determines that a violation of
Section 13(d) has occurred, I believe the violator should be
held to account under applicable law--including, where
applicable, potential criminal referrals under Section 32 of
the Exchange Act. If confirmed, I would work with my fellow
Commissioners and Commission staff to review the data to
identify violations of Section 13(d) and take proper
enforcement steps.
------
RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
FROM JAIME E. LIZARRAGA
Q.1. Risks to Economic Stability--It is critically important
that both the Fed and the SEC continue to gather as much
information as possible on the risks to our financial system.
It's critical for the safety and soundness of the institutions
the Fed and the SEC regulates, our economy, and protecting the
American taxpayer. Cybersecurity and cyberattacks will be among
many risks you, if confirmed, will need to track and evaluate
in these positions,
How will you work to address cyberthreats? How will you
evaluate when new risks are arising and how to address them?
A.1. If confirmed, I look forward to working with my fellow
Commissioners, Commission staff, and Congress in advancing
policies that protect our capital markets and the SEC from
cyberattacks. I believe it is essential to exercise every
authority available to the Commission to bolster cybersecurity
at SEC-regulated entities, and at the SEC itself--a persistent
target of cyberattacks. I also commit to working with Congress
to fill any gaps in the SEC's current authorities in order to
empower the agency in the effective fight against cyberthreats.
In its 2021 annual report, the Financial Stability
Oversight Council (FSOC) highlighted cybersecurity as a
priority for addressing U.S. financial system risks and
vulnerabilities. While I will not prejudge the two
cybersecurity disclosure rules pending before the SEC, I
strongly agree with the FSOC's conclusions and recommendations.
Q.2. Innovation--As new financial products and technologies are
developed and existing products evolve the Federal Reserve and
the Securities and Exchange Commission will have opportunities
to shape the ecosystem around cryptocurrencies and other
``FinTech'' products and companies, and as regulators have a
responsibility to provide adequate protections for our
financial system and consumers.
What is your view of the current regulation and oversight
in this space? What do you believe works well and what would
you change?
A.2. As a matter of principle, I believe that as digital asset
markets mature and evolve, it is essential for financial
regulators to ensure a regulatory environment that encourages
innovation while also ensuring investors have full access to
the information they need to make informed investment
decisions. I also believe that it is important to aggressively
root out fraud and misconduct in these markets. To the extent
that certain digital assets are securities, I believe the SEC's
authorities are clear.
If confirmed, I would work with my fellow Commissioners and
Commission staff in evaluating the empirical evidence to
identify gaps in current oversight and regulation efforts. I
deeply respect the role of Congress and if congressional action
is necessary to better protect investors or to better promote
innovation, I would be happy to serve as a resource if and when
legislation is considered.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM JAIME E. LIZARRAGA
Q.1. How do you respond to concerns that SEC's proposed changes
to Rule 10b5-1 would expose markets to unintended risks by
limiting the flexibility for businesses to return capital to
shareholders efficiently through repurchases?
A.1. Adopted nearly 22 years ago, SEC Rule 10b5-1 provides a
safe harbor from liability to corporate insiders with knowledge
of material nonpublic information when they conduct trades
under certain circumstances. I also understand that companies
sometimes rely on 10b5-1 plans to effectuate stock buybacks.
Without prejudging the SEC's recent proposal to modernize this
rule, I believe effective oversight of our capital markets
warrants revisiting rules that may be outdated to assess
whether they merit appropriate updates that align them with
current market realities.
As a matter of principle, to the extent the current rule
provides an advantage to corporate insiders to trade on
material, nonpublic information before shareholders have access
to that same information, I believe addressing that disparity
would promote market transparency and protect investors. While
stock buybacks are a common method for companies to return
capital to shareholders, I believe it is important that
buybacks be carried out transparently. If confirmed, I would
evaluate the SEC's proposed changes to Rule 10b5-1 through the
prism of investor protection, market transparency, and ensuring
a level playing field for all market participants.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM JAIME E. LIZARRAGA
Q.1. The retail investor has never been better served by the
U.S. capital markets that it is today, and that's in large part
due to the robust role of active management. Investors who are
incentivized to uncover fundamental value of public companies
make our markets safer and stronger. Several recent SEC
proposals threaten the role of active management in today's
markets.
Can you assure the Committee that if confirmed, you will
prioritize rulemaking which promotes--not obstructs--the
ability for investors to conduct market research and take
positions based on such research?
