Transcripts For CSPAN3 Key Capitol Hill Hearings 20151212

First, this deal will have no impact in the u. S. Business and, therefore, no impact on the amount of supplies procured today. In hops we purchased 8 of the hops in the u. S. We manufactured some but in the open market we purchased 12 of the cans available in the marketplace. We placed 25 of the barley available in the marketplace and all those figures will remain the same pre and post transaction. Bottles, we purchased 27 of whats out there. So thats all those numbers will remain the same and no impact because this transaction is about the rest of the world. Thanks, mr. Chairman. Thank you and Ranking Member klobuchar for having this hearing on a very profoundly important topic. I want to thank our witnesses for being here today, all of you with diverse and different viewpoints. Mr. Brito, thank you for making the trip from connecticut today. We welcome you and thank you for your involvement in our community in connecticut. And i want to say that im a nondrinker, so i have to disclose that fact right at the outset although our four children at various points may have imbibed and i have visited a number of our Brewery Companies and have hosted here in washington, d. C. , a number of others, two roads brewing company, stony creek brewery. In fact, im going to ask, if theres no objection, to enter the list of connecticut brewers which is extensive into the record because im very proud of them. Let me be very blunt. What weve seen over the past years is a trend toward mammoth beer behemoths in our market, and the result has not been a happy one for many consumers as you remarked, dr. Moss, what weve seen as consumers is higher prices. Whatever the complex analyses of the market and the legal issues through the eyes of consumers the result has been higher prices. These mega mergers may have been good for shareholders but not so much for beer drinkers. I think we need to be very careful here and to regard with a high degree of skepticism the kind of conventional divestiture that is proposed as a remedy and i would urge the department of justice to think beyond the divestiture that has been proposed to other safeguards for consumers. Because i think this merger has tremendous ramifications for consumers here despite the representations and i take into good faith there will be no impact on the u. S. Market. Maybe not on day one but on day two and three and year two and three the ramifications could be huge, and weve seen this movie before. In the Airline Industry to take one and it may not end all that happily for consumers. So let me just be very direct. Youve heard mr. Purser say that what hes looking at and what im quoting almost directly that there be no termination of independent distributors. Will you commit to this committee that little be no termination. This transaction is not about the u. S. , its about the rest of the world. Nothing that relates to the transaction, to this transaction will impact any distributor. And i dont mean to be impolite but i take that as a there will be no termination of any distributor and no renegotiation that will end contracts. Is that correct . There will be no such thing. Abi intends to own, as you said in your testimony, no more than 10 of its distribution. Can you commit to maintaining no more than 10 . Thats correct. With our wholesalers, our investors, our stakeholders in general, around 10 and today, by the way, senator, if i could expand a little bit, we are between 7 and 8 . We said 10 . It could be up to 12 . That i can commit. 11 or 12 is different than 7 or 8 . Thats why we said around 10 . And let me ask, furthermore, in terms of retail penetration, can you commit that there will be no effort to penetrate the Retail Market . Well, what weve done in terms of material market, and i thank you for the question, the threetier system is regulated at the state level. So different states, different regulations. 15 states brewers can own wholesalers and the others we cant. In other states we can own, in others we cannot. We comply with the law. Weve been only wholesalers more than 100 years. Let me tell you why we do this. 78 of our volume and around 10 . Thats our commitment. Youre able to develop people within the company, our colleagues, that understand the system, that understands the second tier. They are able to talk to wholesalers on an equal basis because they face their realities that our wholesalers face on a daytoday basis. So thats the reason why weve been in the business for 100 years because it provided us the knowledge about being closer to the market. I thank you for that. Thank you very much. And i look forward to the second round. Thanks, mr. Chairman. Thank you, senator blumenthal. Senator perdue . I have a couple quick questions. Antitrust and the consequences on not only consumers but also investors. Without one, the other doesnt exist and also with your employees really fulfill the three stakeholders you as ceos have to deal with. I have a question for the two people who are going to make this deal happen, mr. Brito and mr. Hunter. Id like both of you to respond. Why is the 10 number, mr. Brito, important to you . In other words, i know that number just doesnt come out of the air. When you look at going vertical, theres balance in your own business. When you look at the matrix you have to deal with going across products and across countries, talk to me just a little bit about how that calculation and why thats important. Sure. Thank you. Thank you for the question. If you look at the last few years, senator, our volume done through our company has always been around 7 to 8 , so we set it around 10 . And the reason for having the wholesalers, a company of wholesalers, as i explained to senator blumenthal, we can develop people that understand that business. But the biggest asset we have other than our people is our wholesalers in the u. S. These are savvy business people. They can carry competitive brands, whatever brands they want. Theyre not exclusive, totally open, and they are amazing. They really build brands in the marketplace. So our intention is to continue to have the bulk that is 90 of our volume being done by the savvy, independent entrepreneurs as opposed to our people. Our people, its good because we learn about the business and we can talk to them and exchange best practice in a more direct way. Mr. Hunter, do you have anything to add to that . The only thing i would add is currently we own one distributor, a local distributor in denver, and i can commit at this stage we have in plans to expand our direct ownership or distributor partnership. We rely on those as business partners. They take our brands to market and theyre the face of our company in their local market. Were strong advocates of the threetier system. Under molson coors, there will be no change. In one of the recent communications to your shareholders you talked about the synergies of this deal. Can you explain about what those synergies are from your shareholder perspective . Certainly. Our aspiration is to be a growth business. We want to be a stronger, more assertive competitor in the United States and we believe that under the ownership of one shareholder molson coors we can move with more pace, build our business to be a longterm business in the United States. One of the advantages we have on the back of this deal is we can start to look at our network from a north american business. When it comes to breweries, distribution, procurement, shared services and our ability to move our brands between markets more quickly that will make us a more able competitor in the marketplace. One of the more important pieces of your business, the hops, the barley, et cetera, do you anticipate any impact both ceos on agriculture business by this transaction and have you heard from any of your primary suppliers barley, hops, other Agricultural Commodity providers . Do you want to stop, mr. Hunter, since your light is on . Sure. If im successful and the business is successful and we grow our business on the basis we go to procure more in the United States. We have longstanding relationships with barley owners and a number of states and we have personal and business relationships with the barley growers. This will have no impact in terms of availability of raw materials. There is a pinch point in the hops market. There are about 12 or 13 of the market. Theyre using about 50 of some varieties of hops because theyre very flavor forward beers. Clearly work needs to be done to improve. Some of the supply change management and procurement forecasting but generally theres no issue with availability of hops. As you heard from mr. Brito, theres no issue with supply and aluminum is certainly something thats not controlled by us. The grandson of our founder something that is close to our heart but we receive no pressure in that part of the market from a supply point of view. Thank you. Mr. Brito . Since this transaction will have no impact in the u. S. Market, its about the rest of the world. What we procure today, pre and post transaction so, for example, today we procure 8 of the hops supplied in the u. S. That will not change. Of course as we grow the business, yes. As a result of the transaction will not change. We procure in the open market 12 of the cans. We also selfmanufacture cans. That will not change. We procured 25 of the barley. That will not change. 27 in the open market of the bottles because we also produced our own and that will not change. So no change or pressure in any supply system as a result of this transaction. Thank you. Thank you very much. Youre welcome. Senator coons . Thank you to all of the witnesses for your presence here today and for testifying on this matter. To twin lakes to 16 mile, weve got some great craft brewers innovating new products and brewing some great beer. We all want an open marketplace they can continue to thrive and grow and where we safeguard their ability to compete on a fair and level Playing Field and we maintain access to distribution actions and consumer choice. I want to make sure ive asked relevant questions on that as we consider this very large merger. Mr. Brito, in the wake of increased competition from independent brewers, abi has made an effort to acquire and some suggested abi is using these to constrain some of the Distribution Channels of competitors including craft breweries. How do you respond to these questions, these allegations, and will abi be using a profits from the merger to continue the process of acquiring craft brewers . Well, thank you for the question. In terms of the 4,000 breweries we have in this country and opening two a day we own five and we have a Minority Stake in one. So the reason we do that just like we do our company of wholesalers we can learn from the may mazing entrepreneurs who created brands and how they connected to local constituencies so that we can learn from that. We learn from others so thats one thing. Out of the 500 plus wholesalers that are ab wholesalers we do 78 of our volume through those wds and weve owned them 100 years, has been always to learn and develop so they learn to understand the marketplace. The u. S. Market has never been so competitive and so open. I mean never if you walk down the aisle of your grocery store, i bet youll find more options than you would five or ten years ago. Very open, very fragmented and that craft beers have no issues in finding ways to get to the shelves. 35 states out of the 50 permit selfdistribution of beer. In any market you go, you have at least two, three or four wholesalers. There are many options. 90 carry wholesale brands. What a wholesaler wants is to carry brands that Consumers Want to buy and customers want to stock and thats what they do. Thats why the brewers have been growing. One last comment. Weve been in the business since 1852 so more than 160 years and together with our wholesalers we built a whole system, trucks, warehouses, to get from brewers to shelves and the craft brewers have been enjoying that system set by others. Its a very open market and nothing in this transaction will change the competitiveness of the u. S. Market. Thank you. Mr. Pease, forgive me. Nobody wants to take a seat at a growing. One last comment. Weve been in the business since 1852 so more than 160 years and together with our wholesalers we built a whole system, trucks, warehouses, to get from brewers to shelves and the craft brewers have been enjoying that system set by others. And the impact on consumers. Have you companies faced competition or challenges not only to ownership and distribute ers, but doo to their pressure . Thank you, senator. I think theres again, look at that question for a variety of Different Levels. I think everyone has to keep in mind my member, by and larnl, are required by state based regulation to use a distributor to get their beer. To a retailer. Selfdistribution is an option in some states, but usually, that is very limited. If you want to grow your business as a craft brewer, get it into a chain store, a stadium, you news to huz the anheuserbusch or miller coors distributor. In most markets that have the horsepower to effectively bring your beer to the Retail Market. If the abi distributor is a wholly owned distributor, which it is in nine states, then that option is pretty much effectively shut off for a craft brewer and youre down to the miller coors distributor. At the end of the day we dont feel the existing Playing Field is exactly level and were very concerned that the increased market power of the combined entity will be able to increase the distribution tier to the disadvantage of dog fish head, 16 mile, Companies Like that. Now employing over 200 people in delaware. We want to make sure those american Success Stories are not negatively impacted. Mr. Purser just comment on the same question in closing. I know were running tight on time. Do you agree with the same assessment about the access to Distribution Options . There is a scaleability that comes with the network and the miller coors and the Anheuserbusch Inbev networks are more established. Theyve got that access to scale. Thats part of the economic reality. Interestingly those networks were proceeding 50 years ago with different brewers, built on other brand names that once upon a time were more dominant players. We could wax poetic and open a couple cold ones and talk about the history of beer in america i see someone has a head start there. In all seriousness the outlets and the access needs to be maintained through these channels. When you have a Company Owned distributor that precludes the ability of some of those products to get to market and sometimes, senator, even the presence in the state of a small player can limit the ability of some of those brands to get to market because when some of mr. Peases, they would go into a state and they might make an investment or make a decision based on an entire statewide network with one of the legacy brewers. If some of those brewers are owned by their competitor, they may choose in their mind only have one choice, they may not choose that brewer that doesnt that has Company Owned presence in it. Dog fish head is celebrating 20 years. Were trying to sprefr competitiveness. Thank you very much. Tillis is next. I wanted to comment briefly. Theyre about to call a vote in a few minutes. Ill be leaving in few moments to go vote. Senator klobuchar will be here while im gone. Senator tillis . Thank you, mr. Chair. Thank you for being here. We have nearly 150 microbrews now. Weve also added sierra, nevada, and are about to bring new belgium online. This is very important to our state. Ab state is offering a bachelors degree in fermentation sciences. I want to go to a more parochial issue. I think my colleague has done a good job of covering the broader landscape. Mr. Hunter, id like to start with you. I have a letter signed by about 115 state legislators. Similar letter from the governor that im going to submit for the record provide you with an opportunity to respond to the specific questions. I want to go back and ask one thats a consistent theme from some of the people back from my state. They feel like that the decision to close the eden plant for those not familiar, this is a plant thats been in North Carolina for about 30 years. Employs about 500 people that is going to be closed. Many of them believe theres a curious timing between the announcement of the merger and the announcement of the closing of the plant some time next year. Can you explain the timing of the merger and the decision to close the brewery and when the decision was made to close the plant and whether or not it had anything to do with the merger discussions and, mr. Brito, ill ask you for the purpose of closing the loop on the witness stand. Mr. Hunter . Thank you, senator tillis. Let me start with your last question first. The discussions had no impact at all on the discussions that had been taking place for a long period of time within the miller coors organization with regard to how we manage our Brewing Network and infrastructure. To get to the specifics, the board and executive team of miller coors had been reviewing our brewing requirements for a significant period of time, at least a year as theyve been building the run, through the middle part through the end of 2014 have been discussing and looking at the challenges within the miller coors business. Since the miller coors business was created in 2008, the business has lost about 10 Million Barrels in total volume. If you look at our brewery network, that meant many of our breweries were under utilized, not performing efficiently or effectively and the decision was taken that one of the breweries would need to close to take capacity out of our network to ensure our network was efficient to compete. You can imagine long discussions because these are the last discussion any business wants because it affects our people. We were faced with a discussion we have a very modern brewery in shenandoah away from eaton which has been well invested. We had to look at roots to market and the decision was made as we came into 2015 to close the brewery, months of planning to ensure communication and all of the welfare considerations for employees are put in place effectively. Part of abis intent and their approach to sab. It was coincidence it occurred at roughly the same time abi announced they had approached the board of sab. It was four or six weeks after that date before abi and molson coors connected. They are in no way connected. Mr. Brito, from your side of the discussions, was there any, to your knowledge, discussion with respect to the disposition of the eaton facility . No, never. The only question i have and i think its very important in reference to the letter i received from the president pro tem, they view it as a stateoftheart facility that had improvements in the recent past. Many of people are wondering what the real differences are between shenandoah that would take on some of the capacity over time. It sounds like at a minimum theres communication on the ground and i think its very important to look at. Significant Economic Impact to an area that is already struggling. Ill pass on additional questions i have because i believe were about to move to the vote and the questions from the legislative leadership. I look forward to your responses. Thank you. Thank you all for being here. Thank you, senator. Thank you. Thank you very much, senator. Senator franken from the home of 70 breweries, the state of minnesota. Yes. Beer is very important to minnesotans and i want to thank you the Ranking Member and chairman lee for holding this important hearing. Beer is extremely important to minnesotans and nothing illustrates that more than the 2011 State Government shutdown. We face we had a threeweek Government Shutdown that suspended Critical State Services including transportation construction, criminal background checks, the issuing of fishing and hunting and boating licenses and this was during the summer. It had an affect on our lodges and resorts. Minnesotans werent putting pressure on the governor to resolve this. But then the state beer licenses expired. More than 300 bars and Liquor Stores were no longer able to sell beer. The alcohol license had expired and then the public became outraged. And this got settled right away. So beer is very important to minnesota. It was about a lot of businesses, too, but it was beer. The Beer Industry in the United States has evolved in recent years. I want to discuss how given the importance of beer to minnesotans how we can keep a truly Competitive Landscape in the United States and we really have to review the impact. Now, mr. Brito, i understand that deals of this size often involve very complex Business Decisions. Especially when Companies Take on significant amount of debt to complete the deal. I also understand that you have an obligation to look out for your shareholders and save money whenever possible. Unfortunately those decisions can have harsh consequences for american families. In 2008 following the acquisition of anheuserbusch, it was announced and a few weeks before christmas, i might add, that it would be laying off 1,400 u. S. Workers and over 400 contractors. This time around ab inbev was taking on debt. And i know youll be facing some tough decisions. About where to cut costs. Mr. Brito, my question is pretty simple. What can americans expect this time around . Where will you be cutting costs . Will there be job losses . Brewery closings, distributor terminations . Or will you raise prices to pay back that debt . Senator, thank you for the opportunity to clarify. This transaction were proposing here today is about the rest of the world. Its about gaining access to new markets like in africa, parts of asia, parts of latin america. This transaction has nothing to do with the u. S. And it, therefore, will have no impact in operations in the u. S. Market. That i can guarantee. So basically what youre saying is that this 75 billion debt is not going to have any effect on decisions that you might have to make in the same way you did last time . We have to remember we had an economic crisis in 2008. The transaction in terms of the size of inbev was a similar size, as big as it is is way smaller than ab was at the time. So what im saying is that there is no impact. There will be no impact as a result of the transaction in the way we conduct business. We are going to produce the same amount of beer. No impact on the distribution system. Is anyone skeptical about that end . I would comment. I do take him at his word this transaction is more about the rest of the world than the United States. The point i want to make its the small and independent craft brewer that is the growth segment of the american beer market. Its creating jobs in every state and Congressional District and we want to make sure that nothing arises or is the result of this transaction that would hinder that. Their access to products is unfettered, we will be comfortable. We have significant concerns about how this deal could impact access to market for the small craft brewers and access to raw materials. Can you respond to the question of asked of mr. Brito . Certainly, senator, from a miller coors perspective, its business as usual. I tried to explain earlier the miller coors business has two shareholders. Mols molson, coors and acb miller. They will have one going forward. We will continue to build our r business and be very competitive in the u. S. Beer business. We need to invest more because of the changing nature of the environment. The Beer Industry has probably never been as competitive as it currently is. Thank you. Thank you for your indulgence, senator blumenthal. As chairman i recognize you. And i deputize you as chairman. I am the last man sitting. We have a vote thats going on right now. I know sfart lee is going to be returning. We have a vote going on now. Let me just ask mr. Brito i take it by your unequivocal representation to me that there will be no termination of distributors that youd be willing to incorporate that commitment in a Consent Order as part of the resolution of this merger. Thats for the doj to decide. What im saying well, its for you to willing because its based on the consent of the parties whether you as the ceo of your company would consent to that condition incorporated in an order that there be no termination of distributors. What we tried to do here is we look at the Consent Decree that we had for the deal two years ago and tried to replicate all the important clauses in that new contract so as to mirror what we had negotiated with them. I take that, i hope, as a yes. Youve made the commitment here and for it to be enforcement more easily it should be part of the order that the Justice Department would join and i take at full face value the commitment you make in good faith. I think the important lesson of many mergers is trust but verify. Its critically important in this watershed moment for and i hope you will be willing to incorporate that commitment as part of a legally binding document. Thats what a Consent Order is. What i would like to remind us is the industry has never been more open to new entrants. When you look at the market share of craft beers in 1997 it was under 4 . Last year it reached 11 . This market share will get to 20 . So this tells me that may be little benefit to consumers if you go into purchasing those craft brewers as your company has done is in the hands of a small number of behemoth beer makers and the consumer has, in effect, less choice. Well, my view here is today we have five beers that we bought out of 4,000. We have a Minority Stake, thats six. To have entrepreneurs join us as partners and to get as the dna of what they know that we dont know. Thats the same thing as owning a the beauty of the trans anchor. Company on wholesalers, thats the only reason we do it. In the limited time i have left i would like to ask miss moss, you raised the concern in one of the papers that i read about the need to establish the molson coors enterprise as a completely independent company. Given the evidence of coordination after the miller coors in 2008. Could you tell us whether you think the existing divestiture plan provides the independence of that new competitor . Thank you, senator. I think thats the Million Dollar question. This merger is not over until a remedy is in place. The fact the companies have stepped forward to offer an up front fix i think is evidence that this deal does have potential anticompete. It is critical and i think there are really open questions about that. The disposition of miller coors