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THE DODD-FRANK ACT FIVE YEARS 

LATER: ARE WE MORE STABLE? 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

JULY 9, 2015 

Printed for the use of the Committee on Financial Services 

Serial No. 114–39 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

July 9, 2015 ....................................................................................................... 1 

Appendix: 

July 9, 2015 ....................................................................................................... 69 

WITNESSES 

THURSDAY, JULY 9, 2015 

Atkins, Hon. Paul S., Chief Executive Officer, Patomak Global Partners LLC; 

and former Commissioner, U.S. Securities and Exchange Commission .......... 6 

Calabria, Mark A., Director, Financial Regulation Studies, Cato Institute ....... 7 

Silvers, Damon A., Director of Policy and Special Counsel, American Federation of Labor—Congress of Industrial Organizations (AFL-CIO) .................... 10 

Zywicki, Todd J., Foundation Professor of Law and Executive Director of 

the Law and Economics Center, George Mason University School of Law ..... 11 

APPENDIX 

Prepared statements: 

Beatty, Hon. Joyce ............................................................................................ 70 

Atkins, Hon. Paul S. ......................................................................................... 74 

Calabria, Mark A. ............................................................................................. 87 

Silvers, Damon A. ............................................................................................. 104 

Zywicki, Todd J. ................................................................................................ 111 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Ellison, Hon. Keith: 

Forbes article entitled, ‘‘The Highest-Paid CEOs Are The Worst Performers, New Study Says,’’ dated June 16, 2014 ....................................... 119 

Himes, Hon. James: 

Chart entitled, ‘‘The Five Years Since Dodd-Frank’’ ..................................... 122 

Messer, Hon. Luke: 

American Action Forum article entitled, ‘‘From Free Checking to the 

Financial Fringe: A Tale of Two Regulations and Low-Income Families,’’ July 8, 2015 .......................................................................................... 123 

Written responses to questions for the record submitted to Todd Zywicki . 128 

Stivers, Hon. Steve: 

Written statement of the Association for Corporate Growth ........................ 130 

(1) 

THE DODD-FRANK ACT FIVE YEARS 

LATER: ARE WE MORE STABLE? 

Thursday, July 9, 2015 

U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 10:05 a.m., in room 

2128, Rayburn House Office Building, Hon. Jeb Hensarling [chairman of the committee] presiding. 

Members present: Representatives Hensarling, Royce, Lucas, 

Garrett, Neugebauer, McHenry, Pearce, Posey, Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, Stivers, Fincher, 

Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, Barr, 

Rothfus, Messer, Schweikert, Guinta, Tipton, Williams, Poliquin, 

Love, Hill, Emmer; Waters, Maloney, Velazquez, Sherman, Meeks, 

Capuano, Clay, Lynch, Scott, Green, Cleaver, Moore, Ellison, 

Himes, Carney, Sewell, Foster, Kildee, Murphy, Delaney, Sinema, 

Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

come to order. Without objection, the Chair is authorized to declare 

a recess of the committee at any time. 

Today’s hearing is entitled, ‘‘The Dodd-Frank Act Five Years 

Later: Are We More Stable?’’ 

Before proceeding, I wish to yield to the gentleman from Indiana 

for a very special introduction. The gentleman is recognized. 

Mr. MESSER. Thank you, Mr. Chairman. This is unanticipated, 

but I would like everybody here to meet my son Hudson Messer— 

stand up, Hudson—who is joining us today. It is his first time at 

a Financial Services Committee hearing. Thank you. 

[applause] 

Chairman HENSARLING. Welcome, Hudson. Take very careful 

notes. We are not always sure your father does. 

Mr. MESSER. He was watching the debt clock, though. He was 

very impressed by that. 

[laughter] 

Chairman HENSARLING. He will have to pay for it. I now recognize myself for 3 minutes to give an opening statement. 

Five years ago this month, Dodd-Frank was signed into law. Undoubtedly, it is the most sweeping and dramatic rewrite of banking 

and capital markets laws since the New Deal. Weighing in at 2,300 

pages, with 400 new rules, it is clearly, clearly dramatic. 

Whether fan or detractor, this committee would be negligent if 

we weren’t vigilant in our oversight of both the impact and the implementation of Dodd-Frank. Negligent we will not be. 

2 

So today marks the first of three hearings to be held on the 

Dodd-Frank bill, posing three different questions. Five years after 

Dodd-Frank, are we more prosperous? Five years after DoddFrank, are we more free? And the focus of today’s hearing, five 

years after Dodd-Frank, are we more stable? 

I frankly believe it remains an open question as to whether we 

have achieved greater stability. I fear the answer is ‘‘no,’’ but were 

the answer to be ‘‘yes,’’ when you look at the damage Dodd-Frank 

has done to our economic growth, to family finances and to consumer freedom, I am rather doubtful it would be worth the cost. 

Clearly, balance sheets have improved post-Dodd-Frank and 

banks have delevered. This is a necessary and good thing, and I 

strongly suspect that market forces would have brought about 

these actions regardless of Dodd-Frank. 

Regulators already possess the powers to have set more prudent 

capital and leverage standards. Still, Dodd-Frank very well may 

have been helpful in this regard. 

What is undebatable is the fact that since the passage of DoddFrank, the big banks are now bigger, and the small banks are now 

fewer. In other words, even more banking assets are now concentrated in the so-called too-big-to-fail firms. Pray tell, how does 

this improve financial stability? 

Dodd-Frank has codified too-big-to-fail into law and provided a 

taxpayer-funded bailout system in Title I and Title II of the Act. 

This simply leads to even greater moral hazard and to greater instability. 

According to the Richmond Federal Reserve, the explicit Federal 

guarantees of financial sector liabilities have increased to a whopping 60 percent post-Dodd-Frank. When private investors and depositors and counterparties expect a bailout, their incentives to 

monitor risk clearly wane. 

Regulatory micromanagement is no substitute for market discipline. By this measure, Dodd-Frank has clearly made our financial system riskier. 

Part of the extension of the Federal backstop has been the creation of a whole new class of too-big-to-fail institutions, namely 

centralized clearinghouses for derivatives. Here, Dodd-Frank didn’t 

lessen risk. It just centralized it and placed it on a taxpayer balance sheet. 

Next, Dodd-Frank’s Volcker Rule, along with the Basel accords, 

have caused a massive drop in corporate bonds inventories. Many 

economists now believe the next financial crisis could very well result from the illiquidity and volatility in our bond market. 

Senator Dodd of Dodd-Frank said, ‘‘No one will know until this 

is actually in place how it works.’’ Five years later, we have a clue, 

and we are learning that our financial system may very well be 

less stable under Dodd-Frank. 

I now yield 5 minutes to the ranking member for an opening 

statement. 

Ms. WATERS. Thank you, Mr. Chairman. Today’s hearing is the 

first of two scheduled in recognition of the fifth anniversary of the 

Dodd-Frank Wall Street Reform Act. 

It is important to remember that the 2008 financial crisis was 

not a natural disaster. Instead, it was the result of deliberate 

3 

choices, choices on the part of some on Wall Street who put their 

own short-term interests ahead of the long-term economic health of 

our Nation’s investors and consumers. 

As a result of choices on the part of some of our regulators, we 

failed to respond as vulnerabilities and illegalities in our financial 

system emerged. These choices had tremendously damaging consequences. Our Nation became plagued by small business closures, 

large drops in the stock market, stunning job losses, rising foreclosures, and fears of a looming repeat of the Great Depression. 

In the 6 months before President Obama took office, our economy 

hemorrhaged nearly 4 million private sector jobs, an average of 

650,000 per month. Nearly $16 trillion in household wealth simply 

disappeared. The retirement accounts of many hardworking Americans were swept away. 

Around 9 million individuals were displaced from their homes, 

many of whom may never again have the opportunity for home 

ownership. 

Once the economy was stabilized, Democrats worked diligently 

on legislation to restore responsibility and accountability to our financial system and instill confidence that we have the tools in 

place to protect Americans from another crisis. 

Since Dodd-Frank was enacted 5 years ago, the American economy has added nearly 13 million private-sector jobs and unemployment has fallen by 4.7 percent points, its lowest level since September 2008. The housing market is recovering, with home prices 

rising, negative equity falling, and measures of mortgage distress 

improving. 

Retirees’ investments are recovering as well. The S&P 500 has 

risen more than 250 percent since February 2009, and the average 

401(k) balance has reached a record high in 2014. 

But even as we celebrate our success at avoiding a second Great 

Depression, it is important to recognize that the events of 2008 

have cast a long shadow over our Nation’s growth and prosperity, 

one which has not been shared equally by all. 

Research from Cornell University found that the foreclosure crisis has resulted in an increasing level of resegregation in many 

urban areas. Several institutions confirm the foreclosure crisis likely had substantial negative impacts on child well-being, with multiple moves and marital discord leading to anxiety, depression, and 

poor performance in school. 

The crisis also exacerbated what was already an unacceptably 

large wealth gap between white and minority households. The Pew 

Research Center found that the current wealth gap between African-Americans and whites has reached its highest point since 1989. 

The current white-to-Hispanic wealth ratio has reached a level not 

seen since 2001. 

We must go further to address these lingering challenges. But 

make no mistake, we made progress. Most notably, in Dodd-Frank 

we created a Consumer Financial Protection Bureau that in just a 

few years has already returned $5.3 billion to 15 million consumers 

who have been subjected to unfair and deceptive practices. 

We have worked with the Bureau to create rules of the road to 

make sure predatory mortgages never again strip wealth from 

American families and endanger our economy. 

4 

And we worked with regulators to institute rules to protect retirees and other investors from the practices that wreaked havoc on 

savings in 2008. 

But Mr. Chairman, too much time has been wasted in Congress 

by the majority bent on austerity policies that leave workers, retirees, and minority communities behind, while ignoring the substantial progress we have made toward deficit reduction. 

Too much energy has been spent trying to re-litigate the causes 

of the 2008 crisis, which at this point everyone should recognize is 

settled. 

Finally, far too much effort has been spent by the Republicans 

to weaken our regulatory apparatus, whether through underfunding our regulators, relentlessly pursuing or pressuring them to 

go soft on rules, or injecting unrelated Wall Street giveaways into 

must-pass government funding bills. 

I am tired of the Republicans’ death-by-1,000-cuts strategy to roll 

back the significant gains we have made since Dodd-Frank enactment. Five years later, I urge my colleagues to take stock of where 

we were and how far we have come. 

And I suggest they recognize that much like the recent Supreme 

Court decisions to uphold the Affordable Care Act, and the disparate impact standard to prevent discrimination in housing, DoddFrank is settled law. 

Thank you, and I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Wisconsin, Mr. Duffy, chairman of our Oversight and Investigations Subcommittee, for 2 minutes. 

Mr. DUFFY. Thank you, Mr. Chairman. When Dodd-Frank was 

enacted 5 years ago this month, Senator Elizabeth Warren and 

President Obama promised Americans that this law would lift the 

economy, that their hard-earned money would be safer, that markets would be more stable and that no one institution would 

threaten the safety and soundness of the global financial system. 

As we have seen this law implemented, it has left much to be desired. In large part, the 2008 financial crisis was a result of Federal financial regulators failing to do their job, and their inability 

to anticipate the looming issues in the subprime mortgage market. 

Dodd-Frank rewarded incompetency with more responsibility. 

The law has created new areas of risk concentration, enshrined toobig-to-fail institutions, made it more difficult for small banks to 

compete, and done damage to the economy that is still too difficult 

to quantify. 

The law of unintended consequences has never been more apparent than when we look at Dodd-Frank. The pursuit of financial stability has come at a cost. While the goal may be worthy, we must 

look at the collateral damage along the way and ask ourselves if 

we are going down the right path. 

Compliance burdens are crushing small institutions. And though 

banks may be better capitalized, we are now seeing negative market impacts stemming from these new regulations. 

The FSOC and Treasury Secretary Lew don’t really want to 

admit that Dodd-Frank may be at the center of illiquidity that was 

seen in the bond market. With banks having to hold on to more 

capital and pulling out of market-making activities, these markets 

5 

are left withering in the wake of Dodd-Frank and other international regulations. 

Another product of Dodd-Frank is the Consumer Financial Protection Bureau, the CFPB, which was tasked with protecting consumers of financial products and services from discrimination. Ironically, it has the worst track record of all Federal financial agencies 

of EEO complaints, proving the agency is inept at best, or negligent 

at worst, at protecting its own employees from discrimination and 

retaliation. 

Further, sources of small dollar credit products that millions of 

Americans rely upon are now in the crosshairs of the Bureau. The 

government-knows-best mentality, the nanny-state mentality, has 

gone too far. Americans are capable of choosing products and making decisions that they know are in their best financial interests. 

The CFPB is eliminating consumer freedom and imposing political agendas that I just don’t think work, Mr. Chairman. This is 

the Gruber mentality, along with—well, I will go there later. I will 

yield back. 

Chairman HENSARLING. Notwithstanding the fact the gentleman 

was on a roll, the time of the gentleman has expired. 

[laughter] 

Today, we welcome the testimony of our distinguished panel. I 

will introduce them at this time. 

First, Mr. Paul Atkins is the CEO of Patomak Global Partners. 

He is a former Commissioner of the U.S. Securities and Exchange 

Commission, appointed by President George W. Bush. I also note 

that he is a fellow member of the TARP Oversight Panel. 

Before his appointment to the Securities and Exchange Commission, he served on the staff of two SEC Chairmen, and worked as 

an attorney in private practice. He is a graduate of the Vanderbilt 

University School of Law, and Wofford College. 

Dr. Mark Calabria is the director of financial regulation studies 

at the CATO Institute. Before serving at CATO, he served on the 

staff of the Senate Banking Committee, and as Deputy Assistant 

Secretary for Regulatory Affairs at the U.S. Department of Housing 

and Urban Development. He owns a doctorate in economics from 

George Mason University. 

Mr. Damon Silvers is director of policy and special counsel at the 

AFL-CIO where he has advised on a range of financial services 

matters before the Treasury Department, the SEOC, and the 

PCAOB. I also note he served as the Deputy Chair of the Congressional Oversight Panel, another fellow alum. I think we are maybe 

two shy of a full reunion. At this time, we might leave it that way. 

