Transcripts For CSPAN3 Hearing On Financial Stability Oversi

Live coverage starting shortly right here on cspan3. And we will let you know later at 1 00 eastern time, live coverage of remarks by the new secretary of the smithsonian institution. He will talk about his plans for the smithsonian museums at the National Press club. Watch that here live on cspan3. Tonight at 6 30, the World Affairs council will hear from pakistans ambassador to the United States on relations between the u. S. And pakistan, security and its defenses, live at 6 30 here on cspan3. While were waiting for the Financial Stability for this hearing on Financial Stability to begin, we will let you know on capitol hill also the houseworking on the visa waiver bill. Getting under way on cspan. The senate starting its day voting at 11 30 to advance a replacement for the no child left behind law. Live this morning here on cspan3, the House Financial Services Committee Hearing from some members of the Financial Stability Oversight Council, that was a council created in 2010 because of the doddfrank law. We will hear from the securities and Exchange Commission chair Mary Jo White and also the director of the Consumer Financial protection board, Richard Cordray. The chair is authorized to declare a recess of the committee at any time. This hearing is entitled oversight of the Financial Stability Oversight Council. Today we have eight of the ten voting members as witnesses today. Secretary lou has testified according to statute earlier in the year and chair yellen has regrettably declined to give testimony today. I recognize myself for three minutes to give an opening statement. Financial regulators possessed every Regulatory Power to prevent the 2008 financial crisis but failed to do so. Yet washington rewarded them with vast new sweeping powers over our lives and our economy. Nowhere is that more effort than in the doddfrank act whose members, save two, sit before us today. Its one of the most powerful federal entities to exist. Unfortunately, also one of the legal transparent and least accountable as well. First the councils power is concentrated in the hands of one mril cal party, the one that controls the white house. All but one member is the head of an agency but interestingly the agencies are not members thus denying bipartisan representation. The structure clearly injects partisan politics into the regulatory process. It erodes Agency Independence and harms accountability. The budget is not suggest to congressional approval removing another check and balance to its immense power. It has earned bipartisan condemnation for lack of transparency. Twothirds of the proceedings are conducted in private. Minutes are devote of any useful substantive information on what was discussed. The ceo of the better market said, quote, the proceedings make the poll it bureau look open by comparison. At the few open meetings they have, they snap their fingers and its over. They are all scripted. They treat their information as if it were state secrets, unquote. Of all the councils activities none generates more controversy than designation of nonbank instituti institutions. Designation anoints institutions is too big to fail meaning todays designations are tomorrows taxpayer funded bailouts. Designation ominously grants the Federal Reserve near defactor Management Authority over such institutions, thus allowing hung swaths of of the economy to be controlled by the federal government. Members of the council can raise the prospect of a designation and eliminate entrepreneurial risk taking, innovation and growth from our economy. As a result, americans may find themselves pay are nothing to ensure their homes and families. Investors who relied on mutual funds to save for their childrens education or retirement wim find they have earned less. They are charged with identifying emerging threats to our Financial Stability but refuses to look in the mirror. In its latest report, it omits any references to specific Government Policies or agencies as helping caused the Systemic Risk it identifies. Greater risk taking across the Financial System is encouraged by low yield environment the council reports. Yet they refuse to identify the feds loose monetary policy. They never acknowledge that doddfranks rule has reduced lily quiddity. It fails to mention that doddfrank amplifies the threat by empow iring the council to designate certain firms as too big to fail. It tip phis not only the regulatory system but the unfair washington system that americans have come to fear and loath, powerful governmented aminute straighters, secretive government meetings, arbitrary rules and unchecked power to punish are reward. Oversight is paramount. The chair now recognizes the gentleman from new jersey, the chairman of our Capital Markets committee, mr. Garrett. I thank all of our witnesses here today. I guess all of our witnesses you have gotten to know each other pretty well, because you meet regularly in closed door sessions where the public is not allowed to basically discuss to fundamentally change the u. S. Economy. I thought i would take this minute to introduce ourselves to you. Were the u. S. Congress. We were created by article one of the u. S. Constitution. Were the ones who are actually elected representatives of the american public. And were the ones who send you all those pesky letters that you all routinely ignore. I know you are probably confused by this setting that the public is here, that theres tv cameras here, so this is probably unusual for you. But this is what we do. Were open to the american public. We are transparent. 