Waters the committee will come to order. Without objection, the chairs authorized to declare a recess of the committee at any time. This hearing is entitled promoting stability, reviewing the administrations deregulatory approach to Financial Stability. I want to inform all concerned that this meeting will end at 1 00 per the request of the p. M. Secretary. I now recognize myself for four minutes to give an Opening Statement. So let me welcome back secretary mnuchin. Today, we are here to discuss the Trump Administrations actions that have undermined and not promoted our nations Financial Stability. As i have said many times before, i am very concerned about this administrations actions to eliminate important protections for consumers, investors and our economy. It appears that our banking regulators are following the deregulatory blueprint that the Treasury Department, under secretary mnuchins leadership, has mapped out point by point and rolling back many of the Critical Reforms democrats made to prevent another financial crisis. If these rollbacks continue, there will be grave consequences for Financial Stability in our economy. The 2008 financial crisis was devastating for our nation. 11 million americans lost their homes. 13 trillion in wealth was lost, and nearly 9 million americans lost their jobs. As chairwoman of this committee, i am committed to doing everything that i can to ensure that we do not repeat the mistakes of the past, as i have now seen twice how the road of deregulation leads to financial crisis. The focus of this hearing is the Financial Stability, Oversight Council or fsoc. We created fsoc as part of the dodd frank wall street reform and Consumer Protection act to eliminate regulatory gaps and to ensure the government could identify and mitigate risks to our economy. After the financial crisis, fsoc designated several large Nonbank Financial Companies for enhanced oversight, including aig, the wellknown poster child for the financial crisis. Under the Trump Administration, however, fsoc ceased supervision of all of these nonbanks and advanced an activitiesbased approach that amounts to more deregulation, willfully ignoring how catastrophic the failure of a Large Financial Institution would be for the Financial System and economy. The Trump Administration also cut fsocs budget and reduced its staff by half. It has also reduced the budget and staff of the office of Financial Research, that is ofr, which collects data and conducts research and analysis to aid fsoc in its important work. Along the way, the Trump Administration has fleeced the american taxpayers with their tax scam, which contained more big giveaways to the nations largest banks. All of these steps put wall streets bottom line first and main street back at risk. Make no mistake, the risks are growing. Climate change, cybersecurity, leverage lending, hedge funds and the rapid emergence of the big tech in the Financial System, led by facebook, are all concerns that must be taken seriously. Today, secretary mnuchin will also once again be asked to explain the horrible actions of the Trump Administration to the american public. With that, i now recognize the Ranking Member of the committee, the gentleman from north carolina, mr. Mchenry, for four minutes for an Opening Statement. Well, thank you, madam chair. Secretary mnuchin, thank you for being here in your capacity as chair of the Financial Stability Oversight Council. I appreciate the work you are doing in leading the Financial Stability Oversight Council. I do also think that the timing of this hearing would have been more favorable if members had been given more time to read your report that was released yesterday, but thats a timing issue here that we have to contend with. So my colleagues on both sides of the aisle havent had ample time to review the important work that the council has in this report. So i think instead of just the political debate about regulatory changes that the administration has done, i think the oversight of the Financial Stability Oversight Council is really important. The issue of stability, Financial Stability and security are really important. Yesterday, prudential regulators testified before this committee on similar issues. During that hearing, i stated my concern with the transition from the reliance on libor or the london inner bank over offering rate or to the secured overnight financial rate. I think the issues we have and concerns that we have there are about Financial Stability and it is also magnified by recent fed actions in the repo market and that we could see more of at the end of the year. I also encouraged vice chairman quarrels to continue his review of the Regulatory Regime to ensure safety and sound lift and promoting Economic Growth are prioritized in their measures. I would like to hear your thoughts on the repo market as well. I think it is very important for us to hear from you on that. But back to this question about libor to sofr. Libors underlying Bank Reference rate for about 200 trillion in financial contracts worldwide and set to be phased out as the reference rate by 2021 and replaced with sofr. Im concerned about the subsequent liability in mortgages, auto loans and other consumer loans as a new reference rate is derived from secured overnight financing. Additionally, transferring liborbased legacy contracts to sofr will undoubtedly require Financial Institutions to renegotiate with customers. This is also an issue of Financial Stability and Economic Growth. Finally, secretary mnuchin, i wrote to you last month regarding an issue that i believe is an alarming issue of potentially enormous consequence. Thats the financial transaction tax. This is not a honey pot of money that just comes from heaven. This will be a tax based off buying or selling stocks, bonds or other financial instructions instruments that many are talking about as a new way to derive revenue nor the federal government. The rhetoric is that it will hit only the wealthiest. The reality is that average everyday investors, especially Mutual Fund Investors and those that are saving for retirement, will be severely impacted by this nefarious tax. In fact, one study indicates a typical Mutual Fund Investor will have to save an additional 600 per year or work an additional two years to achieve the same retirement goals. I would like to hear from the Financial Stability Oversight Council and from ofr on this matter. I think it is important that our government have an analysis of what this would do to our markets and our investors. I look forward to your testimony. Thank you for being here before the committee. Rep. Waters i now recognize the chair of the subcommittee on Consumer Protection and Financial Institutions, mr. Meeks, for one minute. Rep. Meeks thank you, chairwoman waters. Mr. Secretary, welcome. I will repeat to you what i stated to governor brain ard and ofr director when they testified at a hearing i chaired in september on Financial Stability. I was serving on this committee at the depths of the financial crisis, and i never, ever want to be put in a position again where the treasury secretary comes to the floor of the house and tells us literally we have days to save the u. S. Economy from total collapse. I never again want to engage with constituents who are losing their homes and their life savings through no fault of their own, but because the regulators and the administration had completely lost track of Systemic Risks in the economy. Mapping, quantifying, containing and building contingency plans for Systemic Risk is not and should not be a partisan issue and should not be a means for scoring political points. This matters to every American Family that is saving retirement to put a child through school, and i hope that we can do this in an intellectually honest manner devoid of political or partisan influence. I yield back. Rep. Waters thank you. I recognize the subcommittee ranking ranking for one minute. Thank you. Rep. I appreciate you being here to testify today. Yesterday we had the prudential regulators before the committee discussing a myriad of issues to the Community Reinvestment act to future pending regulations, the Financial Services industry is facing a variety of issues as you well know. As you are the head of fsoc which serves as the body of regulators that come together to discuss the overall Financial Stability, i look forward to how theyre addressing that today. Major concerns include cybersecurity, Retail Market and repo market and libor. All of these things will have a significant effect on consumers and the economy and deserve the full attention of fsoc. I yield back the balance of my time. Rep. Waters thank you. At this time i want to welcome to the committee our witness, steven t. Mnuchin, secretary of the treasury. He has served in his current position since 2017. Mr. Mnuchin has testified before the committee on previous occasions and i believe he does not need any further introduction. Without objection, your written testimony will be made part of the record. Secretary mnuchin, you are now recognized for five minutes to present your oral testimony. Mnuchin thank you very much. Chairwoman waters, Ranking Member mchenry and members of the committee, thank you for inviting me today to discuss the Financial Stability Oversight Councils 2019 annual report and other priorities of the Treasury Department. The report is the product of extensive collaboration among council members, and i appreciate the hard work by the staffs of the Treasury Department and other member agencies. The report provides congress and the public with the councils analysis of financial and regulatory trends and i. T. And its assessment of the potential risk to u. S. Financial stability. It also provides recommendations to enhance the integrity, efficiency, competitiveness and stability of the u. S. Financial markets. Since the publication of the councils last annual report in december 2018, the u. S. Economy has continued to perform extremely well. Economic growth and United States forex caesar g7 partners. Wages are rising faster for hardworking families. Corporate and consumer delinquency and default rates are low and financial conditions remain stable. This years annual report discusses a number of risks we continue to monitor but i want to highlight cybersecurity as one of the most important issues for the council, regulators and the private sector. Financial firms hefavily rely on heavily rely on Information Technology which creates great efficiencies for consumers and business but also increases the risk a serious cybersecurity incident could negatively affect the economy and potentially have implication nor u. S. Financial stability. We make specific recommendations in the report on this important topic. Among other things, government and industry should Work Together to constantly update and share best practices to ensure that we are treating cybersecurity as a Vital National and Economic Security priority. The report also provides a strong message to Market Participants about the need to prepare for a transition away from libor as a reference rate. Failure to prepare adequately could cause significant disruptions across Financial Markets and to borrowers given the widespread use of libor. We recommend that Market Participants formulate and execute transition plans and any new instruments that reference libor should include fallback language to mitigate the risk if it becomes unavailable. We encourage regulators to evaluate new Financial Products on Financial Stability including risks from Digital Assets and technologies. We will continue to use the councils working group on these issues to promote consistent regulatory approaches to identify and address potential risk while promoting American Leadership in Financial Services innovation. Turning to another of treasurys key priorities, we will continue to work with this committee on meaningful Housing Finance reform to foster competition for the benefit of consumers, protect taxpayers from future bailouts and facilitate a smooth transition for the governmentsponsored enterprises out of conservatorship. I am proud of the work we have done with President Trumps leadership to create a resilient, thriving and prosperous economy. Thank you and i look forward to answering your questions. Chairwoman waters thank you very much. I now recognize myself for five minutes for questions. Secretary mnuchin, i want to go straight to a discussion about hedge funds. In november 2016 when the last public update on the hedge Fund Working Groups progress was issued, fsoc outlined five Data Limitations that needed to be addressed to better understand the risk posed by hedge funds. At times in the leadups to past crises, activities and losses in the Hedge Fund Sector have proven significant leading indicators. For example, bear sterns hedge funds with sub prime exposure collapsed in the summer of 2007, signaling the impending sub prime crisis. When was the last time the Hedge Fund Working Group convened . Why has the working group not met more frequently during your tenure as fsocs chair . What is the status of the limitations identified in fsocs last public update . Does fsoc now have access to the data previously identified in 2016 so that it can assess whether hedge funds are a source of Systemic Risk to the economy . If not, why hasnt fsoc taken any steps to address this information gap over the past three years . This is very important. We have members of this committee who are trying to make some decisions about hedge funds. We have members of this committee who think there are some who are operating in good faith, but there are many who are not. We are worried about hedge funds that take over Fire Departments and hospitals and other city services. We are worried about hedge funds that take over Fire Departments and the Response Time is slowed down. We are worried about hospitals closing down. So why dont you talk to us about what you know about what is happening about the working group that was supposed to convene and help us to deal with this issue. Sec. Mnuchin thank you very much. So let me first highlight on page 94 of the report, we specifically talk about hedge funds. So this is something that the staff is monitoring. Since weve moved to an activitiesbased approach as opposed to an industry approach, we are monitoring all of the activities that hedge funds participate in as part of our risk management, and one of the areas in particular we focused on that i know the committee has highlighted is leveraged lending. I also would say fortunately the Hedge Fund Industry has deleveraged significantly, but i appreciate your concerns and we will continue to monitor carefully all of the activities of hedge funds. Chairwoman waters distinction for us between the hedge funds and the private equity funds, are they involved in the same kinds of operations and acquisitions . Sec. Mnuchin normally theyre not, madam chair, and we do specifically also on page 94 break out private equity funds. The difference is that mostly and, again, i will give you the majority of the hedge funds are in liquid markets and the majority of private equity funds are buying companies or illiquid assets. Because of that, typically the private equity funds are structured as very longterm funds and the hedge fund are subject to liquidity. That does create additional risk. Chairwoman waters thank you for that clarification. When was the last time the Hedge Fund Working Group convened . Sec. Mnuchin i can check on that and get back to you, but as i suggested we have focused on activities. So the activities are being monitored as opposed to specifically the Hedge Fund Working Group. But well get back to you on that. Chairwoman waters do you know the status of the limitations identified in fsocs last public update . Sec. Mnuchin yes. Again, as i have suggested, we specifically comment on hedge funds and private equity funds in the report, and it is something that the council is focused on. Chairwoman waters does fsoc now have access to the data previously identified in 2016 so that it can assess whether hedge funds are a source of Systemic Risk to the economy . Sec. Mnuchin some of that data we do have access to and some of the data we have determined is no longer relevant. Chairwoman waters i yield back the balance of my time. The gentleman from north carolina, Ranking Member mr. Mchenry is recognized for five minutes. Mr. Mchenry so, secretary mnuchin, as you well know and as your report, as the fsoc report here notes, in the past few months we have seen