Professor Todd Zywicki is a foundation professor of law and an 

executive director of the Law and Economics Center at George 

Mason University. He was previously an attorney in private practice, and a law clerk for Judge Jerry Smith, U.S. Court of Appeals 

for the 5th Circuit. He is a graduate of the University of Virginia 

Law School, Clemson University, and Dartmouth College. 

Each one of you gentlemen, I know, has testified before our committee. So I trust you do not need a remedial tutorial on our lighting system of red, yellow, and green. 

6 

Each of you will be recognized for 5 minutes to give an oral presentation of your testimony. And without objection, each of your 

written statements will be made a part of the record. 

Mr. Atkins, you are now recognized for 5 minutes to summarize 

your testimony. 

STATEMENT OF THE HONORABLE PAUL S. ATKINS, CHIEF EXECUTIVE OFFICER, PATOMAK GLOBAL PARTNERS LLC; AND 

FORMER COMMISSIONER, U.S. SECURITIES AND EXCHANGE 

COMMISSION 

Mr. ATKINS. Thank you, Mr. Chairman. Good morning, Chairman 

Hensarling, Ranking Member Waters, and members of the committee, and thank you very much for inviting me to appear at the 

hearing today. 

Given my background, I am going to focus my remarks on the 

impact of Dodd-Frank on the U.S. capital markets. I think the single largest problem of the Act is Title I, titled ‘‘Financial Stability.’’ 

The conceit of the authors of Dodd-Frank is that if you get 

enough smart people in a room with enough data, they can bring 

stability to the marketplace. But just as human beings cannot be 

counted on to be predictable and stable, those of us who spend a 

lifetime engaged with the capital markets know that they also are 

not always stable because human beings with other foibles make 

up markets. 

Ultimately, though, the freedom of individuals to make their own 

decisions is not a curse, but a benefit. 

A little over a year ago, I testified before this committee on the 

FSOC’s embarking on a misguided effort to apply bank prudential 

regulation to the capital markets by designating asset managers as 

systemically important financial institutions, or SIFIs. 

After much pushback, including by many of you on this committee from both sides of the aisle, both the FSOC and the International Organization of Securities Commissions now indicate that 

they are moving away from designating asset managers as SIFIs. 

But that decision is not carved in stone. 

Take the Financial Stability Board, which seems not to have 

changed its course to designate funds and asset managers as global 

SIFIs, even though the only funds and managers that meet their 

materiality threshold are American. That raises serious competitive 

implications for the United States just as the European Union embarks on an initiative to encourage Pan-European capital markets. 

In short, the story of attempted prudentialization of capital markets is not going away. I fear that the U.S. capital markets, which 

have been the driver of economic growth and job creation in this 

country for decades, will be the collateral damage in the elusive 

quest for, as I say, stability ‘‘uber alles.’’ 

Another Dodd-Frank provision that is emblematic of a flawed 

legislative process is the Volcker Rule. Despite not being included 

in either the House or the Senate bill, and without any substantive 

hearing to consider the specific language of the Rule, potential effects or unintended consequences of the provision, the Volcker Rule 

became law. 

Basically, the Volcker Rule is aimed at banning proprietary trading in commercial banks. Because it is easier to blame Wall Street 

7 

in excessive risk taking for the financial crisis than the Federal 

Government’s own housing policies, many have trumpeted the 

Volcker Rule as the best reform of Dodd-Frank. 

But even former Chairman Volcker himself has acknowledged 

that, ‘‘proprietary trading in commercial banks was not central to 

the crisis.’’ Yet, the statute and implementing regulations turned 

regulators into amateur psychologists. They might as well have a 

Ouija board to determine intent under the rule. 

Rather than risking running afoul with regulations, banks have 

reduced their market-making activities. Combining the Volcker 

Rule with higher capital requirements at home and abroad has literally sucked essential working capital out of the market-making 

activities of banks. 

Banks no longer act as principals in trading any more, but as 

agents. That decreases market liquidity on a daily basis. 

Even though Secretary Lew—who by the way does not have a financial background—refuses to acknowledge it, the Volcker Rule is 

the needless regulation that has caused and will continue to cause 

harm to issuers and investors. 

As the chairman quoted at the outset, former Senator Dodd famously said, ‘‘No one will know until this is actually in place how 

it works.’’ Five years later, the full effects of Dodd-Frank are still 

unknown. But the costs certainly have been borne not just by Wall 

Street but by ordinary investors and businesses of all shapes and 

sizes who are no safer today than they were in 2008. 

Indeed, small investors will suffer more pain if the Administration goes through with the proposed changes to the ambit of fiduciary duty under ERISA. To say nothing of the myriad special interest provisions in Dodd-Frank that had absolutely nothing to do 

with the financial crisis such as conflict minerals certification, mineral extraction disclosure, and the CEO pay disclosure. 

Moreover, until Congress claims some of the authority that it 

gave regulators under Dodd-Frank, particularly the authority given 

the FSOC and the Federal Reserve under Titles I and II, the greatest risk to the U.S. capital markets remains that government, and 

not the markets, will ultimately choose winners and losers. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Atkins can be found on page 74 

of the appendix.] 

Chairman HENSARLING. Thank you. 

Dr. Calabria, you are now recognized for your testimony. 

STATEMENT OF MARK A. CALABRIA, DIRECTOR, FINANCIAL 

REGULATION STUDIES, CATO INSTITUTE 

Mr. CALABRIA. Chairman Hensarling, Ranking Member Waters, 

and distinguished members of the committee, thank you for the invitation to appear at today’s important hearing. 

I will note that it has been almost a year since I appeared before 

the committee, and I was starting to wonder if I had worn out my 

welcome. So, it is a delight to be back, and of course an honor to 

be part of such a distinguished panel. 

The subtitle of today’s hearing raises what I believe is probably 

the single most important question in financial regulation: Are we 

8 

more stable? Let me cut the suspense and give you my answer. I 

think it is ‘‘no.’’ Now, let me tell you why. 

I will note that there have been improvements. And I don’t think 

anybody would disagree with that. In my written testimony, I talk 

about the improvements we have seen in bank capital. But my own 

opinion is that the net improvements have been outweighed by the 

net downsides. 

This is also an extremely broad topic. I touch on a number of 

things in my written testimony, which I will be delighted to discuss 

later, but I am only going to focus on a few right now. 

Let me first focus on what I believe is one of the more important 

contributors to financial instability, which is the moral hazard created by both implicit and explicit guarantees of risk taking. 

The chairman mentioned the Richmond Fed’s Bailout Barometer. 

As he noted, this is up to a full 60 percent of our financial system 

liabilities, either explicitly or implicitly backed by the Federal Government. I will note this is higher than both before Dodd-Frank 

and before the crisis. 

Part of the measure of the implied too-big-to-fail is the too-bigto-fail subsidy of our largest banks. For reasons I detail in my written remarks, I do not believe that Dodd-Frank has ended too-bigto-fail. I will note that according to recent polling, neither does a 

plurality of the American public believe that either. 

Some would claim that Title II’s orderly liquidation process ends 

bailouts. I will note that I worked on a similar mechanism created 

under the Housing Economic Recovery Act for Fannie Mae and 

Freddie Mac. And so let us not forget, we had the tools to resolve 

Fannie and Freddie without a dime of cost to the taxpayer. Those 

are on the books. Those were not used. 

So maybe I will characterize my concern this way. The ranking 

member mentioned choices. We are faced with that next time. 

Regulators will have the choice whether they resolve an institution without relaying to the taxpayer, without taxing the rest of the 

financial services industry, or whether they impose losses on creditors. So let me emphasize that while I agree that Dodd-Frank’s 

Title II offers a path to imposing losses on shareholders and creditors, I could not overemphasize, it is a choice. 

One of the reasons I believe that choice will not be taken is if 

you simply compare an institution like Freddie Mac, which is 

smaller and less complex than an institution like Citibank, it suggests to me that it is very hard to believe that we would actually 

let Citibank fail. 

There are a number of other institutions that we may let fail, but 

I don’t think some of them would work. 

I appreciate and commend the FDIC’s attempts towards its single point of entry to try and improve upon that process. Setting 

aside its questionable legality, I would also emphasize that it is an 

optional approach. Whether it is actually followed or not is an open 

question. 

Were it credible, markets would price holding company debt and 

subsidiary debt differently. Recent research from the New York 

Federal Reserve shows that this is not happening. So apparently, 

the markets don’t even believe the single point of entry is going to 

be effective. 

9 

I will note that a handful of studies have found that designating 

systemic entities as ‘‘systemically important,’’ as is done under 

Title I, leads market participants to view these entities as too-bigto-fail. 

I will remind the committee that in this very room in 1984, when 

the Comptroller of the Currency told us that the 11 biggest institutions were too-big-to-fail and they were going to be heavily regulated, we still ended up bailing out some of those institutions. 

So, it is bad enough that unfortunately the implied guarantees 

of our largest banks have been further backed. We also have extended that privilege, as the chairman noted, to financial market 

infrastructure such as clearinghouses. 

Another important driver of instability is monetary policy. Years 

of negative real interest rates incentivize all sorts of reckless behavior, such as that which helped inflate the housing bubble. I am 

certain that we are currently massively distorting our financial 

markets with our current monetary policy. 

Let me be very clear in my opinion that the Fed’s current policies 

will be very painful when they unwind. Most of us agree that mortgages play an important role in the crisis. 

Dodd-Frank has indeed attempted to address problems in the 

mortgage market. As I detail in my written testimony, I believe 

these attempts have fallen short, and in many instances have done 

more harm than good. 

I believe the evidence is overwhelming coming from such neutral 

parties as GAO that loan to value and borrower credit are the main 

primary drivers of default, yet these have been ignored. 

I remind the committee that Congressman Frank sat at this 

table last year and testified that he clearly meant that 

downpayments should be a part of QM and QRM. The regulators 

have gutted these provisions, making them worse than useless. 

Perhaps worst of all is that Dodd-Frank has helped drive almost 

all of the mortgage risk in the United States on the backs of the 

taxpayer. Fannie, Freddie, and FHA all hold essentially zero capital. When the housing market turns, which it will, the taxpayer 

will face a very large bill. 

Even the IMF, no lover of free markets, highlighted earlier this 

week the instability risks from our housing finance system. If we 

continue along this path, I estimate that at least a million families 

will lose their homes in the next downturn from the reckless underwriting practices of the FHA alone. 

Mr. Chairman, I commend you for calling today’s important hearing. As we painfully learned over the last decade, financial crises 

are extremely costly and painful, both for the economy and for 

American families. 

Had Dodd-Frank brought more stability to our financial system, 

I would be the first to applaud it. I do believe it has not. 

Without sufficient reform, I believe we are almost certain to see 

another painful crisis within the next decade. Sadly, the warning 

signs were ignored before the last crisis. 

I urge Congress not to ignore the warning signs this time 

around. 

[The prepared statement of Dr. Calabria can be found on page 

87 of the appendix.] 

10 

Chairman HENSARLING. Thank you. 

Mr. Silvers, you are now recognized for your testimony. 

STATEMENT OF DAMON A. SILVERS, DIRECTOR OF POLICY 

AND SPECIAL COUNSEL, AMERICAN FEDERATION OF 

LABOR—CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFLCIO) 

Mr. SILVERS. Good morning, Chairman Hensarling, Ranking 

Member Waters, and members of the committee. 

My testimony today is given on behalf of both the AFL-CIO, and 

Americans for Financial Reform, a coalition of over 200 organizations. 

The Dodd-Frank Act passed in the wake of a financial crisis that 

cost the United States $22 trillion, according to the GAO. In the 

course of that crisis, 10 million families were thrown out of their 

homes and tens of millions lost their jobs. That is what we are trying—the statute was seeking to prevent occurring again. 

But the Dodd-Frank Act was a compromise. It did not place size 

limits on financial institutions, it did not restore the Glass-Steagall 

Act, and it did not fundamentally change the incentives in the executive compensation system of our financial firms to take on excessive risk. 

Rather than making these fundamental structural changes, the 

Act gave regulators the possibility of making structural change. 

This goes back to Dr. Calabria’s point about choices. 

What Dodd-Frank did do was resurrect fundamental principles of 

financial regulation that had been forgotten in the race to deregulate in the 1980s and 1990s. Most of all, the Dodd-Frank Act created a clear, workable alternative to the bailout of systemically significant institutions. 

The resolutions process, contemplated in Title II, places the responsibility for first-hour losses and distress situations clearly 

where it should be, on the too-big-to-fail firms, their equity holders, 

bond holders, and executives. However, I would associate myself 

with Dr. Calabria’s comments that this requires the regulators to 

actually choose to use it. 

The U.S. financial regulatory system prior to the Dodd-Frank Act 

was a Swiss cheese system, full of holes allowing financial actors 

to evade both capital and transparency requirements for the price 

of a lawyer. The Act closed many, but not all, of these loopholes. 

Five years later, among the clear results of these changes is a 

reduction in the credit market’s perception that the government 

will bail out the Nation’s largest banks if they get into trouble. 

GAO found that while there was a very large subsidy—in the credit 

markets for too-big-to-fail banks in 2009 and 2010. 

Between 2010 and 2014, that subsidy fell to near zero as regulators showed through the progress of living wills, the adoption of 

single point of entry and the refinement of stress tests that they 

were serious about enforcing the provisions of Title II. 

But the Dodd-Frank Act was not simply about protecting the financial system from itself. Its explicit purpose was to make financial markets less of a rigged game from the perspective of consumers and investors. 

11 

Here, the track record is impressive and expanding. For example, the CFPB has returned $5.3 billion of improperly obtained fees and 

penalties to over 15 million consumers and their families. And the 

Securities and Exchange Commission recently has begun using the 

Act to uncover widespread abuses of investors by private equity 

and hedge fund managers. 

However, the Act necessarily depends on regulators to implement 

and enforce it, and all too often over the last 5 years regulators 

have succumbed to political pressures not to, particularly in the 

area of executive compensation. 