independent distributor contracts, how those will be renegotiated, any change in the dynamic in the market post merger would be important. Miller has taken a much less adversarial than has abi. We want to make sure that an effective remedy would in the hands of molson coors would not change or create a dynamic where independent distributors are pressured to create exclusivity or discriminate against smaller rivals. Anything that changes the incentive or the company post merger to compete effectively i think would be suspect. These are things the doj will have to look carefully at. I think the doj had a very good approach. I think that is the template. It is something that will require very close scrutiny. I thank you very much. I thank all the witnesses. I think youve really hit the nail on the head. On its face this would clearly break the law. The divestiture is an effort to avoid that issue. If it is the Million Dollar or maybe the Million Dollar question and, again, my thanks, mr. Chairman. Thank you, senator blumenthal. Mr. Pease, why should ab inbev be required to divest wholesalers when its not acquiring wholesalers let alone any assets at all let alone the United States. The purchase of South African Breweries because they are acquiring independent ab distributors. Theyve acquired five in the last few months. And consolidated those into Company Owned distributorships that have reduced the access for my members to get to market. I think we have to keep in mind state based regulation to use a distributor for market and where abi controls that distributor, a wholly owned distributor that shuts off one of two plausible from our members. Whats your response . Weve owned wholesalers for more than 100 neyears. This will have no impact in the u. S. And the way we go to market. We own 21 wholesalers out of a universal 500 plus abi wholesalers and its interesting to see that despite having owned for 100 years, crafts have grown to 11 last year to saying it will get to 20 by 2020 and, more interesting, the major wholesalers that we own are new york, boston, san diego and denver, one of the growth of craft beers in this country. So i dont see any link between wholesalers to be disadvantaged. I think the facts can help us here. Your testimony indicates the discussion comes down to the invest tour and the scope of the divestiture. Given that ab inbev has stated molson coors will acquire 100 of sabmillers quote, brands, brewers, doesnt that mean that this merger will have little or no effect on the state of competition in the United States . Senator, i thank you for the question. I think you raise the critical point in this case. Were there no remedy in the merger be presumptively a legal merger. Lots of control of contribution. I would note that this merger is occurring against a relatively troubled backdrop in the u. S. Beer market. Evidence of coordination in the wake of the miller coors, lots of control of distribution but a growth of a really important segment that provides choice to consumers. I think getting it right, getting this merger right and that means getting the remedy right is really critically important in this case. So backdrop is important. Context is really important which means moving forward whether that transfer of the miller coors assets fully to molson coors really is fully effective, that has to be scrutinized carefully. That means really digging into the details how that divestiture will occur. And whether it will, in fact, create a fully independent molson coors. I think this provides a really Good Opportunity to not only address some of the competitive concerns that are in the industry at the same time we look at a remedy that fully restores competition. I think moving forward theres an opportunity here to make some significant improvements in terms of protecting the independent Distribution Channel because craft brewers are so dependent on it and to perhaps prohibit certain types of behaviors that have historically been entrenched in the industry that make it more difficult for rivals to compete. So ultimately the effect of the divestiture will depend on how its executed and the details of how its actually carried out . Yes. Mr. Hunter, lets talk about this. Tell us how the operation of miller coors will be expected to change after molson coors acquires sabmillers interest in the joint venture. Thank you, chairman lee. I think i can talk about the independence of molson coors. Molson coors as a business is a u. S. Listed business. We will be the single shareholder, the single owner of the miller coors business going forward. Currently we have 50 50 governance and economic interest in the business. This is an asset transaction, so all of the miller coors assets will transfer to molson coors and the miller coors business will be run as one of our Business Units. We have a Business Unit in canada, one in europe, an international Business Unit or a Global Office and the u. S. Will be our fifth Business Unit. All of the brands are currently available to consumers, to customers and distributors through miller coors will remain in place for those brands that we do not own and its a very, very small percentage of the volume. We have agreed perpetual royalty free license arrangement so those brands are our brands to do as we see fit. And grow those in the United States. So, its very, very important we could talk to our distributors about the maintenance of the business they know and have been investing in since it was formed in 2008. It really is a business as usual. And i am very clear on the independence of the molson coors. We are a u. S. Listed business, an independent business. And we still have the benefit of the governance from our founding families on our board, which makes us quite unique in the world of beer. Thank you. Thank you very much. Thank you, all of you. Just a few more questions. Mr. Hunter, in the Consent Order resolving abis acquisition, the buyer of the divested assets Constellation Brands was made a party to the order. If the department of justice determines that molson coors should be named as a party for the purposes of a remedy, would you have any objections to that . Our view at this stage is that there is nothing anticompetitive about this arrangement. And are taking full ownership of miller coors. Thats something we need to discuss with the doj in due course. According to your testimony, you talked about how this will allow you to boost production and miller coors nine u. S. Breweries, increase barley purchases. Could you provide detail on how changing from the joint venture to the single ownership will boost competitiveness for you, make you more effective . Yeah. The challenge for our business is to grow our business. And thats my intent as a ceo of the organization and its the intent of the 8,000 people that we have who are beer champions right across the miller coors organization. Our business has since the joint venture was formed, have been an effective number two in the u. S. Market. It has changed as we heard through the course of this morning. Our intent is to get it back into stable position by 2018 and volume growth by 2019. Thats the ambition we set for the business. By being part of the molson coors organization, we move from two shareholders to one. Its simpler and faster from a Decision Making perspective. We can utilize our total north american footprint. And invest more assertively the front end of our business to compete more assertively. Thats what we are are about. We have been here for the long time and we want to be here for the long time. Thank you. Why does abi want or need this acquisition . Well, the main reason, chairman, for this acquisition is really to get access to new markets in pafr africa, in part asia, in parts of latin america and complement the portfolio. The beauty is that the footprints of both companies are highly complimentary. The markets where they operate. With this operation, with a few exceptions like the u. S. , where we divested assets, there will be no increase mark in concentration in any of our markets around the world on either company. So thats the beauty of it. All right. Thank you. Mr. Pease, just one more question on this as to the wholesaler issue. There have been described in your testimony some allegations about wholesalers being coerced into dropping craft brew products by major brewers. Some say there are many ways to distribute beer and that access to wholesalers who carry abi or miller coors products are not necessary. Thats what some people say. Did notice from exhibit c that each of the 30 largest beer holders wholesalers carry either abi or miller coors. Do you think using non these guys are not alleging thats what they want, of course. But using nonabi or miller coors wholesalers, is that even a possibility for the market . Its a possibility if you only are content to take your brand to a certain level. The true distribution horsepower is with the abi option or the miller coors option. The small independent option is feasible again to a degree. But you are basically going to be constrained to a fairly small geographic footprint. If you want to grow your business and you want to get into the chain grocery store, you want to get into the big box retailer, you want to get into the sports venue, youre pretty much limited to one of those two options. So thats why our focus on all of this is just about fair access to market for the smallest players. If nothing negative comes out of this deal that further restricts access to market for small and independent craft brewers, were going to be more comfortable. But theres been past and even current behavior of the relatively socalled independent abi distributors that we would call into question. I will say we mentioned some of our brewers. Everyone mentioned their own. I think its important to note theres big ones like what we have and some of the larger ones and then theres ones who are a restaurant and canal brewing, Lake Superior brewing and one i visited called Castle Danger which is literally in kind of a its not a garage. That would be dramatic. Its close. Its close. So as you know, the distribution is everything for these brewers. Thank you for acknowledging that. Dr. Moss, one more question on this. I havent really asked you this question about maybe someone else did when i was gone. As we look at if there is some kind of the Justice Department believes there should be conditions on this. But approves it, what conditions do you think would be helpful . Thank you. Again, i think that is the key question here. I think any as i said earlier, any remedy will have to create a fully independent molson coors for it to fully restore competition in the market. And again, this is a troubled market landscape against which this merger is occurring. So i think lifting up the group divestiture package of conditions and moving it over to this particular merger may not be a sufficient approach. I think additional details, additional conditions on postmerger conduct of the companies will be important. For example, a remedy would include at a minimum any prohibitions on contract brewing, any supply agreements would continue to link the two companies together between molson coors and abi. So full independence means to supply agreements, no contract brewing. I think a good remedy would include prohibitions on any contracts with independent distributors that created incentives for es clus exclusivity. Now is the time where that conduct can be dealt with effectively through a merger remedy. Prohibitions on exclusivity provisions. I also think a remedy would address even preemptively any closures of capacity that are in very close proximity to this merger. I have to say those types of closures are highly suspect given the proximity to this merger deal. What was the last one . Any preemptive closures of capacity at any existing miller coors facilities. And i would emphasize that a fully independent molson coors would not have incentives to tas tacitly coordinate with abi. We have economic evidence that shows that there was coordination and price increases came out of that. This is an opportunity in creating a fully independent molson coors to prevent coordination in the industry. A remedy will have to be carefully thought out. Very good. Responses anyone . I think we got through the barley hops discussion, mr. Brito. You responded to another senator. Very good. We dont have to go there. I dont have any further questions. Thank you very much, mr. Chairman. Thank you, senator klobuchar. Thanks to all of our witnesses. This has been an informative hearing. We appreciate your testimony today. The record will remain open for one week. We will be adjourned. Thank you. [ chatter ] on the next washington journal, jim kessler of third way will discuss the 1994 federal assault weapons ban and its effect on the current debate over gun control. The National Taxpayers union pete sepp on the dozen of tax breaks that are set to expire at the end of the year. Washington journal live at 7 00 a. M. Eastern time with your phone calls, tweets, and Facebook Comments on cspan. This weekend on cspan saturday night 9 00 eastern executives from pandora and spotify on how Technology Impacts the business. Are there certain parts of the day where music is not the only thing you want to listen to . Morning commute is one hypothesis were testing right now. If youre in the subway or in your car, et cetera, maybe you dont only want music. Maybe you want some news, weather report. Maybe you want a clip of jimmy fallon or Something Like that. Theres some other content you want to experience during that period of time, and thats kind of the hypothesis were testing right now to see if people are interested in experiencing that. Then sunday evening at 6 30, gop president ial candidate Ohio Governor john kasich at the council on Foreign Relations on rebuilding international alliances. Thanks to my 18 years on the House Armed Services committee, i knew many months ago the only way to solve this problem is to call for an International Coalition to defeat isis in syria and iraq. We have to join with our nato allies and allies in the region to organize an International Coalition to defeat isis on the ground and to deny them the territory that they need to survive. Those with long experience know that an air campaign on its own is simply not enough. For more schedule information, go to our website, cspan. Org. Former transportation secretary ray la hood joined us on washington journal. He discussed his new book on his career in politics. Then the 1. 1 trillion omnibus spending bill. If you search the internet for your name and book, the stories that come up are like this. Obama adviser found disappointment. Those are the lead stories that come up about your new book seeking bipartisan. Is that fair . I dont like that headline because i think the president tried very, very hard. I believe bipartisanship is in the president s dna. I cite a number of examples of that in my book. I still think he believes in bipartisanship, and he practiced it when he was a senator from illinois. He and i practiced it together when we were members of the illinois delegation. He practiced it when he named me secretary of transportation, a longtime republican. So i think the story that peter baker wrote in the New York Times was pretty accurate. In your book, you talk about the fact right off the bat you felt shunted aside. Not really me. I just felt the president , like most president s, has a core of people in the white house that he really relies on. Reagan relied on three people. George w. Bush relied on rove and card. Ive been around here long enough. I can name you nixon relied on a few others. Every president does, and so i wasnt too surprised by that. And on some of the things that the president tried to get done early on they asked me to take calls and to try to intervene, but i was not part of the inner circle. The inner circle are the people who helped the president get that job. You have a chapter in here you have some pages on an actual Cabinet Meeting that happened. I want to read just a little bit. And this was a memo that was passed out. You, referring to the president , call on each member of the cabinet to report two minutes each on highlights from their departments. You will call on the cabinet in the order in which their departments were created. Then you will call on cabinet rank officials, then the National Security adviser, are the chief of staff concluding. The president met briefly with reporters following the meeting. He told them he delivered three messages. First, he was proud of the work we had done. Second, we had to take extraordinary steps to shore up the system. I recount this first Cabinet Meeting to make these points. One, the meetings were much more highly scripted than i anticipated. Two, the opportunity to give advice to the president was nil. Three, it showed me how isolated the president was from those who did not fall within his inner circle. I think that was an accurate reflection of that particular meeting. In the beginning when we came in 09 the focus was on two things. Getting the economy, which was in abysmal shape we were sort of assigned 48 billion to spend it within two years and put a lot of people to work. Secondly, really the idea that the president wanted to get out of iraq. Those two were the and so Cabinet Meetings were really revor revolving around those two big issues, and i think most of the time the president was spending in the oval office and in meetings was how do we get the economy going and how do we get out of iraq. The part about getting the economy going, part of that fell to us because we got 48 billion in economic stimulus we had to spend within two years. And the president assigned Vice President biden to oversee that entire process, so i developed a great relationship with Vice President biden. Hes an endearing friend today because of all the time we spent together on trying to get people to work on transportation projects. Last chapter, reflections on a career of Public Service. During my 35 years in politics and Public Service often with a front row seat on history, i did not ponder the meaning of passing events. Time slipped by too quickly. As i move to the sidelines to write this account of my career, however, i am struck by two intertwined principle qualities of politics that concern me today. Theres no question notwithstanding that Congress Just passed a transportation bill in a very bipartisan way. They passed an Education Bill to fix some things that were wrong with no child left behind in a bipartisan way. Prior to that, weve seen a Government Shutdown. Weve seen people elect eed to congress under the republican banner, even though theyre Tea Party People who dont believe in government, came here to vote no on everything, and weve had a terrible stalemate. People really came here with the idea that their number one goal was to do everything they could to make progress. I just think it is pervasive. The partisanship is very pervasive. I was pleased that Congress Passed the transportation bill in a bipartisan bill and the president signed yesterday an Education Bill to fix some things with no child left behind. Now the congress is working on trying to get out of town and passing an omnibus. Hopefully that will be bipartisan. It looks like speaker ryan and leader pelosi are working on that. I want to show some video from 1994 and see if you remember this. My name is ray lahood. Lahood. From illinois, illinois. You dont pronounce the s. Im from the 18th district of illinois. Our freshman class introduced and passed a resolution today to continue the work of a task force thats studied congress over a period of two years and the committees of congress. And as you all know, we have eliminated three committees, the district of columbia, merchant marine and post office. Today the purpose of the meeting was to establish a task force to use the information that the joint committee has available to add at least five freshman members to include the leadership of our conference over a period of time to study the entire Committee Structure to determine if theres du Duplicati Duplicati duplication. That was almost exactly 21 years ago. I just turned 70. I wish i looked that young and had that dark a hair these days. That was right after you you were first elected. Right. What was that like to be a part of the first Republican Congress . I had worked as a congressional staffer for 14 years. I knew when i came here i knew a lot of members of congress. I worked on the house floor. I knew all the people in leadership. Newt gingrich, all the people we elected to our membership. The thing i was surprised about on Election Night was the republicans won the majority. I never dreamed that republicans could come back into the majority after being out in the wilderness for 40 years. Because newt had nationalized the elections and put the contract with america out there for the American People and a lot of members ran on that, it was it was an exhilarating time to be in the majority, to have the opportunity to vote on all of these items that people had talked about as a part of the contract with america within the first 100 days, all of the reforms that we had talked about. It was an exhilarating time. Ray lahood by the way, the numbers are on the screen. Well be taking those calls in just a few minutes for ray lahood. You were in the chair presiding the day Bob Livingston decided not to run for speaker. What was that day like . There was a chapter on impeachment. The reason we wrote about it was because it was clear speaker gingrich announced he was not going to stand for speaker and his staff said to him, who is going to chair the proceedings, and he said ray lahood because i developed a good style of chairing the house, making sure that we followed the rules. And you knew the rules. And we knew the rules and that was very helpful. So when the speakers staff called me and said speak eer gingrich wants you to chair the proceedings, i said this is going to be my one minute of fame. On the second day, as the house opened up, Bob Livingston from louisiana, who had already run for speaker and was known to have the votes for speaker, we were going to go and elect him speaker. But because of some disclosures about infidelity not dissimilar to speaker gingrichs disclosures that came about earlier. He said im not going to stand for speaker. Im going to resign from the house after these proceedings are over and the air went out of the chamber. Did you know in advance . I did not know. No one knew. As i said, democrats and republicans were scrambling around because the chamber was pretty full that morning unlike other i think people recognized this was the second day. This was the day we were going to vote on the articles of impeachment. I think people wanted to hear what the new speaker was going to have to say and, boom, he was out. In the halls of congress, there were republican members like tom delay and others who were scrambling around trying to figure out who the speaker was going to be. Frankly tom delay orchestrated the helection of hastert to be the next speaker. A democratic member im the chair. A democratic member comes up to me and says i think you said it was a democrat of North Carolina. Yes, it was. He came up to me and said, if i could put together the votes, some of us have been talking. If i could put together the democratic votes, would you consider standing for speaker . I said, no, thats not going to happen. There are already people on my side of the aisle that have decided who the speaker is going to be and thats not ray lahood. I think that spoke to fact i had an ability to reach people on both sides. The other thing that happened that i wrote about in the book is another democrat approached me in the chair and said, should we suspend what were doing here while we try and figure this out . I just made a decision. I didnt check with leadership. I didnt check with the Speakers Office. I made a decision that this was such a historic day after all that had gone on that we needed to proceed with the votes that were going to take place on the four articles of impeachment. And we did proceed and democrats walked out as we called for the first vote, and then came right back in and we finished the day up. After everything was over, all the republicans met in one of our rooms there in the capital to talk about who the next speaker was going to be. This was after all the votes had taken. The house had adjourned. I went to that meeting. Speaker gingrich said now you know why i picked ray lahood to preside over impeachment because it was done fairly in a way that reflected dignity on the house. People had their say and then people voted and they gave me a standing ovation. I was proud of the fact that we carried it off in a way that distinguished the house of representatives in a very controversial historic time in the history of the house. We need to stop destroying imperfect people at the altar of an unobtainable morality. The point he was making is that we all have our imperfection imperfections. Weve got to look at the fact that president clinton was elected and he had his imperfections, but obviously then leader gebharts point was these were not impeachable offenses. Thats not what the Judiciary Committee concluded and its not what the house concluded. Seeking bipartisanship is the name of the book. Ray lahood, former congressman and republican from illinois. First call is henry in clyde, new york. Democrat. Go ahead, henry. Caller thank you for taking my call. What i wanted to say to mr. Ray lahood is everybody keeps talking about how obama is not a strong president. Obama is a strong president. But remember, the head of the senate said he was going to make obama a oneterm president. Now they have obama in a box and obama cant do nothing about it. Cant get a coalition together to fight isis because they wont vote him the legislation for him to go to war. Those people over there like germa germany, france, theyre not going to help obama unless they know their president is behind them. Thanks for calling in. The president is in a box. If you look back at the nature of the presidency and you look back at other president s, they faced very, very difficult decisions. I agree with henry. I think president obama is a strong president. I think his legacy will be what he talked about during his first campaign, implementing National Health care, getting us out of iraq, although obviously were back in there to a lesser extent than we were in 09 when he began his presidency. I think there are a number of other things that he will have as a