significant volatility in the repo markets. I know theres speculation about what sort of combination of things occurred that created this volatility. Theres speculation theres a combination of regulatory effects impacting Monetary Policy and that there are regulatory and supervisory actions that are unduly disincentivizing. Banks who are required to hold cash and hold cash at the fed. From using cash reserves when the repo market, when the market needs it, and needs liquidity the most. So the office of Financial Research is starting to collect data on repo transactions as thats a positive, and the council directed agencies to take a focused review. So as the chair of fsoc do you believe the spike in repo rates signals a need to examine overarching Regulatory Regime for potential risks to Financial Stability . Sec. Mnuchin so let me first say we share your concern about those two days when there was a significant spike. As recent as yesterday we had the Federal Reserve bank of new york, which is responsible for market operations, give a presentation to fsoc. I have met with chairman powell multiple times. We have talked about this as recent as this morning. We have discussed in our weekly meeting making sure that the fed is prepared for yearend activities so that there are ample reserves. I think it was a result of many different issues that came together in one day. One of them being, as you outlined, certain regulatory issues. Banks are required to have excess overdrafts for intraday. So this not normal liquidity but intraday liquidity. Theres also the impact that the Federal Reserve holds the treasury cash account. We had a large payment of taxes so effectively you had money going out of banks into the treasury account which drained reserves. But i can assure you this is something fsoc is focused on and something in my role as treasury secretary, chair powell and i are working together on. Mr. Mchenry ok. So along those lines, the impact of regulation can impact Monetary Policy, and in this circumstance when you have federal regulation demanding banks hold assets and then they believe that they should not use those because of regulation, that becomes problematic. I think a systemic review of this to ensure that that intraday activity can be dealt with adequately i think is really important. The wall street journal highlighted the question of tax payments, that there was a deadline in the timing of tax payments had an implication for the market as you just mentioned. On a goingforward basis, is treasury reviewing some of the timing issues . Sec. Mnuchin we are, and were working very closely with the Federal Reserve, as i said, to make sure that there are ample reserves both associated with the treasury cash accounts, and we are working with the Bank Regulators on what could have been regulatory issues that caused that spike during the day without creating anything that provides longer financial risks. Mr. Mchenry thank you. And in 2018 and again in yesterdays report, fsoc outlined and highlighted that ending libors reference rate is a concern to Financial Stability and recommends that member agencies work closely with Market Participants to identify and mitigate risks during the transition from libor to sofor. Sofr. Do you believe financial regulators are adequately prepared for this transition . Sec. Mnuchin well, i can assure you that this is something that we are very, very focussed on. It is a risk as you have highlighted, we outlined. Yesterday as an example, chair powell, myself, and other members met with 10 member banks to talk about the transition of libor and the transition. We are working closely with sec because we are worried about securities and how it will transition with the role of trustees. We may need to come back to congress to suggest regulatory language and law to deal with this, but i assure you that it is one of the top risks we are focused on. Mr. Mchenry thank you. Thank you on your response on my request for the financial transition tax as well. We will follow up. Chairwoman waters thank you. The gentleman woman from new york, mrs. Maloney, is recognized for five minutes. Mrs. Maloney oh. Ok. Sec. Mnuchin i believe your statement is accurate for at least a week. Chairwoman waters why did you give me this . [laughter] nice, nice. Mrs. Maloney thank you so much. Thank you so much for your leadership, madam chair. I want to thank the secretary for your continued leadership and support for the corporate transparency act, the Beneficial Ownership act that recently passed out of this committee with strong bipartisan support. It would not have happened without your support. I wanted to thank you. Law enforcement in my home state in new york and across the country considers this bill to be their top priority to combat Terrorism Financing and to make us safer. So i want to thank you. I do not think it would have passed without your support. Im very grateful. My first question concerns the Federal Reserve which recently warned about the ballooning corporate debt, which sits at nearly 10 trillion. Thats about half the size of our overall economy. There is a particular focus on the growth of the nearjunk bbb, and the continued rise of leverage lending. Personally, i am very concerned that a lot of the debt is being used for financial risk taking and stock bye backs. Stock buybacks. Im troubled to see in the clo theres been a wave of downgrades and theres a question as to whether theres enough data on the clo market. I have two basic questions. First, does fsoc have a grasp on the global Leveraged Loan Market . Specifically, who actually holds most of the outstanding clos . Secondly, other than monitoring, what is fsoc doing to keep the surge of risky corporate debt in check . Thank you. Sec. Mnuchin first of all, thank you for your work on Beneficial Ownership and your acknowledgement of our contribution. We are currently working with the senate and we look forward to bipartisan support turning this look law. Turning this into law. Mrs. Maloney thank you. Sec. Mnuchin specifically as it relates to your issue, let me just first say that the leverage lending market is something that fsoc is very focused on. Weve had several presentations at fsoc. We have a group within fsoc of all of the different regulators looking at this. It is one of the things as part of an activitiess based approach that we are monitoring the risk. The first issue we examined is what is the exposure in occ and the first issue we have examined is what is the exposure in occ and fdic banks. A lot of the leverage lending has moved out of the market as you commented and what is associated with it, what we are carefully monitoring and there has been a large issuance of bonds. And not additional leverage but we are monitoring the triple beam market carefully. Use every tool available to understand connectedness to the overall economy. You recently talked about libor in our hearing today. Do you think recent issues indicate sofa might be more volatile than anticipated . What is raising questions about it . Im concerned about the transition from libor to sofa and that is something we are focused on because it is a regulatory issue and Technology Issue in legal issue. As it relates to silver and volatility over a long time it would not have a big impact but the thing we like about so for is it is a market that cant be manipulated. It is highly liquid and demonstrated and calculated unlike the libor markets. Sounds like a good move. My time is close to being expired and i look forward to passing with the ownership bill. The gentlewoman from missouri, miss wagner, is recognized for five minutes. Thank you for testifying for our committee today. We have seen proposals to implement a financial transaction tax in the house and senate and in addition, president ial candidates endorsed or considering a financial transaction tax, typically involving stocks and bonds and derivatives, this tax would result in fewer trades and leave market to look for other ways, this will reduce Capital Gains taxes and additionally, they were tried internationally and the results have been poor. 100 million, with 1 billion in the first year. And sweden, a tax was imposed and more than 50 of all swedish trading moved offshore to london. Proponents of the financial transaction tax argue it would only affect the wealthy, that is simply not the case. This tax would impact all investors, more specifically and including millions of Mainstream Investors saving and investing in mutual funds. A childs education but tension plan. What sort of impact could imposing a financial transaction tax have on the us Financial System . I share your concern about this tax. The United States is the leader of Financial Services in Capital Markets and something that people come from all of the world to raise capital in the United States. I am very concerned that would destroy our Capital Markets and the cost to american holders of mutual funds would bear the majority of the costs. Mister mc henry inquired about this. And on interagency basis to study this to see if we can come up with research on what the impact will be. What reduce liquidity . It was quite detrimental to many aspects of liquidity. Lets talk about market volatility. We have less market volatility here, a market you mentioned going to london and hong kong and other places where we dont want it to be. How would this impact us Economic Growth . It would be a burden on Economic Growth. It would be a burden on all the american taxpayers who pay taxes and hold mutual funds who have their savings and retirement in mutual funds. There are millions of mainstreet hardworking americans in my own Second District of missouri that can be impacted by this. Does this tax resulting Market Participants to look for other ways to avoid the tax evasion we have seen internationally in other countries. It would move money offshore, it would disproportionately hurt pensions, 401 k s and People Savings retirement. Do you believe the cost to the treasury of issuing federal debt could increase because of the potential increase in trading costs and the reduction in liquidity that would occur if this tax were imposed . If it were put on Us Government security it would clearly raise the cost of the government borrowing, no question. The federal debt would be affected by this. I look forward to your study and we do hope fsoc will do more work and research that we can be clear before moving forward with a horribly regressive and detrimental financial tax like this. Thank you for your time and i yield back. The gentleman from california, Mister Sherman was poised to become the next chair of the subcommittee on entrepreneurship in Capital Markets, recognized for five minutes. I think the chair, the gentlewoman from missouri brings a number of concerns about financial transaction tax. There are proplaps and cons of that tax but i made a list of all the problems she had with the Financial Services tax and every single one of them would be avoided with a wealth tax so i will put you in touch with the academics on our side, helping Elizabeth Warren if the gentleman will yield, i cant wait. I will not yield because we know where you stand on this. A lot of questions divide us ideologically and there are simple ones where we can do something important for the economy and we put it off, put it off and ignore the fact that if we get it done by the last minute because time to the market. 1 trillion here, 1 trillion there adds up to real money. We have libor instruments out there relying on the libor index to the tune of 10 trillion and the libor rate will not be published after 2021. You said in your Opening Statement we recommend any new instruments that reference libor should include fallback language to mitigate the risk in the event libor becomes unavailable. But that still leaves us with 2 trillion of the libor based contracts that will be outstanding by 2021. They have been written. The libor legacy instruments and we cant amend these without consent of every participant. Im working on legislation that would solve this problem and link these libor denominated instruments to be secured overnight financing rates. It occurs to me you might tell me we dont need legislation. Those treasuries have the authority to hold regulations or does any branch have the ability to issue regulations to simply say if you have a libor contract and it doesnt provide throwback of rate, this is how to do the calculations. If you dont have the authority do you want the authority . Let me acknowledge this is a bipartisan issue, something we should work on. The work on this predated coming to treasury so this has been a long time. As i mentioned earlier we may come back to congress and suggest that you pass legislation. I would ask you, this is not on your 2021 calendar. This is your december calendar or january calendar. I look forward to working with you. I need to know whether you need legislation, need to know what you need but need to make sure there are 2 billion of debt instruments outstanding where people cannot determine what interest is supposed to be paid. I want to share the subcommittee for another week. We focused on china, china could end up with 1,000,000,0001 2 of world bank loans. This is under discussion now. Chinas income exceeded the level they should be eligible for these loans. The Chinese Government has enough money to put 1 million leaguers behind bars, to build a military complex that destabilizes the world. It seems like china should borrow money in the private markets at private market rates. The United States wont support world bank loans to china, what are you doing to stop those loans . Are we making academic arguments or are we making it clear that our future involvement in certain world Bank Activities is dependent upon not giving concessionary loans to china. Thank you for raising this issue which is a bipartisan consensus. The World Bank President , when he was working for me as undersecretary as part of our reforms package we negotiated with the world bank with prior leadership there, we negotiated significant reductions in China Lending with a path to get below 1 billion. Yesterday we submitted our objection to the current country plan so we look forward to following up with you. The gentleman from florida, mister posey, is recognized for five minutes. Thank you for holding this hearing on systemic stability. For many of us who grew up after the great depression, the First Experience we had with severe systemic instability was the last financial crisis. At this time we often watched a classic movie, its a wonderful life, where we experience the drama of a run on the banks with george bailey, the hero of the movie played by Jimmy Stewart who saved savings and loan from the background. Last crisis taught us that we no longer live in the world of Jimmy Stewart banks. Financial liability marty funds threaten greater consequences today than bank runs. Markets for assets may collapse in dramatic ways and destroy the ability of Financial Institutions to fund their Assets Holdings and meet the survival constraints imposed by liquidity and solvency. We hear the words you cant be too careful but in regulating our Financial System we can be so careful we stifle its innovation, restrict credit and finance, slow Economic Growth and inhibit jobs. We must strike a balance between the risk of a term and look toward balanced solutions to keep our economy toward sustained growth. Mister secretary, please let me commend you for your leadership in working with the key regulators to forms related to proprietary trading provisions. Banking history was different where banks focused on trade capital, with Capital Markets. In this country, there was always a rolling Capital Markets and a mighty engine of growth. The Intercontinental Railroad and a host of other industries. Banks have a key role to play in Venture Capital and the volcker rule is restricting that. I joined other members of the committee in sending the testability regulators asking you to move quickly to issue proposed rule to amend cover Fund Provisions of the volcker rule and we asked you to revise the broad definition to exclude Venture Capital and other longterm funds. My question is to be responsible for coordinating rulemaking and the department of treasury making changes to the covered funds provision and if so could you please provide us with an insight on the timing for such a proposal. Let me acknowledge what you said, the holy Banking System is critical to our economy and our banks have the risked and built up