And then, there was the recurring impulse in Congress to weaken financial regulation, that same impulse that brought us to crisis 

in the first place. We saw this on display in the Cromnibus negotiations last winter where Congress worked with the Obama Administration to repeal the hard-fought derivatives push out provisions 

and once again relink the derivatives market to the deposits of 

American families. 

Efforts to weaken the Dodd-Frank Act have involved the use of 

a series of spurious arguments, including ‘‘cost benefit analyses’’ 

that looked only at the costs and not at the benefits. These sorts 

of arguments only have weight because of the political and economic power of the people making them. 

And this brings us back to the issue of too-big-to-fail banks. The 

truth is that because Dodd-Frank was a compromise, because it 

largely left to the regulators the question of structural change, it 

has proven to be vulnerable to the continuing political power of the 

handful of too-big-to-fail banks that continue to dominate our financial system and exert a disproportionate influence on our politics. 

In this sense, the unfinished agenda of financial reform is inextricably intertwined with the ability of the regulatory system to effectively implement the Dodd-Frank Act as it is to ensure the financial system does its job of efficiently transforming savings into 

investment and to protect the U.S. economy and the American public from a costly repeat of the financial crisis that began in 2007. 

My answer, Mr. Chairman, to the question posed in the title of 

this hearing, is that the Dodd-Frank Act has definitely helped 

make our financial system more stable, but unless we deal with the 

too-big-to-fail problem more directly, the Dodd-Frank Act itself is 

not stable. 

Thank you. 

[The prepared statement of Mr. Silvers can be found on page 104 

of the appendix.] 

Chairman HENSARLING. Thank you. 

Professor Zywicki, you are now recognized for your testimony. 

STATEMENT OF TODD J. ZYWICKI, FOUNDATION PROFESSOR 

OF LAW AND EXECUTIVE DIRECTOR OF THE LAW AND ECONOMICS CENTER, GEORGE MASON UNIVERSITY SCHOOL OF 

LAW 

Mr. ZYWICKI. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee. I am a scholar of consumer credit, a former FTC senior staffer, and as a result, I was 

especially disappointed that Dodd-Frank had squandered an opporVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
12 

tunity to modernize our financial consumer protection system, to a 

regime that would promote competition, consumer choice, and innovation. 

If you look back at the record over the past 5 years, instead 

Dodd-Frank has substituted the judgment of Washington bureaucrats for American families with respect to the financial products 

that will make their lives better; thrown a blanket of uniformity 

over the consumer credit market, strangling innovation and crushing community banks; raised prices; and reduced consumer choice 

with respect to financial services. 

And by reducing access to financial services, and because many 

small businesses use personal credit in their own businesses, it has 

dampened the economic growth and recovery. And I think most 

tragic of all, Dodd-Frank has done little to increase consumer protection for American families, but by driving millions of consumers 

out of the mainstream financial system, and into the hands of payday lenders, check cashers, pawn brokers, and all of the other alternative financial providers, it has actually made life worse for the 

most vulnerable members of society. 

At the heart of Dodd-Frank was the Consumer Financial Protection Bureau, which is both the most powerful and unaccountable 

bureaucracy in American history, with the ability to regulate virtually every consumer credit product under vague and poorly defined standards. 

If we look at the track record of the CFPB, and the way in which 

Dodd-Frank has been implemented, we see a sweeping amount of 

damage to American families as a result of this law. 

First, Dodd-Frank has destroyed free checking for millions of 

Americans. Prior to Dodd-Frank, 76 percent of Americans had access to free checking; since Dodd-Frank was enacted, that number 

has fallen to 38 percent. Bank fees have doubled as a result of 

Dodd-Frank, driving approximately a million, if not more, consumers out of bank accounts and into the alternative financial sector. 

With respect to credit cards, by interfering with the ability of 

credit card issuers to accurately price their risk, it is estimated 

that 275 million credit card accounts were closed, and $1.7 trillion 

in credit lines were eliminated, and again, those who bore the 

brunt of this were the lowest income consumers. According to the 

Federal Reserve, the number of—lowest quintile households with 

credit cards fell by 11 percentage points in the period since DoddFrank was enacted, taking credit cards out of the hands of American families, and forcing them to turn to payday loans and other 

alternatives to try to pay the rent, and to try to prevent eviction. 

With respect to mortgages, Dodd-Frank has raised the cost and 

risk of lending, and continued to slow the housing recovery and access to mortgages. 

Yet by doing nothing about downpayments and many of the other 

factors that led to the financial crisis, Dodd-Frank is doing little to 

prevent the next financial crisis. 

Perhaps most notably, Dodd-Frank’s rules, by throwing this blanket of uniformity and bureaucratic underwriting over the mortgage 

market, have driven community banks out of the mortgage market. 

According to a Mercatus study, for instance, 64 percent of commuVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
13 

nity banks have changed their mortgage offerings as a result of 

Dodd-Frank and the CFPB, and by creating this new de facto plain 

vanilla rule, they have eliminated the ability of community banks 

to compete on what they do best, which is relationship lending. 

One other area I would like to flag is this extraordinary data 

mining operation that the CFPB has undertaken with respect with 

consumer data. While—and perhaps this evidence is best, the dangers of creating a super unaccountable bureaucracy like the CFPB 

that—and the sort of egregious behavior that this leads to. For 

those not familiar with this, it is estimated that the CFPB is routinely scooping up 600 million credit card accounts, 22 million 

mortgages, and 51⁄2 million student loans, all without the knowledge and consent of American consumers. 

And that is still not enough. They want 95 percent of credit card 

accounts. According to one estimate, this is 70,000 percent more 

data than the CFPB needs in order to effectuate its regulatory purposes. This is especially worrisome in light of the fact that the Director of the CFPB himself has admitted that this data could be 

reverse engineered in the light of recent data breaches at the IRS, 

OPM, and elsewhere. 

Thank you. 

[The prepared statement of Mr. Zywicki can be found on page 

111 of the appendix.] 

Chairman HENSARLING. Thank you. 

The Chair now yields himself 5 minutes for questions. 

Mr. Atkins, in your testimony, on page 8, you posit one undisputed effect of the Volcker Rule has been a reduction in corporate 

bond inventories of primary dealers. Next time you posit that, I 

might suggest that you offer the caveat, ‘‘unless you are an economist employed by the Federal Reserve or the Financial Stability 

Oversight Council.’’ They seem to be the only ones in the world 

who can’t connect the Volcker Rule with this undisputed reduction. 

Even the Financial Stability Board, as you point out in your testimony—Governor Mark Carney of the Bank of England warned 

that the Volcker Rule ‘‘could reduce global financial resilience rather than increase it.’’ 

So you cited in your testimony, I believe it was a 77 percent drop 

in primary dealer inventories of corporate bonds since the crisis. 

Can you expound on your views of how this could create greater 

instability in our markets? 

Mr. ATKINS. Thank you, Mr. Chairman. 

Basically, because of the regulatory apparatus and the uncertainty that the Volcker Rule has created with respect to banks operating as—with their own money in the marketplace as market 

makers, banks have tended to back away from doing any propriety 

trading, because they feel that is only going to get them in trouble. 

And so, because of that, that just means on a day to day basis, 

there is that much less participation by the banks in the marketplace. So that creates a question with respect to liquidity and a decrease of that on a day to day basis. 

Chairman HENSARLING. On page 4 of your testimony, you speak 

of the potential for asset fund managers to be designated as systemically important financial institutions under the Dodd-Frank 

14 

regime, and you question what this could do to risk management 

or liquidity in the market. 

If that takes place and fund managers are found to be SIFIs, or 

in deference to you, SCIFIs— 

Mr. ATKINS. Right. 

Chairman HENSARLING. —give me your views about how this impacts market stability? 

Mr. ATKINS. The real fear is the extension of prudential banktype regulation into the capital markets. Prudential regulation 

grew up by the banking regulators, because their mission is safety 

and soundness of the banking system. Whereas, on the capital market side, we have created the goose that lays the golden egg here 

in the United States where innovation and competition really has 

made a very dynamic marketplace that truly is the envy of the 

world. 

Not too long ago, I was at dinner with the head of a multilateral 

international lending operation, a government type of lending operation. And he told me he could not believe what the United States 

is doing to its capital markets, which, he said, of course, with Asia 

and Europe, is truly the envy of the world. 

So that is really the ultimate worry, is that, because of the Fed 

and the FSOC began able to have prudential regulatory authority 

over the capital markets, that there will be less activity there, and 

they will ultimately be able to direct—either tell people not to 

trade or to acquire certain securities. 

Chairman HENSARLING. Dr. Calabria, you mentioned this in your 

testimony, and Professor Zywicki spoke about our housing markets. 

On page 15 of your testimony, you mentioned that Dodd-Frank 

could very well result in an increase in the level of mortgage defaults during the next housing bust. So, we have just have come 

off a rather painful housing bust. 

Could you expound on your views of how Dodd-Frank might just 

bring us full circle? 

Mr. CALABRIA. Sure, I would be happy to. Let me set aside issues 

that might reduce defaults and talk about some of those in the legislation that might increase defaults. 

A number of scholars have found that the longer you delay the 

foreclosure process, for instance, the more people who end up in delinquency. And of course, a number of provisions in Dodd-Frank extend the length of the foreclosure process, and of course, things like 

letting borrowers know that they—if you are in a non-recourse 

State, that they could walk away. If it had any effect at all, it will 

be to encourage those borrowers to walk away. 

So there are a number of provisions that, to me, will drag out 

the foreclosure process, resulting in larger foreclosures. I would 

hope that one of the lessons we would take away from the crisis, 

and for instance, if you compared judicial to non-judicial foreclosure 

States, is that if you make it very hard to foreclose, you get more 

foreclosures, in terms of the reaction of borrowers. 

Chairman HENSARLING. In attempting to set precedent, I will not 

go over my time. 

The Chair now yields 5 minutes to the ranking member. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

15 

Before I get to one of the main questions, I would like to ask, 

I think it is Mr. Atkins, do you agree that the Consumer Financial 

Protection Bureau has returned $5.3 billion to 15 million consumers who have been subjected to unfair and subjective practices? 

Mr. ATKINS. I don’t know the exact number, but from the paper, 

they are even having trouble identifying supposedly who has been 

harmed in some of those cases. So they collect money from their 

settlements where people feel over the barrel that they have to pay 

to get the regulator off of their back, but the query is, who is being 

harmed, and how do you show who is being harmed? 

Ms. WATERS. Mr. Silvers, as Deputy Chair of the Congressional 

Oversight Panel created in order to oversee the Troubled Asset Relief Program (TARP), you had a front-row seat to our government’s 

response to the crisis, starting with the Bush Administration placing Fannie and Freddie into conservatorship, and continuing with 

then-Treasury Secretary Hank Paulsen injecting billions of dollars 

of capital into our Nation’s largest banks in order to forestall economic chaos. 

Can you take us back to that time, and again, you have done 

some of this in your testimony, but remind the committee just how 

bad the economy was during the depths of the crisis. And can you 

again remind us what was happening to American workers in 

terms of home foreclosures, small businesses closures, and 401(k) 

plans being decimated? 

Mr. SILVERS. Ranking Member Waters, I am happy to do that. 

It gives me a moment also to recall the time that I spent with the 

chairman in that work, and to reflect on a lot of the bipartisan 

things we did together, which I think is all too rare in our time. 

The story you asked me to tell is one that we don’t have time 

for the full horror of, but just a few anecdotes. I remember thenDeputy Treasury Secretary Bob Steele, in the fall of 2007, saying 

to me, we are going to have a big problem. We might have as many 

as a million foreclosures. This is the number that Dr. Calabria is 

worried about. 

Of course by the time we were done, we had 10 million. That is 

40 million people set out in the street. The median net worth in 

the course of that process of African-American families fell from 

$18,000 to $6,000. It has never recovered. 

We had as many as 25 million Americans out of work. We had 

the economy contracting in the fall of 2009, according to Paul 

Volcker, at a rate greater than it was contracting during the depths 

of the Great Depression. 

We put several hundred billion dollars into the Nation’s largest 

banks, being told at the time by the Treasury Department that 

they were all solvent. 

And it is my belief that—it has become quite clear that at least 

two of them, CitiGroup and Bank of America, were certainly insolvent at the time that they were given the money. And it is unclear 

that if the money had not been given, that any of them were solvent. We provided the money on terms that were only 60 cents on 

the dollar to the American public. 

Later, Treasury Secretary Geithner asserted that we got our 

money back, but that statement assumed that the listener was extraordinarily naive. We propped the banks up and then we didn’t 

16 

get the upside. That is what those numbers meant. The upside 

went to the people who caused the problem in the first place. 

I think we need to recognize in looking through this history a 

couple of things. One of them is that had nothing been done, we 

would certainly have been in a prolonged situation like the Great 

Depression, and that—this will seem like a strange thing for me 

to say, but the Bush Administration and the Democratic Congress, 

and in particular Hank Paulsen, deserve great credit for acting. 

But the failure then to restructure our banks, the failure to restructure home mortgage debt devastated our economy. 

And although my fellow witness, Mr. Atkins, feels that our capital markets are the envy of the world, and they may well be now, 

at that time they were widely seen as having initiated—our capital 

markets were widely seen as having initiated a global financial crisis that cost the world economy $60 trillion and destabilized democratic societies around the world. That is a heavy indictment. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, the chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. I appreciate that. 

And gentlemen, it is good to see you all again. Mr. Silvers, we 

have something that we agree on. I heard you say that the DoddFrank bill was a compromise piece of legislation, and by that I assume you mean a compromise between Senator Dodd and Representative Frank, because there weren’t any Republican votes for 

that during that time. 

But I do want to touch on a couple of quick issues that Mr. Atkins had touched on, and I am going to go in a little different direction because of some of the work that we have been doing on the 

committee. 

The first one is pay ratio. The rule is expected to come out, I believe next month, from the SEC. I had an opportunity to question 

Chair White back in March of this year, and her quote from an October 2013 speech was that seeking to improve safety of—I’m sorry, 

it is my next question. 