A.1. The ability of investors, including active managers, to
conduct independent research about public companies is critical
to market efficiency and integrity. Without prejudging any
proposed rule, I believe the SEC, consistent with congressional
mandates, should carefully consider the impact that rulemakings
have on investors' ability to conduct such market research and
encourage proper price discovery.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR HAGERTY
FROM JAIME E. LIZARRAGA
Q.1. The U.S. capital markets system has two important pillars:
the public markets and the private markets. Congress has long-
recognized that both play a critical role in capital formation
and job creation.
There are many types of businesses and many types of
investors. Private funds and mutual funds are both integral to
our markets, but they are not the same. The recently proposed
Private Fund Adviser rulemaking seeks to treat sophisticated
institutional investors as though they are retail investors. A
distinction between the groups exists for a reason, as does the
distinction between private and public markets. If confirmed,
will you commit to upholding the strength of this diversity and
not treat all markets and all investors with a one-size-fits-
all approach?
A.1. The Federal framework of securities laws that has been in
place for nearly a century has resulted in the deepest, most
efficient, fairest, and most innovative public markets the
world has ever seen. I agree that the distinction between
public and private markets exists for good reasons and that
rules appropriate for a large public company, for example, are
not necessarily appropriate for a small, private one.
Both public and private markets have an important role to
play in capital formation, and a careful balance between the
two is essential to ensuring that companies can raise capital
and that investors can also have access to the information they
need to make informed investment decisions.
For a variety of reasons, we have seen the emergence of
deeper private markets in recent years, and companies are
staying private much longer than they once did. I believe
empirical evidence regarding the growth of private markets and
the effect of SEC rules on these markets, especially since a
decade has elapsed since the enactment of the JOBS Act, should
inform the work of the Commission.
Additionally, I also support the SEC considering how the
cost of going public can be lowered without sacrificing key
investor protections.
If confirmed, I would work with my fellow Commissioners and
Commission staff in assessing the appropriate balance between
private and public markets and how key provisions in the JOBS
Act--such as the on-ramp, revenue tests, and others--are
meeting the needs of issuers and investors alike.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR MORAN
FROM JAIME E. LIZARRAGA
Q.1. Earlier this year, SEC Chair Gensler proposed a rule which
would entirely upend the ability of many investors to access
diversified investments in their portfolios. It seeks to
mandate the terms of a private business arrangement between
institutional investors and asset managers, and to prohibit
practices relied upon by pensions, endowments, and foundations.
This rule--the private fund adviser rule--is described by Chair
Gensler as a transparency measure and a cost-saving measure. It
is anything but. Not only will it harm institutional investors,
it will impose insurmountable barriers to entry for emerging
managers, many of whom are woman- and minority-owned.
Can you assure this Committee that you will carefully
evaluate any proposal's potential cost, not only in terms of
compliance cost, but in terms of opportunity cost,
diversification, and competition?
A.1. Without prejudging this proposed rule, I believe robust
economic analysis is an essential component of the agency's
rulemaking process. The law requires the SEC to consider
whether its rules will promote efficiency, competition, and
capital formation, and Federal courts have held the SEC has an
obligation to conduct economic analysis in its rulemakings. It
is important to keep in mind that in conducting this economic
analysis, some qualitative aspects of a particular issue
addressed in a rulemaking may not lend themselves to readily
quantifiable metrics. That said, if confirmed, I would engage
with the Division of Economic and Risk Analysis in informing my
thinking on the economic analysis underpinning SEC rules,
including the private fund adviser rule.
------
RESPONSES TO WRITTEN QUESTIONS OF CHAIRMAN BROWN
FROM MARK TOSHIRO UYEDA
Q.1. Where have you excelled in past positions in attracting,
hiring, and promoting people of color in positions in your
organization? Where might there be room for improvement?
A.1. During my time at the SEC, I chaired the SEC's employee
affinity group for Asian Pacific Americans for several years.
In that role, I helped organize internal panels for SEC
employees who were persons of color on how to advance their
careers. I have represented the SEC at conferences and other
events to recruit persons of color, both professionals and
students, for careers in public service, particularly at the
SEC.
Through my longstanding involvement with Asian Pacific
American bar associations, including as president of the Asian
Pacific American Bar Association of the Greater Washington, DC,
area, I assisted numerous persons of color who were interested
in pursuing careers at the SEC, including explaining the type
of work done by SEC staff and helping them prepare for
interviews.
If confirmed, I would work with the SEC's Office of
Minority and Women Inclusion, the Office of Human Resources and
the SEC's employee affinity groups to further efforts to
promote opportunities to attract, hire, and promote persons of
color. In my view, the SEC could further improve efforts to
prepare persons of color for promotional opportunities within
the agency. Personal outreach and relationship-building are
paramount for recruiting, and retaining, persons of color who
may be interested in an SEC career. Should I be confirmed, I
hope to set an example for other SEC employees by continuing to
personally meet with persons of color who may be interested in
SEC career opportunities.