strong legacy, but what he did as president certainly is what no other president was able to do and thats to pass National Health care. And he also brought a very, very lousy bad economy out of a tailspin. Were in much better shape today than we were in 09. He helped the Automobile Industry. The american Automobile Industry. He put a lot of people to work. He put a lot of emphasis in the economic stimulus on making sure our economy could come back and be strong, and he deserves a lot of credit for that. However, you are critical of his decision to give nancy pelosi the legislative levers to work with the republicans and that he didnt work directly with the republicans. Peter, during the first two years, it was a democratic majority. I think even though rahm really early on reached out to people on both sides of the aisle and made the effort to say we want to be bipartisan i think the president wanted to be. I think they made a decision weve got to get the economy going. Weve got to pass this bill. I think Speaker Pelosi said, hey, weve got the votes to do it. Lets go for it. I think that hurt the president s ability. Left to his own instincts, his own bipartisan instincts, which i believe are there, if it was left up to him, i think he would have said lets try to continue to get some republican votes, but in the end there was a sense of urgency about getting the economy going. I think Speaker Pelosi said at the time weve got the votes, lets do it. Go ahead, gary. Caller thank you very much for taking my call. I love cspan. Thank you, mr. Lahood. I have a couple questions. Do you feel that before health care enacted wouldnt it have been a good try from the commerce laws from state to state, open that up between states for Insurance Companies in california to sell me insurance in kentucky . I know every president tries to be bipartisan, but george bush did executive order and obama has done executive order more than any other president in history. Dont you think that kind of slaps the Republican Leaders in the face when he does executive order and says he has a pen and a phone and bypasses them . The purpose of the executive orders is when the president cant get congress to even go along with introducing legislation or having debates on bills. I think that certainly has been the case for president obama when congress has been stubborn about their willingness to debate issues that the president thinks should be debated or to put bills in the hopper and have a debate. I think he feels that his only other alternative is to sign these executive orders. Other president s have done it. Its certainly not unprecedented. For a year, the white house tried to work with republicans. I know senator baucus who was the try of the finance committee and tried to work hard with republican senators on getting their help with implementing National Health care. In the end, they made a decision they just couldnt come to a compromise, so the congress ultimately passed it. Could there have been a better way of doing it . Could they have included issues that you raise about the Commerce Clause and states selling insurance . Probably, but i think there was a sense of urgency that they needed to pass National Health care. Joe is calling in from sun city center, florida, independent line. Ray is our guest. Go ahead. Caller hi. Good morning. Caller my name is joe. Good morning. Whats the hosts name . Peter. Caller okay. Ill give you a little bio of me. I was raised in a democratic family, raised by nuns. I cried when kennedy was killed. I voted for everybody up to carter. Then mr. Reagan came along and i noticed the guy was tough. People were scared of him. Personally, myself, im laid up in a hospital bed in front of the television. Hey, joe . Joe, were kind of losing you here. If you could get to your question or your point for ray lahood . Im sorry. We lost joe. Lets take that opportunity, mr. Lahood, if we could, and go into presentday politics as he was recounting his transitions throughout the year. What do you think of 2016 and the race thats going on currently . Peter, ive been watching this kind of activity for 35 years of my Public Service year, and ive never seen certainly on the republican side a process like we have now. I think the fact that we have such a celebrity, donald trump, in the race, never run for political office, is using the most unorthodox methods to get elected, to get the nomination but there are certainly are a wide range of candidates on the republican side. It looks on the democratic side like hillary will probably get the nomination. Like all these president ial campaigns, it will be very, very interesting. Have you endorsed . I like jeb bush. I do. I think he was a very strong governor in florida, and i like his positions on many issues. I like jeb bush. All right. Going into a Democratic Administration as a republican, are you suspect on both sides of the aisle now . I dont know about suspect. I think people always viewed me as being bipartisan, and i dont think anybody was surprised when president obama nominated me for secretary of transportation, which has always been a kind of bipartisan agency. So i dont think people really look at ray lahood with suspect. I think they look at me as more somebody has worked on both sides of the aisle, but ive been a republican all my life and ill continue to be a republican. I couldnt have gotten the job with president obama had i not been a republican because he was looking for a republican and our friendship has endured even since we left the job. February 12th, 2009, my worst day on the job. That was the day of the air crash in buffalo, new york, when 49 people boarded a plane with the idea they were going to arrive in buffalo safely like thousands of people do today. And because of pilot error and very, very bad conditions, icing on the wings, the pilots did totally the opposite of what they should have done, those 49 people perished. We implemented new rules on pilot rest. Eighthour flight. Then theyre expected to get into the plane and fly it and then they were poorly trained. They did the wrong thing when the plane iced up and they actually crashed the plane. But because of the families and because of our emphasis on safety at dot, we implemented more rest for pilots and better training for pilots, particular those who are flying these regional jets. Amtrak funding. New formula written into the transportation bill. Do you support it . Im glad the Congress Passed a transportation bill. We need a vision. We need a plan. I like the idea that they included a provision if theres a profit on the northeast corridor, which is where they make their money, that profit gets plowed back into the northeast corridor. I like that idea. I think its a creative way to make sure the northeast corridor, which does make money. Ridership is at an alltime high. They can get new cars, new equipment, and the money will be there for it. I think its a pretty creative approach. Then i noticed in todays paper they included a provision in there to raise the limit for people, particularly those that were killed or injured in philadelphia for the liability thats been incurred by their deaths and injuries. I think amtrak is doing well, and i think were treated very fairly in the transportation bill. Martin is on the republican line. Were talking about his new book speaking bipartisanship. Caller good morning. Good morning. Thank you. Caller with your obvious large depth of knowledge of american politics and having served the country, you mentioned the tea party. You mentioned some positive things and some not so positive things about barack obama. How do you think history is going to view barack obama . Because in my opinion, hes really the father of the tea party with his partisanship that he exhibited with his administration. He might not have been such personally as you pointed out, but he started everything with what happened his first two years. I dont think we would have the, quote unquote, tea party if it wasnt for him. Interested in your take. I dont think hes the father of the tea party. I think the tea party came about because of and the leadership of the tea party came about from people who were antigovernment, who dont believe in government, and helped elect people to come here in washington and shut the government down. They ran Speaker Boehner out of office. A year ago, they shut the government down. They vote no on everything. That has nothing to do with president obamas philosophy. I dont think we would associate himself with the tea party or consider himself to be a part of it. I dont either. Is john boehner and paul ryan a friend of yours . John is. He had the unfortunate circumstance of having a group of people in the republican conference who came here to be obstructionists, who came here to do everything they could to put a stop to things that they didnt believe in. They had some ability to do that. This is the tea party crowd. This is the crowd that basically shut down the government, ran john out of office, but he did a good job. He was a good speaker. He worked hard. He was a good leader. Paul ryan ive known since he came to congress. I admire him very much. I particularly admire him for stepping up into this very important leadership vacuum and filling the vacuum and doing it in a way that i think really distinguishes him and the Speakers Office. I think paul is going to be a very strong speaker. In my book, i talk about one of the real pillars of leadership is listening. And i think paul will be is and will be a good listener. Hes already doing that. Part of listening then is carrying out what people have to say and i think paul will do that. Im very high on paul ryan. He is the next generation of leadership in the house of representatives. And the house of representatives is very fortunate that somebody like paul ryan is willing to step up and fill the void and fill the vacuum and provide the leadership. And at great sacrifice. He gave up the chairmanship of the most powerful committee in the house. He and his family both make great sacrifice in terms of their time and energy. Barbara is calling in from pearl, mississippi. Republican. Caller yes. Hi. How are you . Hi. Good morning. Caller yes. I would like to nknow how easy would it be for the president to pass on the initiative he has been talking about about immigration and what can be done to fix the Health Care Laws pertaining to people who have insurance. Prior to this law, we always had great insurance. After this law was passed, we wound up with very high deductabld deductibles. Youre paying 100 a month for insurance. Plus you have an 8,000 deductible is very high. How can those issues be addressed . Implementing policies by the president. How easy is that . Its difficult because under our system of legislation passing it has to come before congress, which is an equal branch of government, separate from the administration, separate from the executive branch. Weve seen how difficult it is for president obama to enact some legislation hes wanted to do. If you take the issue of whether theres Global Warming and clean air legislation, its been very difficult. I give the president credit on he did pass National Health care. He did get us out of iraq. Hes working very hard on a trade bill. He supported this education reform, the transportation bill. It can be done, but it has to be done in a bipartisan way. No one of the 435 in the house, no one of the 100 senators gets their own way. When congress solves big problems, when they address issues, theyre almost always solved in a bipartisan way with compromise. And thats the beauty of our system. To the issue of can trump get anything done . I dont think donald trump will be the nominee of the Republican Party and i certainly dont any hell be elected president. Whoever is elected president will have to work with the men and women that come here from around the country, elected by the people, and reach compromise and work in a bipartisan way to solve the countrys problems. So when the 435 of yall would be up there and you would hear candidates say i am going to do x, would you look at each other and say, good luck to you . I think what people would say is not only good luck, but come on up here and talk to us about it and well see what happens. That talking to congress, does it really make a big difference . It really makes a big difference. One of the things we did, peter i cochaired four bipartisan retreats. And our whole notion was if you know somebody, its hard to criticize them. We had over 200 members of the house, 150 spouses, and 100 kids. First time a congressional kid met another congressional kid. First time spouses met other spouses. When you develop friendships, then you develop the opportunity to talk with one another. That kind of rapport and Relationship Building can go a long way to get people talking to one another. If you read roberts book at president johnson and what he did, hed invite people to the white house. Hed have them over for drinks. President reagan did the same thing. He had a lot of democrats down. Bob michael was leader then. He would suggest a few democrats to invite down and president reagan could do it. They would get to know one another and boom. Theyd begin to really work on issues. That is very, very important. Relationships are very important in trying to pass legislation and solve problems. I want to ask you about two trends. Maybe you dont think theyre trends. Automatic pilot on Financial Issues up in the congress and less and less significance of the president s cabinet. Well, the president s cabinet, i think, plays an Important Role with certain committees. You look at the Homeland Security committee now and you look at director of the fbi or secretary johnson while were dealing with these terrorists, so they play an Important Role. I do think if you have a strong president , then obviously the congress is going to look to the president and the cabinet perhaps plays a lesser role. But in some of these issues they play a dominant role. I think arne duncan played a predominant role on this legislation that was signed yesterday on reforming no child left behind. I think our trade ambassador mike froman has played a role in working with congress on trade legislation. It depends on the issue, but i think cabinet members come in and out as the issues bubble up to a certain extent. I dont know if i really know exactly enough about that to really comment on. With the crs, the continuing resolutions, thats what i was looking for. I think paul ryan wants to get back to regular order. I really do. Now hes come in late here on this particular budget, this particular cr, and this particular omnibus. I think hell tell the Budget Committee next year give us a budget. Then the appropriators hold their hearings, pass their bills, then those bills come to the house floor. I think thats what paul would really like to do as the new speaker. And if he got that done, that would be quite an accomplishment. Mike is in new kensington, pennsylvania. Hes a republican. Mike, youre on with ray lahood. Caller mr. Lahood, thank you for taking my call. Good morning. Caller good morning. I disagree with your characterization of Tea Party People that dont like government. They do believe in government. They just believe in limited government. I think our federal government has gone far afield of what the Founding Fathers ever intended the federal government to do. But my question is the davis bacon act, i think the davis bacon act keeps artificially high the price of Public Service construction jobs. How do you feel about the davis bacon act because i think it should be repealed . I support davis bacon. I supported it when i was a member of congress. I think it does really help those people who build roads and bridges earn the wages for very, very difficult work. These people are limited in the number of years that they can work because of the hard work that they do. I think davis bacon has enabled many of these folks to earn a good living and to really be able to take care of their families. The reason i say i take your point about tea party being for limited government. My point is when i say they dont believe in government, theyre the crowd that shut the government down. Thats my point. If you dont believe in government, then shut it down. We dont need it. But i take your point on limited government. I think its a good point. I had begun my four and a half years in the cabinet with four expectations. All four proved to be unrealistic to some degree. The administration did not use my experience and network of relationships to build republican support for the president s major policy initiatives. Even when they tried, which was not often, they did not mix. Too many times i came late to the game or the inner circle didnt let anyone into the game at all. I think when you look at what president obama was facing in 09, terrible recession, focusing a lot on the economy, and relying on just a handful of people to really give him the kind of advice to get us out of the economic mess that we were in and my point on that was when they put the economic package together, 48 billion, a lot of money, real money that came to dot, but then the assignment went to the vp, so i did have that relationship again with Vice President biden on economic stimulus. When it was all said and done, they wished they had put 480 billion in because of all the good things we did and all the people put to work. When youre president , youre dealing with these tough issues like the economy, like a terrible recession, like trying to get the Automobile Industry back on its feet, like trying to get out of a wreck, your time is limited and the number of people you can talk to is limited, but thats the way it was. Why did you leave congress . Frankly, because i felt that i had done everything that i could possibly do. I was on the Intelligence Committee for eight years. Term limit for that. I was on the appropriations committee. I wanted to get things done for my district. I tried leadership and didnt make that. I felt after 14 years it was time for somebody else. And wed accomplished a lot. I like the idea of going out on top. I think in these Public Service jobs, theyre not lifetime jobs. Theres only so much you can do. After 14 years, i felt that it was time to do something else. I had no idea i was going to be secretary of transportation. I had no idea this rare privilege would have been offered to me, but it was the best job i ever had in 35 years of Public Service because i think we made a difference. Bob michael, ray lahood, aaron shrock, who represents peoria these days . Darin lahood. He ran in a special election after aaron won the house. He got 70 and now hes been sworn in and is representing the 18th district. I know hell be a great congressman and carry on the long, long tradition. Our district was once represented by abraham lincoln. In those 35 years youve been here in washington, have the parties gone this way . There used to be quite a mix in the middle, didnt there . Yeah, there was. I think the parties have gone to their own corners. The republicans have gone to the right and the democrats have gone to the left. Why . I think because its maybe a result of real, real partisan Party Opportunities to elect maybe the more extreme people in the parties. Our district in illinois is a conservative district, but illinois, i think, is still considered a democratic state. Its a way for the parties, i think, to reflect the more extreme points of view. I dont see that changing in the near term. Al is in watertown, vermont, on our independent line. Caller thank you for taking my call. I guess ray would think im an extremist because i would like to see the constitution and the way we got the republic set up enacted where we have twoyear terms for congressman. What hes advocating for is an incumbent party where families and their sons and wives, he calls that bipartisanship when you can get a cozy party and cut deals. What should happen is debate on policy should happen in public . The omnibus was passed without me seeing it. The citizens dont know the relationships when you have the cozy little parties hes talking about. In terms of shutting the government down, i think it should be shut down when youre spending in more money than were taking in. You have us in a horrible position and guys like ray lahood are responsible for it. Got your point. Ray . Al, members of the house do serve twoyear terms. If you only want them to serve one twoyear term, thats a pretty dumb idea frankly. I do think if youre on Social Security or if youre a veteran that served our country and received a veterans benefit, if youre getting medicare, i dont think you think its a good idea that the government shuts down and those people are out of those benefits. Our government provides a lot of good services. There are a lot of wonderful people that work in the government and serve the American People. We need to think long and hard about obviously the opportunities that our government provides to our citizens. And joe in phoenixville, pennsylvania, democrats line. You are the last call for ray lahood this morning. Caller well, id like mr. Lahood to talk about his idea of bipartisanship starting with the question when obama assumed office, he was confronted by an Opposition Party that vowed to do everything they could to defeat him and they have never stopped that effort. How do you expect that he would have been able to reach across the aisle and get those people to work with him in the face of such an attitude, and what did you expect him to do to overcome that . Well, i do think the president made some very strong efforts. I think his chief of staff, and i think it fell on deaf ears. And that was not helpful. And so we are where we are. How is rahm doing in chicago right now . Well, hes struggling. But i think the fact that hes admitted that there are some real issues in the police department. He fired the superintendent of police. Hes asked for a committee of outstanding citizens do an investigation. Hes accepted the idea that the Justice Department will do an investigation. He went before the entire city council and apologized to the citizens of chicago. I think hes recognized that he needs to get back some ability to really have the confidence of the people of the citizens of chicago that voted him in office this year. Have you spoken to can Denny Hastert . I dont know anyone that has talked to him. I have not. I know people have reached out to him and i dont know of anybody except for maybe just a very small group maybe in the yorkville area where he lives in illinois. But i dont know anybody around here or anybody in illinois politics that has spoken to him. And how is your new republican governor in illinois doing, bruce rauner . Hes doing what he said he would do. He said ill stand up to 30 years of democratic control, the crowd that has made our state a huge mess. We have huge pension liabilities. We have an unbalanced budget. We have huge deficits. The state does not have a budget now because Governor Rauner has said there has to be changes. We have to make reforms in our State Government in order to really in order to really make these changes. And so our state is in a stalemate right now, but i do think that hes doing what he said he was going to do and i think people need to give him his due for that and i certainly do. And many of us support what hes trying to do. Over the years ray lahood has always come over here and taken calls from our viewers. We always appreciate that. Seek bipartisanship is the name of his autobiography. Against minister of britain is meeting with ash carter. They will be holding a press conference at about 3 15 eastern time. Well take you there live here lets start by taking a look at what House Speaker paul ryan said yesterday to reporters about the omnibus and the deadlines facing them. This is something ive more or less inherited from the last regime. I dont want to rush through here. I want to get it right. Weve always had the third week in december on our calendar as a week wed potentially be in session. We didnt want to come up against the deadline and rush something. Were negotiating what we didnt have to keep our members here saturday and sunday. What was that trip wooir . There really wasnt a trip wooir. I wasnt going to let december 7 let us rush legislation. That would put the new deadline on september 16th. Thats not an easy deadline to make up. Weve heard thursday from hal rogers, the chairman of the House Appropriations committee and others that theres a lot of work to be done still through the weekend in even to have text of a catchall omnibus spending bill that would fund through the end of next september. That needs to be written by the beginning of next week. Now, remind viewer who is is doing the negotiating of this big bill . Theres two separate pieces in these negotiations. Theres 5 00 chultly a third basket this year which we dont always see which is the expired tax revisions. These are all sorts of tax credit that is viewers are probably familiar with. Some of which they claim on their own irs forms. And those provisions have also lapsed. So that seems like its getting bundled in with the same package this year. Lets go to one of our callers. On the democratic line, we have middleton from ona West Virginia. Youve on with neil. Caller hello. Good morning. Neil, im going to ask you a question. Youre up here talking about what were going to do now with the appropriations. Why doesnt all the media condemn the people in the senate and the house for waiting until the last minute to get all of these riders in here for the president to sign because he wants to decline everything. This happens every time. Wile dont all of you get together and condemn the house and sfat for doing this trick. They can do this during the year. Why do they have to wait until the last minute. Okay, lets give neil a chance to answer. Well, this situation ill take the callers comments and i will tell you that one of the issues this year that led to this particular standoff, this particular standoff was, in some ways, generated by the democrats want i wanting a bigger budget agreement. We started this cycle with a disagreement over the spending lefls themselves. And so the democrats, in fact, in the senate, united to preclude the republican majority from advancing appropriation bills, which is something that is the prerogative of the democrats. They certainly have enough folks to do that. Once that happened, however, and once there needed to be a big negotiation on budget numbers in the fall, that led to the obvious situation where we were