significant amounts of capital. There are some changes to the volcker rule that wont create undue risk but will create more liquidity in certain markets and we are working with the issue suggested on covered fund issue as well. Any idea what the timeline would be . I would hope it is the next 90120 days. Do you expect much criticism in that regard . Im not going to speculate that it will be open to public comment. I want to talk about Climate Change regulations but i only have a minute left. Give me your assessment on the usefulness of taking shortterm stress testing discipline into much longer realm of Climate Change. Does that make sense to you . It does not. Can you repeat your question . Not sure i heard it correctly. What is your assessment on the usefulness of taking the shortterm stress testing discipline into the longerterm realm of Climate Change requirements. Let me say in my vast expertise on a lot of Different Things climate is not one of it but i think the banks have a difficult enough time modeling different risks. Longterm climate risk is subject to a lot of different views and of long as there is proper disclosure that is adequate. My time is expired. I yield back. The gentleman from new york, mister meeks for the subcommittee on Consumer Protection and Financial Institutions is recognized for five minutes. Thank you. I think we can agree, i am really concerned. One of the things that really shocked me, when secretary paulson came on the floor talking about our whole economy was going to drop. So with fsoc we try to look at what will happen in the future. I have some real concerns because as i look at the chinese growth, the european economies slowing with some entering recession. I look at brexit looming of all the turmoil going on in latin america so it gives me real concern and i look at the forecasts of the american and us economy, slowing also, history may not repeat itself but sometimes it certainly rhymes. I feel that over the next few years for the economy it may rhyme a little too much for me with the past decade so im hoping the administration is going to look well ahead of what takes place with certain formulas in case there is a tremendous problem like when i look at the debt stock of corporations and even colleges and universities have balloons and important share of the debt with leveraged loans and there seems to be a real risk of a downgrade and as a growing share of this debt is barely above junk so i am hoping you have some models to show what would happen to employment, homeownership and the broader economy, if these loans were downgraded in math and the event of a downturn in the economy and how it would affect the retail sector, any model you have, could you tell us . Im concerned about the average loans about this. Let me say we share your concerns about Financial Stability. I worked for secretary paulson and speak to him regularly and i hope we are never in that type of time. Go. Specifically as it relates to leveraged lending you share your concerns, we are monitoring those risks. Those are the types of activities we are carefully looking at. We studied it very carefully as it relates to the banks and we are very comfortable that there is limited exposure in the banks. As it relates to specifics of the impact on employment and retail sales we will get back to you on our thoughts on that. It is minimal because the exposure is outside of the Banking Industry and shouldnt have the type of contagion and risk with the financial crisis. I consider it sometimes now that it is outside the financial Banking System put in place for the Banking System to see Systemic Risk before and can downsize what was necessary but outside, watching what happened on the outside, i dont want to catch us by surprise, that is to medically important. In this financial crisis, it is a reminder recessions and crazies dont hit all sectors of demographic of the economy equally. If you look at the district back in minority communities they overwhelmingly lost wealth, lost jobs at disproportionately high rates and many of them, they fail at 2. 5 times the rate of nonMinority Banks and also get to recover. And how much consideration is given by the manner in which the burden falls on low income and minority segments of the economy. How do you quantify this . What is done in 23 seconds. Let me give you two comments and happy to follow up with you another time. Housing reform is something we are very focused on particularly because of the disproportionate impact on certain communities. And minority owned banks, a program and treasury, Mentorship Program we are working on and look forward to following up on you. He is recognized for five minutes. I would like to thank the secretary for responding to i can see you directed oprah to examine all Current Research on the matter and report back. This will enable some light to be shed on the standard which i believe is detrimental to industry and consumers and look forward to following and making sure the process will look forward to working with you to work on issues that will be pointed out by this research so thank you for doing that and responding to our request. The first issue is the new Digital Currency being proposed by facebook. Mister zuckerberg explained his intentions and how it will all take place. Since then, china there have been calls for the fed to issue its own currency and a slight feud. Give us your position and where you see it going and what your thoughts may be on it because it has some legs. Let me comment when people talk about Digital Currencies it is a vastly different area, different sectors particularly as it relates to libra we have a dozen meetings with facebook, shared our concerns, part of the reason why they are slowing their movement, we discussed this at the g7, the g 20, i am fine if facebook wants to get into Digital Payments and that may be good for their Customer Base and a lot of americans who dont have access to banks. We want to be sure they do it, theyre doing it in a way that is fully compliant and in no way can this be used for terrorist financing and illicit activities. The chinese decided to do this as well so the last half of my question was there have been far process about the fed getting into it and having their own currency. Is this something you dont want to get into or shouldnt be out there . I would differentiate what china is doing from what it coin or facebook would do. China is issuing Digital Currency in blue of physical cash and they contract that. They will be able to track where that goes. That is different from bit coin, and no different than in the us where money is sent on the fed wire system. It can be tracked and money through swifts identifier. I would differentiate what Central Banks are doing as relates to the fed and chair powell and i discussed this at length. We both agree for the near future and the next five years we see no need for the fed to issue Digital Currency. We have a very sophisticated system. The fed is working on electronic Payment System. We need to make sure there are realtime electronic Payment System in the us but thank you for your concerns. Appreciate your response was we had a hearing in the committee, a number of questions with regard to Credit Unions buying out banks. It seems that is a little bit of a trend, and 28 purchased this year. In the purview, mister secretary, those 28 banks plus preps are going to come off the role of taxpayers. There doesnt seem to be any resistance from the standpoint of the fdic or credit union regulators to not allow this to happen, continuing to be approved and happen, in fact i was having a discussion last night with somebody and the banks need to buy Credit Unions and they can avoid taxes so i dont know if that is doable but there are some people thinking outside the box because they look at this as a tax loophole. From your standpoint do you see concerns, good unions buying out banks, part of the merger situation going on in this country or is there a trend, tax evasion situation, how do you view this . We will follow up with the fdic in this issue and monitor it, it is not something that caught my attention because it is still on a small scale. We will follow up with the fdic. There was an announcement of 700 million bank, 10 billion credit union. Mister scott is recognized for 5 minutes. I want to make sure i am clear on your level of concern about the continued volatility in the repo market and its impact on the calculation of sofr, the secured overnight financing rate, which as you know is a designated replacement rate for libor. I have listened to your response to Mister Mc Henry and the gentlelady from new york. I want to be clear, fsocs Financial Stability report, here is what you said. You said that Market Participants with significant exposure to libor remain vulnerable. If they do not sufficiently prepare all the way to the end of 2021, what did you mean for that and what did you mean about prepare . What are you doing to help the industry participators prepare. Let me emphasize two issues that are related. Im concerned what happened in the repo market, not just a concern for sofr. It is a broader concern because we rely on these repo markets. It impacts many many individuals and institutions. We had active discussions with the fed on that issue. That does impact the libor transition but the libor transition is a much broader problem. As recent as yesterday, a group of the banks and regulators on this. What did you mean by they will remain vulnerable . If banks and trustees dont prepare for the transition, trillions of dollars in 2021. To do what . From technology so that they have the ability, prepared the legal analysis, prepare transition, people literally have hundreds of thousands of transactions. Part of this may be coming back to congress and asking you to pass legislation. There may be serious legal issues we are exploring. Let me turn and lets go overseas for a moment. Im very concerned about brexit and the particular impact brexit will have, and Financial Markets. And after delays and delays and failure of them, how are you concerned about this concern, on the crossborder transaction with the transnational Market Participants. I have been discussing this issue for the past three years with my counterparts in the bank of england and regulators and finance minister, it is a significant risk to the uk, it could have carry on risk to the us, looking for regulators with these risks, we managed through some of those and some of those are still open. I encourage the uk they need to resolve this one way or another. Also in your report concerning that you said this. You said that, and you highlight the potential for risk, and that they will have significant spillover effects in the United States should there be a no deal brexit particularly with regard to crossborder translations. What did you mean by that . What would be the potential with no deal . What would be better for us . No deal or no deal . I respect the people of the uk . They can decide whether they want to be in brexit or not. Whichever case there is a coordinated transition. The gentleman from oklahoma recognized for five minutes. Thank you for appearing before the committee one last time before years end. Secretary mnuchin, in the council at any reported records of government and private sector should have more effective information sharing practices. How to work with Financial Institutions to address fibersecurity concerns without inhibiting the growth of emerging technologies. As highlighted in my opening comments, cybersecurity is one of my most important priorities. The industry as well prepared, we can never be prepared enough, the bad people continue to operate. We need to make sure Financial Markets are protected not only today but for the future. The coordinated response for private companies, as well as treasury and regulators. In what ways is fsoc generating Cyber Security risk, and that is coming from bad actors . This is educating the general public and making sure the banks are educated. They have the best practices. The general public will be protected as long as the banks and Financial System is protected and that is what we work on many single day. My colleague discussing brexit for a moment, your unique position with your finger on the national economy. Could you speak for a moment potentially how much better the usmc a deal is for American Workers and why it is essential for the economy that we act swiftly on that . Let me say i Hope Congress passes this between now and the end of the year, you are working closely on this, for the American Economy. Our largest trading partners are mexico and canada. These economies have a great step for growth. I yield back. The gentleman from colorado is recognized for five minutes. My questions are going to go to the repurchases because there are some flags here. Last year banks had the most profits they have had in forever in part because of the big tax cuts and stuff like that, huge profits, at the same time, we saw excess reserves of banks decline by 35 since 2017 and at the same time as the fed and treasury were sort of drinking the Balance Sheet. Over the last few months have had expanded again. I dont understand how those all come together and if you could explain that again i would appreciate it. Big profits, shrinking reserves and now expansion of the Balance Sheet. Those are the kinds of things i think we have fsoc in place to monitor. What is driving this on a bigger scale if you could tell us. It is a very important issue and i dont want to minimize it and we have a presentation from the Federal Reserve bank of new york. It came together on those two jays because the spike. It is not any single one issue but studying it carefully to make sure this doesnt occur again or in a prolonged basis. The banks are having good profits mainly because the us economy is performing very well. I dont think it has to do with an issue of bank profits but an issue of bank liquidity. The banks had plenty of liquidity. The banks had enough liquidity to go in and take up repo but didnt want to do it. Different regulatory tests that fit together. It wasnt liquidity test that was fine and different ratios they were worried about that. It was a regulatory issue and reserve issue. The fed has been in the Balance Sheet. It is out of quantitative easing. They dont need a giant comedy with the financial crisis and what they are doing now doesnt impact the growth of the Balance Sheet by buying securities. It is a Cash Management function in the repo markets. These are complicated issues that were intertwined. Those were the things that sort of let up to the recession ten years ago that all of a sudden there was this billliquid setting of the banks and everybody started getting nervous and option rate securities went to hack and Everything Else started closing in. It doesnt add up for me. We are making money over here but we are shrinking but all of a sudden the reserves are shrinking like crazy. We try to shrink Balance Sheets but expanding it again but happening for several months. I can assure you that the technical issues have nothing to do with the financial crisis. The financial crisis was driven by real losses in real estate markets and highly leveraged securities. This is all about the government repo market and when we talk about reserves at the bank most of those excess reserves are locked up at the fed because of regulations that require the banks to have so much excess liquidity. Let me slow you down for a second. I asked my staff to give me numbers on Student Loans, auto loans, we are at 1. 6 trillion in Student Loans, 44 million americans have Student Loans, almost 30,000 the average death. Auto loans were at 1. 26 trillion, 107 million americans are more than 3 months behind. Corporate debt, 10 trillion, 1. 3 trillion leverage loans, 1. 2 trillion in junk bonds and theres a lot of lending going on out there. Are we getting overextended again and that is what im worried about. The gentleman from colorado is recognized for five minutes. Do you want to answer that . I was going to comment i think it is a good thing that we have a lot of lending, a healthy economy and i do think that this bank issue is a highly technical issue but something we are very focused on and Student Loans, a longer subject we share certain concerns. Appreciate you taking time to be here, and to have access to capital, to get this economy moving it is worthy of note in the first thousand days you have been in office, donald trump has been able to implement historic tax reform to take extraordinary steps to thank our National Security making a better steward of taxpayer dollars and our premarket system with the help of tax reform and regulatory policies in the Trump Administration to stimulate my state of colorado. In the past your colorado employers created 43,800 jobs, nearly 67,000 found jobs. In my state the Unemployment Rate is at 2. 