Q.2. What specific measures will you use to evaluate the
success of the Securities and Exchange Commission in
understanding and addressing the needs of Black, Indigenous,
and people of color (BIPOC)? And, will you work with the Chair
and other Commissioners to keep Congress apprised, as
appropriate, on the progress being made on these measures?
A.2. If confirmed, I would start with the annual report to
Congress from the SEC's Office of Minority and Women Inclusion.
I would also look to data from the triennial Survey of Consumer
Finances conducted by the Board of Governors of the Federal
Reserve System with respect to the accumulation of wealth,
savings, and investments by BIPOC households.
If confirmed, I will work with the Chair and other
commissioners to keep Congress apprised, as appropriate, on the
progress being made on these measures.
Q.3. What is your plan for creating an inclusive working
environment for employees within your office?
A.3. Each SEC Commissioner has a small staff of four persons
plus a confidential assistant. If confirmed, I intend to make
staffing decisions on a case-by-case basis and, in doing so, I
would seek out opportunities to hire a diverse staff. To
maximize potential applicants, I intend to have openings posted
both internally within the SEC and externally on the SEC
website. I would further request that the SEC's social media
feeds (i.e., Twitter, Facebook, and LinkedIn) publicize the
openings.
During my SEC career, I spent significant periods of time
working for two different commissioners. Both commissioners
ensured that professional opportunities and projects were made
available on an equitable basis to their staff and consistent
with their subject matter expertise. If confirmed, I intend to
create a similar environment for my staff, with opportunities
for professional growth and development.
Q.4. In recent years, there have been severe disruptions in the
market for U.S. Treasury securities and related instruments.
Experts have expressed concerns about regulatory fragmentation
and recommended specific regulatory reforms, including
mandatory central clearing for Treasury securities and
repurchase transactions and additional data collection. Do you
believe that the current regulatory framework for oversight of
the Treasury market is adequate? If not, what changes do you
believe should be made?
A.4. Various components of the Treasury cash and futures
markets are overseen by the SEC, the Financial Industry
Regulatory Authority (FINRA), the Department of the Treasury,
the Federal Reserve System, other banking regulators, and the
Commodity Futures Trading Commission. Recent Treasury market
events suggest that there may be a number of areas of
structural vulnerability. One potential contributing factor is
the rapid growth of the market size relative to dealers'
intermediation and market-making capacity.
My view is that a comprehensive review of the Treasury cash
and futures markets should be undertaken, including
identification of potential changes to the regulatory
framework. If confirmed, I would encourage the SEC staff and
other commissioners to evaluate ideas to strengthen the
resiliency of the Treasury markets, which could include
increasing market-making capacity, examining the role of
central clearing, improving market transparency and monitoring,
and studying whether additional safeguards and existing
exemptions for Treasury securities are warranted.
Q.5. Do you believe bitcoin is correctly identified as a
commodity? Why, or why not? If yes, do you think it's likely
other cryptoassets can achieve that status?
A.5. The conventional view is that bitcoin is a commodity and
not a security because it fails the Supreme Court's Howey
investment contract test. If that view is correct and no other
provision of the definition of ``security'' in the Federal
securities laws is applicable, then it is likely that other
cryptoassets can achieve a similar status if they are factually
indistinguishable from bitcoin.
In a July 2018 speech, a senior SEC staff member indicated
that bitcoin was not a security but he was expressing his
personal view and not speaking on behalf of the SEC. The SEC
itself has not taken a position on bitcoin. SEC Chairman Gary
Gensler declined to comment on bitcoin's status in testimony
before the House Financial Services Committee in October 2021.
Because the SEC may subsequently vote on bitcoin's status as a
security, I will refrain from prejudging the merits of that
issue.
Q.6. Please describe in detail what the SEC can do to bring
greater investor protection to the cryptoasset market.
A.6. The SEC could provide additional clarity as to which
cryptoassets are securities and which are not. If a cryptoasset
is a security, then it falls within the SEC's jurisdiction and
is subject to the investor protection provisions of the Federal
securities laws. Some of these investor protections include:
(a) any offering of a security must be registered with the SEC
or satisfy the conditions of an applicable exemption from
registration; (b) brokers who transact in a security are
regulated by FINRA and subject to SEC rules; and (c) any
trading venue that trades a security must either register with
the SEC or qualify for an exemption from registration (like
Regulation ATS).