going to have one of these omnibus spending bills come december. So this go around, certainly, if there was blame for the process not working, the blame goes in every sort of direction. Its not either party necessarily that gets all of the blame this year. So, neil, talk a little bit about the sticking points that might be. These are all behindthescenes negotiations. So our reporting indicates that there are any number of sticking points. But a couple of view everies might be most interested in. We have the Environmental Protection agency under the Obama Administration is wanting to do has issued all sorts of regulationings, some related to inland waterways, the clean power plants, the deregulated emissions. These are things that the republicans had wanted to block from being impb leapted. So theres clearly fights that have been going on about that. One of the big fights thats emerged in recent weeks, or at least becoming public in recent weeks, although it was in a bill earlier this year, is Campaign Finance reform. Senate majority leader Mitch Mcconnell, desperately, really, i would say wants to change the way that the Campaign Finance laws are structured so that Party Committees and Campaign Committee like the National Republican Senatorial Committee get more coordination rights in terms of how we can actually deal with candidates and to empower the committees versus outside money. And so thats one of those issues thats going to come up. The third one that ill throw in, because it sort of became a fire storm a couple of days ago, is there are some questions about what theyre going to do regarding abortion and access to Reproductive Health services. This is not the same as the planned parenthood debate, but its related to that. Hets go to our next caller. On you are republican line, we have peter from valley college, new york. Peter, are you with us . I have a question. Go ahead. Can you hear me . Mitch mcconnell just used budget reconciliation to defund the Affordable Care act. And when you use that, you only need a majority of 51 votes to get that legislation to the president s desk. I was curious why Mitch Mcconnell did not use budget reconciliation to pass his defunding bill of the sank chew ware cities in california. Apparently, the legislation couldnt pass because they couldnt get 60 votes. Can you please explain why you didnt use it and if you could have and what are the circumstances that it is used . Thank you. Thank you. Well, you get one bite of the apple as a practical matter at the reconciliation process a year. The procedures are derived from a budget. You really can do it once. It had long been established by Senate Republicans and i suppose House Republicans, as well, that they were going to use it sort of up in the obamacare or at least to pass the bill ending obamacare which the president will ultimately veto. But, regarding the sank chew ware cities question and other questions in the senate, there are a whole different set of rules that govern when you can or cannot use reconciliation and for which you can use it for. And the purposes have to be primarily budgetary in nature. Its possible, i suppose, to be able to create a narrow relief. What about the Syrian Refugee Program . I have been hearing that the republicans a group of House Republicans would very much like to attach the syrian refugee issue to the omnibus bill. The number two democrat in the senate was making very clear to reporters that thafgs one that democrat leaders were going to sort of push up against in particular. There may be some room for more flexibility when it comes to the visa waiver question. This separate issue, but also related and dont require visas to come into the United States. There seems to be bipartisan concern about that program and there might be an attempt to collect on that. There could be both democratic and republican votes. Lets go to our next caller, wech peyton from london, kentucky. Go ahead, youre on. Good morning. Good morning. Yeah, i havent heard anyone discus the National Debt as it relates to our national assets. And the trend of that. And how that might relate to similar come parsons and, for example, ibm or apple, you know, equity ratio, et cetera. One of the advantages that the u. S. Federal government has when it comes to earnings ratios or whatever it may be relative to as opposed to a private company is, of course, that a private company cannot print money. Theres no such theres no such thing as an apple currency. They may want to, i dont know. Knowing theres apple may, but theres no actual apple currency. So, certainly, when youre talking theres no real good way to use it for apple again and then two apples can be between the company and the federal government in terms of its bookkeeping. Okay. Our next caller is general for from north port florida. Jennifer, youre on with neil. Im just curious if you have any information about tdroga extension . Yeah, talk a little bit about what the droga bill is. Sure. Excellent question there. The droga act provides funding for paying for Long Term Health care needs of 9 11 first responders. And people who, on september 11th and in the aftermath, with the cleanup of the site of the world trade center, were affected negatively with all sorts of Terrible Health consequences of the fumes and part kals and everything that was going on there in lower manhattan. What were hearing, some of you probably may know, that john stuart has been coming out to talk about that quite frequently. What were hearing now is i found out again yesterday, the speaker the Speakers Office told me he has assured members hes assuring people that this is going to get done. They werent committing specifically, publicly to which vehicle it was going to be in. So whether or not. Its actually in the omnibus spending bill or whether it hitches a ride somewhere else before the money runs out, speaker ryan says its definitely going to get done. Kin from long island, and he was saying that he has been sort of on speaker ryans case about this just about every day, and that you know when you are in the new york metro area, it is a really serious issue. And it looks like that is going to be something that is going to get done. Host we are talking with Niels Lesniewski. Cif you like to join us , 202 7488001 for republicans. 202 7488000 for democrats. 202 7458002 for independents. Our next caller is on the independent line. James from montgomery, West Virginia. Caller yes, i would like to in westorruption Virginia Court system. I may or may not have a case coming up, but host james, do you have a question about the omnibus spending bill checkup bill . Caller yeah, about reducing money. They gave West Virginia money to do testing without going through congress about it. Id i send him a list of stuff wanted him to look into about this case, and he got on there sometime in the first term and got up there he was in the yellow room, i guess they call it and made a smart remark. Host james, im sorry, i dont mean to interrupt. We are talking about the omnibus bill now. Unless it is a question directly for that, im not sure our guest can address the West Virginia issue. Lets move on. What is the next step for congress now in pushing this bill forward . Guest once we get past today, where the house is going to gavilan at 9 00 this morning gavel in at 9 00 this morning, and then we will see them advance the stopgap measure, what is going to happen when the bill itself, the bigger bill, the omnibus, is a substantial piece of legislation that will run somewhere north of 1000 pages probably. And what you will see happen, if you are a cspan viewer, is that there will be an announcement that will be made at some point, probably on monday if not sooner, maybe later, of what the agreement actually is. And then in theory, there is supposed to be about 72 hours before the house can vote on that. So that would set the vote back until wednesday. But one notices the december 16, the date the funding expires, happens to be wednesday. So all of this is getting pushed every minute we go. We are pushing back further. On the other thing viewers should know is that someone who focuses specifically on the senate, i can tell you we are already at the point where any senator considers the disrupt. Because the way the House Rules Committee instructed, they dont have the power to do that. Any senator can seriously interrupt the timeline, particularly if the bill does not arrive in the senate until tuesday, wednesday. There may need to be another stopgap bill to prevent it from being shut down on, say, thursday or friday of next week. Host on our democratic line, we have george from ohio. Caller yes, i am. Host go ahead. Caller i have a question. If donald trump gets to be nominee, howard that affect the senate . How would that affect the senate . Guest there is certainly concerned among republicans that and sort of republican operatives as well as, i think, lawmakers themselves that if esther trump or someone like him if mr. Trump or someone like him is the nominee for president , then it makes it much more difficult for the Republican Party to hold control of the senate in the 2016 election. If you look at the electoral map that is facing the republicans for the senate in 2016, the places where the have incumbent republican senators running looking at places like wisconsin, illinois, new hampshire, ohio and pennsylvania these are places that often skew more moderate to liberal when it is a president ial year. And so those are vulnerable senators to begin with. The fear is that if you have someone like donald trump , that you the ticket end up with a down ballot problem with more people coming out to vote for for the sake of this argument Hillary Clinton with the democratic nominee. If you had a Hillary Clinton versus donald trump general election contest, there is real fear among republicans about how the senate map with turnout. Ok. up next on our independent line from massachusetts, we have ken on the line with Niels Lesniewski from roll call. Caller well, i can understand why the republicans are cutting back on all the money when they want to increase the defense budget. It doesnt make sense. They are saying we are broke yet they want to start world war iii and spend money on defense. I have a Defense Agency right next door to us. It is all wrapped up and ready to go for the Republican Party as soon as they get in. They can start making weapons of mass distractions. The same thing where going to war with. I cannot understand why this country is so divided. United we stand, divided we fall. Im seeing it fall right in front of my eyes. It is said. This is not the america i was born in. I was able to get a job the same i was able to get a job. The same day, i quit. Now, good luck. Im sad to say all this stuff to people, but weve got to get just focus on a Certain Group of people. The mexicans, the kkk, it is all bad. Host lets give niels a chance to respond. Guest thank you, ken. How much is of going to be spent on defense spending versus nondefense Discretionary Spending is always, of course, up for debate. Where at a moment to now the particular spending bill that is hopefully going to do next week. That question was resolved in the previous budget negotiation. It reached a twoyear agreement on the top line spending levels that allow them to develop what they call the budgetary allocations so that they can go forward with writing actual spending bills. Now where at a point there is going to be a debate over how much of the money goes to the pentagon versus how much of it goes to the department of health and Human Services or any other agency. That question was resolved. But they are still working through this question of riders. We shouldnt have another debate about military spending levels at least for about another year and a half. Host on our democratic line, we have kate from maryland. Kate, you are on. Caller yes, the guest there just said that term limits are done. Hear himidnt correctly, but i dont understand that. If the guys on the hill had the exact same term requirements as the presidency, after their two terms they are out of their and we are able to get some fresh ideas, some fresh perspectives up there on the hill where people have the opportunity not to decide on the same pool of host i dont mean to interrupt you. I think you are referring to our last guest. Right now, we are talking about the omnibus bills. Do you have a question about the omnibus . Caller oh, no. I apologize. That really resonated. Host thats fine. Guest i assume the caller was talking about secretary lahood, who was on here earlier. I would say the term of a question, when it comes up and it does come up from time to time, generates sort of a degree of controversy. Generally the sentiment of longtime lawmakers and theyre lawmakers so theyre not going to term limits. But longtime lawmakers argue when it comes to things like a spending bill, you need to have people who are experienced enough in knowing how the government actually operates on capital hill in order to be able to oversee it and implement the policy. Thats why you have Senior Members of congress, people like hall rogers who are actually the ones who write the spending bills. Thanks for joining us today. Thank you. On monday, well take you to a National Security forum hosted by the center for new American Security and defense one. Panelists discussing future of Defense Industry will include robert werck and joint chiefs of staff joseph dunbard. It starts at 9 00 a. M. Eastern live on cspan2. A panel at the Atlantic Council examines the potential for a nuclear deal with pakistan. All persons having business before the honorable the Supreme Court of the United States are admonished to draw near and give their attention. Monday on cspans landmark cases youre under arrest. You have the right to an attorney, you have the right to remain silent. Anything you say can be used against you in a court of law. Is that clear . Yeah, okay. Are you sure you understand . Thats right. He was 23 years old in 1963 when he was arrested in phoenix on suspicion of kidnapping and raping a young woman. After two hours of police questioning, he confessed and signed a statement saying his confession had been given voluntarily. At trial, he was sentenced to 20 years. But his lawyer argued that he had not been told of the right to both an attorney or the right to remain silent. The case went all the way to the Supreme Court. Follow the case of miranda versus arizona and the evolution of policing practices in america with our guest jeff rosen, president and ceo of the National Constitution center, and paul cassell, university of Utah Law School professor specializing in victim hes rights and former District Court judge. Thats live monday night at 9 00 eastern. On cspan, cspan3, and cspan radio. For background on each case while you watch, order your coach of the landmark cases companion book, its available for 8. 95 plus shipping at cspan. Org landmark cases. This is going to be fast. We have a very terrible bill on the floor. So many times it seems we come into this room and acknowledge another tragedy. Today, i mentioned that monday marks the threeyear anniversary of the heartbreaking shooting at sandyhook elementary school. Thats a little more than a thousand days. In that thousand days, theres been more than a thousand mass murders. More than a thousand mass shootings. Almost one a day. Sandyhook and San Bernardino are bookends of a daily tragedy of gun violence that tears apart communities across the country. Gun violence has claimed over 90,000 american lives in the past three years. We have the responsibility to address this. Its a Public Health issue. Its an epidemic. Yesterday, as you may have noticed, i offered a privilege resolution to close a loophole that puts guns in the hands of people on the f. B. I. Terrorist watch list. Republicans blocked the resolution for the sixth time then, for the seventh time this morning to keep the house from even debating the bill to end this shocking loophole. This morning, again, they blocked for the seventh time. 90 of democrats have already siebed. Not just words, but honoring them with action. Were coming up on the omnibus bill. Thats why h is going to be a short meeting. A call for a 19year ban on gun vie lengs. The gun ban excuse me, the ban on gun violence prevention research. American people want the facts. Members of Congress Need the data. Too many times, republicans say we cant make a decision because we dont have the data. Well, lets get the data. Lift the ban. Even the maker of the i was on committee at the time. And he has now stepped away so negotiations on the tax extenders, well continue to focus and well always have a big focus on violence prevention. This coming having moments of silence and no a. Here we have two motions before us. I think were working in a direction to get that done. I thought we were closer to a bill than that, but, nonetheless, the extender bill is another part of it. Its a massive, permanent give away, unpaid for tax package which is really the omnibus future. Have you heard anyone speaking out against this action . Maybe they should be on the endangered species list, i dont know. It limb nate it is possibility of revenue reform that creates fairness and simplification in the tax code. What we want to do is do just that. Simplify. Make fair. Lower the corporate rate. Do what we need to do to create goodpaying jobs here at home. This bill includes hundreds of millions of dollars in special tax breaks while neglecting hardworking families. And some of it is about rewarding overseas activities. Putting money in the pockets of the American People. I worked with president bush in landmark on that regard. That was seven years ago. Its time for this to be indexed. Push push. While we agree on tax credits that benefit, were concerned its weighing too heavily toward corporate america. Really, like, 4to1. The omnibus and tax extenders bill must be separated. I assume that they will be. As i say, theres one group that will volt for omnibus. Well see when it comes back without the riders and the extender bill which has very little support in our caucus. Any questions . It looks like the terrorists in San Bernardino have been planning this for a number of years. What does that say about the u. S. ability to intercept an atecht like this . We had a briefing yesterday and weve had some more questions about that. I dont think weve heard the whole story yet. But our responsibility is to protect the American People any way that we can. We also have to protect our Civil Liberties and our country. And we have to keep that in ambulance. According to what we heard, it would have been very hard to detect, but well see. This is an unfolding case and revelation. Well see what else is there. Yes, maam . Have republicans responded to get rid of your bill in the omnibus . Will democrats be able to reach a deal . I think of it more as an incentive for democrats to vote for the bill. This is, after all, a compromise. And we know we have a responsibility to keep government open and thats what were striving to do, in spite some of the bad riders that are still in the bill from days gone by. That have, shall we say, os filled in the process. I think its a gift. I think of it more in the positive. Are you going to ask about the warriors . See, when the warriors are winning all of these games straight, he doesnt want to talk about it. Thats the San Francisco bay area. So, back to my question, the speaker has said that they are considering theyre working on the tax incentive bill. Is there a possibility that you get trade offs . If they do dlooef these bills apart, that thats considered this macro and whats the question . Well, the negotiation is being worked at that way. That youre looking at these two pieces of legislation sidebyside. Because they want to get as many as possible. So the question is . Is that how the negotiations are working . Well, well see how it goes. I thought you were going to say if you joined them together. I i wouldnt vote for it. Unless they have all the republican votes to do it. But they obviously want to get as many republicans as they can for the omnibus. Okay. You already had your question. Next . Im wondering if its starting to look unlikely that you can still get an extender . No, they can have a republican extender bill. Ive nevada been for it. I think its far too expensive. I think the extender bill that is out there, as i said, is destructive of our future. Its the wrong way to go to have 700 billion in permanent tax extenders. Theres no reason we have to two down that path. And, yes, there are a couple good things in there about Child Tax Credit. I discussed those, too, before, with president bush. But its time to have ind indexization for that. They dont want to hear about that. As i said to senator hatch, i usually say im holding it up or im not in the loop. I cant be both. But i dont even want to be in the loop on that bill. Oil, money that that means for the oil industry while it cant index for children, its just too big, its unfair and does not have the support of house democrats. It could have the support of others im not speaking for anyone kpept house democrats. And this is going to be the last question. Some of the leaders have said that this Republican Controlled Congress will have about a trillion dollars. Lwei republicans can be dishonest and have how much over the last years . It sounds like its a different view of what adds to the deficit. What i do know, as a stimulus to the economy, is to invest in Child Tax Credit, earned income tax credit. Because people send that money immediately, inject it into the economy. But then if you review Small Business 179, we created that. But you shouldnt be having it permanent and unpaid for. Thats the issue. Now, some of them are terrible. And theyre permanent and unpaid for. So theres no just any case. Others we have to pay for 9 11. Whats that . About 9 billion . We have to find the money to pay for 9 11 for the health and compensation who, in an emergency, that should make it not have to be paid for. In an emergency, risk their lives have consequence health that we owe them compensation. But permanent, unpaid tax breaks. This is not the right way. But they have the majority and this is their vehicle. Theres some negotiation with them on i. Im not part of that because i dont believe in it lt i think its the wrong way to go. By the way, my members are the most local on this. I listen to what they have to say. I tell them what were going to do and i hear what they say back. They dont want us negotiating on it or anything. They think its the wrong place to go. I think the American People understood that all of this talk about the budget and the rest. And this is a president who just has so much praise. When he took office, the deficit was 70 higher. It its come down 70 pbts. . So hes worked very hard to take down the deficit. If you want some of these extensions to happen, you have to go big. Big means unpaid for. Permanent. Its for how we want to invest in the future. Take it off the table so that these are all the taken care of in any discussion we have about schism occasion or fairness in the tax code that really creates growth creates more goodpaying jobs in our country. Its about many more people participating. They have the majority. So they need to be ne gauche yated with, of course. The president has the signature, so that gives him leverage in that discussion. But i made it clear, dont count on my votes for that. The Child Tax Credit, you say its too big and destructive . Its in there. The Child Tax Credit is in there. Are you indexing it . Theyre not going to index it. Instead, they put big oil in there. So when you see the bill, you say how can we get better balance to this bill by indeck saix. They come in and say no, not indexization. Lets go on the other side and do big oil. Its not even an attempt. But you know what, if they have the votes, this is what they want to do. We do not want to give we will not be accomplices. They want to finance it. We dont need to be for i. Theyll have enough republican votes supporting their special interest friends to pass this thing in a second. And thats what i dont want to do to the omnibus bill. They dont want to support the omnibus bill. I dont know what happens to the whole pack oj of that. I think our responsibility is to keep government open for the American People they have frivolously indicated that theyd be willing to shut it down. That is what we are doing. They could not have been thinking of the house democrats. A supporter said that when they came up with that. Are you wi. Are you going to make the wednesday deadline . The Mexican Foreign minister will speak at the migration policy institute. Watch it live at 4 00 p. M. Eastern on cspan. She was such an awe thentic person. I always thought there was more to the story than anybody had covered, certainly that i had wrote about. She came, i think, the first modern first lady. In other words, she had a big staff, she had a very important project. She wrote her book as soon as she left the white house. She really invented the modern first lady. Sunday night on q a, she addresses her book lady bird in lyndon. She releases pages of the former first ladys diary. I think its a perfect example of the conclusion of the women that saw something in those men the opportunity to really climb and make a mark on the world. And they married them in spite of parental injection. So shes a good example. And thats why i decide i i had to find out more about her. Sunday night at 8 00 eastern and pacific. This hearing is entitled oversight of the Financial Stability Oversight Council. Today, we have 8 of the 10 members voting as witnesses today. According to earlier in the yar, the chair has regrettably decline today give testimony today. And i recognize myself for three minutes to give an Opening Statement washington rewarded them with vast, new sweeping powers over our lives and our economy. Nowhere is it more evident than in the doddfrank Financial Oversight Council whose members set before us today. Its clearly one of the most powerful federal entities to ever exist and, unfortunately, one of the least transparent and least acountable, as well. First, in the hands of oneonone Political Party and the one that controls the white house. The agency, themselves, are not members, thus denying bipartisan representation. It clearly injects into the regulatory process and erodes agency independent and acountability. Not subject to congressional approval removing yet another check and balance to its power. Twothirds of its