6 . As you noted in your testimony we are at a 50 year low of unemployment in this economy right now. We have policies that are making this capitalist system work. Main street and Rural America is primary concern to me. As you probably know in many cases we are looking at economic recovery, it is Rural America that has come out of that and the first to lead the way in to distressed economies and im pleased to report to you in my district we are seeing movement in these rural areas, jobs being created through the opportunity of our system. Appreciate the effort you and the administration have made to address that look at the overall economy, low unemployment, historic low unemployment in demographic groups we have, the opportunity we are seeing in this country is this a good positive sign for my state of colorado and americans . It is indeed and the bright spot of Global Growth. That is something that will be important for us as congress, as a nation, to keep our eyes on. Despite some of this historic growth we have some of our colleagues across the capital and governors mentioned across the country. To upend our capitalistic system that has benefited the majority of americans in this country. Economic engine we have in this nation is something to be celebrated and to create the opportunities in front of us, we should not be pursuing socialist policies to redistribute income, to slow that down but policies that are going to be making sure every american has the opportunity to reach their highest, best potential as god has given them the ability to deal. I would like to encourage you, to continue those policies creating opportunity for so many americans, to reject those, to redistribute income, build bigger government, more programs, and a bigger, better and brighter future, taking the opportunity to be here today for your work on this economy. I wish you and your family the best for the holidays. I yield back. The gentleman from colorado yield back. The gentleman from connecticut recognized for five minutes. Thank you for being here. I would like you to reflect a little bit on the shadow banking and particularly the intersection of shadow banking and the mortgage system. I was sworn in in january 2009 when this committee wasnt sure citibank would remain solvent until a couple quarters a gone by, so much of that was due to irresponsible underwriting in the Mortgage Market. You make specific mention, box being on Bank Mortgage origination servicing hear the message is pretty clear that nonbanks are originating, less than half of mortgages and they are disproportionately going into the gses. It makes me nervous because the gses are guaranteed. This feels to me are replay in which institutions dont have underwriting discipline of banks writing a lot of mortgages, sure those mortgage will be securitized. His general question and specific question. My general question is what sort of visibility do you think you and the other regulators have as to the quality of the overall underwriting and specifically we spent time in this committee to reflect in doddfrank the notion of retention meaning cooking to the underwriting. Nonbanks are not retaining exposure but transferring it to tses. What visibility, are these nonbanks underwriting competently . We have concerns and that is why we highlighted it. The good news is we have visibility, a lot of these loans are being sold to gs thes. A lot are sold to fha. One of the things we do as part of housing reform, we are concerned at fha and the gses that the underwriting criteria is deteriorating and loan values are decreasing. We are working with fha a and working with hud on those issues. The other area of concern is the Mortgage Servicing business which used to be dominated by banks is dominated by nonbanks and one of the problems is nonbanks dont have the liquidity to advance mortgages the banks had. This is something fsoc is carefully studying. I can tell you in my role of being on fhs a board, also studying this as well. It is not the point, and carefully following it with conditional recommendations and theres a lot that hud can do and if hfa can do with these risks. You have a sentence here that says loans originated by nonbank lenders have on average marginally higher and lower borrowed Credit Scores. It feels to me there is adverse selection going on as far as lower credit mortgages being guaranteed by tses but higherquality mortgages are staying outside the gse structure. Am i right in inferring that from the report . A lot of loans, the banks are originating, being sold to gses. If you look at what the gses are buying, the higher loan level are from nonbanks. The Bank Regulators made sure banks werent originating bad loans and just selling them. These should be bipartisan concerns. They should concern all of us. I completely agree. Glad to see this focus, my own state of connecticut is in the aggregate recovered economically from the impact of all that occurs in 20072008. Appreciate you highlighting this and you need us to help with gse reform or other that we will be involved rather than surprised and i yield back the balance of my time. We look forward to working with you. The gentleman from connecticut yield back, Mister Williams is recognized. Full disclosure, car dealer, retailer, main street and texas and thank you for taking time from your busy schedule to answer these questions. By my count this is the fourth time you have appeared before this committee and i have asked you this question before but this is politics and they change hour by hour, minute by minute. I must ask again are you a capitalist or socialist . Pleased to report i am still a capitalist. Pleased to hear that was our country is moving in the right direction economically im worried we are not enough attention to the National Debt which surpassed 23 trillion was the net Interest Payment is estimated to reach 400 billion during this fiscal year and could account to 10 of gdp by 2020. Jerome powell stated in november our debt is on an unsustainable path that will cripple our ability to respond to recession. Chairman powells comments, i heard from former senior military officers including some who served in fort hood in my district that our debt is one of the greatest National Security threats facing the nation. We need to cut government spending, we need to get serious operating within our means. Can you elaborate on the threat our National Debt has on Financial Stability. I would say today it doesnt have much of a threat because we are the reserve currency of the world, relative to the site of the gdp it is sustainable and we need to grow our revenues has to then we grow our expenses and when the president came in he presented balanced budget, want to increase military spending and decrease nonmilitary to pay for it. And we always need to look at spending. No secret throughout the world. With protest with the to 2019, the World Economy is growing at a rate of 3. 8 . Even as Global Growth slows, the United States continues to outperform other developed economies as you talked about today across the globe and being in the retail business, being on main st. America business, i appreciate that. What factors are facing european counterparts. The economic policies of the Trump Administration, tax cuts, regulatory relief and better trade deals and that is what we are focused on. Unemployment existed 3. 6 . Top economist at Goldman Sachs requests this could flow to 3. 25 x 2020. What concrete axes would you recommend we take from congress to make this prediction become a reality . I would suggest you continue on bipartisan support of us mca, the most important thing on the economic side congress could do between now and the end of the year. Data security is one of the greatest threats to our Financial System as our economy becomes more digital. Because of congressional inaction, hour and data privacy standards, unfortunately for many businesses in the district they are forced to comply with various standards to operate businesses in all 50 states. Is it is important for the businesses in my district that we talk about this, what about having single federal Data Security standards . The banking standards are critical, with the issue on a global basis, we want to make sure localization doesnt stymie growth in transactions. I apply the Treasury Departments work for us recent negotiations to european regulators over insurance capital standards. We cannot allow bureaucrats in brussels, with unworkable rules and regulations that hurt Insurance Companies so keep up the good work. I yield back the balance of my time. Mister foster is recognized for five minutes. Thank you. So many new emerging threats to Financial Stability from crypto currency to corporate debt, leveraged lending, ratings from bond rating agencies and climate related risk, a very long list. I am concerned the treasury budget and standing levels for fsoc and the Office Financial researched reduced under your watch. Compared to fiscal year 2017 the Trump Administrations 20 20 budget would result in half the stamp of fsoc. Do you really think it was a wise idea to cut the fsoc staff levels in half . I do. The reason for that is you have been successfully increasing treasury staff outside of fsoc and other regulators. One of the things fsoc does is you can have a Smaller Group of core people, most of it was done on a coordinated basis through all the agencies. That is why we are comfortable doing that. We are trying to be prudent on expenses. It seems very shortsighted to me to cut the resources that are desperately needed to make sure we reduce the risk of this sort of financial crisis, youre unwilling to commit to do anything to restore those budgets, correct . I would never say i am unwilling to commit. I will clean what our thinking is, just trying to save taxpayer dollars, not trying to do anything that would create more Financial Stability. If i thought we needed as resources we would keep them. We need to give fsoc the funding and personnel they need to carry it out, that is an important mission. That is why i introduced the enhanced Financial Stability Research Oversight act which i hope we will mark up in committee in a few weeks. This is a common sense measure that tries to restore the minimum funding levels we had in 2017. It is Pretty Simple because we cannot prevent the next crisis if we do not have a personnel to do the work including coordination of collecting data, analyzing the risk and performing essential research. I hope my colleagues support me in this effort. It is shortsighted to cut back those essential functions. Another point i alluded to earlier, increasingly big tech firms like amazon, google and others are pushing into Financial Services including Cloud Computing services for the largest banks and according to the recent readout of the fsoc meeting Cloud Computing was part of the discussion. In your view does fsoc have the ability to designate a cloud provider as a systemically important utility . At this point, at this point the answer is no. If you have come to the conclusion they should be designated. If we came to the conclusion. I have a real worry, it would be an interesting thought experiment to say what happens if not long ago a story in bloomberg about the possibility the chinese had hardware bugs, widely used equipment inside cloud utilities. If that is discovered where they have to replace the hardware and have to be down where that happens. To actually think what that would do when it went down. Cybersecurity is a big focus of hours and part of the reason we are focused on the cloud we share your concerns, we want to make sure no one Financial Institution is dependent and would be taken down by a cloud provider. In my remaining time i want to thank you for your response to the letter congressman loudermilk and i sent you having to do with Digital Identity solutions and an essential Government Role to leverage as the administrations position, to leverage the real id acts to allow citizens who wish to have a way to authenticate themselves in a secure manner online, i think that is a fundamental necessity in a modern economy and an essential job for the federal government to provision that basic identity and many opportunities for the private sector to leverage additional features on top of that. I want to thank you for your response and encourage you to continue. Gentleman from illinois yields back. The gentleman from arkansas is recognized. Rep. Hill great to have you back. Appreciate all of your leadership. I just was so interested in listening today. Thanks for the regulators that we talked to yesterday for their swift implementation of s2155 on regulatory reform. We appreciate treasurys leadership on that. Your w we appreciate treasurys leadership on that, your work on strict sanctions around the world on venezuela, north korea, iran, russia. Youvet demonstrated a lot of leadership there. Of course tax reform has been talked about extensively. Were grateful leadership as our treasury secretary. I want to turn and mention a couple of thingsed weve talked about today. On the repo market that mr. Perlmutter talked about and the Ranking Member, i think the concern is the new york fed is not supporting the repo market. They are the repo market. I think thats the challenge, and we dont see the Bank Reserves that are more than adequate, billions more than needed. J. P. Morgan for example, 120 billion in daily cash held at the fed on a 60 billion cash requirement and yet they are not entering that repo market. Im pleased yesterday at the fsoc meeting you talked about this because i do think supervision is an issue here and the stigma attached to something that was a regular part of our business lives which is running fed. Overdraft at the on Mortgage Servicing i i appreciated your comment there. Again, that business shifted out of the bank sector to the nonbank sector because of doddfrank. And for five years i served in congress ive tried to get the Obama Administration and the now Trump Administration to support the idea that Mortgage Servicing rights are not a a derivative t should be treated in that manner. Its a natural as you know for a long career in mortgage finance, a natural companion to the origination of residential mortgages. I hope fsoc will lend its weight, allow Mortgage Servicing to not have the capital that they havent doddfrank. With mr. Foster, he and ive had a lot of conversations about Digital Currencies. Jay powell just answered our letter on the idea of a digital token, and i think the concept is a little misunderstood. It we want a Digital Future in finance and we want to protect the preeminence of the american dollar as the reserve currency, this idea of a digital token is an important concept, and its not anything except allowing our government to facilitate a blockchain transaction process legally in the future. We have visa debit, mastercard, fed wire, all true, all the private sector participation in them and government participation. But this idea that theres a new rail created that is a blockchain rail thatai both bank and nonbanks can participate in to settle transactions through a token, its coming our way faster than we like, perhaps faster than the five year time frame outlines i do think its important issue for the fsoc to continue to consider and allat scrub treasurys viewing independent of what your agent over at the Federal Reserve banks as you put article one power on currency. Let me turn and ask you a question about world bankat isss that we had a hearing a few weeks ago at the subcommittee on thatat topic, multilateral to build them. There was no treasure representative. We had an illness that day. One thing i talked about is the legislative mandates that are put on our managing director and our governor to direct votes at the fed. So my question to you, mr. Secretary, are you concerned that kind of governance to support or oppose a financing project ties the handsec of the United States and leading to abstain on voting . I am. Does treasury have an amount, a record of those abstentions and that long binder understand of rules that our government has to follow and is a something you share with the committee . We