It can be difficult to make a definitive determination as
to whether a particular cryptoasset is a security under the
Supreme Court's Howey investment contract test. If the SEC were
to make a ``security'' determination about a cryptoasset
earlier in the process, then investors might benefit from
additional protections under applicable Federal securities
laws.
Q.7. Stablecoins in recent weeks have suffered volatility,
including the loss of the dollar peg by an algorithmic
stablecoin. The President's Working Group (PWG) report
recommended that all stablecoin issuers should be insured
depository institutions. Do you think stablecoin issuers should
be required to be insured depository institutions? Please
explain.
A.7. The November 2021 PWG report recommended that Congress
pass legislation to establish a Federal regulatory framework
for stablecoins. I agree with the report's acknowledgment that
responsibility for clarifying whether and to what extent
Federal agencies have jurisdiction over stablecoins, rests with
Congress.
I am skeptical about requiring all stablecoin issuers to be
insured depository institutions (IDI). First, stablecoin
issuers have different business models than banks. To the
extent that a stablecoin issuer does not engage in bank-like
activities like taking deposits and making loans, it would not
seem appropriate to regulate it as a bank. Second, such a
requirement could stifle innovation. Third, among stablecoin
issuers, there are a range of different business models,
including some for which a conventional bank charter may be
appropriate but for others, less so. Fourth, some stablecoins
may have attributes much more similar to securities than
banking products, which may make them not be appropriate for
issuance by an IDI.
Q.8. According to reports, since the start of the year, the
cryptomarket has suffered close to $1 trillion in losses. And
in recent weeks, we have witnessed the collapse of stablecoin
TerraUSD. Do you believe significant losses in the cryptomarket
present risks to traditional markets and financial stability?
If not, how sure are you?
A.8. Whether significant losses in the cryptomarket present
financial stability risks depends on the extent of
interconnectedness to the traditional markets. TerraUSD is a
specific cryptocurrency that had little to no
interconnectedness and exposure to traditional financial
markets. TerraUSD can be described as an ``algorithmic''
stablecoin. Speaking generally about ``algorithmic''
stablecoins, my understanding is that they are tied to other
cryptoassets without anything specific to support their value.
In other words, an ``algorithmic'' stablecoin's value is solely
tied to holder confidence. If holders of stablecoins not
connected to traditional markets have significantly high risk
tolerances to bear losses, then risks to financial stability
will be relatively lower. On the other hand, to the extent that
cryptoassets are significantly intertwined with the traditional
financial markets, risks to financial stability may be
relatively higher.
Q.9. In recent years, studies have shown that board diversity
correlates with enhanced performance. In February 2021, Senator
Toomey wrote the SEC to request that it reject the NASDAQ
listing proposal that required NASDAQ listed companies to
disclose or comply with racial and gender diversity standards
for boards of directors. Ranking Member Toomey previously
commented on the proposal, stating, ``A quasi-regulatory body
like NASDAQ should not be creating and enforcing social policy
in America.'' \1\ Despite Ranking Member Toomey's opposition,
many groups wrote the SEC in support of the rule. For example,
the National Asian Pacific American Bar Association, which
represents approximately 50,000 legal professionals, wrote,
``[w]e are encouraged that the proposal may lead to more
opportunities for numerous talented women, individuals who
self-identify as Black, African American, Hispanic, Latino,
Asian, Pacific Islander, Native American, Native Hawaiian, or
Alaska Native, or who self-identify as gay, lesbian, bisexual,
or transgender to join corporate boards.'' \2\ Do you believe a
disclose or comply standard is social policy? If yes, please
explain.
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\1\ https://www.banking.senate.gov/newsroom/minority/toomey-gop-
banking-members-urge-sec-to-block-nasdaqs-proposed-diversity-quota
\2\ https://www.sec.gov/comments/sr-nasdaq-2020-081/
srnasdaq2020081-8204244-227431.pdf
A.9. While I have not reached an informed judgment on whether a
disclose or comply standard is social policy, some may view it
as such depending on the facts and circumstances. For example,
in 2015, the U.S. Court of Appeals for the District of Columbia
Circuit struck down an SEC disclosure regime for conflict
minerals, required by the Dodd-Frank Act, on First Amendment
grounds, and its opinion discussed how the disclosure was
intended to achieve social benefits rather than economic
benefits to investors. In my view, the guiding principle for
disclosure is materiality. Materiality often depends on the
particular facts and circumstances. It is important for public
companies to provide material disclosures that investors,
particularly retail investors, need to make informed investment
decisions. If confirmed, I intend to consult with SEC staff,
review public comments, and discuss with the other
commissioners before reaching any decision on proposed
disclosure requirements while faithfully abiding by all
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constitutional and statutory obligations imposed on the SEC.