proceedings are conducted in private. Minutes of those meetings are devoid of any useful substantive information on what was discussed. The c. E. O. Has said the proceedings make the opening look by comparison. They are all scripted. They treat their information as if it were state secrets. Involving councils activities, it generates more controversy than nonbank Financial Institutions as systemically important Financial Institutions or sifis by acronym. Designation is too big to fail means todays sifi designations are tomorrows taxpayer funded bailouts. Om lousily allows huge swaths of the economy to be controlled by the federal government. In addition to sifi designations, refused to look in the mirror. Its annual report specifically helping cause the system it identifies. Greater risktaking across the Financial System is encouraged by historicallylow yield environment, the council reports. Yet, the council refuses to identify the obvious source of loose, monetary policy. The Council Warns it reduced liquid day. Amplifies its threat by empowering the council to designate certain firms too big to fail. The regulatory system secretive government meets, arbitrary rules and unchecked power to oversighted reform. The chair now recognizes the gentleman from new jersey. I thank the chairman chlts i thank all of our witnesses here today. I guess all of our witnesses, you all 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 take this minute to mention ourselves to you. Were the u. S. Congress. We were created by article one of the u. S. Constitution. Were the ones who actually elected representatives of the american public. And were the ones who send you all of those pesky letters that you routinely ignore. I know youre confused by this setting that the public is here, theres tv cameras here. Were open to the american public. We are transparent and we are before the american public. So if theres one thing that you take away today, and thats the way you run your hearings, thats the way you conduct yourselves. You need to become more like us. More transparent. More open to the american public, more showing what your age any agencies are doing and adocument these policies so that 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. And thank you to the distinguished members of the council for driving up for this hearing. Were joined today by council and fson. To monitor and respond to the tax of Systemic Risks that nearly brought our economy to its knees in 2008. This cuts across every corner of Capital Markets housing. Thats how its specifically designed to draw 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 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 and 13 in economic growth. Not communicating with one another and not considering gappings between their agencies are interconnectors 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 were meant to be forgotten as weve seen with recent markups to governmentfunding bills with poison pill riders are far too focused on dismantling wall street reform by attacking core elements like the fsoc and the Consumer Financial protection bureau. These attempts to roll back doddfrank started the minute this reform was signed into law. And make no mistake, these attempts continue today even as our economy has experienced a remarkable rebound with 69 straight months of positive job numbers, gdp growth and a houses markt where sustainable access of credit continues with the law designing to ro voek. Regulatory agencies for periodic information sharing about emerging risk and reporting on those risks to the public. Further, the council has now design further, the council has now designated four institutions for enhancing the ro vision 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 oversighted is not causing some Large Financial Companies to consider whether simplifying their structures and breaking themselves up might provide better value to their shareholders. Ive also encounselored that the Money Market Fund industry is now less susceptible to banklike runs as a result of the pressure. The fsoc to overcome gridlock at the securities and exchange commission. Finally, aappreciate that the koungs lors made an effort to conduct thats responsive to feedback and congress and outside stake holders, for example, with this announcement in february, the fsoc voluntarily agreed to certain due process and transparency measures to further essential to improve their operations. This type of dialogue should be applauded. As we hear from the Voting Members of the council today, i would be interested to learn more about their interagency collaboration, good work to addressing threats and this work is central to preventing the attacks that nearly crashed main street just seven years ago. Thank you, mr. Chairman. I yield back the balance of my time. Thank you, mr. Chairman. An inefficient 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 overzealous enforcement climate prevalent today. It should alarm all americans, judging by what we know of the staff hours spent on nonbank analysis, which we will get into shortly in the question and answer period that i have, its clear to me that these designations and the lack of a clear path for dedesignation say Federal Reserve driven effort to expand government power and influence. Its time to force more transparency, to require pragmatic regulation and to curb the scene crippling our institutions and their customers. With that, mr. Chairman, 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 massad, chairman of the commodities future trading commission, roy woodall, independent member with insurance experience, debbie matz, chairwoman of the National Credit Union Administration, and especially warm welcome to our former colleague, mel watt, director of federal housing, finance agency. Martin gruenberg, chairman of the federal deposit insurance corporation, richard cordray, director of the bureau of Consumer Financial protection, 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. Chairman hensarling, Ranking Member watters and members of the committee, 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 sec staff bring to the council is important in particular the secs Historical Mission of protecting investors, maintaining fair, orderly 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 Management activities and products, the ongoing changes to Market Structure and the role of central counter parties. S. E. C. Engagement with the council on these issues helps to ensure that relevant expertise is brought to bear on these important subjects. 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 massad, you are now recognized. Thank you. I appreciate the invitation to testify today. The cftc oversees the u. S. Derivatives market. Although most americans do not participate in these markets, they are vital to our economy, affecting the prices we pay for food, energy and other goods and services. For the markets to work well, sensible regulation is essential. We learned that in 2008 when a lack of oversight led to a buildup of excessive risk that contributed to the worst Global Financial crisis since the great depression. My perspective as the member of the fsoc is shaped by my responsibilities as cftc chairman and today i would like to highlight a few of the cftcs priorities that are particularly relevant. First is the implementation for overthecounter swaps. Where we have made great progress. A number of financial regulators have responsibilities in this area. And the fsoc 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. The cftc 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 the fsoc served as 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 fsoc 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 today. Here again, the fsoc plays an porn 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 recognized. Thank you, mr. Chairman, Ranking Member and members of the committee for inviting me to appear before you today. Mr. Chairman, you have asked us be succinct in our oral testimony this morning. And the Committee Received my open testimony last friday morning and in review of your request, i do not feel it is necessary for me to expand on it in detail. But in short, as the Committee Examines ways to improve the structure and the operations of the council. My written testimony discussion falls into three broad categories. First, the background and legislative history of the independent member position in doddfrank. Second, the lack of explicit statutory duties and authorities pertaining to position other than just being a member of the council and the difficulties that has presented from being only, quote, three lines in the statute. The first line creates the position. The second one sets the sixyear term. And the third one sets salary. Thats all thats in doddfrank about my position. Finally, the third section of my written testimony tries to go into my willingness to work with congress on how the role and authorities of the position can be clarified to strengthen the independence of the position in order for the holder of this position to be more effective in contributing to the work of the council. Thank you. Im happy to answer any questions. Chair woman matz, you are recognized for the testimony. Thank you. If you can hit the button, please. Thank you, chairman hensarling. I appreciate the opportunity to discuss the Financial Stability Oversight Council. Congress established the council in response to the 2008 2009 financial crisis. The crisis made clear that Financial Markets cannot quickly absorb the collapse of very large interconnected companies. Fsocs primary goal is to prevent system wide financial crisis. The councils multiagency structure also ensures that a diverse array of views on risks in each Financial Sector is considered when making decisions. From the beginning, the council has recognized the importance of transparency and public participation. The council committed to publicly disseminating timely information about decisions while balancing the need to protect proprietary information and avoid unduly moving markets. Public feedback has helped fsoc clarify procedures, enhance analysis and improve Decision Making. As an fsoc principal, im committed to continuing such improvements. Each Council Member brings to the table a unique perspective informed by our areas of expertise and experiences. As a federal financial regulator for almost ten years, i lead an agency that now supervises and ensures more than 6,000 institutions with assets exceeding 1. 1 trillion. Financial institutions of every size must carefully manage assets and liabilities. In fact, major elements of fsocs designation of an institution include the composition of the Balance Sheet, off balance street exposure and interconnectedness with the entire Financial Services sector. Fsoc has moved in creating its process for identifying nonbank Financial Companies. In response to Public Comments and congressional feedback, the council has invited Company Participation earlier in the process. Another important asset is its annual report. The 2015 report called for heightened Risk Management and supervisory attention in areas such as Cyber Security and reaching for yield. In conclusion, fsoc has promoted collaboration across financial regulators, established rules and procedures which reflect public input, identified systemically important institutions and furthered Public Awareness of threats to our Financial System. The council must continue to evolve, provide transparency and remain flexible when considered new issues. I look forward to your questions. Director watt, you are now recognized for your testimony. Chairman hensarling, members of the committee, thank you for the opportunity to testify today about the Financial Stability Oversight Council. And to be back before this committee on which i served for 21 years. As an independent regulator, fhfa is responsible for the supervision, regulation and Housing Mission oversight of fannie mae, freddie mac and the Federal Home Loan Bank system. In addition, since 2008, fhfa has served as conservator of fannie mae and freddie mac. Fhfas housing Financial Market expertise contributes to fsocs ability to understand and better assess broad, Systemic Risk. As i recall ensuring that fhfa contributed this kind of expertise to fsoc was especially important to congress, both because housing represents a significant part of our economy and because the most recent severe disruption of our economy that our economy experienced resulted from business entities and others making unsafe and unsound housing and Housing Finance decisions. Through fhfas active participation in all fsoc committees, fhfa engages with other fsoc members to share information, evaluate policy matters and conduct risk assessments of business entities and markets in which they operate. Fhfa also participates with other members of fsoc in making assessments of whether to designate nonbank Financial Companies for supervision by the Federal Reserve. If so designated, these companies are required to meet enhanced prudential standards. This is a significant and important fsoc function and its one all members, including myself, take very seriously. These decisions are made only after extensive engagement with the company, a thorough analysis of the facts and careful deliberations. Going forward, i look forward to continuing to engage with fellow fsoc members to meet our duties and responsibilities in a manner that fosters transparency, is fair and analytical and contributes to appropriate Risk Management and risk reduction. I will limit my comments to these statements, and i look forward to answering your questions today. Chairman gruenberg, you are now recognized. Chairman hensarling, Ranking Member watters and members of the committee, thank you for the opportunity to testify today on the work of the Financial Stability Oversight Council. Financial crisis that began in 2007, exposed a number of serious vulnerabilities in the u. S. Financial system. Some risks affecting individual products and institutions have been recognized, neither the Financial Markets nor the Regulatory Community was able to see the whole picture. The fsoc was established in 2010 by the doddfrank act to address this gap in the Regulatory Framework. Its key functions are to facilitate information sharing among the member agencies, to identify and respond to emerging risks to Financial Stability and to promote market discipline. The fsoc is responsible for designating nonbank systemically important Financial Institutions for heightened supervision by the Federal Reserve. We now have the benefit of five fsoc annual reports which outline the key Systemic Risks facing the Financial System and how they have evolved over time. The first report published in 2011 described a fragile Financial System recovering slowly from the deepest financial crisis since the depression. In contrast, the most recent report describes a more stable but still recovering economy and broad based improvement in most Financial Markets and Market Participants. Three areas of risk that the fsoc has been following closely and in which are particular consequence to the fdic are Interest Rate risk, credit risk and Cyber Security which are expanded upon in my written statement. As previously noted, the doddfrank act authorizes the fsoc to designate a Nonbank Financial Company if the fsoc determines that material financial distress of the company or the nature, scope, size, scale, concentration or mix of activities of the company could pose a threat to the Financial Stability of the United States. Fsoc policies and procedures were crafted to ensure an exchange of information throughout the process as the process has evolved, opportunities for additional transparency, both within the operations and the designation process were identified by the fsoc and in comments by external parties. As a result, the fsoc undertook several initiatives over the past year and a half to improve both transparency and engagement with Financial Companies. These steps are outlined in my written statement. Mr. Chairman, that concludes my oral statement. Will be glad to respond to questions. Director cordray, you are now recognized for your testimony. Thank you chairman hensarling, members of the committee for the opportunity to testify today. Im glad to work with you and my colleagues on council to strength our Financial System. As were all aware, a few years ago, disruptions in Housing Market proceeded a financial crisis that caused significant damage to our people and our economy. The ensuing recession caused millions of americans to lose their jobs, millions of families to lose their homes as the Ranking Member noted. Many saw their Retirement Savings diminished. Severe deficiencies in supporting Mortgage Backed securities in particular created shocks that offended the Financial System. In the aftermath of the crisis, Congress Passed nancial reform legislation to address the problems that led to the crisis and help ensure they would not happen again. Among the steps taken were the creation of the Financial Stability Oversight Council and Consumer Financial protection bureau. The creation of the fsoc provides for the first time a means of comprehensively monitoring the stability of our nations Financial System. Prior to the crisis, the u. S. Financial Regulatory Framework focused on individual institutions and individual markets in isolation from one another. No one regulatory body was responsible for monitoring and addressing overall risk to Financial Stability which involved different types of Financial Firms operating in complex ways across multiple markets. The potential for supervisory and regulatory gaps were viewed as creating blind spots. After the crisis, congress recognized the need for a mechanism to bring financial regulatories together to monitor the system and coordinate the regulatory efforts to respond effectively to emerging threats to Financial Stability. One approach that congress specified to address the issues was to designate certain Financial Institutions and market utilities as systemically important to the Financial System. For the purpose of applying enhanced prudential standards in supervision. The fsoc includes Consumer Bureau, which is focused on protecting consumers in the Financial Marketplace. Products such as mortgages and credit cards are involves in some of the most important Financial Transactions in peoples lives. These products are often funded through complex Financial Markets and may constitute the underlying assets for more complex and highly leveraged securities. As the crisis made clear, Financial Stability, market discipline and Consumer Protections are closely interrelated. Part of the mission is to help ensure the recent economic meltdown is not repeated. Practices that led to the financial crisis. We are exercising the Authority Congress gave us to ensure balanced oversight and prevent harmful practices. When honest and innovative businesses can succeed on the merits, fair competition drives growth and progress and the entire Financial System rests on stronger and sturdier foundations. I look forward to continuing to fulfill congresss vision for our agency and my role in the fsoc. Thats what were here today working together to do. Thank you again for the opportunity to testify. I look forward to your questions. Controller curry, you are now recognized for your testimony. Chairman hensarling, Ranking Member watters and members of the committee, thank you for this opportunity to provide the views of the occ on the functions and operations of the fsoc. The occ charters, regulates and supervises National Banks and federal savings associations. These banks range from Small Community banks to multitrillion dollar institutions that are among the Worlds Largest Financial Institutions. They hold nearly 11 trillion in assets or just over twothirds of the industrys total. The occs mission is to ensure that these banks operate in a safe and sound manner, provide fair access to Financial Services, treat customers fairly and comply with applicable laws and regulations. As the only federal financial regulator with prudential regulation as its primary focus, the occ has Specialized Knowledge about the safe and sound operations of the banks. In 2010, as part of the doddfrank act, congress established the fsoc to identify, monitor and respond to Systemic Risk. The council brings together its member agencies to fulfill this critical mission. Through its committees and staff, the fsoc provides a formal, structured process for communicating, coordinating and responding to emerging market, industry and regulatory developments as well as to unforeseen events. As one of the fsocs ten Voting Members, the occ brings considerable expertise to the council. Our examiners monitor several areas of financial risk in the Banking Sector every day, including, credit, liquidity and Interest Rate and operational risk. These are among the risks that the fsoc reviews in its evaluation of risks with respect to nonbank Financial Companies and Financial Market utilities. Similarly, as many of the institutions we supervise are engaged in Asset Management activities, the occs expertise in this area is also quite robust. Since its establishment, the council has demonstrated a sustained commitment to working collaboratively to fulfill its mission. The Council Members and their staff have developed strong working relationships and the council provides a Constructive Forum to hold conversations, share market Sensitive Information and to ask the tough questions that help make the u. S. Financial system safer. The council has also made positive strides in enhancing its transparency both to the general public and to the companies under consideration for designation. Doddfrank provides the fsoc with duties and responsible to promote the stability of the u. S. Financial system. The issues that the council confronts in carrying out the duties are by their nature complex and far reaching. My written testimony includes Additional Information about the specific mandates congress has given the fsoc and a discussion of some of the important actions the council has undertaken. For our part, the occ is strongly committed to helping the council achieve its mission. Thank you for the opportunity to appear today. I would be happy to answer any questions. The chair recognizes himself for five minutes for questions. By show of hands, how many of you have any professional experience in the private Insurance Industry . Please raise your hand. I see two. Mr. Woodall and miss white. Let the record reflect that. How many of you have had experience in regulating Insurance Companies by show of hands, please, raise your hand. Let the record reflect only mr. Woodall raised his hand. As fsocs independent member having insurance experience, you dissented in the metlife and prudential designation. You wrote, it confounds me that much of the council and staff continue to misunderstand the insurance Regulatory Framework. You went on to say that fsocs analysis relies on implausible, contrived scenarios as well as failures to appreciate aspects of insurance and annuity products and importantly state insurance regulation and the framework of the mccarron ferguson act. Do you still stand by those comments . Yes, i do. If i could expound just a little bit the basis of all of that and put it in perspective. I was pointing out that under the statute, there are two determination standards under which the council comes up with its idea that a company is a siffy. The first one is the only one thats been used so far. That is if theres a material financial distress at that individual company, which could be a threat to the entire u. S. Financial system. The other is activities. Are there activities that could be a threat. My push has been to get the second standard of activities to be used across sectors so we can get at the very things that are causing this Systemic Risk. Across sectors. We have a situation where if we have a company and it knows its doing an activity thats systemically risky, it can sell it and then essentially we have lost them. They are there, but the risk and the Systemic Risk could be in the system. What are the implications of designating a Traditional Insurance Company a siffy, since they are under state based regulations, we will have a duplicate regulatory system . Do you believe those costs could be imposed upon policyholders and Insurance Company investors . In other words, whats the harm in designating an Insurance Company as civvy . It could come to higher prices because they have higher regulatory costs. Also, with a higher regulatory cost, the products have to be priced higher. It puts them in an unlevel Playing Field with the people and the companies that are not designated. Chairwoman matz, prior to designating prudential, did you make inquiries, request, Economic Analysis on what this designation could mean to insurance policy holders . Was that part of your Decision Making process . Im sorry. No, it was. It was not. Do you believe it should have been . That was not the mandate that we had. The mandate is to determine if material distress at a nonFinancial Institution could cause could pose an emerging threat to the stability of the United States. Under section 113a2 of doddfrank, there are 11 different factors you are to consider. With respect to the prudential decision, to what extent did the leverage of the company play a role in your decision to designate it . It was the combination. We were briefed extensively on the financial im sorry. Briefed by who . Briefed by the fsoc staff and the staff that works with them, that participates with them. So does the ncua staff have expertise in Insurance Company leverage . What was the specific leverage of prudential that caused you concern . The determination wasnt based on the insurance activities. It was based on the financial activities of the company and how they are interwoven with other specifically, which activities were those that were interwoven that concerned you . The extent of their leverage. The derivatives. I asked you about the leverage. Securities lending. Their debt position. The difficulty to resolve them if there was financial distress. It was not one factor. Chairs time has expired. The chair recognizes the Ranking Member for five minutes. Thank you very much, mr. Chairman. Let me first go to mr. Woodall. Is aig designated, mr. Woodall . Yes. Should it be . Well, at the time when they were designated, we were coming right out of the financial crisis. The first two designations were aig and jecc, companies who