57bd we are before the american public. So if theres one thing that you take away today, and thats the way you run your hearings, and thats the way conduct yourselves, you need to become more like us, more transparent, more open to the american public, more showing what your agencies are doing and adopt these policies so you are no longer working behind closed doors and in secret. With that, i yield back. The chair now recognizes the Ranking Member for five minutes. Thank you, mr. Chairman. Thank you to the distinguished members of the council for joining us for this hearing. We gather today to examine the activities of the Financial Stability Oversight Council which sense the passage of the doddfrank act has fulfilled its mandate to monitor and respond to the types of Systemic Risk that nearly brought our economy to its knees in 2008. This important work cuts across every corner of our banking, Capital Markets, housing and insurance sectors. Which is why congress specifically designed the council to draw up on all of the expertise of the witnesses here before us today. Unfortunately, many of my colleagues on the other side of the aisle seem to have caught a case of amnesia about this important mandate. Indeed, it was only seven short years ago that our economy lost nearly 16 trillion in household wealth, 13 trillion in Economic Growth and 9 million jobs. This was because our regulators were too often caught in silos not communicating with one another and not considering gaps between their agencies our interconnectedness within the Financial Sector. Even worse, we saw too many cases where regulators were captured by the very entities they were meant to police. Many of these lessons appear to be forgotten, as we have seen with recent markups as well as attempts to have poison pill riders, some opponents of doddfrank are focused on dismantling wall street reform by attacking core elements like the Consumer Financial protection bureau. These attempts to roll back dadfrank started the minute this reform was signed into law and make no mistake, these attempts continue today even as our economy has experienced aid remarkable rebound with six to nine straight months of positive job numbers, gdp growth and a Housing Market where sustainable access to credit continues to expand. All of which are signs pointing to the sort of stability and growth that the law was designed to promote. It has contributed to this growth and stability by convening the ten component regulatory agencies for periodic information sharing about emerging risk and reporting on those risks to the public. Further, the council has now designated four institutions for enhanced supervision by the Federal Reserve. This designation will ensure that Companies Like aig never again are able to engage in risky, unregulated activity that could threaten the entire global economy. And far from the talking points of some members on the opposite side of the aisle, this enhanced oversight is now causing some large Nonbank Financial Companies to consider whether simplifying their structures and breaking themselves up might provide better value to their shareholde shareholders. Im also encouraged that the Money Market Fund industry is now less susceptible to bank lack runs as a result of the pressure it brought to overcome gridlock at the securities and Exchange Commission. Finally, i appreciate that the council has made an effort to conduct this work in a manner that is responsive to feedback from congress and outside stakeholders. With this announcement in february, they took the step of voluntarily agreeing to certain due process and transparency measures that will further serve to improve their operations. This type of dialogue and openness to feedback should be applauded. As we hear from the voting members of the council today, i will be interested to learn more about their interagency collaboration and their work to address emerging threats again. This work is central to preventing the types of contagion and risk that nearly crashed wall street. Thank you. I yield back the balance of my time. The chair now recognizes the gentleman from missouri, chairman of the housing and insurance subcommittee for one minute. Thank you, mr. Chairman. An secretive structure that does not reflect the reality of the u. S. Financial system can have consequences for businesses and the American People. This is particularly true of the banks that have been deemed purely on asset size. On the nonbank side its with the overenforcement. It should alarm all americans, judging by what we know of the staff hours spent on nonbank analysis, which we will get into in the question and answer period that i have, its clear to me that these deg iz nations and the lack of a clear path for dedesignation is a Federal Reserve driven effort to expand governments power and influence. Its time to force more transparency, to require pragmatic regulation and to curb the scene crippling our institutions