Q.10. The recent SEC climate proposal asks public companies to
describe and quantify risks, without prohibiting any business
activities. In fact, the proposed rule does not dictate to
investors which risks to take and which risks not to take.
Investors have increasingly wanted to know the climate risk of
companies whose stocks they own or might want to buy. Why
shouldn't investors benefit from more complete and more
comparable types of disclosures?
A.10. Because the SEC climate proposal is pending, I will
refrain from addressing the specifics of that proposal to avoid
any issue of prejudgment. As a general matter, investors can
benefit from more complete and more comparable types of
disclosures. One important factor in considering a disclosure
requirement is materiality. Materiality often depends on the
particular facts and circumstances. As described by Justice
Thurgood Marshall in TSC Industries v. Northway, an omitted
fact is material if ``there is a substantial likelihood that a
reasonable shareholder would consider it important in deciding
how to vote.'' Justice Marshall also warned that simply burying
``shareholders in an avalanche of trivial information'' is
``hardly conducive to informed decisionmaking.''
The potential benefits provided to investors from
disclosure is an important factor in the economic analysis
conducted as part of a rulemaking. However, the analysis also
requires consideration of costs. Further, the SEC is required
by law to consider the effects on competition, efficiency, and
capital formation. Thoughtful consideration of all factors are
needed to provide a rational basis under the Administrative
Procedure Act to support any final decision.
Q.11. Do you have concerns about the ``gamification'' of stock
trading?
A.11. Before offering an answer, I would want to review the
materials gathered by the SEC and the public comments submitted
to the SEC in response to its August 27, 2021, information
request on the use of digital engagement practices by broker-
dealers and investment advisers. The request covered behavioral
prompts, differential marketing, and game-like features,
commonly referred to as gamification. The SEC received a
significant number of comment letters in response, which have
been posted to the SEC website at https://www.sec.gov/comments/
s7-10-21/s71021.htm. However, I have not had an opportunity to
review all of these comments in detail. If confirmed, I would
discuss the concerns identified in the public comment letters
with the SEC staff and obtain their reactions to develop a
better understanding of this issue.
Q.12. To the extent the SEC wants to regulate gamification of
trading, how should it go about doing it? What tools does it
have in its disposal?
A.12. The SEC has multiple tools to address gamification. For
example, the SEC has rulemaking authority under the Securities
Act of 1933 and the Securities Exchange Act of 1934 (Exchange
Act). The SEC could also provide interpretive guidance, which
could be issued after a public notice and comment period. The
SEC could issue a report of investigation under Section 21(a)
of the Exchange Act. The SEC could also request that FINRA
consider its own rulemaking as a self-regulatory organization.
SEC staff could provide subregulatory guidance and no-action
letters addressing gamification. SEC staff could engage in
research and investor testing with respect to gamification and
investor behavior. SEC staff could also undertake investor
education efforts with respect to the costs of frequent and
rapid trading.
Q.13. In 2019 and in 2021, House of Representatives voted 410
to 13 and 350 to 75, respectively, in favor of the Insider
Trading Prohibition Act, which would codify current principles
of insider trading jurisprudence while also fixing gaps in the
law that were highlighted by recent appellate court and Supreme
Court cases and clarifying liability for insider trading
derived from information obtained through a cyberbreach or
hack. Do you support the changes the Insider Trading
Prohibition Act would make?
A.13. The SEC has a critical role to play in enforcing insider
trading law to help protect investors. As a general matter,
insider trading law could benefit from legislation, rather than
being developed piecemeal through judicial case law. For
example, existing insider trading law has limits that make it
difficult to bring cases with respect to cyberbreaches and
hacks. As a nominee to the SEC, it is not my place to endorse
specific pieces of legislation. I defer to the judgment of
Congress on what legislation to enact, if any. However, if
Congress does enact the Insider Trading Prohibition Act and I
am confirmed, I would work with the SEC staff and the other
commissioners to faithfully implement and enforce the act.
Q.14. What type of risk does cybersecurity present to markets
and are there tools in the SEC's toolkit to respond to this
type of risk?
A.14. Cybersecurity is a critical threat to the U.S. economy
and the financial markets are particularly vulnerable. Because
there are open SEC rulemaking proposals on cybersecurity--one
for public companies and one for investment advisers--I will
refrain from discussing specifics of those proposals.