had had some problems during the crisis. Some problems . Big problems. Big problems. Okay. So it should be a sifi . At that time. At this time . Its half the company it was then. At this time . Should it be a sifi . Let me just go on to mr. Gruenberg. In the doddfrank act congress recognized our banking regulators failed to engage in Regulatory Oversight of large banks leading up to the crisis. As such, we put in place enhanced prudential standards to set forth the basic requirements for a bank to be well run, capital resolution, Risk Management, among other factors at the same time the deliberative process in congress led to an exemption from the requirement. Congress also directed the fed to tailor certain regulations for large regional banks based on size as well as provide the fed with the option to exempt certain banks above 50 billion from certain requirements. Both in committee and through potential riders to funding bills. Congress is now contemplating legislative proposals that would undo this important work. These proposals would instead rely on the Financial Stability Oversight Council to affirmatively designate banks for enhanced prudential stand d standards for all but the very Largest Global megabanks. Chairman gruenberg, do you think that such proposals would be ill advised . What did the 2008 financial crisis teach us about how the failure of one or more large regional banks could harm our Financial System . And in terms of bank resolution, which failure during the crisis era was the most costly for the fdics Deposit Insurance Fund . Hit the microphone, please. To answer the question question at the end, the most costly failure to the fdic during the crisis was the failure of indymac, which was a thrift institution with assets of about 30 billion that ultimately cost the Deposit Insurance Fund over 12 billion, which is the most significant loss during this crisis and i believe in the history of the fdic. And it does show the importance of having a prudential framework for larger institutions related to capital and other standards and to respond to the first part of your question, i as a general matter, i think the framework in place is a reasonable one. It generally gives discretion to the agencies to tailor the prudential standards to the size and complexity of the institution. And i generally think thats an appropriate approach. Well, let me just ask you this so it can be reiterated. Has the Federal Reserve began tailoring enhanced prudential standards for banks above 50 billion with increased stricken genesee based on bank size . Would you continue on that . Yes. I believe i wouldnt want to speak for the fed. But just to as an observer, i believe the fed has done that generally focused the enhanced prudential standards on the larger institutions above 250 billion. And has tailored standards for those below. All right. Can more be done in this regard without reopening doddfrank to potentially negative consequences . Yeah. I do think as we progress in this process that this is a focus for all of the agencies to ensure our regulations are appropriate to the size and complexity of the institution. So basically what you are telling us, theres been no resistance to fsoc, you know, taking a close look at what can be done and using its discretion to make sure that not only they honor doddfrank but they have the flexibility to make modifications where necessary . I agree with that, congresswoman. Thank you. I yield back. The chair now recognizes the gentleman from new jersey, mr. Garrett, chairman of our Capital Market subcommittee. Thanks. Ive been looking through the minutes if you can call them that of the fsoc published. One of the things i notice is to who actually shows up and who can attend fsoc meetings. People like the fed governor, dan truillo, who is not a member of fsoc is able to attend and attends various meetings of fsoc while commissioners of the various boards and commissions do not attend. Seems that theres a not a very clear criteria as to who can and cannot attend. In september, according to minutes, the fsoc held with about 20 or so invited guests from various agencies. Yet again, the commissioners of various agencies are not on those lists. Im going to take out of al greens methodology here and ask for a show of hands. All of you who are on the panel today who are part of a organization that has either a commission or a board, can you raise your hand so we know not everybody up there has a commission or a board, right . For those who raised their hand, do you trust your commissioners or your Board Members as their ability to keep things confidential . Do the members who raised their hand trust their Board Members . Maybe i should flip it the other way. Is there any member who does not trust their Board Members or commissioners . They cant keep things secret . So, if thats the case, let me run chairman, if any of the member of your commission wanted to come to you and ask to attend an fsoc meeting, you trust them, can they come to an fsoc meeting . Thank you for the question. I dont think thats the structure provided for in the law. Would you personally object to them being there . Well, i think it is important for the fsoc to follow the i dont know there is anything in fsoc rules that is there anything specifically in the requirements that say they cannot attend, but other guests can attend . Id have to get back to you on that, congressman. You allowed 20 other guests to be there in september, and i guess that was okay. Did you know at the time they were there that they were allowed to be there or not . Let me go to chair white, since he doesnt know. Would you object if one of your commissioners wanted to attend an fsoc meeting . Personally, would you have a problem with that . I think the protocol is for the chairman to pick one person, one staff person to accompany them, thats the structure on it. I understand what the structure is. I understand that youve been that the whole entire board has been precluding openness and transparency. What im trying to find out is for all of you who have just raised your hand who said you trust your board or commission with secrecy, is there anyone that would say that they cannot attend . Well, good. Can i have an commitment then of all those who said they would not object that you would work for the next meeting to allow your board and commissioners . Please raise your hand if you will not encourage your chairman to allow them to attend the next Board Meeting . Let the record reflect wait. Two people. Mr. Gruenberg, you will not recommend to the chairman that your commissioners be able to attend . Correct. I would follow no, let me go there. You didnt raise your hand. Do you not trust your members . Are they not able to keep things secret . I want to be clear on that. No to me . I do, congressman. Just a couple of points if i might. Sure. From the fdic, as it happens, as a matter of statute, three of the members of our board are statutory members of the fsoc. So majority of our board are represented. And i certainly have greatest trust in our other directors. I would note that i share with our other directors all of the Information Available to the fsoc. But you have no problem with dan truillo attending quite frequently. Something about your board that you dont trust them is what im taking from this . No, sir. Why do you object to them being there . It is a matter for the entire fsoc, a matter of functionality in terms of in september there was sum 20. For your own Board Members, im taking the perception here that either you dont trust your people, or youre doing something in secret. Which one is that . Do you not trust your people or youre trying to do something in secret . Neither, congressman, for what it is worth. You havent given us an answer. Will you recommend to the chairman the rest of the panel who raised their hands, will you recommend to the chairman these people, the meetings be open to the rest of the commission . Ill follow the congressional structure. I think there is nothing in the congressional structure. Thats been pointed. Will you make that recommendation . I would discuss it with my fellow members of fsoc and the chairman. Discuss it with them as i have before, discuss it. So no one, will anyone here make that recommendation, positive recommendation . So let the chair reflect that no one who has come here before will make a recommendation, they want to continue to keep their meetings secret. Time of the gentleman has expired. The chair now recognizes the gentle lady from new york. Thank you, mr. Chairman. Mr. Cordray, the cfpbs core mission is consumer protection, which may not seem link to Systemic Risk. However, i dont think that is the case. Can you elaborate on what role Consumer Financial protection plays in the stability of our economy and how your agencys work helps inform fsoc . Thank you, congresswoman. First of all, congress set the structure of the council. And determined which agencies should be represented there. And it is a broad Cross Section of the federal financial regulators. In the case of the Consumer Bureau in particular, it is worthy of note that the financial crisis that gave rise to the council was caused, everybody agrees, people disagree somewhat as to the chain of events that led to this, but a meltdown in the housing and Mortgage Markets that transmitted through various channels through the economy and threatened the stability of the Financial System, gravely threatened it. The very first issue that was raised at the first meeting, which is before i joined the fsoc. I was not yet the director of the Consumer Bureau, was Mortgage Servicing and foreclosures. And there were briefings on those of the first several meetings. Those are issues that are very central to the work that has been done in the early years by the Consumer Financial protection bureau. And all of us on the council are charged by law examining the Economic System for emerging threats to Financial Stability, which we do the a annual report has been a very good and transparent and thorough account of the counsels thinking about both present and emerging threats and is our best attempt to monitor and report on what we see in the Financial System at that time. There were various issues that each member of the council and each entity that they represent is more or less expert in. And we share 245 expertise with one another to try to arrive at a broader, more comprehensive view of the system than each of us could do alone. Thank you. We have heard from opponents from the process that there is insufficient opportunity to engage with the council after designation. Do sifi designated firms have opportunities to meet with fsoc staff to review their status . Yes, congresswoman. As you know, as a statutory matter, we are required to reevaluate a designation annually. Thank you. I yield back. The gentlelady yields back. The chair recognizes the gentleman from texas, chairman of the Financial Institution subcommittee. Thank you, mr. Chairman. Chairwoman, there has been a lot of discussion about what it means for a bank to be systemically important. The office of Financial Research released a report where they examined the Systemic Risk indicators. They used the indicators that had been developed by the Basil Committee and applied those to some of the largest banks and holding companies. It was an interesting finding that the report concluded that the least systemic usgsib was several times more systemical than the other major u. S. Banks, the regional banks. Yet all of those institutions fall under the requirement for enhanced provincial standards based on their asset size. So are you familiar with that report . I have not seen that report. You have not seen that report . No. One of the requirements the main functions of ofr is to furnish the committee with information to hopefully help them make better determinations. So i would avail yourself of that report. Would you agree that setting up certain standards to measure companies is appropriate . I mean, if you havent seen the report, basically they took the basil standards, five of them, and applied them to the companies. Do you think thats a good way to approach that . We have stayed away from creating bright lines and instead look at whether material distress at a company could pose a threat to the Financial Stability of the United States. And since each company has different business plans, different business models, we have not drawn a bright line or been very rigid about what the standard is. It is looking at the entire company and then making a determination on very deliberate consideration. Director watt, have you seen the ofr report . I have not seen the report youre referring to. Section 113 of the doddfrank requires fsoc Voting Members to at least 11 factors before designating a nonback financial for federal supervision including leverage, scope size, scales. Do you think thats ill start back with you, chairwoman matz, do you think thats appropriate to use 11 different factors in the determination of whether a nonbank company is systemically important . Yes. Director watt, would you agree with that . Yes. I mean, were not second guessing the statute. We didnt write the statute. Well, actually i was involved in writing the statute. But im not in a position to secondguess it now. I voted for it. Well, i think the point im trying to make here is that it is a little puzzling to me that it is appropriate for nonbank entities to be subject to standards. And i think, in fact, director watt, you said your testimony you are committed to an analytical process. We subject these to 11 different factors. Yet we only subject banks to one factor. That is size. So shouldnt we be if this is going to be an analytical process, shouldnt we establish factors for analyzing banks in a way of analyzing whether they are systemically risky or not . I think these are really the same factors that any of us would take into account. It may not be specified in a statute for individual banks. But one of the primary problems during the meltdown is there was no supervision, they werent answering to anybody. Im not talking about nonbanks. We talked about i thought thats what this was designed specifically what the talk is about. The question is, were subjecting banks based on their size. We dont even consider the other factors. Shouldnt we be considering a litany of factors from we determine whether these banks should be subject to enhanced standards . I think it would probably be more appropriate for mr. Curry and mr. Gruenberg to answer that. I dont regulate banks. But i would think that they take into account all of these considerations. But you do sit on fsoc, is that correct . Time for the gentleman expired. The chair recognizes the gentleman from texas, mr. Hinojosa. The gentleman from texas. Thank you, chairman and Ranking Member waters for holding this important hearing. I also wish to thank our distinguished panelists for testifying today and for the dedication to ensuring safety and soundness of the foreman Financial System through their participation on the Financial System Oversight Council. As a Senior Member of this committee, i applaud the counsels progress to date, and i look forward to hearing from our panelists on the counsels priorities moving forward. Two particularly important lessons come to mind today. First, it is absolutely essential to have a birdseye view of our Financial System in order to identify and prevent Systemic Risks from destabilizing the entire economy. In crafting the doddfrank act in congress recognized this and had an entity of our banking, Insurance Market and housing regulators with ensuring the system as a whole. Financial stability of the system as a whole. Secondly, we should not just assume that the markets will will take care of themselves. Instead, we must support and empower our regulators to be able to act when needed. We should be looking to strength our system and the safeguards we incorporated after Lessons Learned from the last crisis rather than berating our regulators in an attempt to restrict their ability to act by tying them up in bureaucratic knots. The first question to mary jo white. Much criticized report from the office of Financial Research discussed the risk that the Asset Management industry posed to the United States Financial System, critics argued that the Asset Management industry poses absolutely no risk to our Financial System. However, havent counsels actions, including the publication of the report by the offer spurred sec to take action with respect to Money Market Funds . The answer is sec independently proceeded. Im aware obviously of the public recommendation of the fsoc. But it proceeded independently in the structure of Money Market Funds. Can you elaborate on what sec were spurred by the fsoc and how these actions were making our markets and investors safer . Well, again, i think the sec proeldedded independently of the fsoc recommendation. Certainly since i have been there as chair, proceeded totally independently. It was an important thing to do. To allude back to your first comment, though, it is very important that birdseye view, big picture view be provided by all the financial regulators that do sit on fsoc. Thank you. The currency, some if criticized doddfranks structure for allowing some of the agencies to have Voting Rights systemically designations made by the fsoc. Are you comfortable with with the deliberative materials received from the Council Staff and do these materials adequately prepare you to make informed decisions . Thank you, congressman. There is an extensive amount of material presented to me as a member of the fsoc in connection with any designation. There is a fairly elaborate process, three stages by which that information is developed. Stage one is for publicly available information or from contacts potentially with supervisors. Stage two, which engages gives notice to and engages a institution under con the designation committee. And finally we have a process, stage three, where there is extensive communication and development of analysis and records for the councils consideration. Thank you. Mr. Cordray, has the fsoc taken a look at aggregate depth levels from various areas of the economy . We have. And i believe we should. Do you think the current amount of debt in the aggregate poses a risk to our economy and why or why not . I think everyone could have their own personal point of view on that. I think this is certainly one of the factors that the fsoc has looked at in terms of thinking about Systemic Risk is both debt and leveraging of levels of investment. And therefore how much risk could be transmitted through the system if there were adverse developments to the extent to which capital is deployed. So i do think that is an appropriate factor in looking at the kind of issues raised before the council. The time of the gentleman has expired. The chair now recognizes the gentleman from new jersey, housing and insurance subcommittee. Thank you, mr. Chairman. We put up a chart, i dont know if everyone can see is it or not. The side, im not sure we can get there. I would like to follow up on the chairmans comments and questions with regard to nonbank designations. And what im concerned about is perhaps fed driven decisions on some of the designations. And if you look at the bottom part of the chart there you can see that the National Credit Union Administration in 12 and 13 had two members that they dedicated or had done some analysis with regards to nonbank designations. And in 14 we have none. Miss matz, are you an expert on insurance analysis . No. You are not an expert. And we have no one designated to do analysis. This information you cant read the fine print there. This analysis comes from data given by your agency to the gao, if im not mistaken, which is in this report right here. I dont think thats correct, though. Sorry, ms. Matz. Thats information you gave to the gao when requested. So my concern is the Federal Reserve has 25 people designated to make this analysis. You have zero. Thats not correct. Its correct. Its been stated. I dont know where they got that information from. They got it from you. It is not from me personally. It is written on the bottom of the sheet. It says each agency, the information came from each Member Agency and represents individuals involved in the analytical work. Its not correct. How many do you have there . We have two people. Two people. Are they experts in insurance . They are not experts in insurance. They are not experts in insurance. How can they make educated analysis is whenever youre making designations with regards to nonbank designations which involve Insurance Companies . How do you make that determination then . It is not the insurance part of the business that results in the designation. Its in the Financial Services part of the business. And how intertwined it is. So the insurance part of the business is not important with regards to the designation of a sifi . No. Its not. It is the Financial Services part of the business. The Financial Services part of the business is the only part that you look at . Yes. Wow. Okay. Mr. Cordray, you sort of struck out across the board there as well. Are you an Insurance Expert, sir . I am not an Insurance Expert. Is this number incorrect as ms. Matz indicated hers was . Im not sure what analysis was used to get to that number. But the reality is each of us has deputies who Work Together on the fsoc on the analysis. Then i am briefed and have a chance to review the materials, extensive numbers submitted by companies you are saying this number is incorrect as well even though this is information your agency gave the gao . I am saying the slice on it here is not reflective of the full work done at the fsoc. Nonetheless, im not an Insurance Expert, but certain members are not investment experts or banking experts. It is all of us together. Mr. Cordray, this goes to the heart of the matter here. You are sitting on a board that makes a decision on the designation whether something is systemically important or not. If you dont have the personal expertise, you need to have somebody on your staff. Its not an independent vote youre casting. It is based on whether somebody on this board is telling you it should be done. Thats not the way the system should work. I dont think thats correct. There is fsoc staff. Staff of the member agencies contributed to worked together and our own analysis. Again, to focus only on the Insurance Company potential designations is only a partial picture. There are bank designations, other Financial Company designations, investor area designations. Everybody has relative expertise in some areas. Okay. Less in others. Were not done. You have zero people across the board. Is that incorrect as well . I think your chart runs through july 2014. Thats right. I took office in june. Okay. Shortly after that i have my staff involved in the designation. So now you do have some people involved in this designation . A few of our staff. One, two, ten . Well, it depends on the issues. Were a small agency. Were limited in our resources. No one is fully dedicated to these issues. Certainly i try to get people involved as necessary. One more quick comment before im out of time here. With regards to the sec, ms. White, your numbers are 0, 2, and now 12. In your testimony you indicate or you say that its important that it be data driven and conduct rigorous analysis throughout the process. How can you do rigorous analysis back in 13 when you made it approved with two people and now you have 12 . Was that a stumble back then and you realized you didnt have adequate staff . What was the problem back then . I can only speak to the time i was in there. You were there. I didnt participate in the designation. I would have is to drill down on those figures. What we do at the s. E. C. , my written testimony reflects this is, again, it is not full time people devoted to fsoc work streams but who we need in the particular areas are called upon to assist me in analyzing the information. So the concern is still there, that we are not doing our job doing analysis. Time for the gentleman has expired. The chair recognized another expired. The chair recognized another Gentleman Center missouri, mr. Clay, Ranking Member of the Financial Institution subcommittee. Thank you, mr. Chairman. Thank all the witnesses for attending today. Some have criticized the fsoc designation process as being opaque. Gao also made several recommendations to the fsoc to improve its transparency. To your knowledge, how has the fsoc addressed the recommendation of the gao . Would you also describe how the fsoc changed its process with the february 2015 supplemental procedures announcement. And, i mean, anyone can volunteer on the panel. Theres so many to choose from. Ms. White maybe . I think in terms of the gao specific recommendations, i think those were responded to by the secretary of treasury as the chairman of fsoc not agreeing or disagreeing with the recommendations. I do think what ill call process and transparency change made by fsoc in 2015 address a number of those in terms of both transparency, clearer information to companies as to when they can interact, when they are being analyzed in stage two. There is a lot of back and forth before those changes. I think a number of changes are responsive to those recommendations. Can you yes, sir . Just to respond to your question, congressman, i think the focus of the february procedures was to try to enhance engagement of transparency for the stage two process so it provided notice to the firm that it did advance from stage one to stage two and an opportunity for the firm to engage with the fsoc staff. If requested, the Public Information that the fsoc was using as part of that stage two review, as well as notice if a firm is not advanced from stage two to stage three. And if a firm is advanced from stage two to stage three, they would be notified of that and a set of procedures with stage three. So it was an effort to provide both greater insight for the firm in terms of notice and greater opportunity to engage with the fsoc. Could i simply add, to me this exemplifies vigorous congressional oversight. The congress and this committee had comments on fsoc. We have hand listened to those. We have listened to the gao reports. It is a new body. Its still just a few years old. Transparency is developing as we go. And i believe has been responsive to a lot of the concerns raised here. And what changes have you made to the annual and fiveyear designation review processes to ensure more Due Process Rights are available to companies . Mr. Gruenberg . I