can come back. Its a huge brock receipts running all these tests and we keep the data. What i hear both from your former colleague and others is it just reduces americas effectiveness to lead the bank. Wed be very interested in working with dredger underway to reduce those mandates, finetune the mandates, remove ones that are redundant and had her leadership on that. Is it is that something you woue interested in . We look forward to working with you. Thank you and i yield back. Gentleman from arkansas yields back. Before i recognize the gentle it from ohio i think we all want to wish the gentleman from arkansas a happy 29th birthday. [applause] this is how i wanted to celebrate. [laughing] i would like to recognize now for five minutes the gentlelady from ohio, ms. Beatty. Thank you, madam chair. You, Ranking Member mchenry. Thank you to our witness, mr. Secretary. And let me start out by saying thank you for the information that i received from you on working with your director, looking at the diversity information. And thatpp was very much appreciated. So thank you. Today, mr. Secretary, i wanted to share with you in yesterdays hearing with potential regulators several of my colleagues, including congressman cleaver, raised the issue of minority depository institutions, specifically with the rate that they are disappearing. Since as you know the financial crises of 2008, the number of ngas failed 31 . At the at the end of 2018 we only had 149 of these institutions left. They are incredibly important to the Minority Community that they operate in, and so im introducing legislation today to codify the treasurys financial mentor program, and its not as the expanding opportunities for mdis act. I also want to say that i was just come it was just brought to my attention that your staff had sent my office some comments and Technical Assistance on the deal last night so i am very appreciative to that. And so can you briefly describe what the Trace Financial agent mentoring program will seek tol accomplish and how your department came up with it . First of all, thank you very much, and we are glad to assist on this. The Protege Program has worked very well and the mdi is to partner a Minority Bank with a large bank, and in that way the Minority Bank can get resources and training and help to run their business. And we share your concern. I think there should be an increase in opportunities for Minority Banks, not a decrease. So this is something im pleased, ibi personally wrote ad asked many of the big ceos to this, and we look forward to, iok know we did work with you on some technical issues and we look forward to continue helping you on this. You had to send the letters to the big banks . Do you think it would help them to be more engaged to do it . Or because you felt they werent doing anything . Sec. Mnuchin no. They were pleased. So id say, you know, kind of when we asked people to go into this Protege Program, people had been very receptive. And its worked. And we look to scale this up. And we look to work with you on your potential legislation. Well, thank you, because we have noticed that some of the larger banks who i have been very critical of their lack of working, increasing enough with their cras, participating on diversity and inclusion, so i would like to say, mr. Chairman, and Ranking Member, people ask us all the time why do you talk so much about diversity and inclusion, and it is beyond just hiring people because of their race, ethnicity, or gender. It is also about, if you have someone in the room and youre mentoring and working with people, it helps with the economy, it helps with jobs, therefore it crosses over that people can pay for their housing, because we have a lack of Affordable Housing. It helps them with health care. It helps them with daycare and child care if they are in the room. So i again would like to say thank you. Mr. Chairman i yield back the rest of my time. The gentlelady yields back. The gentleman from tennessee, mr. Kustoff, is recognized for 5 minutes. Thank you mr. Chairman and thank you mr. Secretary for appearing today. Weve had questions today about the u. S. Mexico canada agreement, and if i can ask you just in laymans terms, what is the effect to the economy if, in fact, congress does pass the u. S. Mexicocanada agreement. And conversely, what is the effect of the economy if we fail to pass it . Sec. Mnuchin if we pass we estimate its in excess of 50 basis points a year in gdp, which is very significant. This would create additional jobs, additional revenue for the government, additional revenue for consumer and businesses. It modernizes trade with our most important trading partners. Not going to speculate on what would happen if you dont pass it, because im highly encouraged that you will. I would like to share your enthusiasm. Question you received a question from mr. Williams of texas about the fate of localization and whether there should be a federal standard. Id like to ask you about india. I know that you were recently in india and weve read the press accounts about how india is trying to raise the bars. It relates to the data localization and frankly the restrictions on free trade as it relates to startups and other companies. Can you talk about what the barriers are for u. S. Companies operating in india and what effect that could have . My. Mnuchin again, in recent trip, we have had very specific conversations. Sure u. S. Make companies are treated fairly. We have no issues if countries want to have local data for regulatory purposes, they do that. Its the issue of illuminating data outside it eliminating data outside. I think as you know, were in a global economy. Were in a scenario where data transfers, that data is processed in different places. So this is a complicated issue that we continue to work on to make sure that our Financial Services companies are treated fairly. Not only Financial Services companies but also other companies that are operating in india as well . Sec. Mnuchin that is correct. Rep. Kustoff and treasury continues to work with the officials in india on that . Sec. Mnuchin we do. And were also working very closely with ustr because its a trade issue. Rep. Kustoff thank you, mr. Secretary. Weve talked about the benefits of the tax cuts and jobs act, which no doubt has been a tremendous benefit to our economy and to our folks who live in the eighth Congressional District of tennessee and across the country. One thing that we may not have gotten right in the tax cuts and jobs act is the quip as it relates to depreciation. I think thats a technical fix trying to resolve that. Can you talk about the effect of trying to resolve that in terms of depreciation from 39 to 15 years . Sec. Mnuchin so let me just say this is something that i hope this committee and others will help us with on a bipartisan basis. This was clearly a technical mistake. And what happened for retailers was due to a literally a technical mistake in the drafting, the amortization became longer as opposed to shorter. I think everybody acknowledges on a bipartisan basis this was a technical mistake. And this impacts an area of the economy which is retailers. Its a big part of the economy. Weve been trying to get this fixed. I would hope its something that Congress Next year will reconsider helping us work on. It was a simple mistake. Nobody is debating that. Rep. Kustoff from your standpoint in treasury, its something that should be resolved sooner rather than later or you would hope . Sec. Mnuchin it is our number 1, 2, and three technical fix request. Rep. Kustoff thank you. I yield back the balance of my time. Gentleman from tennessee yields back. Mr. Heck from washington is recognized for five minutes. Rep. Heck thank you, mr. Chairman. First i want to join with my friend from texas, mr. Williams, in expressing my appreciation for the role that treasury played in the International Insurance negotiations. Im also grateful that my friend across the aisle raised the issue of a tax cut and jobs act. Id like to ask you about it. Obviously, at the time, small technical fixes notwithstanding, and i am a cosponsor of that bill, i hope as well that we get to it, that we were promised that it would be a game changer. Its going to be a game changer for business. It was broadly held as something that would lead to increased Business Investment. It hasnt. Theres the chart. Thats the chart of the bureau of Economic Analysis revealing that weve basically had six quarters of a significantly downward trend of Business Investment and capital. Im going to ask you why you think that is and what it is you think we ought to do about it, especially given the promises that were made. But i want to say first of all why i care about this. I think its pretty clearly established that theres a close relationship between increased productivity and increased wages. And lets face it. The data is in. Weve been fairly stuck on wage growth for the better part of 30 years in this country. While its beginning to inch up, its not really material in that increase. Every upward trend is appreciated. But we still do not have wage growth. And presumably we do not have wage growth because we do not have increased productivity, presumably because we do not have increased Business Investment, which we were promised. So mr. Secretary, why not . And what should we do about it . Sec. Mnuchin well, first i kind i agree 100 with you on the impact of wage growth. That has been one of our priorities. I kind of disagree with you, i think it has been significant. I think that for the first time in the last ten years weve seen wages growing and growing at a level that is meaningful to taxpayers. I think we have also rep. Heck would you care to cite the data . Because it is not over consecutive quarters significantly outpaced Consumer Price index. This is coming on the heels of basically 30 years with flat line. Sec. Mnuchin i am happy to give you the charts but theres no question that wage growth has been increasing and inflation has been very low. So we are happy to get back to you the data. Rep. Heck the question is that downward arrow. We were promised an upward arrow. We havent gotten it. Sec. Mnuchin to be honest with you, i cant really read that chart. Other than i can read the capital spending. Rep. Heck do you see the blue arrow . Thats not good, sir. Sec. Mnuchin i got the blue arrow. Rep. Heck thats Business Investment. Sec. Mnuchin again, i dont know how youre calculating that business assessment. Rep. Heck im not. The bureau of labor statistics is. Sec. Mnuchin you have obviously picked a slide that is rep. Heck some people use facts and figures the way a drunk uses a lamppost. To lean on, not eliminate. Doneure you i have not that. This is the bureau of Economic Analysis data. It is six consecutive quarters. I have not in any way reshaped the bar graph or line or the data in any way. We are on a downward trend, even though we were promised that it as a consequence of the tax cut and jobs act, it would flower. We need it for increased productivity, for real increases in wages. Why havent we got it . You promised it to us. Sec. Mnuchin first of all, we are the only economy in the world that is showing continued growth. That is not coincidental. We are showing rep. Heck Economic Growth of 2 now . That is what you are bragging about . Revised 10 forecast . Sec. Mnuchin those numbers, if you would let me respond as opposed to screaming at me. Rep. Heck oh no, sir. If i am screaming at you you will know it. This is not screaming. Sec. Mnuchin those numbers were impacted partially by the boeing impact. Those numbers were partially impacted by the strikes and i would say theyve also been impacted by a significant slowdown in Global Growth. I think youre going to see growth quite significant in the pickup at the rest of the year and next year. So theres no question american taxpayers are seeing the benefit of tax cuts. Rep. Heck thank you, sir. The gentlemans time has expired. The gentleman from georgia mr. Loudermilk is recognized. Thank you, mr. Chairman, and mr. , thank you for being here. I want to thank you for directing treasury to put America First and standing strong for american interests during the recent International Insurance negotiations. I and i think you agree must be very cautious about imposing European Capital standards on u. S. Insurers. Im glad treasury has shown its official opposition. I want to thank you for that. My first question i would like to talk to you about, the association of registered agents and brokers. In the five years we have had narab, and has not been operational because the board of directors must be nominated by the president and confirmed by the senate and this has not been done. The last time you were here, we discussed that and you committed you would speak to the president about how important it was to get these nominations done. I wanted to followup and find out where are we on that process . Sec. Mnuchin weve put in recommendations and its going through the process and well follow up with you again as we have suggested. Rep. Loudermilk i appreciate that if you could stay on top of it. Its very timely and im concerned with timeliness right now of the senate because if we proceed with impeachment as it appears were doing, were about to shut down the senate for potentially two months or longer and not being able to get anything else done. So i appreciate that. Im also Ranking Member of the committees Artificial Intelligence task force. Earlier this year, we had a hearing regarding customers Digital Identity. The Task Force Chairman and i recently sent a letter to you asking to move forward with some of the recommendations of the 2018 fin tech report and just wanted to find out what action treasury has taken to work with the private sector on solutions to Digital Identity issues. Sec. Mnuchin i think as you pointed out, this is something that we identified early on. It is something we continue to work with the private sector. Its also something im very interested in because of the irs and from the government standpoint as well. Its something we look forward to continuing to work with you on. Its an important issue. Rep. Loudermilk i appreciate that. If you could keep us up on progress made, that would be very helpful as well. Also in 2017, fsoc formed the Digital Assets working group to explore issues surrounding blockchain technology. I applaud you for doing that. The one concern i have is state banking regulators have been excluded from the working group and doddfrank specifies that nonvoting members such as state banking regulators must not be excluded from fsoc activities. So i think its important that we have our stakeholders in the state involved. Do you know why state regulators have been excluded from the working group . Sec. Mnuchin i dont. Its not intentional. I dont remember whether we kind of whether they were excluded from the fsoc. If state regulators want to be part of it, we will absolutely accommodate them. Rep. Loudermilk i appreciate if you could keep us abreast of that. I also want to close out by thanking you for your part of this robust historic economy that we have. I see that we could even add another 68 billion into this robust economy if we could move forward with the usmca which i hope that very soon we could put the American People first and get forward with that. With that i yield back. The gentleman yields back. The gentlewoman from michigan is recognized for five minutes. Thank you for coming before our committee. Again, as you know, residents in my community have the third poorest Congressional District in the country. The economic recession devastated my district. We are still recovering. Not only detroit, but even the wayne county communities throughout my district. One of the things we did through doddfrank is created the Financial Stability and Oversight Council. That kind of oversight of shadow banks is going to be critical, too big to fail banks and so forth. Under your tenure so far, and i would love to hear your vision of what you think this counsel is supposed to do, because so far, under your tenure, secretary, you dropped the appeal of the District Courts decision, the metlife lawsuit. I think there is not one single nonbanking institution that is designated as too big to fail or what we call a systemically important Financial Institution. What is the direction were going in if were not doing any oversight . Doddfrank, the whole purpose was so we dont have another downturn economic recession that led to predatory practices by these big banks. Sec. Mnuchin