Generally, I view the SEC's responsibility as divided into
three areas: regulated entities (e.g., broker-dealers, transfer
agents, clearing firms, investment advisers, and investment
companies), public companies, and the SEC itself. Each area
represents a different context in which to consider
cybersecurity. For instance, with respect to regulated
entities, the SEC could increase its efforts to serve as an
information clearinghouse to inform regulated entities promptly
about emerging cybersecurity threats. For cybersecurity,
proactive efforts to thwart breaches can offer significantly
more investor protection as compared to retrospective
postbreach enforcement actions.
If confirmed, I would encourage the SEC staff to coordinate
with other Federal efforts to improve defenses against
cyberthreats, including efforts by the Federal Financial
Institutions Examination Council, the Department of the
Treasury's Office of Cybersecurity and Critical Infrastructure
Protection, the National Institute of Standards and Technology,
and the Department of Homeland Security.
Q.15. We have seen sophisticated financial services firms
engage in misconduct and pay fine after fine, including
recently an asset manager pleading guilty to securities fraud
and paying a multibillion dollar fine. What can the SEC, and
other regulators for that matter, do to encourage better
compliance?
A.15. The SEC and other financial regulators could pursue more
enforcement actions, including seeking civil penalties, against
the individuals responsible for the misconduct or negligence.
These enforcement actions could deter future misconduct by
others and encourage better compliance with the law. In my
experience, the SEC often imposes significant civil penalties
and other remedies on financial service firms while not
pursuing any enforcement actions against corporate executives
to hold them accountable. Settlements with the firms identify
the specific individuals as ``Executive No. 1'' or ``Trader No.
1.'' It would not be surprising for the responsible individuals
to quietly leave the sanctioned firm, only to find a position
at another financial service firm without the public--or even
their new employer--knowing the full scope of their culpability
at the prior firm.
Q.16. The SEC has a role to play in ensuring that its reporting
requirements are broadly aligned with workable, effective and
broadly supportive standards, when such existing standards
exist. Not only does this help provide consistency and
comparability for investors and other stakeholders, but
especially for companies that are publicly listed in multiple
jurisdictions, this can also alleviate additional costs of
complying with different requirements. In examples of SEC rules
where the U.S. standard is considered to be far weaker than
that of the prevailing international standard, would you
consider steps to align the U.S. reporting requirements with
the international standard?
A.16. Yes, if confirmed, I would consider whether it is
appropriate to align U.S. reporting requirements with foreign
standards. The identification and evaluation of reasonable
alternatives is an important component of the SEC's internal
guidance on economic analysis. The benefits and costs
associated with respect to existing foreign standards can be
informative when considering standard-setting efforts in the
United States. Differences in reporting and liability regimes
in foreign countries may need to be taken into account. For
instance, foreign countries may not have comparable private
class action liability or personal liability on executives for
corporate disclosures under Sections 302 and 906 of the
Sarbanes-Oxley Act, which can significantly increase the costs
to produce disclosure in the United States relative to other
countries.
Q.17. Over a decade ago, the U.S. led the world in the fight
against corruption in the extractives industries. Implementing
the bipartisan Cardin-Lugar amendment to the Dodd-Frank Act, a
landmark transparency provision, the SEC developed a
significant new disclosure standard for payments made to
Governments by mining, oil, and gas companies that catalyzed
global change in combating corruption. As a result, over thirty
countries adopted nearly identical public reporting
requirements for project-level payments and the international
Extractive Industries Transparency Initiative, now being
implemented by 56 countries, uses that same reporting standard.
This has resulted in unprecedented transparency, with many
companies publicly disclosing project-level payments to
Governments each year. But under the Trump administration much
of this progress was reversed. Despite many years of reporting
by companies outside the U.S., U.S.-listed companies remain
among the least transparent as they still are not reporting
project-level payments. Indeed, after years of delay, the SEC
put out a new, substantially weaker version of the rule in 2020
that fell far short of the standard already being implemented
around the world. The rule goes against the weight of evidence
in the record in its failure to promote international
transparency, in its failure to ensure consistent reporting
obligations for companies, its inability to effectively fight
corruption, and its failure to protect investors. In its
current form, it does not satisfy the underlying statute's
anticorruption and accountability purposes. Will you recommit
the SEC to fulfilling the leadership role in combating
corruption as Congress intended when it adopted new statutory
transparency standards, and ensure consistency and
comparability in reporting standards to better protect
investors?