The pay ratio rulemaking, really the SEC didn’t have any experience or expertise in this. At the time, it seemed the SEC doesn’t 

know exactly where it is going, whether it is going to include parttime employees, contract employees which may be temporary workers, it may be the cleaning crew who comes in, who gets hired to 

come in, much less overseas employees. 

So if you would maybe quickly touch base on that pay ratio provision that is required, and what you expect as a former SEC Commissioner, what might happen. 

Mr. ATKINS. I think it is an unfortunate diversion, frankly, from 

what the SEC should really be focused on. It was a sop to special 

interests who have their own ax to grind in that regard. 

And then as you touched on definitionally, it is very difficult to 

implement. So I know the staff at the SEC is struggling with how 

exactly to put this thing together, and I expect that will be yet another divided vote. 

17 

Up until the time I left the SEC in 2008, I don’t think during 

my time there was any rulemaking divided vote upon partisan 

lines. And unfortunately, that number has skyrocketed— 

Mr. HUIZENGA. And that has been very common, correct? 

Mr. ATKINS. Exactly. Under this Administration, it has been very 

common. 

Mr. HUIZENGA. I do want to quickly move on to something else 

that has had great impact on manufacturers like Watts in Michigan. I am very tied to the automotive industry. We have a tremendous number of tier 1, tier 2, and tier 3 automotive suppliers that 

are dependent on rare earths for their products and products that 

are put in. 

This is where in an October 2013 speech Chair White had said, 

‘‘I may wholeheartedly may share some of the compelling objectives 

as a citizen, but as Chair of the SEC I must question as a policy 

matter the use of Federal securities laws and the SEC’s power of 

mandatory disclosure to accomplish these goals.’’ She is talking 

about the conflict minerals. 

I had an opportunity just yesterday to meet with the Rwandan 

Ambassador, Mathilde Mukantabana, minister of mines, Mr. 

Imena, and a mine owner, Emery Rubagenga, who came to my office expressing grave concern. The $20 million that the government 

of Rwanda spends on its mining operations, $2 million of that is 

spent for exploration and surveying, $5 million to $6 million of that 

is spent on trying to comply with Dodd-Frank conflict mineral 

rules. 

And my fear is that there is a huge impact on our manufacturers 

while other manufacturers throughout the world are not subject to 

the same rules, and it is having little or no positive effect on those 

it was intended to help. 

This committee had a subcommittee hearing, I guess a term or 

two ago, where we had some folks from the Democratic Republic 

of Congo in, expressing that exact same thing. 

I think it is imperative upon us—again, I would agree with Chair 

White. Very laudable goals and objectives are missing the mark because they are not truly helping those who are trying to escape 

that conflict. And they are certainly not helping the United States 

and our manufacturers as we are trying to compete in the world 

economy. 

Mr. Atkins, you had touched on that, so maybe a couple of seconds on that? 

Mr. ATKINS. Yes, I agree. I think it is really unfortunate that 

Congress foists on the SEC these disclosure provisions that have 

nothing to do with materiality with respect to public issuers. That 

is the basis of the 1934 Act, the Securities and Exchange Act. 

And to go off and to try to do social engineering through the securities laws and disclosure, I think is really unfortunate. 

Mr. HUIZENGA. Thank you, and I will mention that her response 

to a letter is, the SEC has spent over 21,000 hours and approximately $2.7 million on that particular provision, and to what end? 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Mrs. 

Maloney, the ranking member of our Capital Markets Subcommittee. 

18 

Mrs. MALONEY. Thank you, Mr. Chairman, Ranking Member 

Waters, and all of the panelists for your testimony today. 

We need to remember that Dodd-Frank was a sweeping overhaul 

of our entire financial regulatory system that was brought on by 

the largest financial disaster in our history, where we lost, according to the GAO, independent, $22 trillion. 

Tens of millions of people lost their jobs. Millions were out of 

work, and the economists who testified before this committee and 

others said that this had economic shocks that were 3 to 5 times 

stronger than the Great Depression, and it was caused by mismanagement of the financial system. And it was the only financial 

crisis that was totally self-inflicted. 

I don’t want to go through it again, so I am proud of any effort 

to stop any type of financial abuse. But one of the principal goals 

of Dodd-Frank was to improve the safety and soundness of our core 

banking system, and it was a response to a crisis which showed 

that many of our largest banks did not have nearly enough capital 

or nearly enough liquidity. 

So it is important to point out that 5 years later, the biggest 

banks have more than doubled the amount of capital they hold. In 

fact, they now hold more than $1.1 trillion in capital, and the biggest banks have also nearly doubled their liquidity since the crisis, 

and they go through now a required annual stress test by the Federal Reserve that the IMF calls state-of-the-art. 

So I believe that Dodd-Frank has successfully achieved its goal 

of shoring up safety and soundness of our banking system that 

serves our people and serves our country, making it stronger and 

more resilient. And this will make future financial crises less likely. And I am proud of that achievement. 

Now I would like to ask Mr. Silvers about an important financial 

reform that we passed before the crisis—during that crisis—that I 

authored, and worked on for 4 years. 

It was called the Credit Cardholders’ Bill of Rights. Now, some 

on the panel have claimed that it harmed consumers. But there 

were two important studies. And I would like to put them into the 

record. I don’t have them with me today. One was done by the Pew 

Foundation, which said this bill alone saved the American consumers $10 billion a year. 

A joint report from New York University, Columbia and another 

university claimed it saved a whopping $20 billion a year. I call it 

the ‘‘Maloney Stimulus Package’’ because I for one would like to 

keep that money in the hands of consumers and not in institutions 

that by all accounts were performing—not all of them—unfair, deceptive, abusive, and anti-competitive practices. 

So I would hear stories. It was hard to walk 2 feet without hearing a credit card story. One man was promised $8,000 on your interest. You can buy a car. He bought a car. Two months later, the 

financial institution raised his interest rate to 30 percent a year— 

30 percent. He was trapped in debt. 

He paid off the car 2 or 3 times. He couldn’t get out of debt. And 

so the Credit Card Bill of Rights cut out lies, cut out abusive practices, and made it fair. Now, banks tell me and the Consumer Financial Protection Bureau that they get very few complaints on 

credit cards. 

19 

People are not complaining because they are fair and that is 

what we want. We want fair practices in our financial system. So 

I don’t—I would like to ask Mr. Silvers about the CARD Act. By 

the way, Rahm Emanuel told me that it continues to poll better 

than anything the Administration ever did because it touched 

every consumer in this country. 

And I would say that this was a bill that passed with support 

from both sides of the aisle overwhelmingly. 

Do you think the Credit Card Bill of Rights is abusive to American consumers? Do you think keeping their money in their hands 

is an abusive practice? I would like you to expand on this, if you 

would, Mr. Silvers. 

Mr. SILVERS. I have 17 seconds to do so. 

Mrs. MALONEY. We can take your written testimony. 

Mr. SILVERS. I will just say this, what I think it is not as important as what people who have done peer-reviewed academic research think. And what they—and what the premier study in this 

area, done by a team at the University of Singapore and the University of Chicago—found that for lower income credit cardholders, 

those with FICO Scores with credit ratings under 600, the Act and 

the banning of the tricks and traps you were talking about reduced 

credit card cost by 5.3 percent of balances, a very big number, and 

did so without impairing access to credit in any way they could detect. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from North Carolina, Mr. 

McHenry, vice chairman of the committee. 

Mr. MCHENRY. Well, happy anniversary. America has been 

saved. We are just living with the consequences of that savior, 

Dodd-Frank. And the consequences of that are lower growth, and 

impaired lending for community institutions and large institutions 

as well. 

It means we have less job creation than we otherwise would 

have. And historically, Dodd-Frank is an anomaly in how Congress 

is legislated. And so, Dr. Calabria, I want to ask a little bit about 

this. 

If you look at the last major crisis that my Democrat colleagues 

point to and say that this was an analogous situation we have lived 

through and that is the Great Depression. So out of the Great Depression, you have the Pecora Commission that reviewed the finite 

causes of what they were experiencing. 

You had Congress in a bipartisan way—did they not write securities law, but the 1933 and 1934 Acts, right? These were not partisan endeavors as a result of that great crisis. Is there some context you could provide to that, Dr. Calabria? 

Mr. CALABRIA. I appreciate the gentleman’s point. First, let me 

respond to an earlier point. We all agree the crisis was bad. I don’t 

think anybody here disagrees with that, certainly not on the panel. 

I think we all agree we would like to avoid future crises. I don’t 

think there is any disagreement on that. 

I think we all agree that in the crisis we should have done something. The question is, what should it have been? I would have preferred debt to equity swaps that would have imposed losses on 

creditors to recapitalize the banks very quickly. 

20 

I will not—we certainly didn’t do nothing during the Great Depression. Lots of things were done, many things in my opinion that 

made it a longer, while we do not know what the counter factual 

would have been had we done other things, I am always puzzled 

by the argument of, it was really bad, so I am glad we did this. 

Well, maybe it wouldn’t have been so bad if we hadn’t. 

Personally, I think and again this is not a partisan issue because 

I think when a Republican President and a Republican Treasury 

Secretary go on TV and say, ‘‘If you don’t pass ‘X’ by Monday, we 

won’t have an economy.’’ If that doesn’t cause panic, I don’t know 

what will. 

So, again, I think we need to get away from the keeping score. 

I think it is unfortunate to me. Certainly, you go back and S&L crisis, things like FDICIA and FIRREA passed with large bipartisan 

numbers. 

I do think it was possible to get a very good bill that would have 

gotten say 80 votes in the Senate. It would have been very bipartisan here if we had gone that path. I think that was doable. It 

would look very different. Some of the things that to me don’t have 

to do with the crisis like the pay ratio are—there is literally more 

discussion in Dodd-Frank about payday lenders than there is about 

Fannie Mae. 

Who thinks payday lenders caused the crisis? Whatever you 

think about them, really? Okay. Thank you. My point is, I think 

we could have done this in a better way. It would have been narrower. I think there are a number of things that are still off the 

table. 

But again, this is not about wanting to relive—nobody wants to 

relive this again. It is really a question of, did we do something 

that was effective? Let me end with saying, I worked on the Housing Economic Recovery Act, and I’m proud of my efforts on it. 

We failed to avoid the failures of Fannie and Freddie in that Act. 

I will own up to we didn’t get that bill done right. Too little, too 

late. I am willing to lay that on the table. I think if we could all 

own up to the mistakes we made, I will actually to anybody who 

looks at it. I have done a couple of blog posts on mistakes I made. 

So I am willing— 

Mr. MCHENRY. All right. Regarding—okay. I am reclaiming my 

time, Dr. Calabria. Although, you are rolling, I am sorry to interrupt. But I do want to get to a couple of other points, which is 

Dodd-Frank didn’t eliminate risk in the financial system. It moved 

risk. The claim is that it mitigated risk, but there was movement 

into a different array of new risky institutions. 

So financial market utilities, very important—even more important post-crisis than pre-crisis. And there is a grave concern that 

there is—there is a new group that will need a bailout going—in 

the event of another crisis. So in that regard, Dr. Calabria, not to 

interrupt your train of thought, but the concerns there that we 

have global clearinghouses that are so important here. What does 

that look like? 

Mr. CALABRIA. I very much fear that we will have to provide assistance, if not actually have to bail out a clearinghouse. As we 

know, Dodd-Frank allows access to the Federal Reserve discount 

window for clearinghouses. 

21 

It is important to keep in mind that there are essentially two 

risks: the instrument risk; and the counterparty risk in derivatives. 

What we essentially did was centralize that counterparty risk. It 

did not go away. It didn’t go ‘‘poof.’’ It just went all in one place. 

Again, I would say we should learn from the lessons of Fannie and 

Freddie, when you concentrate all the risks in a few nodes, you 

really do make systemic risk greater, not less. 

Mr. MCHENRY. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from New York, Ms. 

Velazquez, for 5 minutes. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. And I want to also 

thank Ranking Member Waters. Professor Zywicki, in your testimony you stated that the CFPB was to blame for a decline in new 

business starts. 

Are you aware that the Small Business Administration is on 

track this year to having the highest record of small business lending since Dodd-Frank was enacted? And also, the NFYV in the latest report of small businesses shows that the optimism index is the 

highest since Dodd-Frank was enacted. 

You even cited a report by the Brookings Institution, and I have 

it here. I read that report and there is no mention, sir, of the CFPB 

as a cause for that decline. In fact, the authors say that allowing 

more highly skilled immigrants into the United States may reverse 

this downward trend. 

By the way, I should tell Mr. Donald Trump that he should read 

this document and get the story since he said the Latinos are going 

to love him because he is going to be the President creating jobs. 

Well, this is the answer to creating jobs. 

Instead of dismantling the one Federal agency that looks out for 

consumers and has refunded them $5.3 billion, don’t you think we 

should instead focus on immigration reform to help spur small 

business revival as the authors actually stated? Since you brought 

up this study, I think it is a fair question. 

Mr. ZYWICKI. I would focus on immigration reform as well as fixing Dodd-Frank. And I totally agree with the idea of more immigration. Legal immigration for highly skilled workers is undeniably, in my view, a boon to the American economy, in my own personal opinion. 

Ms. VELAZQUEZ. Right. So that is the central point of this study. 

It wasn’t that Dodd-Frank and the CFPB was the cause. 

Mr. ZYWICKI. What the study shows—what we know about it— 

according to a paper in, I think 2009, by Tom Durkin, a former 

Federal Reserve economist, he documents the number of small 

businesses that rely on personal credit in order to start and grow 

their businesses—credit cards, home equity loans, and even in my 

own research auto title loans, things like that. 

And that people rely on these—for these kitchen table businesses, landscaping businesses, handyman businesses. They use 

their own personal credit to do this and he—and I don’t remember 

the exact estimate, but he documented the fact that drying up access to personal credit would damage small business growth and 

creation. 

22 

The Brookings study that I point to notes that for, I think it was 

2 years ago for the first time in American history, more businesses 

were destroyed than were created. That is what that Brookings 

study shows and a lack of access of consumer credit for small businesses I think is undeniably a contributor to that. 