think the procedures made clear that part of the annual evaluation process a company can submit information, engage with the staff in terms of the information being presented, and get feedback in regard to the process. And the procedures provide assurance of a hearing with the fsoc at least every five years. Generally, General Electric said it would share most of its assets operated out of g. E. Capital. In making the announcement, g. E. Noted the company will work closely with regulators and staff of fsoc to take the action necessary to designate g. E. Capital as a systemically important Financial Institution. Further, g. E. Ceo noted, we have a constructive relationship with our regulators and will continue to work with them as we go through this process. Can you describe how fsoc will go about working with ge . Anyone . Yes, sir. There is an ongoing dialogue with the company as to what its plans are, what its structural changes are. That will continue at an annual review or sooner. A decision will be made once those plans have been actually executed. I see. Thank you very much. Mr. Chair, i yield back the balance of my time. The gentleman yields back. The chair recognizes the gentleman from michigan, mr. Huizinga, chair and trade subcommittee. Thank you, mr. Chairman. I apologize. I had to step out i had visiting constituents. I wanted to make sure i understood where my fellow subchair was headed. And i think were kind of on the same path and direction. I want to at some point get back to your written testimony, which i found very fascinating. I have a couple of questions there. But i would like to also see a show of hands who here believes that congress has the right to understand how fsoc makes its determination decisions . So if you believe that. Let the record reflect that all believe that that is an important part. I would like to get a sense of what materials fsoc materials were reviewed. Are there memoranda prepared by by fsoc staff that you rely to to make your decisions. Who here is willing to share that . Raise your hands. Who is willing to share that with us . Nobody . Let me repeat the first question i guess. Can i make a comment . I think congress is entitled generally to whatever information it wants. I would want to simply check with staff to make sure we are abiding by our obligations to keep nonPublic Information confidential. Congress is entitled to get whatever information it wants. Maybe thats not even public meeting. Maybe thats a private meeting being able to share that. Mr. Gruenberg . Congressman, i think the analogy is one of our regulatory agencies considering action with regard to a particular institution. That is what fsoc is doing. Sure. So two points. One, dealing with confidential supervisory information which would probably be an applicable standard here in the fsoc. That is generally not shared. Although as we have at other instances, Congress Gets the information it requests. Sometimes that takes longer than the time frame. You may have noticed around here. So you believe congress has the right to review the materials. I think congress has the right to request. Those are two very different things. I think if you accept the premise we are dealing with confidential supervisory if we can do that, whether there are certain things what i dont want are redacted sheets that look like theyre blacked out all the way. Im looking for a venue for us to review. Frankly, if you hear a lot of questioning on both sides of the aisle, we simply do not understand. Mr. Woodall . I think there is one confidential memorandum that has been made public. The confidential basis in the metropolitan life case, it is my understanding has been filed in the court and is a public record. Okay. I would just want to be clear that the reason i would not raise my hand is because i would not make a unilateral decision. This is a collaborative body. Fsoc, if we got together, would turn over whatever would appropriately be turned over to congress. And i would be supporter of that being a robust order. I certainly wouldnt make the unilateral decision. You sat on this side of the microphone. Sometimes that takes far too long to get responses. That is not a justification for an individual member of a collaborative body. I fully understand. But you all just raised your hand. Since you are the Voting Members, you all said weve got a right to this. So lets come up with a collaborative way of finding out how were going to do that. Real quickly, i was fascinated in your written testimony how you had been prevented from, quote, being in the room with International Insurance policymakers. A number of us did a trip to switzerland back about two months ago. They seemed genuinely surprised that congress was not up to speed on exactly what team usa is saying and doing in that room. And also i would as we were indicating, many of us, both sides of the aisle again that were on this strip, supportive of your involvement in that. They seemed genuinely perplexed that someone with Insurance Expertise was not being allowed to be part of that process. So real quickly, if you could comment. International things you work. The consensus within team usa, you have three u. S. Equal representatives at the iais. And you said you had been supported by two of those for being in the room. Right. The third that is not supportive is . Its treasury. Without that consensus is. They are taking the position and i want to be fair about this. They are taking position that the statute gives me no such authority. I have no duties or responsibilities designated in the statute. The time has expired. The chair now recognizes the gentlelady from new york, ms. Maloney, Ranking Member of Capital Market subcommittee. I thank the chairman and Ranking Member for calling this important hearing. This is the most people i have ever seen at that desk in any hearing or reviewed in the history at a hearing. Its a very important topic. I am glad to see my former colleague, mel watt. Welcome back. My question is, when the fsoc is analyzing whether a company is systemically important, it doesnt measure whether the failure of the company would destabilize the system in normal times. Instead, it measures whether the company would destabilize the system in a period of stress in the financial industry. And i have two questions for the Panel Related to this. First, why did the fsoc choose that standard . It seems that this standard could certainly play a key role in determining whether or not a company is systemically important. And secondly, what historical precedence does the fsoc review in making these evaluations in a period of stress in the Financial Community . Do you look at the 2008 financial crisis, the Asian Financial crisis of 1997 and 98 . What do you look at as precedent when you study these crises. I would like to start with chairman gruenberg and chair white, and curry and the panels thoughts on these two questions. Thank you. Thank you, congresswoman. I think the view was the impact would be the most realistic scenario to try to assess this systemic consequence of the firm. And i think it was very much a product of the 2008 crisis experience. And i think we looked to the experience another crises in trying to make these assessments. But i think that was a threshold judgment. I agree with that analysis and its guidance and it would be analyzing in a period of stress which would only make sense given what your purpose was in terms of judging and trying to prevent significant negative impacts on the Financial System. Things in times of nonstress dont work so well in times of stress. In terms of what is looked to, not limited to how things operated in the 2008 period, but that is typically part of the other scenarios as well. Mr. Curry and then watt. Congresswoman maloney. I agree with my colleagues. I think in order to assess especially the interconnected aspects of the Financial System you have to assume in the first place that it is in a period of stress. I also think there is some textural support to take that approach. In terms of what we would look to for the range of historic experience i think the 2008 crisis certainly stands out in terms of its significance. Its breadth and i think what people never would have assumed is the underlying source of it or the spark, the housing crisis. And i think that would be our approach. I was just going to refer you to a specific wording of the statute which said council determines that material financial distress at the Nonbank Financial Company, thats the standard set up in the statute. It is an appropriate standard, i think. But, again, were not trying to secondguess the statutory provision that was written by congress. Were following the statute, not secondguessing it. Well, id like to ask chair white, as you know, theres been a great, great deal of discussion this year about how the fsoc could improve its sifi designation. One of the suggestions i kept hearing, and probably you heard also, is the fsoc should Tell Companies what actions they needed to take in order to avoid being designated as a sifi. This struck me as a dubious idea. Do we really want the fsoc to be making these kind of core Business Decisions for private companies . And in my opinion, the fsoc should identify the Systemic Risk. Then the company should figure out the best way to restructure its business to eliminate the risk. And when the Council Adopted changes in february, you decided not to include this suggestion. Can you elaborate why they wanted this distinction and do you think it is important not to use the designation process as a way to Tell Companies how to be run . I largely agree with your assessment. I dont think fsoc should Tell Companies how to structure their business. I think maximum transparently is obviously something we care about at fsoc and is important to do. Most often, i think the designations are not going to be based on one or two or three metrics but rather a business model. So it is a very complex under taking as well. I dont think fsoc got to tell people how to run or structure their business. Our time has expired. Thank you very much. The chair recognizes the gentleman from wisconsin, mr. Duffy. Chairman of oversight investigation subcommittee. Thank you, mr. Chairman. Just to reiterate. I believe when asked the panel who had insurance experience, it was mr. Woodall and chair white. Is that correct . So if im to ask the panel, if you were to point out the one Insurance Expert of all the witnesses today, who would you point to . Mr. Woodall. Thank you. I would kindly agree with you. Mr. Woodall. I dont want to overstate my expertise. Does it concern the panel that the one person with Insurance Expertise is the one individual who dissented in the designation of prudential and metlife . Or chair matz, as you say, were not really looking at the insurance side, we are looking at Financial Services side so it doesnt matter . Thats correct. And also the head of the federal Insurance Office did support the designation and also has considerable experience in the insurance agency. Did they vote on fsoc . Who is the one with Insurance Expert . I think the panel has all agreed on the oversight front that congress is entitled to do oversight over fsoc, is that correct . You all agree with that. Our committee, under the signature of the chairman, sent a letter to jack lew asking for 13 different points of information from fsoc there were partial compliance with a couple of those. Does the panel disagree that if we have already gone through a designation process, that congress is not entitled to nonPublic Information . You dont disagree with that, do you . Why arent we getting this information . Why arent fsoc members complying with our request . It is concerning for our panel. If youre concerned about the questions you get about the transparency of fsoc, it is because the elected members of this body dont have timely compliance or any compliance from mr. Lew or any of you. If theres already been a designation, if were asking about aig, prudential or g. E. , you can make the argument with metlife there is litigation. So we dont want to give you that. You might say that. I wont agree with that. But fair enough. Aig, prudential and g. E. Will you comply with our requests about the analysis that went into the designation process . The memos, the correspondence, all that information. Everyone here, will you comply with that request . Raise your hand if you will comply with the request to provide us that documentation. I got no takers. So, why not . Mr. Gruenberg, why not . Congressman, if i may say, you raise a fair question. I think probably want to go back and look at the request. It seems to me the line here is when youre dealing with confidential supervisory information and were dealing with the three companies you referenced. They are open institutions. So you have to strike a balance there. Chairman gruenberg, listen, do you know there was a recent attack some allege by isis in San Bernardino . Yes. You know that, right . Do you know this body gets Intelligence Briefings from the fbi in regards to terrorist attacks . I would argue american lives are in danger by these radical extremists. Does anyone argue that anyones life is in danger by the work done by fsoc . Raise your hand. So we can get fbi briefings but you wont give us briefings on the analysis thats gone into designation of Certain Companies in america . Will you explain that to me . Why am i entitled to briefings on isis and not from fsoc designation . Well, sir, i can only speak to the fsoc issues. Im not familiar with the intelligence side. As a general matter, certainly transparency and accountability is different. No, why can i get information on isis, and you cant send me information on designation . There are determinations in the fbi says it is nonPublic Information as well. I respect that, sir. Are you making decisions that affect someones life . No. Is isis affecting peoples lives . Yes. I would think that is far more serious information that were entrusted with than the information you have and arent complying with. The bank of england sent a letter asking why Berkshire Hathaway is not considered a sifi. I think barack obama said he was a great friend. Is there a political analysis and connectivity with people in power that go into the determination of designation on fsoc . Not from me. Anyone . No. I yield back. The chair now recognizes the gentleman from california, mr. Sherman. Thank you. Folks, i do think your decisions are life and death. Youll never meet the people. We have another 2008, every one of our districts will have higher divorce rates, higher unemployment rates, higher drug use rates. And we will never be able to go to a particular funeral the way you can in San Bernardino and say, this is what happened. But there are thousands of americans who would be alive today if we didnt have the 2008 meltdown. So your work is every bit as important as those who are focused on terrorism. The ms. White, weve got the Financial Stability board. We dont have well, we have one of its members here. But it doesnt answer to you, the American People. How can we be sure that they dont push us to an activitiesbased approach on Asset Managers or anything else, that the decisions that are made that affect the American People will reflect the decisions made by those answerable to the u. S. Government and that it wont be just a matter of, well, we went to the meeting, everyone else kind of wanted to go in this direction. Ive seen this. People talk about terrorism. We paid loans from the world bank to imf, and i was told oh, well never let that happen, its all consensus. They said, oh, sorry, we got outvoted. So how do i know that to get along we dont go along with policies . As you point out, the treasury, fed and the sec, set on the fsb i think in 2009 when it was established very importantly to look over potential risks to global Financial Stability. But whatever comes out of the fsb in terms of recommendations or suggested standards is not binding on the u. S. And certainly with respect to where there is overlap and the designations that have been talked so much about. We act independently. Of the fsb. Theres separate processes. Thank you. Theres all this focus on whether an entity has a lot of assets. Lehman brothers didnt go under because it had too many assets. It had too many liabilities and contingent liabilities. Ms. White, when you analyze whether an entity should be designated as sifi, do you look at the size of their assets, the size of their Balance Sheet liabilities, or on the size of their off Balance Sheet contingent liabilities, including credit default swaps. All the above. And a host of other factors too. I would hope you would focus on liabilities rather than assets. No one ever went under because they had too many assets. I understand. Looking at contingent liabilities, mr. Woodall, i would hope we would not count those liabilities of contingent liabilities of regulated Insurance Companies because the state regulation of Insurance Companies seems to have weathered the storm. Would we designate a company as a sifi just because they had a lot of assets and liabilities if all those assets and liabilities were looking on were part of stateregulated Insurance Companies, where the state regulators determined they had adequate reserves . Yes, congressman. One of the factors is the regulatory scrutiny that the company goes through. Obviously we do have to look at not only assets and liability but the matching of the assets and liabilities. And in Insurance Companies, they are longterm liabilities. They are not liabilities of a bank that could disappear if everyone came in and withdrew their account. Doddfrank calls for annual review of designations. Do you have a way for a company do we have a good process to allow companies to be dee des ig nated particularly if theyve reduced their profile, ms. White . I think there is a good process. You want to look at enhancing it. At least annually they have to look at that. And the companies can engage with the staff on those issues. And then every five years under some of the new procedures theyre entitled to full hearing. I hope that you have refined that process further. I yield back. The chair now recognizes the gentleman from oklahoma, mr. Lucas. Thank you, mr. Chairman. Since we have this distinguished group together, id like to visit with my concerns with the at the basil 3 rule, as it is derived from services and the impact it will have on the ability of my constituents to hedge risks. Of course i would turn to our Derivatives Market regulators. When Market Participants utilize derivatives to manage their risks through futures, options, clear swaps, they must find a member of the clearinghouse willing to guarantee their transaction with the clearinghouse. How does the margin that a Market Participant posts to a clearing member affect the clear members ultimate guarantee exposure, the clearinghouse . Thank you for the question, congressman. I do believe it does reduce that exposure. Let me say generally on this hat exposure. Let me say generally on this issue that i support strong Bank Capital Requirements and i support the slr generally. And the issue ive raised is really a very narrow one. I dont believe we should be excluding derivatives from the slr. But i do believe it is important to make sure we are measuring the ex poerb herb accurately. And i do believe the margin that is held by the ccp, in other words, margin collected but then actually but then transferred to the ccp is how we recognize exposure. I would add you should always be judging variety of contexts and a variety of rule contexts as well. I would now turn to our ar banking regulator friends, chairman gruenberg. Our in many instances these clearinghouse members are banks subject to basil Capital Requirements which require them to hold capital against the guarantee they provide on behalf of their clients. We can all agree banks have exposure in the event they are unable to fulfill the obligations. Apital a and banks should hold capital pd against that exposure, but shouldnt that measure of exposure accurately reflect ther clients margin, offset the banks exposure to the ey are clearinghouse . Congressman, i think the tou Number One Protection in the clearinghouse context is really that the member bank be strongly capitalized and to be able to perform in adverse s exp circumstances. So having Strong Capital ratios really is a fundamental part of our regulatory structure and the safety and soundness in the clearing of swaps. Just by definition, i just want to point out a leverage ratio is not by definite nation a riskbased measure. To so by definition, it would be inconsistent to import measures of exposure or risks as a general matter. Congressman, i agree with cos controller curry. I think the core issue here is the margin is posted with the ccp. But in addition that ccp is asking the intermediate jerry rl bank for a guarantee. And the potential loss from the derivative exposure could ow substantially exceed the margin thats posted with the ccp. Thats why the guarantee is wod imposed and the capital is really designed to protect the bank against the down side werea risk from that derivative exposure. That we i would just simply note to my friends, if we create a system that we require such Capital Requirements above and beyond what appear to be necessary. We will cause Financial Institutions to not participate. And the next time we have a neeq Lehman Brothers or an fm global major failure in their clients need quickly to find a new clearing number, a new place to cover their outstanding positions of their margin there may not be any sources. Ive been a member of this f ths committee through the wonders of 2008. St con when the worse Case Scenario occurs, you have to be totally prepared. Im just concerned that were headed in a direction that will, will limit my constituentss options, thereby increasing their costs and these r. Riskmitigating tools. I just simply note that. And to all of you and ask that you bear that in mind. Were undergoing pressure back home in oklahoma and in the ag and energy sector. Its real pressure. It is something that will take time to overcome. To but these tools have continued to be important. So lets not allow boswell to i. Cause unintended damage. With that, mr. Chairman, i yield back the remainder of my time. S the chair recognize mrs. Lynch. Thank you, mr. Chairman. Ank i thank the witnesses for your willingness to work with the committee today. I have a question for chairman gruenberg. Day. A number of members on this an committee have been working witg the vice chair tom honig on a proposal that would give regulatory relief to some of our small banks. That now, we are looking at banks, Community Banks that are in the. Traditional business of banking taking deposits, making loans to businesses and individuals. F bak and the way this would work, we have not accepted all our recommendations. But we have focused on a number of them which would be to be ibf eligible for regulatory relief, Financial Institution must hold note trading assets, no ution mu derivative other than foreign exchange, have a limited note t notional value of all the Bank Derivatives or otherwise, and f maintain a ratio of gap Equity Assets of about 10 . No less than 10 , im sorry. In return for that, we would ass give, under this legislation we would give relief in this form. Those banks would be the couple pliant banks would be exempt from basil riskbased capital standards. The stress tests, in some cases they would be exempt. In other cases, they would be every 18 months instead of everh year. Try to reduce the cost there for compliance. And also exemptions from tr submitting call reports and schedules. Ons fr this actually goes back to mr. Shermans question before where we are actually regulating this activity. Ctually not necessarily size. If a bank is not engaged in risky activity and theyre doing the right thing, they a ought to be entitled to relief. This has been a highcost issue for the smaller banks. I just wanted to get your sense on whether this is something that you would be receptive to . Congressman, i am similar sympathetic to the concept. The c the core concept being that if a Smaller Institution is very strongly capitalized on the leverage ratio, thats what you represented and doesnt engage in higher risk activities, it would be eligible to reduce or s compliance with riskbased capital standards. I think that core concept really makes some sense. And i think that certainly is an issue for congress to consider. C and i think it is part of our regulatory review process withio the framework of our capital rules that might be something that we might be able to consider on a regulatory basis. Okay. I do want to fixate on that woro sympathy. A lot of small banks are good with the sympathy. Theyre looking for actually relief now. Let me say im open to pursuing that approach. All right. Mr. Cordray, do you have any do worries about that . Have you thought about that outt proposal . It might be out of pocket on pro this issue. T of p im not sure. No, we have been. If you look at our mortgage rules, we tiered the applicatiof of those rules on the qualification mortgage what we call the ability to repay rule. We made special provisions for smaller creditors. And in fact they have increased their share of the mortgage izao market with Credit Unions and Community Banks. And frankly, its an appropriate, because if you look through the financial crisis, ct the default rates on loans that were issued by smaller creditors, particularly depository institutions, had a much better, that is, lower rate of default than other mortgages made generally in the marketplace. So when we can take that into account and think about how we can apply different provisions a for Different Levels of risk, i think that is entirely w appropriate and we will continue to do so. I do want you hit right on a point that i didnt mention, which is that in those cases where a bank is willing to keep that mortgage in their portfolio, it would be deemed a qualifying mortgage, because youre not issuing to sell it, you know. Up any were comfortable with that, particularly for smaller entities. Cks for but there were larger entities before the crisis that kept balances. And blew up the system, washington mutual, countrywide and others. At smaller levels im quite comfortable with that. Fair enough. It in m thank you, mr. Chairman. Ill yield back. The gentleman yields back. The chair recognizes mr. Royce. Chairman of the House Foreign Affairs committee. Thank you very much, mr. Chairman. Ootbal i dont think your microphone is