A.17. With respect to the resource extraction rules mandated by
the Dodd-Frank Act, the SEC conducted notice and comment
rulemaking procedures three times under the Administrative
Procedure Act. First, the SEC issued final rules in 2012, but
the U.S. District Court for the District of Columbia vacated
them. Second, the SEC promulgated final rules in 2016, but they
were disapproved by a joint resolution of Congress pursuant to
the Congressional Review Act in 2017. Third, the SEC adopted
final rules in 2020 under a statutory restriction imposed by
the Congressional Review Act that prevents an agency from
reissuing a disapproved rule in ``substantially the same form''
or further issue a new rule that is ``substantially the same''
as the disapproved rule.
Although the 2020 rules are in effect, they contemplate a
two-year implementation period and the compliance deadline has
not yet passed. If confirmed, I would want to have discussions
with SEC staff to understand the types of disclosures being
filed by early adopters of the 2020 rules and request the
staff's views as to whether the disclosures are providing
transparency, consistency, and comparability in accordance with
the Dodd-Frank Act and the Congressional Review Act.
Q.18. Will you commit that, if confirmed, you will respond in a
timely manner and fully comply with all information requests
from me? Please answer ``yes'' or ``no.'' If your answer is
``no,'' please explain.
A.18. Yes.
Q.19. Please describe with particularity the process by which
you answered these questions for the record, including
identifying who assisted you in answering these questions along
with a brief description of their assistance.
A.19. The responses I have provided are my own. As a part of
the process of finalizing my responses, they were reviewed by
White House, SEC, and congressional staff.
Q.20. Did any person on the board of, or employed by, a
501(c)(4) organization, provide advice to you, oral or written,
on your responses to these questions? If so, please list those
individuals and organizations.
A.20. No.
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RESPONSES TO WRITTEN QUESTIONS OF
SENATOR MENENDEZ FROM MARK TOSHIRO UYEDA
Q.1. On July 7, 2021, the SEC's Asset Management Advisory
Committee unanimously issued four recommendations that would
help promote diversity among asset managers and thereby lead to
greater returns for investors. \1\
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\1\ https://www.sec.gov/files/amac-recommendations-di-
subcommittee-070721.pdf
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If confirmed, would you support holding a vote to consider
these recommendations?
A.1. Yes, I would support holding a vote to consider these
recommendations.
Q.2. Section 13(d) of the Securities Exchange Act of 1934
requires investors who become the beneficial owners of more
than 5 percent of an issuer's equity securities to report
certain identifying information to the SEC. While I appreciate
that the Commission issued a proposed rule to modernize these
requirements in February, enforcement of these rules needs to
be a priority.
How would you propose to strengthen SEC enforcement in this
area to make sure that investors who acquire significant stakes
in a company are reporting their ownership accurately and in a
timely fashion?
A.2. Determining beneficial ownership for compliance with
Section 13(d) can be difficult, including detecting whether a
``group'' exists for purposes of filing Schedule 13D. It can
also be difficult to determine easily whether a Schedule 13G
filer is complying with the requirement that it is not acting
with the purpose or effect of changing or influencing the
control of the issuer. As defined by Rule 12b-2, ``control'' is
``the possession, direct or indirect, of the power to direct or
cause the direction of management and policies of a person.''
Better enforcement of Regulation 13D-G may serve as a
deterrent to future noncompliance. The SEC's incentives for
whistleblowers, including monetary rewards, may also be helpful
in providing tips and evidence that could lead to enforcement
actions. If confirmed, I would ask the SEC staff whether there
are additional measures that could strengthen SEC enforcement
in this area.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR TESTER
FROM MARK TOSHIRO UYEDA
Q.1. Risks to Economic Stability--It is critically important
that both the Fed and the SEC continue to gather as much
information as possible on the risks to our financial system.
It's critical for the safety and soundness of the institutions
the Fed and the SEC regulates, our economy, and protecting the
American taxpayer. Cybersecurity and cyberattacks will be among
many risks you, if confirmed, will need to track and evaluate
in these positions,
How will you work to address cyberthreats? How will you
evaluate when new risks are arising and how to address them?
A.1. Cybersecurity is a critical threat to the U.S. economy and
the financial markets are particularly vulnerable. Because
there are open SEC rulemaking proposals on cybersecurity--one
for public companies and one for investment advisers--I will
refrain from discussing specifics of those proposals.
Generally, I view the SEC's responsibility as divided into
three areas: regulated entities (e.g., broker-dealers, transfer
agents, clearing firms, investment advisers, and investment
companies), public companies, and the SEC itself. Each area
represents a different context in which to consider
cybersecurity. For instance, with respect to regulated
entities, the SEC could increase its efforts to serve as an
information clearinghouse to inform regulated entities promptly
about emerging cybersecurity threats. For cybersecurity,
proactive efforts to thwart breaches can offer significantly
more investor protection as compared to retrospective
postbreach enforcement actions.