Ms. VELAZQUEZ. Well, sir, there is no mention of the CFPB in 

this study. 

Mr. Silvers, as you know, the Dodd-Frank Act was a complex 

framework to shore up the financial sectors to prevent future economic collapse. 

Five years later, can you tell us what work remains in terms of 

fulfilling the original intent of Dodd-Frank? 

Mr. SILVERS. Congresswoman, there are significant regulatory 

steps that remain to be taken. In my view, one of the most significant is the Federal Reserve issuing the rules around executive compensation and excessive risk taking within financial institutions 

that have been delayed since 2011. 

And similarly, the SEC issuing the executive pay ratio rule to 

median employees which is an important source of information and 

check on excessive executive pay in public companies has been 

mandated by Congress and not issued. 

On the statutory side, as my testimony went through, there are 

a series of structural changes that are necessary if we want our financial system to do its job, including to provide credit to small 

business. 

The key ones that have been identified over and over again by 

financial regulatory experts are the separation of investment, of 

stock market activities and derivatives from federally insured commercial banking, essentially the restoration of a modern GlassSteagall Act, a more aggressive approach to regulatory capital on 

a size basis and a financial transactions tax. 

Chairman HENSARLING. The time of the gentlelady has expired. 

Ms. VELAZQUEZ. Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Jersey, Mr. Garrett, the chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. I thank the chairman for holding this very important hearing. The ranking member started out by saying the crisis 

of 2008 was not a natural disaster, and I agree that it was inflicted—as a matter of fact, the ranking member of the Capital 

Markets Subcommittee said it was self-inflicted, which I tend to 

agree with as well. But who was doing the infliction, is the question. 

Mr. Silvers, you indicate that there was a failure of regulation 

and failure by the regulators. And I would agree with that. But you 

also said that they did not have the authority to prevent the crisis. 

That is factually incorrect based upon the multiple hearings that 

we had in this room. 

Seven years ago, after 2008, Chairman Barney Frank at the time 

had multiple hearings, brought in the regulators at the time and 

I and others specifically asked each and every regulator, ‘‘Knowing 

now what happened, did you have the authority in your area?’’ 

They all said, ‘‘Yes, we did.’’ 

23 

‘‘Did you actually have personnel stationed in the banks that 

failed?’’ ‘‘Yes, we did.’’ So they had people, staff members working 

in these very banks that failed, that involved themselves in these 

risky trades and what have you, but they had the authority, at 

least they testified it to us repeatedly at that time. 

Now, back to that period of time, my predecessor as chairman at 

that time was Paul Kanjorski, a Democrat from Pennsylvania. He 

said what we really needed was to—and he said this many times— 

have greater market discipline. 

I don’t know, I see some nodding heads by the panel here that 

that would have been a good thing then, and I see nodding heads 

that it would probably be a good thing now. The question is, how 

do you go about getting that? 

Let’s see, do you get more market discipline by increased regulation? Again, Mr. Silvers, you told us in your testimony just now 

that the regulators are still not doing their jobs. I will just throw 

a question out. Mr. Atkins, which Administration appointed the 

current SEC Chair? 

Mr. ATKINS. The current Administration. 

Mr. GARRETT. Which Administration appointed the current Federal Reserve Chair? 

Mr. ATKINS. The current Administration. 

Mr. GARRETT. Which Administration appointed the head of the 

CFTC currently? 

Mr. ATKINS. The current Administration. 

Mr. GARRETT. And how about the CFPB? 

Mr. ATKINS. The same. 

Mr. GARRETT. So if Mr. Silvers is correct that the current regulators are not doing their job, which Administration is responsible 

for appointing all of those regulators? 

Mr. ATKINS. The current one. 

Mr. GARRETT. Oh, okay. So the solution then perhaps is not looking to this Administration for additional regulation or additional 

regulators; of course, as Mr. Silvers pointed out, they are not doing 

their jobs still. 

And if Mr. Kanjorski is correct that additional market discipline 

is the answer—I will throw this out to Mr. Atkins—additional regulations, is that the solution or is it additional market discipline? 

Mr. ATKINS. Yes, I think, I agree with you, additional market discipline. I think it is really not correct to say that there was no regulation or deregulation, especially in the wake of Sarbanes-Oxley 

and that sort of thing. 

Mr. GARRETT. Okay. 

Mr. ATKINS. There is enough to fill a big rulebook. 

Mr. GARRETT. That is true because the ranking member also 

started out her testimony by saying, ‘‘It was death by a thousand 

cuts’’ what is happening now, she is asserting. Would you suggest 

that the reason we have the doldrums in the economy and the fact 

that we are in a morass as far as job creation and the rest is actually death by thousands of pages of regulation? 

Mr. ATKINS. Yes. That is true. It is costly to comply. 

Mr. GARRETT. And does anyone—I will throw this out to the 

panel as well, does anyone actually know the total cost of all these 

24 

regulations based upon the testimony that we have heard in this 

hearing previously? 

And does anyone actually know the implications of the overlap 

capital requirements of these regulations? I will throw out to Mr. 

Calabria or Mr. Atkins, I guess. 

Mr. ATKINS. Well, I will say one thing really quickly is that it 

is not just the out-of-pocket expense to comply, but it is also the 

uncertainty and all the latitude that the regulators have to secondguess. 

Mr. GARRETT. Right. We had hearings on this. We asked the 

head of the Fed. We asked the head of the Treasury Department, 

do they actually know the cost? And Secretary Lew’s response was, 

‘‘No.’’ And he said it was our job to figure that out. 

But I will close on this in 29 seconds. Mr. Atkins then, since even 

the people, the regulators whom we are told are not doing their 

jobs, and even though they tell us they can’t compile the total cost 

to the economy of Dodd-Frank, are you able to make an assessment 

of whether it is a positive or a negative impact? 

Mr. ATKINS. Oh, I completely think that Dodd-Frank has a negative impact. 

Mr. GARRETT. And it is a negative impact on liquidity, credit 

availability, and job creation? 

Mr. ATKINS. All of those, yes. 

Mr. GARRETT. I yield back. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from New York, Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. And thank you, Ranking 

Member Waters. I get confused sometimes, but I think I heard Mr. 

Calabria say that he agreed that we did have a crisis in this country. Is that correct? 

Mr. CALABRIA. Yes. I am not sure anybody disagrees with that. 

Mr. MEEKS. Because I want to make sure, does anybody disagree 

with the fact that there was a major crisis in this country? Okay. 

So when we had this crisis, we who are Members of Congress represent this country. We take an oath to try to do the best that we 

can in this country. So something should be done when you had 

this crisis because we were in freefall. 

If I recall—I can recall individuals coming to tell me that if we 

didn’t do something and do it quickly, our whole financial structure 

would be in failure, and as a result of that, not only would we be 

devastated, but the financial institutions across the world would be 

devastated. 

That is how bad it was. In fact, I can recall that we first voted 

to do nothing and then we had to come back because—we hear the 

stock market fell about 800 points and everything was going in and 

it was panic. And so—and at that time it wasn’t, I heard some people say, well, under President Obama, President Obama wasn’t 

here yet. So he didn’t cause this crisis. Can we all agree on that? 

Mr. CALABRIA. Nobody here is blaming the crisis on President 

Obama. 

Mr. MEEKS. Okay. So this crisis happened. Things were done and 

at that time, the regulations that you are talking about that are 

costing a lot of money now, we didn’t have anything in place then. 

25 

And so, that was—things were starting to fall and we are going 

down. Now, we passed Dodd-Frank. And I am the first to say that 

I don’t know since I have been in Congress now close to 18 years. 

I don’t know of any perfect bill, so I am not claiming that DoddFrank is a perfect bill. But I do know that as we put things in 

place in regards to Dodd-Frank and I do know that there were 

some Republican ideas. 

Maybe we didn’t get a single Republican vote, but I do know that 

Mr. Frank worked across lines and got Republican ideas and put 

those ideas into the Dodd-Frank legislation. 

So it was, in fact, not just Democrat ideas in Dodd-Frank. It was 

both Democrat and Republican ideas in Dodd-Frank, but politics 

dictated that no Republican vote for it. 

But it was a fact when you look at the document itself. So here 

we are now 5 years later, and I look at the title of this hearing, 

‘‘Dodd-Frank Act Five Years Later: Are We More Stable?’’ And 

from what I am hearing from all of you where we were then, we 

were not stable at all. We were headed downhill into catastrophic 

areas. So I think that just by the very logic of the hearing itself 

that any logical person would have to say 5 years later, we are 

more stable with Dodd-Frank than we were without Dodd-Frank 

because Dodd-Frank didn’t exist 5 years ago and we were in bad 

shape. 

And we are in better shape now, so there is no question that we 

are more stable now than we were then. And in fact, from what 

I hear, especially with private sector jobs, I understand that the 

private sector has created over 12.8 million new jobs over 64 consecutive months of job growth. 

And I know before then we were losing 400,000 to 500,000 jobs 

per month. So we have to be in better shape now and more stable 

now than we were then just based upon sheer numbers. Normal 

household net worth has grown by about $30 trillion exceeding the 

pre-crisis levels. 

So you may have your issues with Dodd-Frank, but you can’t tell 

me Dodd-Frank is what caused some—we have problems because 

of Dodd-Frank, because without it we were in catastrophic problems. 

With it, we are moving in a better direction and yes, I will grant 

to you, it is not a perfect bill and maybe there need to be some 

fixes we can work together on, but to say as I have heard from 

some, ‘‘Let’s do away with Dodd-Frank,’’ to me that says, ‘‘Let’s go 

back to 2008,’’ and that we cannot do. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Mr. Zywicki, you spent quite a bit of your time on your academic 

research on consumer credit issues, and I have a bill, H.R. 1266, 

which would take the CFPB from a single director to a five-person 

commission, which I think would make that a more stable and sustainable organization. Could you elaborate on how that would help 

make it a more consistent and stable organization, if it was a fiveperson commission? 

26 

Mr. ZYWICKI. I would strongly endorse that legislation, which is 

that the fundamental problems of the CFPB go back to this fundamental defect in the way in which it is structured, which is no 

budgetary appropriations, a single director supposedly removable 

only for a cause. We have decades of academic studies on bureaucracies and how bureaucracies behave when they are not subject to 

Democratic accountability and the CFPB is basically a poster child 

for how that operates. 

So I think over time we have learned that there are two ways 

that we can structure agencies, as an executive agency like a department accountable to the President through the democratic 

process, or a bipartisan agency. And I think for an entity like this, 

the Federal Trade Commission is exactly the model we need. The 

Federal Trade Commission has been around for 100 years. It is a 

bipartisan agency, on budget, and it does more or less exactly the 

same thing as the CFPB. 

And I think that the FTC has proven the test of time as an agency that is responsive, that takes into account the impact on the 

economy, questions like competition and consumer choice with respect to any product. And I think that is not only a good idea for 

this agency, but really the only way that we are going to get this 

agency back on track and really looking out for the American consumers rather than their own narrow bureaucratic empire-building. 

Mr. NEUGEBAUER. Well, the— 

Mr. CALABRIA. I was going to just simply remind the committee 

that the original proposal for the CFPB introduced by Senator Kennedy, written by Elizabeth Warren, was a five-member bipartisan 

position in the appropriations process. So, you go back and look at 

that bill, it is not some radical free market proposal. 

Mr. NEUGEBAUER. Yes. And I think when we—the purpose of this 

hearing is to talk about, are we more stable. And one of the things 

that when you look at consumer credit, that, how you design consumer credit or restrict or enhance consumer credit has long-term 

replications, doesn’t it, for the economy in the long term? 

Mr. ZYWICKI. Absolutely. It is the engine for the economy first. 

But more important to me, it is the engine by which people make 

their lives better. It is the way—if you need—you cannot wish 

away the need for credit. If you need $500 to fix your transmission 

to get to work on Monday or you lose your job, you need $500 regardless of whether you have it in the bank or not. 

People use consumer credit to make their lives better. And when 

we shut off access to consumer credit, when we take credit cards 

out of people’s hands, when we take bank accounts out of people’s 

hands, when we take mortgages out of people’s hands, we are making their lives worse. And I think that is a real tragedy not only 

for the economy at large but for every single American family. 

Mr. NEUGEBAUER. Mr. Atkins, you served on the SEC, which is 

a commission. Did you find that was a productive organizational 

structure? 

Mr. ATKINS. There are benefits and detriments to it. But I think 

the problem with the CFPB is, of course you can work on procedure 

and organization, but you also have to look at other aspects of it. 

I think the current construct of it has constitutional problems. The 

27 

appointments cause issues, separation of powers issues and those 

sorts of things. 

And then also just the substance of the statutes, Dodd-Frank 

that empowers it and has sort of vague statutory provisions like 

abusive practices and how that is defined. I think those substantive 

aspects are important as well. 

Mr. NEUGEBAUER. In that interaction with really, and sometimes 

different political viewpoints, different opinions, you didn’t always 

get things the way you wanted, it looks like it promoted dialogue 

and some negotiation, whereas in the current structure there is no 

negotiation. 

Mr. ZYWICKI. Right. As I mentioned before, back when I was 

doing the work, I don’t think there were any divided bipartisan 

lines on rulemaking. And that just shows that I think there was 

a lot of give-and-take between the different sides. 

Mr. NEUGEBAUER. Mr. Silvers, is the AFL-CIO governed by an 

executive committee? 

Mr. SILVERS. The AFL-CIO has a president who has day-to-day 

management authority. 

Mr. NEUGEBAUER. But is he responsible to a board of directors? 

Mr. SILVERS. Yes, he is responsible to the executive council of the 

federation, which meets twice a year. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

Chair now recognizes the gentleman from Massachusetts, Mr. 

Capuano. 

Mr. CAPUANO. Thank you, Mr. Chairman. Mr. Chairman, I have 

heard a lot of interesting philosophical talking points this morning, 

but I have heard them before and I am sure I will hear them again 

and again and again and again. But I haven’t heard too many figures. From the panel, it was one statistic, which is that there are 

fewer people with free checking than there used to be. My God, 

what a terrible crisis that is. People have to pay for a service. That 

is complete ruination to our system. 