first let me say i share your concerns and your issues and we are doing a lot on oversight. The committee is very focused. Rep. Tlaib but you dont have anybody to regulate. Sec. Mnuchin again, the fact that rep. Tlaib not one single institution, correct . Sec. Mnuchin that is a good thing. That is because the companies rep. Tlaib you think metlife, prudential, none of those are too big to fail . Sec. Mnuchin that is correct. Matter of fact, they are better capitalized. Ge capital was dedesignated prior to us coming here. Part of the benefit of the designation was it encouraged all these companies to derisk so they would not be designated and regulated by the fed. They have proper regulators. I want to be clear. The committees job is to bring all the regulators together to make sure the primary regulators are regulating these entities. Dismissing but by the case in metlife, i believe, we dont have that much authority now that weve walked away by saying they would fall under certain guidelines for oversight. Sec. Mnuchin actually, that is not the case at all. We have the same authorities weve always had. The only issue we talked about was including a cost benefit analysis which we think was required by law. I just want to be clear. I do not view it is good news to the economy that we dont have anything designated. And if we were sitting here with lots of entities designated, that would be a major concern of ours. Rep. Tlaib chairman, if i may, i would like to submit for the record strengthening the regulation and oversight of shadow banks to the record. Without objection. Rep. Tlaib last question. This is important for me to understand. Do you believe in socialism for corporations . Sec. Mnuchin do i believe in socialism for corporations . Rep. Tlaib socialism for corporations. I want to know. Sec. Mnuchin i do not believe in socialism for corporations. Rep. Tlaib thank you very much. I yield the rest of my time. Gentlewoman yields back. The gentleman from ohio mr. Gonzalez is recognized for 5 minutes. Thank you you, mr. Chair, and thank you mr. Secretary for being here. Ive been working with your staff on some World Bank Reform issues and just want to thank you for your collaboration on that. To me, i think when i look at the world bank, the number one issue is ensuring that china graduates from the loan program. Its unconscionable to me that our taxpayers should be subsidizing the chinese growth model. My understanding is today at this very moment or maybe its it has social Credit Scores on its own people and obviously whats going on in hong kong. Huge issue for me. I guess my first question is, just at a basic level, do you agree with the graduation objective . Do you believe that china should be made to graduate . Sec. Mnuchin i do. And then secondly as a follow up what is the best way to ensure that occurs . Right now it feels like we have our hands tied behind our back despite the fact we are the largest shareholder and a veto authority. It still feels like we have no ability to effect this will how can we do it . I dont think thats the case. As i mentioned this is something david worked on with the world bank when he worked for me. This was his number one issue. A es worked with china. China, i understand his cash flow positive this year, meeting theres more cash coming into the world bank than cash going out. I believe theyre going to be under a billion dollars this year and hes working towards them. By the way, in the china program, our executive board member has objected to the program and i think that gets read in and ultimately that will be on the world banks website. We do technically have veto power, right . Can you explain how that would ork . Sec. Mnuchin just to be clear, we dont have veto power over every single loan or veto power over a specific statement. We have veto power over capital allocations and other issues. Again, i have great confidence in david. He understands this issue. He is working with china on this issue. We all share the same objectives. I appreciate the progress. For me, even a dollar is too much for our taxpayers to be contributing to china. As you may know, ive also ecently introduced legislation to support the policy that you just articulated to transition china off bank lending. I appreciate your staffs feedback and look forward to further collaboration. Another section of my bill deals with debt transparency with the initiative. I see providing Debt Management as a vital piece of our national strategy. Can you talk about the current strategy and efforts to provide that management assistance at the world bank and imf to countries about the belt and road and what are we doing to get other allies on board . Mr. Mnuchin we have a lot of support at this issue. Both from the leadership of the world bank and the leadership of the imf as well as the g7. Everybody supports that ransparency. Its very important that china play by these common rules and we have had direct discussions with them. As conditions of certain imf programs, without going into specifics, weve demanded ransparency on exposure. Ep. Gonzalez thank you. I look forward to continuing to work with you on these issues. I think they are critically important. Shifting a bit to the volcker rule, i sent a letter about the importance of establishing a Regulatory Framework that romotes Investment Opportunities and startups of Small Businesses. I know the volker regulations are considering revisions. For me, prior to this job, i ran a Silicon Valley tech startup, easy to acquire capital in that industry. Less so where im from in northeast ohio and where i represent. Can you talk about your thoughts on this issue and how it would impact private capital flowing into communities outside of laces like Silicon Valley . Mr. Mnuchin i commented on this earlier but we are working on the regulators and i hope over the next three to six months we can address this. It will help Small Businesses. In no way is going to impact Systemic Risk. Rep. Gonzalez thank you. Thank you for your leadership. Yield back. The gentleman from illinois mr. Casten is recognized for five minutes. Rep. Casten thank you. I introduced hr5191 the climate hr5194 the Climate Change financial risk act to create a Climate Change risk subcommittee within fsoc and report annually on Systemic Risks of Climate Change to the financial ystem. The reasons for that, and im sure you know this, but to reiterate here, 2016 to 2018, average economic losses from natural disasters were 150 billion. I just returned from madrid. The goal of the Paris Agreement is to stay under 1. 5 degrees of dditional warming. We are not globally on that target. We are not even at two. Eight degrees of warming is within the possibility. At eight degrees, manhattan feels like qatar essentially. Its really unpleasant. At four degrees of warming, the global losses could hit 23 trillion per year. There are already predicted to be 311,000 homes that will be regularly inundated by 2045 and millions by the end of the century. This dwarves the financial crisis. Presumably, a lot of those homes will be subject to 30 year mortgages. By any analysis, that is systemically disastrous. Earlier you expressed doubt whether Bank Stress Tests were necessary. Have you consulted with any climate scientists in coming to that conclusion . Mr. Mnuchin so again, let me ust preface. I have expertise on a lot of issues. Climate is not one of them. Rep. Casten thats why im asking who you consulted with. Mr. Mnuchin i think there is a place and a role to study the climate issues and the impact on the economy. I dont think fsoc is that place and i think theres plenty of other areas. Rep. Casten if i could, does the office of Critical Infrastructure believe theres no Systemic Risk from the limate crisis . Youre not an expert in cyber terrorism either. But presumably you do mr. Mnuchin actually i have become an expert in cyber terrorism. I spent a lot of time on that because that is my primary responsibility. Rep. Casten i dont mean to criticize your expertise, but im saying there are Systemic Risks that the office of Critical Infrastructure has concluded. Have they concluded that Climate Change is not a Systemic Risk . Mr. Mnuchin i dont believe they have concluded that it is a Systemic Risk. I dont know in the negative if theyve concluded it the other way. Let me just comment. Outside of the United States, there are some areas where climate issues are very, very, very significant. I think the u. S. Has made a lot of progress on this. Rep. Casten no, we havent. We are not on a sustainable path. Let me throw some numbers. Likely sea level rise, we already know if we went to zero co2 tomorrow, we still have another two feet baked in. Realistically we probably have meters. At the likely sea level rises at the best analyses, there are 900 billion of u. S. Homes that are underwater by the end of the century. At current values, then they would be worth a lot less by the time they go underneath underwater. Has fsoc analyzed how that would impact the Financial System . Mr. Mnuchin not to my understanding. It hasnt. Rep. Casten the projected private investor losses globally is somewhere between 4. 2 rillion and 13. 8 trillion depending on the scenario. Has fsoc estimated the effect on systemic Financial Stability from those losses . Mr. Mnuchin again, as i commented earlier there is a place and role to analyze these. I think the issue is to make sure banks have proper disclosure. I dont believe this is a Systemic Risk that warrants fsoc review. But ill discuss it with the committee. Rep. Casten the concern and just as i think about these things, obviously none of us are rooting for this. But if i am an insurer and im looking at these risks out in the future, at some point, we have to get to the point where the policies are coming due and i will change my risk profiles. Im going to stop insuring certain sectors. Weve seen the maps of the country and where you wont want to live and where were going to have crop failures. Its impossible for me to see a scenario where those dont become Systemic Risks. Just before i left for paris i watched planes trains and automobiles with my daughters. Im reminded of the scene where they are driving down the wrong way and everyone says, you are going the wrong way. We are going the wrong way. We know were in the wrong lane. We know theres a couple trucks coming down the highway at s. If you dont think that fsoc should do it, i guess i respectfully disagree and thats why we introduced the bill. I think we need to look into these risks while we can swerve while we still have time. Thank you. Yield back. Gentlemens time is expired. Gentleman from tennessee, mr. Rose is recognized for five minutes. Ep. Rose thank you. Welcome secretary mnuchin. One of the defining tenets of our Insurance Industry is that one of the defining tenets of our interest industry is that it is state regulated. It is a streak the country and it is something we need to defend. Like so many of myde colleagues here today i want to thank you for your efforts to defend our statebased insurance Regulatory Regime for your close and collaborative work with the state Insurance Commissioners and for registering treasurys official opposition to the icf or International Capital standard in abu dhabi. Theyre still work to do a map of team usa to ensure foreign bureaucrats dont dictate the rules for the u. S. Insurance regulation so i appreciate your continued efforts on the icf and hope youll continue to engage with members of congress and the state Insurance Commissioners as we move forward. Since the i cf was adopted what are some of your main concerns with the current framework . Let me say im pleased to hear that there is bipartisan support on this issue. We do veryis much support the stateve regulatory mechanism for insurers. And we are concerned and weve expressed these concerns that some of, although but are not required to be adopted, that it could force the industry in a way that is detrimental to our leadership and our statebased regulators. Vice chair quarles said in his january 2019 remarks at the American Council of life insurers that the Federal Reserves held in block approach could strike a better balance between entity level and enterprisewide supervision ofio insuranceuc firms which would facilitateer the continued robustness of Product Availability here in the United States. I believe part of the intent kind developing this was that it could be deemed comparable to the icf. Mr. Secretary, are you familiar with the bba . Not completely but i will followup witht ce your office. Where a lot of people who are expert and have spent time on the focus on it. Thank you. Do you think that the bba based on what you know now that bba framework could eventually be recognized as an outcome equivalent approach to the icf and would be preferable in your opinion . Again i want to get back to you on that but i believe thats the case butut it want to get bk to you on that issue. Toli reiterate, i believe its important we as members of Congress Also continue to voice our bipartisan support for the statebased insurance system and so along those lines of what to thank my colleagues mr. Heck and mr. Budd for introducing the International Insurance standards act. Again, this congress which i was proud to cosponsor. Secretary, is or p anything else that you are aware of that we as members of congress should help the position on the icf . I think not at the moment. Youve been very supportive working with our office and we got a lot of bipartisan support as we went with team usa to represent these issues. Thank you. Transitioning over to other issues. I wanted to ask you about fsocs work on the transaction away from libel work as a reference rate. Libor is set to be phased out as Bank Reference rate by 2021 from the fsoc september minutes i understand libor is the underlying reference rate for approximately 200 trillion in financial contracts worldwide. I know this will likely cause a bit of disruption in our markets and the alternative reference rate committees preferred alternative to libor is the secured overnight enhancing rate. What makes this a suitable alternative . Well, think the most important issue is that we have a transition from all these loans and all the securities. The thing we like about soefr, this work predated me, is that its a very liquid market and cant be manipulated and its readily calculus. I met with banks yesterday. There may also be the different than the work libor loans and prime loans,fe there may be more of a credit oriented index that develops as well. This is something we are very focused on the transition. In the remaining seconds, when you transition from libor to sofer what sort of outreach is treasured and toos increase with stakeholders to theon transition increased . We have a huge group working on this as i mentioned, we met with ten other ceos and we continue to have outreach working on this. Thank you. I yield back. Gentlewoman from virginia, ms. Wexton is recognized for five minutes. Thank you, madam chair, and thank you, secretary mnuchin. Sites have you back with us today. T today. In september, the house passed the uighurs human rights policy act which is Bipartisan Legislation that was authored by senator rubio and cosponsored by 44 senators and 130 u. S. Representatives including many on this committee. This week, the house passed the intervention and global humanitarian unified response act or the uyghur act. Both these bills seek to hold officials in the Chinese Government and Commerce Party responsible for the gross violations of human rights in china, including the mass interment over 1 million uighurs as well as chinas intimidation of your citizens on american soil. The weaker act passed 407one. Would you recommend to President Trump that he sign these bills when they come across his desk . Im not going to make any comments publicly about what my recommendation will be to the president one way or another, but that doesnt mean im not recommending it. Because we are getting mixed signals from the white house officials and reporting is suggesting treasury, the Treasury Department and you in particular are responsible for blocking or slow walking efforts to chinese officials accountable. No, thats not accurate. Im going to read from an article in october 8, 2019, New York Times article whichco i would like to submit for the record. Without objection. Senior officials in the National Security council and in the state department have pushed for the use of the list to target Chinese Companies supplying Surveillance