If confirmed, I would encourage the SEC staff to coordinate
with other Federal efforts to improve defenses against
cyberthreats, including the efforts of the Federal Financial
Institutions Examination Council, the Department of the
Treasury's Office of Cybersecurity and Critical Infrastructure
Protection, the National Institute of Standards and Technology,
and the Department of Homeland Security. I would consider the
views of the SEC staff experts to evaluate new risks and how to
address them.
Q.2. Innovation--As new financial products and technologies are
developed and existing products evolve the Federal Reserve and
the Securities and Exchange Commission will have opportunities
to shape the ecosystem around cryptocurrencies and other
``FinTech'' products and companies, and as regulators have a
responsibility to provide adequate protections for our
financial system and consumers.
What is your view of the current regulation and oversight
in this space? What do you believe works well and what would
you change?
A.2. Generally, the existing principles-based securities laws
have worked well to adapt to new financial products and
technologies over time. For example, when I was a first-year
law firm associate in 1995, whether a faxed signature page was
valid was not universally settled law. In later years,
questions arose regarding electronic signatures. Regulators,
assisted by legislation in some cases, were able to adapt to
new developments and make adjustments to protect investors.
The term ``FinTech'' and cryptocurrencies encompass a broad
range of products, services, and technologies, some of which
fall within the SEC's current jurisdiction and others that do
not. The SEC has had a longstanding ability to provide
exemptive relief from provisions in Federal securities laws if
doing so is necessary or appropriate in the public interest and
consistent with the protection of investors. Exemptive
authority permits the SEC to allow new innovations to move
forward but with appropriate conditions and guardrails to
protect investors. For example, the SEC granted an exemptive
order for the first exchange-traded fund (ETF) in 1993. Today,
ETFs represent a significant amount of the investment products
purchased by retail investors and the SEC's experience with ETF
exemptive orders eventually led to a general rule.
The SEC's jurisdiction over cryptocurrency depends on
whether it is a security. However, determining whether a
particular cryptocurrency is a security under the Supreme
Court's Howey investment contract test can be difficult. This
is an area where Congressional legislation could be helpful.
The lack of clarity can at times negatively affect investor
protection.
If a cryptoasset is a security, then it falls within the
SEC's jurisdiction and is subject to the investor protection
provisions of the Federal securities laws. Some of these
investor protections include: (a) any offering of a security
must be registered with the SEC or satisfy the conditions of an
applicable exemption from registration; (b) brokers who
transact in a security are regulated by FINRA and subject to
SEC rules; and (c) any trading venue that trades a security is
subject to SEC jurisdiction and must either register or qualify
for an exemption from registration (like Regulation ATS).
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR WARNOCK
FROM MARK TOSHIRO UYEDA
Q.1. How do you respond to concerns that SEC's proposed changes
to Rule 10b5-1 would expose markets to unintended risks by
limiting the flexibility for businesses to return capital to
shareholders efficiently through repurchases?
A.1. Because the SEC's proposed changes to Rule 10b5-1 are
currently an open rulemaking, I can only provide a general
response to avoid a potential prejudgment issue under the
Administrative Procedure Act. Current Rule 10b5-1 was adopted
in 2000 and it is appropriate for the SEC to engage in a
retrospective review to determine whether the rule is operating
effectively and as intended. I appreciate the public comments
on the proposal, which have identified various concerns,
including the concern that you have raised in your question. If
confirmed, I would carefully consider these public comments and
discuss them with the SEC staff, outside stakeholders, and the
other commissioners before reaching any conclusion.
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RESPONSES TO WRITTEN QUESTIONS OF SENATOR SCOTT
FROM MARK TOSHIRO UYEDA
Q.1. The retail investor has never been better served by the
U.S. capital markets that it is today, and that's in large part
due to the robust role of active management. Investors who are
incentivized to uncover fundamental value of public companies
make our markets safer and stronger. Several recent SEC
proposals threaten the role of active management in today's
markets.
Can you assure the Committee that if confirmed, you will
prioritize rulemaking which promotes--not obstructs--the
ability for investors to conduct market research and take
positions based on such research?
A.1. Yes, if confirmed, I will consider the ability for
investors to conduct market research and take positions based
on such research in rulemakings. A core investor protection is
efficient price discovery. Fundamental research as to the value
of public companies plays a significant role in the price
discovery mechanism.
Additional Material Supplied for the Record
LETTERS SUBMITTED IN SUPPORT OF NOMINEE MARK TOSHIRO UYEDA
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