Yet some other statistics I have show some things from the day 

of Dodd-Frank, July 21, 2010. The Dow Jones was at 10,120.53. As 

of yesterday, it was 17,776.91, and today it is up a little more. That 

is a 76 percent increase and that is true about all the markets, 

Dow just being one, but it is true about S&P, NASDAQ, and all of 

them, all of them are. 

The unemployment rate in July 2010 was 9.4 percent. The most 

recent one in June was 5.3 percent, the lowest it has been since 

before the crash. The average house price in July 2010 was 

$252,100. Today, as of May 2015, it is $337,000. That is $84,900 

more, a 34 percent increase. The GDP in July 2010 was 

$14,784,000,000. Today, it is $16,288,000,000, a trillion five increase, a 10 percent increase. 

Housing starts. In July 2010, there was 604,000 in calendar year 

2014. It was 1,046—I am sorry—1,046,000, 442,000 more, 73 percent increase in housing starts. Total construction value also a 19 

percent increase and on and on and on. 

Could Dodd-Frank be better? Yes. As a matter of fact, I have a 

proposal, because I agree with some of my friends that too-big-tofail, I think we did some good work, but I think we didn’t go far 

28 

enough. I would love some of my colleagues on the other side to 

join me in reinstituting Glass-Steagall. I voted against the repeal 

of Glass-Steagall. Join us. Bring it back. If you don’t want to do 

that, join us in trying to deal with other issues. 

I have a proposal, H.R. 888, that not a single Republican will 

join, yet it is supported by the community bankers, the people you 

say you care about. They are looking for a Republican co-sponsor. 

We can’t find one. 

And, by the way, it is not my idea. I simply took the idea of an 

economics professor from Boston University and a scholar at AEI 

who happened to be the former Chief Counsel to Ronald Reagan. 

Not my idea, but yet can’t do it, can’t touch it. We can only talk 

about repealing Dodd-Frank and how bad certain sections of it are. 

Why don’t we get to fixing the problems we have. I have had my 

fights with the CFPB. I have certainly had my fights with the SEC 

and the Fed. Mr. Garrett and I have a bill to deal with some of 

the issues we have with the Fed. Now, if Scott Garrett and I could 

agree on an issue, we can find common ground with everybody over 

there. But yet, it can’t be done. Why? Because if you actually try 

to fix the problems you identify as opposed to pontificate about 

them, you don’t get any points with the outside groups. 

Fixing a problem is a problem in and of itself. We are here to 

pontificate and we do a heck of a good job. So for me, all very interesting, but numbers don’t lie. The numbers are almost all good. Are 

there a few bad ones? Yes. Can we do better? Sure, we can. Are 

we going to do better by simply nitpicking at everything? Now, 

nitpicking is not a bad thing, but nitpicking is what you do once 

you have fixed your other problems. There has not been one substantive proposal to deal with too-big-to-fail from the other side, 

not one, yet we still love to complain about it. 

With that, Mr. Chairman, I yield back. I actually thought I 

wouldn’t take the whole 5 minutes, but I am glad I did. 

Chairman HENSARLING. The gentleman yields back. The Chair 

now recognizes the gentleman from Missouri, Mr. Luetkemeyer, 

chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

One of the things I want to talk about is the Financial Stability 

Oversight Council (FSOC.) We are talking about, are we more stable as a result of Dodd-Frank? 

FSOC was a creation of Dodd-Frank that was supposed to judge 

the stability of our economy and how we are doing. And one of the 

things that they were empowered to do was to identify different 

risks within the financial system, in particular banks and nonbank, non-financial institutions if they are systemically important. 

At this point, FSOC has evaluated and designated three insurance companies and one finance company as systemically important, such that if it goes down, the entire economy goes down. 

Dr. Calabria, would you like to comment on that? Is that possible? 

Mr. CALABRIA. First of all, let me say, I think often we are given, 

to me, the false choice of bailout or liquidate. Many of these institutions can be restructured, can be reorganized. 

Again, my proposal during the crisis was to do a debt equity 

swap as a recap that wouldn’t have cost the taxpayer. So I am of 

29 

the view that no one institution is so special that we need to put 

taxpayer money in and can’t be resolved without a reasonable 

bankruptcy framework. 

That said, insurance companies are very different than banks. 

They don’t have short run runable—some of the analysis you see, 

particularly the MetLife case, is just ridiculous. 

For instance, the FSOC asserts that because State regulators can 

place stays on policyholder redemptions, the State regulatory system for insurance is itself a source of systemic risk. 

So it seems like if you go back and read these justifications, quite 

frankly, they all look like they are made up. And if I could channel 

the good gentlemen who left the room, no numbers, no statistics, 

all just opinion. 

Mr. LUETKEMEYER. Yesterday, we had a hearing with regard to 

systemically important financial institutions that we are looking at, 

the mid-sized and regional banks. And it is interesting because 

there are a lot of folks in order to be able to—I have a bill to try 

and define that rather than have criteria for it versus a strict 

threshold. And it is interesting because they are trying to redefine 

what supposedly was in Dodd-Frank, which was to define those entities that would be able to bring down the entire system, and 

other trying to redefine it as something that would happen on a regional basis or whatever. 

So, it really strikes to me at the heart of the ability of FSOC and 

other entities within this to be able to adequately point out risk. 

And I would ask along that line, we had Secretary Lew here a couple of weeks ago. He gave us the official report, the 2015 annual 

report of FSOC. And there are 11 different risks that he pointed 

out. They were important to be able to be aware of and watch and 

take very special note of. 

And one of them that was noted that very same day that he presented this report to us was the CBO came out with a scathing report that talked about our debt. Could you believe that debt was 

not even listed as a risk to our economy? It strikes at the very 

heart of what I believe is the credibility of FSOC to be able to even 

analyze what is wrong with our economy. 

Professor Zywicki, would you like to comment on that? 

Mr. ZYWICKI. I don’t think I have anything to add other than it 

seems obvious to me that you are correct. 

Mr. LUETKEMEYER. Director Calabria? 

Mr. CALABRIA. If I could add, while I have some skepticism about 

the Office of Financial Research (OFR), if we are going to have it, 

it should be independent of Treasury. I have read these reports and 

they are very dismissive of concerns about the treasury market. 

And ultimately, the OFR has essentially been set up to be a political research outfit for the Treasury Department, which by its very 

nature is a political animal. 

Mr. LUETKEMEYER. Okay. 

Mr. CALABRIA. We want independent research of the financial 

system. It needs to be independent of politics. 

Mr. LUETKEMEYER. Along the lines of what I was talking about 

with regard to the credibility of the FSOC and some of the concerns 

with regard to debt, Dr. Calabria, in your testimony a while ago, 

you talked about the explicit and implicit guarantees and extreme 

30 

amount of liabilities that our government has as a result of the 

Richmond Fed study. Would you elaborate just a bit on that very 

quickly—I have about 30 seconds left here—about how important 

it is to have all of this data and look at the big picture of what kind 

of risk in system and actual stability we have with regards to all 

that? 

Mr. CALABRIA. Absolutely, sir. And, first, I will direct anybody if 

you are curious to go to the Richmond Fed’s website whether a 

bailout barometer is there. And what they try to measure is the explicit guarantees we know about such as the expense and deposit 

and service. 

I mentioned in my testimony that we have $2 trillion more in insured deposits than we did before Dodd-Frank without expansion. 

And they also try to estimate the implied guarantees. And, of 

course, we have no way of knowing the exact number, but these are 

the potential guarantees that the taxpayer is on the hook. 

And as was mentioned in the chairman’s opening statement as 

well as in mine, about 60 percent of financial liabilities in the financial sector are either explicitly or implied to be backed by the 

taxpayer. 

Mr. LUETKEMEYER. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, the ranking member of our Financial Institutions Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. And I thank the ranking 

member for calling this hearing today to celebrate the fifth anniversary of Dodd-Frank. 

Let me start with Dr. Calabria about the housing crisis. You say 

in your testimony that you don’t believe we have sufficiently addressed the distortions in the housing industry. 

Let me ask you about mortgage modifications. Do you think that 

will help our economy—how do we help those homeowners who are 

underwater and give them hope—homeowners who, for the most 

part, were steered into high-cost predatory loans. Do you have 

any— 

Mr. CALABRIA. First of all, the first thing to do about trying to 

help underwater homeowners is not to get them underwater in the 

first place. 

So for instance, historically, one in four FHA borrowers left the 

closing table underwater. If that is not reckless, I don’t know what 

is. 

And as Congressman Frank said here last year at this very table, 

he intended for downpayments to be part of the Qualified Mortgage 

(QM) Rule. 

As I mentioned in my testimony, regulators completely gutted 

that provision, so that the two factors that matter most in terms 

of keeping a household out of foreclosure, which is the downpayment, which gives you a cushion when prices fall, and of course trying to make sure borrowers are actually ready, by us and not getting people with very low FICO scores, who are not ready to go into 

homeownership. 

I think we need to be a little more responsible. But that said, 

first, try not to get into that problem in the first place. 

31 

If you are in the problem, that is a different issue, and so, let’s 

talk about that, because I know that is the more immediate concern. The immediate concern would be, how do we address the triggers that get you in that problem? 

One of the things we know, and there is tons of data on this, is 

that the primary reason that somebody cannot pay their mortgage 

is because they have lost their job. 

Congressman Frank, during his last year here, I believe, had a 

proposal that would have provided assistance in the mortgage 

modifications if people have lost their job. 

So I think we need clear thinking about what are the drivers 

here, address those drivers directly, obviously a growing economy 

that creates jobs that goes with that as well. 

Mr. CLAY. Let me share with you a situation in my district for 

instance, in Missouri, where we have entire communities who were 

steered into these high-cost loans when normally they would have 

qualified for conventional mortgages. 

Do we write down principal—or how do we address that to help 

these homeowners to keep them from foreclosing, to keep them in 

their homes, and to keep neighborhoods together? How do we do 

that? 

Mr. CALABRIA. Again, it is hard for me to speak to any individual 

case without looking at the case—where people were defrauded, 

they need to be made whole by the people who defrauded them; 

which in my opinion, the taxpayer did not defraud, they need to be 

made whole by the institutions that defrauded them. 

Mr. CLAY. Sure. 

Mr. CALABRIA. So that is number one. 

I would remind us that there is nothing specifically about being 

underwater that triggers a foreclosure. There is nothing in the 

mortgage documents that says, oh, you are underwater, so we can 

come and take your home. In fact, it is quite the opposite. They 

don’t want your home if it is underwater, if anything. 

So we do need to think clearly about what are the factors—as I 

had mentioned, again, unemployment is a big driver. There might 

be unexplained healthcare expenses. We will see whether 

healthcare fixes that or not. But you have to deal with the life 

events that cause this sort of foreclosures. All that being underwater does is change your incentive, whether to walk away or not. 

And quite frankly, I don’t think we should reward that. 

Mr. CLAY. Let me ask Mr. Silvers, can you share any solutions 

to the housing crisis and how we get people whole who happen to 

be underwater in their mortgages? Have you all addressed it? 

Mr. SILVERS. Yes, Congressman Clay, you are pointing to the— 

one of the critical problems in the way in which we addressed the 

housing crisis which led—which slowed down our economic recovery and led the cost of the recovery to be borne by the people who 

could least afford to do so with devastating social impact. 

The failure to write—the failure to restructure debt in the housing market and to instead insist that poor people pay the banks a 

hundred cents on the dollar when every American businessperson 

in commercial real-estate in a similar situation never does, right, 

is how we gutted the median net wealth of African-American 

households from $18,000 to $6,000. 

32 

The solution is simple. It is to restructure those loans around 

what the real value of that property was. If we had done so, and 

as my colleague, Dr. Calabria, has said, if we had done so and 

forced the banks to restructure their capital at the same time, we 

would not have a too-big-to-fail problem. We would have a healthy 

housing market and a healthy small business consumer credit market. 

Mr. CLAY. Thank you. My time is up. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. I just want to make a 

quick comment in regard to one of the championed agencies of 

Dodd-Frank, the Consumer Financial Protection Bureau. I am not 

sure if any of the witnesses are aware of a hearing we had a couple 

of weeks ago, which was a takeoff of a hearing that we had a year 

ago in regard to racism and sexism at the CFPB. 

Angela Martin testified a year ago, and a couple of weeks ago, 

Florine Williams testified. We have had a pretty robust debate 

about racism in America over the past several months. And I have 

to tell you, I am astounded that Barack Obama hasn’t said anything about racism and sexism at the CFPB. 

That Richard Cordray still has his position at the CFPB is amazing to me. That Senator Elizabeth Warren, who is the champion of 

this agency that brought Richard Cordray in, his protege—that she 

is saying nothing about racism and sexism. 

Their silence is deafening, stunning. But that’s a side note. 

I want to talk about the crisis—I think my friends across the 

aisle want to talk about markets and market failure. But if we look 

at the root causes of the crisis, wasn’t there an issue with subprime 

mortgages? 

Wasn’t there an issue with Fannie and Freddie, Mr. Atkins? 

Mr. ATKINS. Absolutely. And you have to remember that I think the figure of $22 trillion was thrown around as far as losses in the 

financial crisis. I don’t know if that is correct or not. But you have 

to remember it was a bubble. It was a bubble created by Federal 

housing policies, so most of that stuff was illusory. 

Mr. DUFFY. Federal housing policy by Fannie and Freddie, right? 

Mr. ATKINS. Right. Among others. 

Mr. DUFFY. Among others. And did we deal in the—in your review of Dodd-Frank, did we deal with Fannie and Freddie reform 

in Dodd-Frank? 

Mr. ATKINS. Not at all. 

Mr. DUFFY. So one of the root causes of the crisis isn’t even addressed in the Dodd-Frank Act. And we note that regulators were 

on the beat and they didn’t see this looming crisis. And so instead 

of faulting regulators, we have given regulators more power and 

authority. 

They didn’t get it right in 2008. What makes us think they are 

going to get it right in the next crisis? 