and their customers. I yield back. The gentleman yields back. Today we welcome the testimony of the honorable Mary Jo White, chair of the securities and Exchange Commission. Timothy massid, chairman of the commodities futures trading commission, worry woodall, debbie matz, National Credit Union Administration and especially warm welcome to our former colleague mel watt, director of the federal Housing Finance agency, martin gro groomberg, Richard Cordray and last but not least, thomas curry, controller of the currency. Since all of our witnesses have previously testified before congress, i believe they need no further introduction. Without objection, your written statement will be made part of the record by agreement with the Ranking Member. Each of you will be recognized for three minutes to give an oral presentation of your testimony. Chair white, you are now recognized. Thank you. Thank you for inviting me to testify regarding the Financial Stability Oversight Council. As you know, the doddfrank act established the council to provide comprehensive monitoring of the stability of our nations Financial System. It also provides a formal forum for coordination among the various financial regulators, assisting in bringing about the kind of collaborative, sharing of information and concerns that in my view is very important to safeguarding the u. S. Financial system. As one of two Capital Market regulators on the council, the perspective that i and the scc staff bring to the council is important in particular the secs Historical Mission of protecting investors, maintaining fair, ordinarily and efficient markets and facilitating Capital Formation necessarily gives the sec unique insight into many areas in which the council is focused, such as the potential Financial Stability risks of asset mgsment ak receiveties and products, the ongoing changes to Market Structure and the role of central counselter parties. It helps to ensure that relevant expertise is brought to bear on these important suggests. With respect to designations of any Nonbank Financial Companies as systemically important, i believe its important to be data driven and conduct analysis throughout the process. The council is also focused on enhancing its process and the transparency of its functions, which i consider to be quite important. Toward that end, as the Ranking Member indicated, in february of this year, the Council Unanimously adopted changes to the designation process, including increased and earlier engagement with companies under review, increased public transparency concerning the designation factors and an opportunity for designated firms to meet with Council Staff in connection with the annual review of their designations. I look forward to our continued study of possible further enhancements and agree with the observation that the council is a relatively new organization and should continuously study ways to optimize its functioning. Thank you again for the opportunity to testify today. I would be pleased to answer your questions. Chairman massid, you are now recognized. Thank you. I appreciate the invitation to testify today. The cftc overseed the u. S. Derivatives market. Although most americans do not participate, they are vital to our economy, affecting prices we pay for food, energy and other goods and services. For the markets to work well, regulation is essential. We learned that in 2 0e8 8 when a lack of oversight led to a buildup of excessive ris that can contributes to the worst global crisis. Today i would like to highlight a few of the cftcs priorities that are particularly relevant. First is the implementation for overthe counter swaps. A number of financial regulators have responsibilities in this area. It provides a useful way to communicate. Second area is making sure clearinghouses are strong and resilient. We are the primary supervisor of clearinghouses in the Derivatives Market, we Work Together with the Federal Reserve, fdic and sec on these important issues. It has taken many actions to strengthen clearinghouse resilience, but theres more work to do in this area. Another priority is strong resilient markets. Following the volatility in the treasury market last year, it was a forum to share information. Shortly after the events, staff provided a preliminary analysis of what happened in the futures markets to the council and subsequently we worked with other members to prepare a detailed report analyzing what happened. Together, we continue to look at these issues pertaining to the evolution and oversight of these markets. In addition, Cyber Security is one of our agencys Top Priorities and one of the greatest risks to our Financial System. Here again, it is an Important Role in facilitating cooperation. Another area of focus for the cftc thats important to fsoc is the oversight of benchmarks. Integrity is critical and has been a priority in our enforcement efforts. One of the most valuable functions of the fsoc is to bring together agencies and regulators responsible for oversight of our Financial Institutions and markets. I believe doing so better positions us to identify and address potential threats to Financial Stability and better serve the American People. Thank you and i look forward to your questions. Mr. Woodall, you are now recogniz