on. Thank you, chairman. Last month in a hearing before c the committee about due process issues with fsoc, Johnathan Macy of Yale Law School stated that with respect to the actions that the fsoc have already taken, there is a significant danger of increasing rather than decreasing Systemic Risk. And his point, as he explained, was that this was because the fsoc is ignoring certain risk rt mitigation strategies and herding into strategies which decreases diversification and increases the Systemic Risk. This could also happen on indirectly with Companies Making choices to merge, sharing in the cost of compliance, and creating greater economies of scale. Co we have seen this in the Banking Sector or, more directly, with the implied or explicit backing of the government, as with the case of the gses. So i was going to ask mr. Curry, do you view the potential for regulators to create Systemic Risk as a problem . And what actions have you taken to make sure that and ill also ask this of chair matz, that the fsocs enhanced standards of the fed are not increasing Systemic Risk per the thesis that the yale professor puts forward . Congressman, the fsoc actually is looking at, and this is referenced in our annual report, looking at some of the consequences of changes within the marketplace, including regulatory changes. There are behaviors that have changed, institutions have either left or entered different types of business, the impact to nonbanks. Those are all things weve we identified as emerging or potential emerging risks that require future monitoring and potential action down the road. Chair matz . If you could just weigh in there. More specifically, as the designation is being considered, the company has an opportunity to present any evidence to the staff, whether in person or in writing. And so if they think that there might be information that would be helpful in making the in determining whether to designate, they have every opportunity to make that Information Available to us. And lastly, ill just ask chair white, do you agree that this is a problem . Would you like to weigh in . I think its certainly something that i think we need to be constantly keeping in mind, with all of our regulations, what impacts theyre having, what mitigatorse we ought to be considering in addition. Im trying to better understand how the interaction e on another subject here, between the office of Financial Research and fsoc members, works. After criticism by this committee and the public on an ofr report regarding the Asset Management industry, the fsoc sought public views on the industry, and later issued a request for notice and comment on Asset Management products and activities. Separately, the sec put out thee ofr report for Public Comment. Can i ask the panel, do any of you see a reason why all ofr public reports should not be yo open to Public Notice and comment . Does anyone take exception to that concept . For the record, mr. Chairman, i would like to say that the o sah witnesses, for the record, saw no reason to continue the practice of ofr not allowing for Public Comment on their reports. Thats the point i wanted to make. I think its important that they do so. Ime here and if i have time here, the fsc fsoc has not designated any Asset Managers as sifis, which is a step i support, as these firms operate with little leverage if any, and the risks managed are borne by those whosc funds though invest. But the fsoc is now apparently c considering activities under the second prong of section 113 of a the doddfrank act rather than material financial distress, the first prong. A my question is not about Asset Managers but rather how fsoc as came to this decision and why a similar process wasnt used when designating Insurance Companies. Mr. Woodall, is it fair for the fsoc to offer different amounts process to different industriesf and why not take the same amount of time and get it right . Congressman, i think that weve already discussed the fact that inactivity, which has been, my main goal in the insurance r company, its evolving now in co the council. The council is young. Its evolving. Oung. And i welcome the idea of takin a pause and getting into looking at the activities across the segment. And i hope they will do that for the Insurance Industry. The time of the gentleman has expired. The chair recognizes the eman hs gentleman from georgia, mr. Scott. Thank you, mr. Chairman. Panel, im concerned about the department of labors fiduciarya rule. Let me explain why. I have spent most of my adult iy life working hard in the area of building in the africanamerican community. Our president is a wonderful af person, he is a dent, good man. But as an africanamerican, im not sure that he has been properly advised as to how devastating this department of h labor ruling will be on the africanamerican families in terms of wealth building. I say that as one who, im a graduate of Wharton School of finance, where i got my m. B. A. I went off, and much of my work has been in investment. I had an investment portfolio in my own business that i started. As a result of that, they put me on the board of directors, executive board of directors of the Wharton School. And there, in that position, we pulled together, along with joh, scully, who was the chairman of our board and chairman of pepsicola at the time, an who a Extraordinary Program of wealth building. But what we found out is there were three elemental areas that prohibited wealth building and u investment. And that was education, financial advice. And the overarching complexity and diversity of the Investment Options in our system. This department of labor rule will have a devastating effect on africanamerican communities and on other lower and middle af income, because they dont have that money to pay up front with fee costs. And when you put a contract there for them to sign, theyre going to run away. I know. E, becau ive been there. Ive worked with the africanamerican chamber of commerce on this. So what i want to ask you all, you all are the financial goin Stability Council of the Unitede States government. Nameric take for a moment and look at the most end stable financial caring in this country is in africanamerican communities. Ank is it not too much for somebody on your committee to ask the president to hold off until we actually see just how tually s devastating it is, affecting dea africanamericans . Thats what im asking you to r do. I asked ms. White, but she seems to have ceded her authority to t the Labor Department. When we clearly put it, you were here. We wrote it into section 913, in doddfrank, that that was the ap domain for the judiciary securities and change commission. At no time, no time, did we hear from the Labor Department or erisa talking about retirement. And if they do, wouldnt it be o respectful for them to sit downr with the Regulatory Agency thate handles financial investments, the sec, and finra, and work tht that out . I just urge you to examine these, because the devastating impact is terrible. Cons my paper, the atlanta general constitution, i urge you to read it. It talks about the struggle of africanamerican families to build and grow wealth. And the number one reason why its so slow is they cant get the education or the t fee information. Ost of t rich people investing, they t wy dont have any problem. They can pay for that fee for service, most of them do. But when you get to annuities and trying to turn your Life Insurance into whole life or whatever, you need advice for that. Anyway, i urge you to ask the president to put a pause on this and let us see what the impact on the black families are. Now, i think i got time, weve got a terrible problem with the European Union on this ant to equivalency with derivatives. December 15th is the deadline. And i want to know, because its going to have a devastating n effect on our end users, on our exchanges and clearinghouses, if we dont get equivalency in terms of our Regulatory Regime with the eu, especially when theyve given equal status to ev singapore and other areas. Whats the status on that, in that were just a week away froi the deadline . Thank you, congressman. They have pushed out that immediate deadline. I think we were still working in good faith to try to resolve this. I think weve narrowed our m oho differences. Im hopeful we will do so. Ers. I of course believe they should have granted equivalence some time ago. A quick but we recognize the issues theyre concerned about and were working very hard to work them out. Thank you, sir. Rvices i the chair now recognizes the gentleman from ohio, mr. Esses stivers. Thank you, mr. Chairman. Be i would like to go on a quick tour of the segments of the Financial Services industry. How many of the witnesses believe that small banks and 8 . Credit unions caused the crisis in 2008 . Could you raise your hand if you believe that . Did say i would like to point out that no one did say that. A coord and you have an Important Role as a coordinating council of regulators as well. Im curious if you could go down the line, starting with ms. Elle white, and could you tell me how many hours in the last year youve spent discussing and ve e identifying regulatory conflicts, where better coordination could reduce unintended consequences and costs and differing regulatory interpretations by agents in the field. Just how many hours this year. If you could each give me a number of hours you spent. Those discussions have occurred at the staff level. But i cant say i cant really give you you would say zero . I wouldnt say zero. At the staff level. Okay. But on the council, thats what i care about, thats who you are. Let lets keep moving. I also could not give you a number. Okay. Sounds like another zero. Mr. Woodall . I cant think of a definite figure, but there has been some discussion. Ef okay. Figure so some discussion. Nobody can put an number on it in hours. Ms. Matz . I would agree. Put a lets keep moving, obviouslyl theres pattern here. Does anybody have a number . Will anybody give me a number . I quit keeping time when i left the practice of law. Im still keeping time. Lets move. We spend a lot of time i discussing a lot of issues. Rg i got it. Regulatory overlap is one of those. Youre not discussing it iscn enough at the council level. The staff is discussing it, butt you need to discuss it. These are Important Community assets that dot the fabric of our country and the 15th try an district of ohio. And these companies, small companies, small banks and compn Credit Unions, are struggling to keep up. Many of your field agents actually misinterpreting regulations intended for big acu banks and put extra pain and cost on these small banks, and f theyre having real struggles. T lets move to regional banks. Thr how many of you believe that regional banks, and ill define those as kind of 50 billion to 250 billion. How many believe that those regional banks caused the crisis . Again, no oh, weve got a couple of hands there. Just to make the point for what its worth were running out of time. Be quick. The regional banks generally. Are individually not systemic. I would point out, as was a mentioned earlier, the most expensive bank failure during this crisis and in the history of the fdic was a 12 billion f loss caused by the failure ofcad indymac, which was a 30 billion thrift. So a Regional Institution a failure of one or more 30i Regional Institutions can have a significant consequence. It can, i believe that. N what have you done to use the regulatory flexibility . What hav that secretary lew says you have. Can anybody explain to me exactly how youve used that xii regulatory flexibility . The occ supervises a range of institutions, small rural bankss to globally active banks. Were very concerned about the regulatory burden, particularlym on Community Banks. You know, the fsoc is not necessarily the form that we nea discussed reducing regulatory se burden. We do that on the banking and credit union side, on the ffiect the federal and Financial Institutions examination d abou council. We really are concerned about hw the impact of the process which is designed to reducing regulatory burden. I appreciate that. I want to talk about that. W you but were talking about regiona banks now. Can you tell me how youve used the flexibility that secretary luchl lew says you have. As the supervisor of a number of regional or midsized institutions, we place a great deal of value on collaboration and coordination with our other regulatory agencies. Ic and i would include the fed, the fdic, and the cfpb. Its really a regulatory imperative to make sure were au working together. You havent answered youre trying to eat up time here. You have not answered one specific way in which youve dsk used your regulatory specif flexibility. Could you give me one way . Thats all im asking. As you know, congressman, one of the consequences is your requirement of submitting a onsu resolution plan. We certainly for the tailored plan is the onl true answer. And how that cuts a little coste they still have to do the ccart stress test, the regular stress test. There are too many things built in that you have the power to fix. I wish youd take a look at it. I didnt even get to nonbank financial entities, and my time has expired. Ook at please look at those things. Thank you, mr. Chairman. I yield back. The time of the gentleman has expired. I the chair now recognizes the gentleman from texas, mr. Green. Thank you, mr. Chairman. I thank the Ranking Member and the august witnesses that have appeared today. Wi in my years on the committee i dont think ive quite seen the number of Financial Stability heads assembled at one time for the purposes of questioning. So i thank you for being here. Mr. Woodall, much has been made of the fact that you are the only person on the fsoc with Insurance Expertise. Incidentally, do you claim expertise in other areas to thir extent . I would say being on the council is a learning experience. Theyre learning about insurance and im learning about banking. So you dont claim expertise in banking, but you are learning about it. Mr. Woodall, based upon what has been said, there seems to be an implication or indication that n only persons with Insurance Expertise should judge an Insurance Company. Ecause m i ask this because metlife has appealed its case in the sense that it has filed in the federal District Court in the district of columbia. Do you think that judge ought t be an Insurance Expert to hear the metlife case . Im not going to make any statements about the metlife mi appeal. Underst i understand. Well, i well, ill continue to ask you questions and you continue to have no response. Do you think that the jurors who will hear the metlife case, if we do have a panel of jurors, do you think that they all have to have Insurance Expertise . Of of course not. Of course not. In fact, of course the length and breadth of this country on a daily basis, we have jurors, ordinary, everyday working people who hear complex cases involving antitrust, in texas we had the pennzoil case, people hear these cases all the time. And make life and death decisions who dont have expertise in a given area that the case happens to be focused d on. Do you agree with this, mr. Woodall . I think the fsoc i think you do. Let me continue. It appears to me, mr. Woodall, h that the indication of only a person with expertise in a given area should be able to judge would lend itself to asking at least one question. Have you made any decisions with reference to banks since youve been on the fsoc . Banking banking regulators are the oa ones that do that. But have you voted on anything related to banks . D on have you had a vote since youve been there on anything related to banks . Not as such. Not as such. Well, i dont have the time to drill down with that, mr. Drill woodall. There is a way to get to the o not as such answer, but i s sh dont have time to do it now. So have you voted on anything as such . When it comes to utilities i understand. So you have not recused yourself on issues related to banks . Youre a fi beta kappa from kentucky. If you believe a person only have must have insurance anki expertise to sit in judgment of an Insurance Company on fsoc, raise your hand. If you think you only can do it with Insurance Expertise, raise your hand. And. Let the record reflect, none. Exe let me ask the question another way. He que if you believe that you can sit in judgment of an insurance in company and not be an f fi beta kappa from kentucky, raise your hand. Youre the only person who thinks youve got to be an fi beta kappa from kentucky. I assume i can now put in the record that you are a person wht believes you must be an fi beta kappa from kentucky before you can okay, that should go in the record. No, but im going to take it from that comment, mr. Woodall, that you have joined the rest of your colleagues and the record should show there is unanimous consent that you donn have to be an Insurance Expert e to sit in judgment of an rt Insurance Company . Im not sure what an Insurance Expert is. Im glad you said it, because some people have claimed you n are. My assumption is you dont knowy what you are. Laimed that was because it was put a in the title by doddfrank. Mr. Woodall, i want to make s this very clear. At i don i love you. Have t because sometimes it can appear that i dont love people because i have to ask the tough questions. R things i regret i didnt get to some other things. But god bless you, brother. U. Thank you, mr. Chairman. Im going to address my first question to chairman matz. You said earlier designees thn should have insurers. My understanding was the time of the designation, june of 2013, 0 98 of metlifes consolidated ma assets, 96 of its liabilities, 95 of its revenues, were in these highly regulated insuranc subsidiaries. I just wanted to make sure i of understand the basis for your decisions. T are you saying fsoc analyzed only two percent of metlifes sd assets and five percent of its m revenues, and found those assets alone to be systemically 2 important and a threat to the Financial System . Is that your testimony . Ly impor i do want to say that we . Cannot comment on metlife. But in terms of our designation of other Insurance Companies, we do look at how their balance ale sheet and off Balance Sheet ac activities could are interconnected with other systemically important institutions. Sy im going to stick again with chairman matz on this, then open it up 0 others as well. As all of you should know, Insurance Companies are well. Extensively supervised by states, despite the existing regulation, fsoc has designatedh three insurers has systemically important. Could you provide an overview of how and why you determined the state insurance regulation, in particular the state guarantee system for failed insurers, is n effective . Thank you for asking that. Ve . I dont think any of us, and i cant speak for anyone, but on this i would say i dont think d any of us think the restate insurers are ineffective. Us our mandate is to look at how the activities of the Insurance Company affect the financial thi stability of the United States. A theyre really looking at the effect on policyholders. Its a very different direction that theyre taking. With making that determination of what you should pull away from the states, again, clearly legislatively, most authority of Insurance Companies is with the states. I would argue for protection of policyholders but also protection of policyholder woulp by definition, you know, include the Financial Stability of that company. Stabil those would be directly related. Those arent separate issues. Ma what analysis did you as a Voting Member of fsoc rely on to reach the determination that that should be separated out, that states were unable to be e handle this . As i said, they have a ndle t different mandate than we do. Theyre looking at the institution and the solvency visavis the policyholders. Were looking at the institution and its interconnectedness with other institutions and its ability to threaten the Financial Stability of the United States. Its a different mandate. It doesnt mean that theyre doing their job any better or worse than we are or viceversa. Its just a different tack that theyre taking. As youre making this decision, was there an independent analysis done by your agency . Independent analysis of iw again, the standing, i guess, of these Insurance Companies, theyre ability, if there was a threat nationally, to financiali markets or i would say also to a policyholders, was there an i want analysis done by your agency to make the as the determination, again, that the states werent capable of doing this, that this was something y that you all needed to do . We rely on the fsoc staff. Thy we did not do an independent evaluation, no. Lyendent let me switch to a littlediscussed provision of the doddfrank act, for exempting Certain Companies from heightened supervision. To date no such regulations have been issued. Exemptin this requirement represents a tool congress created to differentiate between those that pose risk and those that do note and provide clear criteria for how they should conduct their businesses in such a way as to be nonsystemic. Chair white, why has this provision never been used . N nev i really cant answer that. It would have to come from the fed initially, at least. I guess in my last seconds, a show of hands, following on from my friend from texas, who among you has advocated for a class ow Financial Company to be exempted from heightened supervision . If you could raise your hand, if you have advocated for a class o of Financial Company to be exempted from heightened you ha supervision. For the record, none raised their hand. My time has expired. I yield back, mr. Chairman. The chair now recognizes the gentlelady from ohio, ms. Beatty. Thank you, mr. Chairman. Thank you, Ranking Member. Let me associated my opening comments with those of my ank y, colleagues. Ith th as someone relatively new, ive certainly never seen the number of people, which is not as important as the work and the service you do. So thank you for that. Wev weve heard a lot of questions u about what you dont do. Whats interesting to me is, i listen to the example about whad you would provide as it relates to giving us information. And i think the analogy was to us getting classified information for isis. We certainly know from everything we have read and weve heard that our country isn in trouble. So you were asked, and given that analogy, do you think, since your role is to protect the Financial Stability for us, are we in financial crises right now as we were, lets say, in s 2008 . Im trying to get, are we like isis is, a threat to your world . Thats a yes or no, as we go a down the panel. Are we in that same kind of threat in financial . No, but i think we cant be complacent. I would agree with chair whites statement. Agree w me too. T. No. No. I agree. No. Okay. I have an insurance question, ok but ill come back to that, mr. Woodall, since youve been asked so many questions on this. I would like to associate myself with the words of congressman scott from atlanta as it relate to the issue he talked about. But more importantly, about black wealth, or minorities. I am very concerned, and i know many of you have omwi boards, but my question is beyond omwi,t because im not pleased with the answers i have been given on omwi. While its a big deal to me and section 342,with t i dont think people have taken it as seriously as we should. With that said, as a group, as you look at making your you projections, as you evaluate where we should be financially, can at least three of you tell me what you do with minorities,c and more specifically and africanamericans, as it relates to banks, Financial Institutions . How are they included . Because you make projections keo that affect us and our constituents. So im concerned. Can anyone address that . Quickly. Ill start in terms of what we do with minorityowned owned institutions and populations. In terms of minority depository populations, i have an advisory committee, how we can help alleviate them through technican assistance and other means directed by statute. As a bank Regulatory Agency we n also enforce the community by t reinvestment act which has a nc direct impact on low to moderati income communities. And we have active outreach efforts associated with that, ok with both banks and interested groups. Okay. I would add that we enforce the equal credit opportunity act. We recently resolved the largest redlining mortgage lending matter in the history of this n country. Weve had significant matters in auto lending discrimination and credit card as well. This is an important means of aw making sure that everybody an ir across our society has equal access to credit and arent discriminated against on the bases of race and ethnic origin. Well take one more. We also have an Extensive Program as required by law to support minority depository institutions. Hav the fdic also has an advisory er committee on in the case inclusion where one of the ha things we focus on is asset building for low and moderate income families. The mortgage crisis, as you well know, had a disproportionate gei impact on minority households and africanamerican households. Thank you. If congress were to reduce the ability of fsoc to perform its function of overseeing Financial Markets for threats to stability, how could that impact the u. S. Economy . Well go to the other end. Ms. White . It would defeat the entire purpose of fsoc, which is a very important one, which is to look out for the Financial Stability of the u. S. Financial system. E,h okay. Mr. Chairman, commodities future and trading commission, later a today the committee will be marking up a securityrelated bill which im sure should be very interesting to us. Whi im interested to hear what tert measures specifically fsoc has taken to facilitate dialogue tog help us protect that. I think generally fsoc has el taken the issue of cybersecurity broadly speaking very seriouslys its listed that as a primary concern in its annual reports. N our agencies. And do we have any my time is up, im sure. Do we have any best practices developed, yes or no . I think most definitely so. A lot of us are very focused on those best practices issues. Were in our own agency, i hope we will come out with some standards specifically on this. Thank you. The time of the gentle lady has expired. The chairognizes the gentleman from florida, mr. Ross. Thank you, mr. Chairman. Mr. Woodall, i have to just follow up on what my colleagues from texas was pursuing. As a litigator of 25 years, i know that the trier of fact, whether it be a jury or a judge,