I would also just note that as Dodd-Frank, as I watched on the 

sidelines as this bill was passed 5 years ago, there was a lot of conversation about the fact that we have to end too-big-to-fail. It has 

to go away. We have to protect the American taxpayer. 

33 

But I don’t know if you have noticed there has been a change of 

tone from my friends across the aisle because now they say, ‘‘We 

actually haven’t ended too-big-to-fail.’’ Sweeping, massive DoddFrank reform, right, and too-big-to-fail still exists. 

Actually, Elizabeth Warren just came out with a new bill to say, 

guess what, sweeping industry reform and you still haven’t addressed too-big-to-fail. So now, she has new legislation, am I right, 

Mr. Atkins? 

Mr. ATKINS. That is being introduced, yes. 

Mr. DUFFY. Yes. They admit that with all of this massive reform, 

they didn’t get it right. 

There is still more to do. 

But I do want to move to the lack of liquidity, fixed income markets, the Volcker Rule regulation. You see that as a problem, yes? 

Mr. ATKINS. Absolutely. Yes. 

Mr. DUFFY. Do you think the cause of the crisis or the cause of 

the lack of liquidity is the Volcker Rule? 

Mr. ATKINS. Up to a large part, the Volcker Rule and other associated regulations, and increased capital requirements also. 

Mr. DUFFY. And does that lack of liquidity create more risk in 

the market? 

Mr. ATKINS. Yes, it means there is less cushion there and less 

information as far as pricing. 

Mr. DUFFY. So, do smaller shocks have bigger impacts when 

there is less liquidity, Mr. Calabria? 

Mr. CALABRIA. Absolutely. And I would note that even though 

the authors of Dodd-Frank recognized the liquidity constraints by 

purposely exempting treasuries and agencies from the provisions of 

the Volcker Rule, let’s not forget that a number of institutions in 

history have done themselves in by bad bets on the treasury market. 

Mr. DUFFY. Does time heal this issue? If you see banks because 

of Volcker getting out of their market-making game, is someone 

else going to step in and take that role? Do we just have to wait 

a little bit longer? How does this play out, Mr. Calabria or Mr. Atkins, either one of you? 

Mr. ATKINS. There is a lot of capital we—asset managers and 

just basic everyday people who are investing money in the markets 

are there, so these fixed-income products are being held. It is just 

a question of, what is the market, what is the everyday liquidity 

of the marketplace? 

Mr. DUFFY. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Massachusetts, 

Mr. Lynch. 

Mr. LYNCH. Thank you, Mr. Chairman. I want to thank the panelists as well. You have all been very helpful with the committee. 

I do want to just respond to my friend, the gentleman from North 

Carolina, who said earlier in this hearing that, and I will quote 

him, ‘‘Dodd-Frank is an anomaly,’’ an anomaly, of course, being 

something that deviates from what is regular or expected or what 

is standard. 

The only reason that Dodd-Frank seems like an anomaly is because that is the last time Congress did anything, passed anything 

34 

significant. And so, if you are in an environment that is inertia, a 

do-nothing Congress, and you look at something that actually 

moved, that seems like an anomaly. But it is just the illusion that 

motion causes when you are standing still. 

I want to talk about—if we are going to go back to the crisis and 

sort of do some of this analysis on what went right and what went 

wrong, I actually opposed the bailout, the $700 billion in bailout we 

gave to the banks. 

About 25 percent of people in my district don’t even have bank 

accounts. I have a very diverse district. And so, we went and took 

their money, their tax money, and gave it to these banks, $700 billion. 

And, it just—if we are going to go back and look what at we did, 

why don’t we go back and look at that? Why don’t we go back— 

and I am not just saying—I am not saying that some folks on Wall 

Street should go to jail; I will leave that to a judge and jury. 

But some of their conduct seemed criminal, it really did. And we ended up taking taxpayer money, $700 billion, giving to the banks 

and like in the case of AIG I remember $9 billion of—we gave them 

$70 billion to help out AIG. But the $9 billion that we gave, the 

taxpayer money, was directly to satisfy the debt obligations that 

were held by Goldman Sachs. 

So, it was just a pass through. It went right in one door of AIG and then right to Goldman Sachs—$9 billion. And it paid bonuses 

to a lot of people who were at the heart of this, like I said, I am 

not saying they should go to jail but I would say we should be revisiting the bonuses that we paid to folks who caused a lot of this 

mess. 

And we are not talking about any of that. We are talking about 

dismantling Dodd-Frank. We are talking about dismantling the one 

and only consumer protection agency that we created. So, we have 

all these agencies out there, we have one, the CFPB, the only agency that we have created to protect the consumer. 

And we look back at the problem of the crisis and we say, my 

God, the thing we have to do is get rid of that CFPB, the one agency that is actually protecting the consumer. It astounds me that is 

how we view this problem in retrospect. 

I think that we would better serve the people whom we represent 

if we try to figure out ways to help them. And, sure, the CFPB is 

not perfect. It needs tweaking. We need to help it to be more effective and we need to address some of the concerns that the gentleman just raised regarding their treatment of employees and the 

disparate impact of some of their policies. 

But, Mr. Silvers, in this last minute that I have, would you think 

that there are other priorities that we could focus on in terms of 

really trying to get at the root of what originally caused the—oh, 

the other thing that strikes me is getting rid of the Volcker Rule— 

allowing the banks to go back and do what they were doing before 

they got us into this whole mess, trading on their book of business, 

it doesn’t make sense. 

But, Mr. Silvers, if you have any other suggestions on how we 

might re-establish priorities here that would actually help the 

American consumer and the American people, I would love to hear 

them. 

35 

Mr. SILVERS. Congressman, I think that for starters, you have to 

stop telling lies about what happened in the past. 

Mr. LYNCH. Right. 

Mr. SILVERS. And the notion, for example, that insurance companies had nothing to do with this—my memory is that AIG was an 

insurance company, right? The notion that Fannie and Freddie 

caused this crisis? They contributed to it. 

What caused it was the very thing that Mr. Garrett was referring to earlier, which was that the Federal Reserve had the power 

to act and let subprime providers of mortgages funded by our largest banks destroy our communities and then hand us the bill. 

Until we stop telling lies, I don’t see how we can move forward. 

Chairman HENSARLING. The time of the gentleman has expired. 

Mr. LYNCH. Thank you very much. Thank you, Mr. Chairman. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from New Mexico, Mr. Pearce. 

Mr. PEARCE. Thank you, Mr. Chairman. I appreciate the lively 

discussion going on here. If we were to pursue this last thought 

here that the subprime lenders are the ones that destroyed the 

communities, I would kind of like to investigate that—Mr. Capuano 

said we ought to be digging a little deeper into it. And Mr. Lynch 

had some good points about looking at the situation. 

So, Mr. Atkins, you said in response to Mr. Duffy that Fannie 

and Freddie had something to do with it, among others. Who might 

the among others be? 

Mr. ATKINS. Well, you had a long history of both Congress and— 

Mr. PEARCE. Anybody close to this room, because Congress 

itself— 

Mr. ATKINS. Congress itself. 

Mr. PEARCE. —Congress itself was expressing a tremendous desire that everyone should own a home, that homeownership was 

not a responsibility but a right. Is that somewhat correct? I am 

sensitive to what Mr. Silvers said, that we shouldn’t be telling lies 

here. 

So, did Congress led by Mr. Frank himself, suggest that the 

agencies led by Fannie and Freddie should loosen the standards by 

which they repurchased on the secondary market, wasn’t that occurring? 

Mr. ATKINS. Oh, that was Federal policy. 

Mr. PEARCE. So, would it be a truth that the financial institutions could not have continued to lend to borrowers who could not 

afford it, they couldn’t have done the liar loans, they couldn’t have 

done the no-doc loans, if those loans hadn’t been repurchased into 

the secondary market, is that more or less correct, Dr. Calabria? 

Would you like to comment on that? 

Mr. CALABRIA. Let me first as an aside say that none of this 

would have happened without essentially a Federal Reserve-driven 

bubble—the amount of liquidity the Fed just pushed into the system in the mid-2000s was simply nothing short of insane. 

And so, prices drove a lot of this. But to get back to the point 

of we know during the crisis for instance that at the top of the 

market Fannie and Freddie bought about 40 percent of the private 

label mortgage-backed securities in subprime. And to echo what my 

36 

friend Damon said, they were a contributor. I don’t—I would never 

say that they were the sole cause by any extent of the imagination. 

Mr. PEARCE. Could the subprime lenders have done much without the secondary market, and could the rest of the secondary market have dropped its underwriting standards without Fannie and 

Freddie dropping theirs? 

Mr. CALABRIA. They could have not have. 

Mr. PEARCE. So, at the end of the day, Fannie and Freddie 

weren’t just kind of innocent bystanders or bystanders I think— 

that was not a correct characterization of Mr. Silvers’ comments, 

but they were more central than any of our friends on the other 

side are willing to say. 

The description is that the problem—and, again, I think that as 

Mr. Capuano said, if we don’t analyze exactly why the problem 

came up, we are not going to get the right answer. And one of the 

fundamental things was that the underwriting standards by which 

the secondary market operated took bad loans away from the 

banks. They weren’t given any incentive then to make the loans 

good, and that just seems like a very fundamental problem. Is that 

more or less correct? 

Mr. CALABRIA. That is absolutely correct. 

Mr. PEARCE. Okay. Mr. Silvers, would you like to comment on 

that? 

Mr. SILVERS. Yes. Thank you for the opportunity. There is a subtlety to this that the conversation is missing. The subprime loans 

that triggered the crisis were largely in the private market and 

were largely securitized through private offerings. 

That created competitive pressure on Fannie and Freddie that 

had been privatized and whose executives wanted to hit the profit 

margins that would inflate their pay packages. 

Mr. PEARCE. You are saying the competitive pressure—with all 

due respect, sir, didn’t the head of Fannie Mae, Mr. Johnson, take 

about $100 million? Wasn’t he beginning to change the standards 

of accounting? Didn’t Franklin Raines take a $29 million bonus out 

of that? 

That feels like they were driving the process themselves. In fact, 

if you read the book where Mr. Johnson was coming in here lobbying this group in order to change the rules and change the laws 

to where he could go ahead and make more—could bring more of 

the product in to his market, that seems far different than kind of 

a nuance. 

Mr. SILVERS. No, the nuance is not the fact that the executives 

of those companies sought to make a lot of money in disreputable 

ways. I fully agree with you. The nuance is is that they were latecomers to the crisis. Fannie and Freddie bought bad securities at 

the very end that had been issued in the private markets. That is 

how they bankrupted themselves. 

Mr. PEARCE. If that is correct—we are running out of time—how 

did Mr. Johnson make his $100 million? He was way ahead of the 

time. And Mr. Raines was in that period. 

I yield back, Mr. Chairman. Thanks for your— 

Chairman HENSARLING. The time of the gentleman has expired. 

37 

The Chair now recognizes the gentleman from Missouri, Mr. 

Cleaver, ranking member of our Housing and Insurance Subcommittee. 

Mr. CLEAVER. Thank you, Mr. Chairman, and Ranking Member 

Waters. 

No matter what our ideology is, political affiliation or fussiness, 

facts tend to be extremely obstinate. They just are finicky like that. 

They just want to remain what they are. And so, in this environment up on this Hill, we have become in a sense a fact-free environment. 

Or in other words, if the facts don’t fit, then bit by bit we refit 

the facts. It is so frustrating when you think about how the CFPB 

has returned $5.3 billion to 15 million victims of unfair and deceptive practices. 

Dr. Calabria, do you believe that is a fact? 

Mr. CALABRIA. To the best of my knowledge. I haven’t verified 

the number so it sounds about right. 

Mr. CLEAVER. In Missouri, the number is about almost 4,000, I 

think, and which is a fact incidentally. And I am a little concerned, 

for example, I Chair the Congressional Black Caucus, and I receive 

complaints almost every single day from every agency in the Federal Government, from the Capitol Police to the people who work 

for the Forest Service. 

I would have done nothing as the Chair but talk about discrimination if I had tried to just pour it out every day and so, the President can’t—if the President says I have a black suit on, he is going 

to be criticized in a few hours of bringing out the race card, if he 

says Black Sunday, black market, anything. 

And so, I think we need to really be careful on this whole issue 

of who attacks bigotry because there are problems in every single 

agency. I am speaking experientially. 

Now, one of the things I wanted to ask you, Mr. Calabria, is do 

you believe that the CFPB has in fact been responsive and flexible? 

Mr. CALABRIA. Maybe the satisfactory answer is, it depends. It 

certainly seems like they have listened to a lot of people in the industry on some subjects. So, have they necessarily beat up on Goldman Sachs, not that I can tell. 

Have they gone after Main Street lenders? It looks that way. So, 

again, I think it is important to keep in mind it is not all one homogenous response. It has been different by industry. 

I do want to bring up a point. And first of all, let me very clearly 

say consumers who are defrauded should be made whole by the 

people who defrauded them. No debate about that. And we should 

be aggressive about that. 

The question over whether certain products should be available, 

that is a whole different matter. But I also think it is important 

to keep in mind whether somebody was taken advantage of by a 

debt collector can be a bad thing, you should deal with it. 

It is not at all clear how that is necessarily connected to the massive housing boom we had. So, you can have a fairer society that 

is less stable. You can have a fairer society that is more stable. 

They are connected but they are not necessarily the same thing. 

38 

Mr. CLEAVER. So, a fact, was there a Federal agency that was responding to consumer concerns and complaints and offenses 

against consumers? 

Mr. CALABRIA. In the finance world before— 

Mr. CLEAVER. Before Dodd-Frank. 

Mr. CALABRIA. The financial rate—first of all, as a former staffer 

for the Banking Committee, I had a lot of complaints and helped 

a lot of people. I am very proud of that. And— 

Mr. CLEAVER. No, sir. That is not the question I asked of you. 

Mr. CALABRIA. —the Federal Reserve, the OCC, HUD, I ran the 

RESPA office at HUD and we spent a lot of time— 

Mr. CLEAVER. That is not the— 

Mr. CALABRIA. Oh, yes, were there—okay, there were agencies. 