Technology to the security forces. Theyve also urged mr. Trump to approve sanctions that would penalize chinese officials and Companies Involved in abuses. The top american trade negotiators including treasury secretary Steven Mnuchin have cautioned against policies that would upset tradet talks. Are you saying that is inaccurate reporting . That is an accurate reporting and i think you know how we feel about the New York Times. But are you willing to sacrifice human rights abuses for the sake of trade talks ask it appears that way. Again let me just say im here to talk about Financial Stability but i will respond to your question. I very much and concerned about human rights issues all over the world. We administer magnitsky sanction all over the world unsanctioned. We have administered things in china as in other places but im not going to make any comments on confidential discussions i have with the president on these or other subjects. Related to that, back in april i joined a number of other members of congress and the senate in a letter addressed to you, secretaryem pompeo and secretary ross urging the administration to impose global magnitsky act sanctions on cuba policy leaders who are complicit in these gross violations and human rights abuses, including the socalled architect of the round of uighurs here we never received a response from treasure or from you. While i have you here, what is the status global magnitsky sanctions on other Senior Party Leaders in china . I thought state had responded for that letter on behalf of all of us. We can we will get back to you. I thought state respondent from all of us but as a general comment we dont, we dont make comments on future sanctions at all. Although i will tell you whatever we get letters, we take these things seriously. And that letter was sent in april so its more than six months ago. Weve got no response and theres i been no action by treasured. Again, if the letter was written to all three of us its common that when agents response if its an interagency issue. Its not common that we all respond. Again i believe thel state department did the state with the department respond to . Yes, but they did not respod and treasures behalf. The way we work on interagency issues is the primary agency thats responsible for the issue response. Me and get i wont comment on future sanctions other than to say that that article is knackered. I want to follow up on a question i asked you last time you were hereue about six months ago. When is the administration goinh to hold Mohammed Bin Salman responsible for ordering the brutal murder of journalist Jamal Khashoggi . Again i dont see what that has to do with Financial Stability and you are also making certain assumptions, butt i can tell you because i was the official who went over after secretary pompeo, and again we had very direct discussions about our concerns on these issues. Time has expired. The gentleman from indiana, victor hollingsworth, is recognized for five minutes. That afternoon. I appreciate you being and appreciate your continued efforts at the Treasury Department to ensure that we get to the Better Outcomes we always talked about for the American People, for the American Economy for american competitiveness around the world. In many of our dialogues your passion for the person topic. I do want ask about some of the public that mark structure picky that conversations and spoken publicly about it. I wanted to better understand where treasury is with regard to disseminating data in the treasury market. Thissu is something every other asset class for most of the assets that are traded you get both price and volume information after the fact, which has led to increased competitiveness, increase liquidity and also lower transaction costs associate with the market. Treasury has been looking into that for a while and recently said they would start disseminating much afterthefact volume data but were going to put out pricing data or volume data that we are very close to those traits. I was curious why the decision was made and are the for the steps that will be taken to release more data iran around transactions of the treasury market . Let me respond. This is a comp catered issue. So first let me just refuse treasury market is one of the most liquid market in the world. It has very small transaction costs and obviously it facilitatess our number one objective is to make d sure we o anything that is not detrimental. I totally understand and do stipulate to that is a well functioning market. We studied this carefully and trying to balance the disclosure issues and whether it really is going help or hurt the market. I will say as you look at some of these other markets and you look at the data, that is less liquidity and a lot of these other markets. Part of the reason why, ill acknowledge also has to do with the volcker rule. When you lookl at transaction cost, you have to look a transaction costs in the context of overall liquidity. Were happy to come and talk to about it but we want to make sure we get this right. If it were clear to us that releasing all theld data would create more liquidity and more transparency we would be doing it. We understand the do no harm philosophy. I stipulate to you that he seeo be a well functioning market. There havea been some blips alg the way, october 2014 notably. Its hard for me to imagine the potential harm from transparency in price and volume data. I understand you want to do no harm but its hard to understand what that are might be. Could you help me understand that . Again, i think there are times when weve gone back and look at the data as it relates to other markets. There are times when releasing the data hearts liquidity. I would also say another interrelated issues is the advent of electronic trading, and a larger and larger portion of thehe government market is fm people who virtually invest no capital but take advantage of sophisticated algorithms. I want to make sure the release of data, kind of, again actually is helping the market and not just creating arbitrage opportunities for people who want to do electronic daytrading. Totally agree. I dont want to be pejorative to those who are taking advantage of those small arbitrage opportunities because theyre helping to close the market in a real meaningful way. I dont want us to make a decision because we want to prevent somebody from the couple to take advantage of that and not providing the transparency the market may benefit from. I agree it is well functioning today, well functioning many, many days you want to ensure the transparency is an important parti of that Market Going Forward as you and im certain we share that passion. Sometimes hard for me to understand what harm might come on account of that and understand you guys a look at other markets and seen some adverse effects of liquidity. Its hard tolkien thing constant when you look at different markets, different asset classes. I respect the fact you have lots more people that i over traced to look at that. I will followup but it want to transition quick and talk about the Taxpayer First act that was signed into law july that include a provision a person must my question is going to come down to the law stipulates it to become effective on december 28, 2019. Theres been some guidance from the irs that that is for all transcripts for everything that is sold after december 28 by fannie and freddie and it may apply to those things that are before december 8 and a one to get clarity around that as quickly as possible because it is important to the function of the market. The time of the gentleman has expired. With that i yield back. The gentleman yields back. Gentlewoman from iowa ms. Axne is recognized for five minutes. Thank you, chairman and thank you, secretary mnuchin for being here again today. I know weve heard a lot of criticism about the 2017 tax cuts as primarily benefiting the richest americans. I absolutely think those are accurate but thats not what it want to focus on. What im interested in looking at is how the irs is treating the wealthy. The wall street journal reported irses audit rates for people making more than 10 million a year have dropped more than 80 in just the last fourr is. Why are they being looked at so much less frequently . Thats actually not the case, and im working with the irs to release the data, because one of the issues is the way the irs releases the data now is on closed cases, not open cases. But i can assure you when i saw that article i had the same concern and iat called up the commission and i said we should be doing more of these audits, not less. We are going to release this data in a transparent way to assure you that the people who are making the most money are getting high audit rates. Thatses fantastic to hear, o speeded by the way, if you want to give us more money for enforcement im happy to take it. We will absolutely talk with you about that. I think thats ac. Great idea. Are you telling me that the number isg much lower that is being audited . No, its higher. As a matter fact, thank you. Again, this is the problem of the dating you guys just giving. The way we report the data is on closed audits. These audits take obviously a long period of time. Im happy to come back and we were release when i get the irs to release publicly, the way i think we should look at the data is for each tax year what percentage of income group aredi we auditing, not what percentage has closed in that year. That would be great if you could get that over to this committee or too my office. Ite would really appreciate tha. As well as if you could make sure that it tells us what percent is being currently being audited. What people want to understand is not what percentage of theis audits were close in the year. In a tax year what percentage of those people will be audited, whether it was closed in 18, 19, 20. We will get to the data. Yes. I can assure you i the same view when iew saw it. Listen, im glad you did that. My concern is i want to make sure those who are the wealthiest among us in this country are being audited at the same rate that other folks are, and from what we can see now which is the data were able to have accesss to come it shows there being audited at a much lower rate. A if you can provide us with information that differs from that i would love to see that. I appreciate that. The next thing i want to talk about is, back to the 2017 tax law, included to t make provisis intended to limit the use of tax havens for multinational corporationsit. The irss own data shows in 2016 u. S. Corporations booked more than 33 billion of profits in bermuda despite having only 384 employees there. For anyone trying to do that math, this is high productivity, thats more than 85 million per employee. My goodness. I know that date is some 2016, before the tax cuts were passed but im using it because its the last information we have. My question is has a been a significant reduction in profits booked in bermuda in 2017 or 2018 data . I dont have that data. We are happy to look into it and get back to you, but i will tell you part of the reason we moved from a a global tax system to a territorial system with the guilty tax was to basically prevent people from living to tax havens and make sure that the u. S. Taxed companies fairly. Great. Im so glad to hear that because from what we are seeing now and in the past, thats not happening. I love to see if were making improvement on that. I want to make sure we limit corporations use of tax havens. We need all that money here in the United States so we can address things like infrastructure and things people in this country. What suggestions do you have for continuing to work on curbing the use of tax havens . Again, there were many regulations we b put out to the last two years on the tax act that limit these types of things again we are happy to follow up with you specifically on some of them. The European Union has actually had success in reducing tax havens simply by requiring Public Disclosure of country by country income. Is that something you think mightlp help . Not necessarily, although i will say a lot of the Information Exchange with the europeans is helpful in looking at tax havens. Thank you. The gentlelady yields back. The gentlewoman from new york missed a cause you cortes is recognized for fibers. Thank you for coming inre today. Ms. Cause you cortes. I look at the fsoc meetings this year at a didnt see any mention of Student Loans. The total outstanding Student Loan Debt burden is now at over 1. 5 trillion. Young people are waiting untilec there 30 and 42 actually, my home. You believe Student Loan Debt poses a a major risk to our Financial Stability . I share your concern on Student Loans, although i dont think it is a major risk to Financial Stability. But i can assure youil on an interagency basis when working with the department of education and the nec. Because i think in many cases people have taken up Student Loans that have created certain issues for them. So Student Loans are a large part of the debt, and that something we are carefully studying. So it is awe problem but nota major risk to Financial Stability . I just want to run through a few different topics. Turningdi back to fsoc meetingsi can see mention of Climate Change. Do you believe Climate Change poses a risk to our economy . You may have missedo my, is before on this. Apologies. I acknowledge that Climate Change should bee discussed in certain areas. Fsoc isit not an area where i believe it should be discussed, but based on previous discussions i said i would raise at with the committee. Okay. Lets talk about leverage lindy. There was discussion of it earlier. Do you see similarities that helped trigger the 2008 financial crisis . Not at all. Weve talked about student debt. What about medical debt . We spent about 3. 3 trillion on health care last year, more than 10,000 per person, thats up almost 20 over the last five years. Do you believe that medical debt poses a significant risk to our Financial System . Again, i would say this is not an fsok issue were looking at medical expenses and were looking at Different Things, that causes economic issues. And what about housing, Mortgage Origination from nonbank lenders, so im assuming you at least degree there are some problems in the housing markets that could pose threats to the Financial System in that respect . Yes, i commented earlier were monitoring the amount of the Mortgage Market thats moved out of the Banking System and particularly focused on nonbank servicers who dont have liquidity and we hope to work on this committee among others with housing reform. What percent of mortgages were originated by nonbanks this year . I think its roughly 50 . Its a 50 so half of mortgages in america are originated by nonbanks that puts them outside of the issue scope of regulation, is that correct . No, not outside the usual scope of regulation at all. Its outside of the banks so its something that were looking at carefully. Again, a lot of those loans are sold to fannie or freddie or fha and were looking at regulators. And what nationwide home sales 6 nationwide and down 15 in large metropolitan areas, the fact that this market seems to be slowing down dos that pose risk to the Financial System . Not to the Financial System, but Affordable Housing is something that were looking at greater access, not an fsoc issue, but and student loan does not pose race to Financial Stability, Climate Change potentially, leveraged lending does not. Medical debt does not, Mortgage Origination does not. What are some of the largest risks to our economy right now . Again the Financial System. The Financial System. So, again, i would i dont know if youve had a chance to read the report, but, again, if you just look at and we highlight Cyber Security, structural issues, alternative reference rates, risk to credit expansion, we specifically talk about nonBank Mortgage origination, financial innovation, housing, finance and. Do you see that theres kind of a decoupling here with the quality of life from what were seeing in terms of measurements of Financial Stability . No, im not making that connection, but im happy to explore that. Okay. Thank you very much. The gentleman from kentucky, mr. Barr, is recognized for five minutes. Thank you, madam chairwoman and mr. Secretary, youre almost at the end of the line here. I was compelled to come back and take my five minutes. I wasnt originally, but i had to ask you to elaborate a little bit more on your dialog with my friend, mr. Heck from washington on Capital Expenditures and tax cuts. My views on this having spoken to many manufacturers and ag businesses in central and Eastern Kentucky is that theres no doubt that the expensing previsions and bonus depreciation, accelerated Business Investment. Improved productivity. In fact, most of the ceos and Small Business owners said that the tax cuts were huge in terms of pulling Forward Investment that they needed to do to enhance the productivity of their businesses, large and Small Businesses told me that and its made their employees more productive, and so, my theory is, when you look at mr. Hecks chart of declining cap x, its not it certainly wasnt caused by tax cuts. Tax cuts may have pulled forward a lot of Capital Expenditures and Business Investment, but when most private sector people tell me is that the decline in Capital Expenditures is not attributable to anything other than trade uncertainty, and also, they note, many of them, you know, we would continue to invest in capital and equipment purchases and other items that would make their businesses more, more efficient and more productive if the democrats would stop opposing making those provisions permanent in the tax code. The uncertainty of not having permanency with bonus depreciation and expensing provisions is maybe an impediment for continued cap x. So i want your thought on that feedback im getting back from the private sector and cap x. And i want to look at a pause in traditional Business Investment. First of all, thank you for coming back. Theres no question from the companies that we see visiting all over the country that there had been major Capital Expenditures as a result of the tax cut. And as you said, this incentivized companies because they get automatic expensing which i would just comment on when people ask will the tax cuts pay for themselves and this has to be calculated over a 10year period of time because this was designed to stimulate investment and in lead to expensing in year one which will recoup in year, 5, 6, 7, 8, 9, and 10. As relates to trade i would say there are a lot of people waiting on the sidelines because of usmca. Im hopeful that congress will pass usmca between now and the end of the year, its the single most important trading relationship that we have and theres no question that passing it will add Something Like 50 basis points to gdp and will increase Capital Expenditures. Agree and reclaiming my time. Usmca is why we dont have that line continuing to grow up in terms of Capital Expenditures, so the best thing we can do in a bipartisan way in this congress is to pass the usmca and i would argue that thats going to give you and ambassador lighthizer momentum with china and the eu if we can lock in usmca, so i encourage my colleagues on the other side of the aisle in joining us in this for all those reasons. In my remaining time i want to talk about leverage lend, lots of hand wringing on the other side about the growth in corporate debt and i wanted to ask your views on clos in particular as nonbank investor vehicles taking some of this leverage out of banks, federally insured depository institutions into these clo vehicles and the extent to which clos as nonmark to market, longterm vehicles provide liquidity and could provide liquidity precisely in the time where we need it in an economic down turn and to that extent, offer the Financial System a tool, a Financial Stability tool and that if we overreacted to leverage lending, particularly if we overreacted to clos, that that could actually have a destabilizing effect and limit liquidity right when we need it. Well, i would agree with you and i would even go one step further, which is a significant problem of the financial crisis, there was too much high risk mortgages in the Banking System. So the good news is, the higher risk leverage lending has moved out of the Banking System into permanent capital vehicles. Thank you, yield back. The gentleman from texas, mr. Green, who is also the chair for the subcommittee on oversight and investigation, is recognized for five minutes. Thank you, madam chair and thank you for your appearance, mr. Secretary. Mr. Secretary, im on a mission of mercy. Here is why. In 2008 we had 215 Minority Banks, 2018 149. Of the 149, 23 of said to be africanamerican banks, meaning 50 , more than 50 africanamerican ownership. And it seems, according to the i c. P. A. , the independent Community Bankers of america, this is dated october 22nd, 2019, these 23 africanamericanowned banks have assets of 5 billion. Total assets. 5 billion. Im on a mission of mercy because usually these banks are in neighborhoods wherein the people are not high income earners. Theyre underserved neighborhoods. Theyre economically distressed neighborhoods, and they are neighborhoods in need of banks, but these banks need additional capital. So when you mention your small bank Mentorship Program, it really made my heart warm. I really would hike to know how this program will help me with my mission of mercy to help capitalize these small banks that i no longer Call Community banks, i call them neighborhood banks. Community banks, 10 billion. These neighborhood banks, if they can get to a billion, there would be a great celebration. Can you please share some intelligence on the topic . Oh, i share your concern. I mean, its really terrible that these numbers have dropped as much as they have and these are, as you said, to some communities that really, really need these banks, so, the Protege Program is a step in the right direction of helping these banks, but we need to work with the regulators, we need to work with private capital in making sure that these banks have access to capital and can grow and we turn these numbers around the other direction. How far along are you with the program . My understanding is that you have a departure date that is certain in your mind. Im not sure its been published, but will this become viable before you leave . I wasnt planning on going anywhere anytime quickly, he so, yes. Okay, ive heard rumors, im sorry, that you might be leaving. Leaving when . I said id stay through the second term. Through the second term . My apologies. What rumors have you heard that youre leaving . Youre talking to a guy who is proud to apologize. I apologize. Im glad to know youll be here. So the question becomes how can we collaborate and Work Together in a positive way to effect positively these africanamerican banks . And im saying africanamerican because theyre at the lower end of the totem pole. No other community, no other banks, when you take the aggregates are in this kind of dire circumstance. I really want to work to get some help ments i want to ask my staff to schedule a meeting to get together with you, maybe we can try to do it in the beginning of january and figure out how we can Work Together. I absolutely assure you that i will look forward to this meeting and i would just add one additional thing about these banks, i have many of them in my district and they take pride in what they do. They have good personnel, but they dont have all of the technology that other institutions are blessed to have and they dont have, obviously, the clientele, but theres a willingness to grow and to work with larger banks. This Protege Program, pairing Smaller Banks with larger banks, can reap some good benefits if its done appropriately and properly. So im eager to hear more about how we can do this pairing and to work with some of the banks, these small africanamerican banks. Thank you, and i yield back. Thank you. The gentleman from missouri, mr. Cleaver, who is also the chair for National Security, International Development and Monetary Policy, is recognized for five minutes. Thank you, madam chair. Mr. Secretary, thank you for being here. And i appreciate the response, your response to my letter in which i discussed the whole issue surrounding the rise of White Supremacy and the el paso attack specifically. And i dont think theres much question that that attack was motivated by White Nationalism and in my letter, i talked about the Treasury Departments ability or the tools you had available to challenge and hopefully even curb the rise of these style acts of white terrorists, White Nationalist terrorists. And so, in your letter you talked about the fact that you shared my concern over the racially and ethnically motivated violent extremism, and then said you would use all the tools available. But you also said that, you know, you did not want to comment on any investigation, which i understand and appreciate. What i would like to know, however, is, well, based on what the fbi director said, which is, and i quote, he said a majority of the domestic terrorism cases invested are motivated by some version of what you might call white spremmist violence. And 40 of the domestic attacks were racially motivated. Im one of the victims myself, as my Congressional Office was fire bombed, but the gentleman was caught and so thats i dont need any help there, but i do to that want to see where you are in terms of trying to help curtail financing of these criminal networks. Now, im not asking you about what happened in el paso. Im asking you about in general, the criminal networks that i think all of our intelligence, counter intel against units are saying is out there. And is there something going on in treasury where those networks are being targeted . Let me just say, i didnt realize your office had been attacked. Thats just a horrible situation and any of these attacks are just despicable. As it relates to treasurys role, insen plays a significant role in working with all of Law Enforcement. When i was a banker and sent in all of these, i wondered if they went into nowhere land. And i can tell you these activities and us being able to follow the money is very important in us being able to fight all of these different activities. But so is there a unit in treasury that is actually following the money . There is, so, theres two units. Theres fin sen and theyre the ones who take in the data and they have huge analytic that works with all of Law Enforcement and the other. Our tfi area is more domestically and less internationally, but the fact that there are domestic issues we work with Law Enforcement as well. All right. Madam chair, thank you. I yield back. Thank you very much. Id like to thank the secretary for his time today. Without objection all members will have five legislative days within which to submit additional written questions to the chair which will be forwarded to the secretary for his response. I ask the secretary to please respond as promptly as youre able. Okay. Im going to interrupt the closing we have a hard stop at 1 00 if youll take your seat we think we can get you in in five minutes. Excuse me, mr. Secretary for the inconvenience. Not at all. Were going to try to get this done so we can honor your hard stop. The gentle lady from california miss porter is recognized for five minutes. Thank you, mr. Secretary, i appreciate your willingness to stay and be sure to be done in four minutes and 56 seconds. In june 2017 they issued a report on banking regulation which suggested that congress raised 50 billion threshold above which u. S. Banks are subject to stricter oversight that congress ought to do the same for foreign mega banks. Earlier this year the fed followed that treasury recommendation and massive deregulated foreign mega banks and that was an item on a wish list that you published in 2017. Theres a lot that concerns me about that, but the most glaring is Deutsche Bank, im sure youre familiar with very familiar with Deutsche Bank. They would now only need to submit their living will once every six years and this is the same Deutsche Bank within the last six years had a surprise, 3 billion quarterly loss, i dont know how you lose, 3 billion and not see that coming. Has failed its stress test in three of the last four years, was fined for a trading scandal involving laundering money for russia oligarchs and violated u. S. Sanction laws against iran, libya, syria and the sud sudan. Why are you advocating, why did you advocate to deregulate one of the worst corporate recitivsts operating in the u. S. Banking system particularly when its not even a u. S. Bank . Well, let me just first say, i share many of your concerns about Deutsche Bank. I obviously cant comment on any of the specifics because from a regulatory standpoint it would be inappropriate for me to comment specifically on Deutsche Bank, but i share many of your concerns and particularly the sanctions evasion is something that we will not tolerate by anybody domestic or internationally. I think the issue, so im going to answer this generically, not as relates to Deutsche Bank, the question is, the banks will be regulated, so the u. S. Subsidiaries and the way that weve changed the structure, theres Intermediary Holding companies, so that the foreign subs that are effectively u. S. Institutions, we can look at the risk at that level. I understand, mr. I understand the subtheory foreign relationship. I dont understand why when we would do something thats deregulating one of the worst actors in the marketplace and particularly when its a foreign bank operate on our soil and the stability of our market. I had theres a standard in capitalism. If you share my concern of Deutsche Bank, this gives us one less tool. How many people work on the fsoc, Financial Stability council. The way that fsoc works, there are people who directly work under fsoc and those im asking about the direct number. Well, the direct number, if you add up, theres hundreds of people if you add up the different agencies. No, i mean, people whose sole job is to work at fsoc. Theres a small group within treasury. How many. The office of Financial Research which weve cut significantly because we thought those resources werent being used appropriately. Because Financial Research isnt valuable . Again, we didnt think that was the best use of taxpayer money, so, it was really a function of, we felt that the the resources within the different agencies, which are quite ample, and quite significant that are dedicated to this. But so i just want to be clear, how many people worked at fsoc and only at fsoc . Is it secret . Again, we probably have when you say at fsoc, are you referring within the Treasury Department that are since youre the secretary of the treasury, lets start there. Again, we probably have, you know, about 10 people that are directly in the treasury work on that, but we probably have 50 people within treasury. Does anybody work just for fsoc . Yeah, theres a small number. How many, sir . Again, its roughly its slightly less than a dozen people. Less than a dozen. Yeah. Do you know what the maximum number was at its height . Again, comparing this to the middle of tarp, okay, in the middle of the financial era, when, by the way there werent thank you very much. Let me start over again, id like to thank the secretary for his time today, without objection all members will have five legislative days within which to submit additional written questions to the chair which will be forwarded to the secretary for his response. I ask the secretary to please respond as promptly as youre able without objection all members will have five legislative days with which to submit extraneous material for inclusion in the record. Thank you very much, this hearing is adjourned. Thank you very much. [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] [inaudible conversations] this sunday, book tv features three new nonfiction books, at 2 p. M. Eastern, law professor Alan Dershowitz discusses how they should be handled in the book guilt by accusation, i dont want it to go away, i want to disprove it categorically and i wrote the book and i have the documents, i have the fbi interview, the emails she tried to suppress, the tape recordings of her lawyer, is nobody reading this book could come away with any doubt whatsoever that this woman made up this story completely out of that i never met her out of her own mouth, i never met her. Then at 7 15 p. M. Eastern, inner had latest book the truth will set you free, but first it will piss you off, Gloria Steinham has her career through essays. I think its to see what came before because now the me too Movement Thanks to the technology and the web is now all over the world, but its a process and now it is a majority consciousness. And at 9 p. M. Eastern on after words. University of maryland, Baltimore County president , on his book the empowered
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