If the question is, is consolidating these things a good thing, that 

may well be, depending on how you look at it. 

Mr. CLEAVER. I know you are answering your question that you 

want me to ask. 

Mr. CALABRIA. My apologies. 

Mr. CLEAVER. My time has run out. You wouldn’t answer my 

question. You are a nice person though. I am not mad at you. 

Chairman HENSARLING. The time of both nice gentlemen has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you very much, Mr. Chairman. As we examine the Dodd-Frank Act 5 years later and if I were to go down a 

checklist with the panel here, too-big-to-fail continues. In fact, 

Dodd-Frank institutionalized it. 

Our secondary mortgage market remains in limbo with Fannie Mae and Freddie Mac CEOs set to make $4 million salaries on the 

backs of the American taxpayers who had bailed out Fannie Mae 

and Freddie Mac. 

Insurance regulation remains fragmented. Securities regulatory 

arbitrage is still possible, but with the SEC and the CFTC as competing regulators. So, I think the answer to the question, is our financial system more stable, as Dr. Calabria succinctly put it, I 

think the answer to that is ‘‘no.’’ 

Dodd-Frank abolished one failed regulator, the OTS, and gave us 

three more—the CFPB, the OFR, and the FSOC. So, the Office of 

Financial Research was set up to look around corners and identify 

potential systemic risks, to improve standardization of financial 

data and fill gaps in data collection, and support the FSOC in its 

work. That was the concept. 

And, Mr. Atkins, as you know, the OFR performed an analysis 

of the asset management industry at the request of the FSOC in 

order to determine whether asset management firms should be designated as SIFIs and subjected to oversight by the Federal Reserve. 

The OFR’s conclusions were described by SEC Commissioner 

Gallagher as, in his words, ‘‘fundamentally flawed.’’ And the inevitable results of the OFR not only inaccurately defining and describing the activities and participants in the asset management business but also ‘‘analyzing the purported risk posed by asset managers in a vacuum instead of in the context of the broader financial 

markets.’’ 

39 

Mr. Atkins, do you think the work of the OFR was flawed? 

Mr. ATKINS. Absolutely. I thought it was a travesty actually of— 

I couldn’t even describe it as scholarship; it was riddled with errors. 

Mr. ROYCE. Last year, Congressman Murphy and I put forward 

a bipartisan bill, the Office of Financial Research Accountability 

Act. Members of this committee on both sides of the aisle have 

heard constant criticism about the quality of research at the OFR 

and the lack of real coordination between the Office and Federal 

financial regulators. 

The bill would address these issues, I think in a very thoughtful 

way. The bill as drafted would require the OFR to submit for public 

notice and comment an annual report that details the Office’s work 

for the upcoming year. 

Additionally, the bill would require the OFR to coordinate with 

financial regulators when they conduct future studies, and I would 

ask you—I know you and I both might want to go further on reforms of the OFR but would you support these balanced bipartisan 

reforms to the Office? 

Mr. ATKINS. Yes. That is a great start. 

Mr. ROYCE. And I will ask Mr. Calabria this same question. 

Mr. CALABRIA. I would say that I have been here too long to 

think anything other than the devil is in the details. So let me say, 

conceptually it sounds good, but without having read the bill, I 

would want to take a look at it before I would say anything stronger. 

Mr. ROYCE. I appreciate your support at least for the conceptual 

concept behind it. And I will yield back the balance of my time to 

the Chair. Thank you, Mr. Chairman. And thank you, panel. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentlelady from Wisconsin, Ms. 

Moore, ranking member of our Monetary Policy and Trade Subcommittee. 

Ms. MOORE. Thank you so much, Mr. Chairman. And I want to 

thank the witnesses for coming here and bringing their tremendous 

expertise to this committee. 

I guess I will start out with the Honorable Paul Atkins and talk 

to you a little bit about your testimony and your role at the SEC. 

In your testimony, I think you make a lot of excellent points with 

regard to some of the misaligned incentives that people have just 

generally in financial markets. 

And then you go on and on and on to indict various provisions 

of the Dodd-Frank Act up to and including the fact that DoddFrank is 2,319 pages long. 

The bill that we got from Mr. Paulsen was like 4 pages long, asking us for $700 billion, I just want to remind you of that. But I 

guess the question that I have is that I agree with a lot of points 

you make here and I am going to commit to really reading this in 

some depth. 

But I guess what I feel confused about is, or I have a question 

about is, while you seem to indict the free market, just laissezfaire, you don’t really give us any prescription of what you would 

have done to prevent this crisis other than to just indict the ‘‘housing market,’’ the purchasers of homes. 

40 

People purchase their homes; it is like a one-time event for most 

people. And you don’t seem to have much criticism for all of the 

guys in the fancy suits, the appraisers, the underwriters, the credit 

rating agencies, the private label mortgage originators, Lehman 

Brothers, Countrywide. 

And so I am interested in hearing how you square that with 

housing policy. Countrywide and Lehman Brothers, for example, 

were not subject to CRA and bowers that came in were—as I said 

people who do this once in their lives, they were not the appraisers, 

they were not the underwriters. 

Mr. ATKINS. Thank you. Clearly, there were a lot, there is not 

just one thing that led to the financial crisis and you have to remember a lot of the foreclosures had to do with speculators who 

were buying houses to flip them and that was all encouraged by 

regulatory policy and other things as well. 

But I will point to one thing that when I was at the SEC, I 

pushed for a number of years, and that was reform of the credit 

rating agency aspect. And I think that was one of the big drivers 

frankly of the crisis because people put way too much store in the 

AAA ratings and all of that from those rating agencies. 

And back in 2006, Senator Shelby pushed through a bill that, of 

course, was enacted, the Credit Ratings Agency Reform Act. And 

so, that was at least a start. But the real problem was at the SEC 

where there was no real process to allow for competition among 

credit rating agencies, and basically the big three, their word was 

taken as gospel and that was a real fundamental problem that— 

Ms. MOORE. And a misalignment of incentives. People had to pay 

the credit rating agencies so they would give them a good credit 

rating and nobody is going to jail. I know people in my district who 

have gone to jail for writing bad checks for $1,000 and yet these 

people are still walking around. 

Let me ask you Mr. Zywicki, you say that Dodd-Frank has 

pushed consumers into payday lending and other non-traditional financial services? I guess I am not familiar with the data which indicate that is the case. 

I am not in love with non-traditional financial providers myself, 

but I wonder if that means that you welcome the activity of the 

CFPB to protect these consumers? I think my good friend, Mr. 

Cleaver, indicated that the CFPB has returned about $5 billion to 

15 million consumers. And so, I am wondering how you think the 

free market would do a better job of protecting these financial consumers than the CFPB? 

Mr. ZYWICKI. What we know is that you can’t wish away the 

need for credit. We have known that forever. But we have tried 

that in the past where we tried usury ceilings, that sort of thing, 

and we know how that ends. 

So in the 1970s or in 1968, the United States Senate did a report 

and they found that the second largest revenue source of the Mafia 

was loan sharking. 

When Anthony ‘‘Fat Tony’’ Salerno, the head of the Genovese 

crime family was indicted for loan sharking and breaking people’s 

legs in 1973, he was running $80 million a day on the streets of 

New York City. Why? Because we had a regulatory regime that 

pretended like people didn’t need credit. 

41 

We are reliving this in fast motion really. We have taken away 

credit cards. We have taken away bank accounts. People still need 

money. They are going to check cashers, they are going to payday 

lenders, and of course, the next thing we see in the sights are they 

going after the payday lenders. 

And we know what happens when we take away payday loans, 

people bounce checks, people get evicted, people get their utilities 

terminated. 

Mr. HUIZENGA [presiding]. Excuse me, Mr. Zywicki, the time of 

the gentlelady has expired. As entertaining as ‘‘Fat Tony’’ is, the 

time has expired. 

Mr. ZYWICKI. Thank you, sir. 

Mr. HUIZENGA. And we do need to move along. So, with that, the 

Chair recognizes the gentleman from Florida, Mr. Ross, for 5 minutes. 

Mr. ROSS. Thank you, Mr. Chairman, and witnesses, I appreciate 

you being here, specifically Commissioner Atkins. You addressed 

something that I think is very important when we talk about systemically important financial institutions, especially as it relates to 

asset managers. 

I think what is even more compelling is that your pronunciation 

of the acronym for systemically important financial institutions as 

‘‘sci-fi’’ is just that when it comes to asset managers—science fiction. And I think that this is an unintended consequence of DoddFrank. What risk do asset managers have? 

They are essentially agents, they are not leveraged, and yet here 

we are looking at making them a systemically important financial 

institution as I understand it in your testimony would then make 

that asset manager as a SIFI or sci-fi jointly and separately liable 

for any other SIFI or sci-fi that might have a need for liquidity, is 

that correct? 

Mr. ATKINS. Yes, under Dodd-Frank—even for the bailout fund. 

Mr. ROSS. Yes, exactly. And what you have here is you have a 

non-leveraged asset manager now responsible, which really is not 

him, it is his investors who are responsible. And who makes up 

those investors? Mutual fund holders, pension funds, grandma and 

grandpas, people living on fixed incomes. 

So I guess what I am getting at is here we are trying to find out 

if too-big-to-fail is really something that has been put to an end 

with Dodd-Frank, but in fact it hasn’t, and not only has it not, but 

it has given an incentive for another source of liquidity to bail out 

those that are deemed systemically important financial institutions, would you agree? 

Mr. ATKINS. You can certainly ascribe. 

Mr. ROSS. And now, would you believe that just a couple of 

weeks ago our Secretary of the Treasury, Jack Lew, was sitting 

there, and I asked him the question of whether a SIFI would be 

jointly and severally liable for other SIFIs if they were deemed so, 

and he denied that. 

He looked back at his staff and denied it. And so, I give you credit in your opening statement to not only recognize that as a plain 

anomaly, if you will, of Dodd-Frank, but also to cite the fact that 

it is found in 12 USC Section 5390. 

42 

Mr. Calabria, let’s talk about insurance just for a quick second. 

Now, we have in place probably one of the best systems of regulatory environment for insurance companies, and that is our Stateregulated systems, would you not agree? 

Mr. CALABRIA. Absolutely. 

Mr. ROSS. And now, you have FSOC coming in there and saying 

that there might be some gaps, we need them, we have a Federal 

Insurance Office. It doesn’t have any regulatory control, but, yes, 

we want to make sure everything is in sync. 

Would you have an opinion as to where there are some gaps 

there that would require a system better than what we have in 

place on behalf of our consumers? 

Mr. CALABRIA. Certainly, you can make some improvements in 

the State-based system. I don’t think anybody would argue with 

that. I do worry that labeling these institutions as systemically important will create really bad incentives. 

So, let’s give you a contrast where, say, JPMorgan’s balance 

sheet is 40 percent long-term debt, MetLife’s is only about 4 or 5 

percent, and we know that being labeled systemically important 

unfortunately seems to send signals to the debt markets that you 

will be rescued and it encourages you to be more highly leveraged. 

So, to me, I think by putting insurance companies under this 

framework, we risk making them actually more leveraged and 

more dangerous. 

Mr. ROSS. More leveraged, greater capital requirements, more 

detriment to the consumer or to the insured, which also gives unfair competitive advantage maybe even to those internationally in 

the insurance markets. Which leads me to my next point with the 

the International Association of Insurance Suppliers (IAIS). Do you 

feel the FSB is making enough effort as an advocate to protect our 

interest in those negotiations? 

Mr. CALABRIA. I don’t think they are, and I think the suggestion 

that some have offered that our representatives, the U.S. representatives should not declare any institution systemic until 

FSOC has already acted to me is the right approach rather than 

trying to back the FSOC into a corner. 

Let me say that one of the problems is the argument that somehow we need to subject asset managers or insurance companies to 

bank-like regulation assumes that bank-like regulation works well. 

Mr. ROSS. Well put, and it would work well in an industry that 

is not bank-like. So, Mr. Zywicki, quickly, since the recession in 

2008, have we seen a great deal of capital reformation? 

Mr. ZYWICKI. Not that I have seen, but these gentleman may 

know better than I. 

Mr. ROSS. Could somebody answer that? Have we not seen a 

greater increase in capital with the formation of capital? 

Mr. ATKINS. With a zero interest environment, you would expect 

I think— 

Mr. ROSS. And have we seen since in the last 5 years any greater 

access to that capital? 

Mr. SILVERS. I think, sir, that you are asking a question about 

whether or not our banking system is doing its job since— 

Mr. ROSS. Or our capital markets. 

43 

Mr. SILVERS. Our capital markets and our banking system are 

somewhat different questions. 

Mr. ROSS. But what we are doing is we are seeing more and 

more private capital being formed, but we are not seeing access to 

that capital being allowed to the consumers as a result of DoddFrank. 

Mr. SILVERS. No, well essentially, I think you are pointing to the 

wrong cause. We didn’t restructure our banks so our banks didn’t 

do their job. 

Mr. HUIZENGA. The gentleman’s time has expired. 

Mr. ROSS. Thank you. 

Mr. HUIZENGA. With that, the Chair recognizes the gentleman 

from California, Mr. Sherman, for 5 minutes. 

Mr. SHERMAN. Thank you. I am one of those who was here when 

Dodd-Frank was written. I am here to report that it was written 

in this room, not on Mount Sinai, nor was it written by Beelzebub 

in the nether regions. 

It is not sacrosanct but that does not mean it should be discarded. We need to improve it, not dismantle it. And in spite of its 

great length, it lacks a whole lot of specificity. 

It gives tremendous power to the regulators. And God forbid if 

we get an Administration of the other party, we will see just how 

much discretion it is; a well-drafted statue means the same thing 

whether you elect a Democrat to administer the law or a Republican to administer the law. 

I think if we ever get a Republican Administration, heaven forbid, we will find out how much latitude there is in that statute and 

how Congress should have been more specific. 

As to SIFIs, I join with the gentleman from Florida who should 

be praised at length except he is not here anymore about designating money and mutual fund managers as SIFIs, as I bored some 

of my colleagues with before Lehman Brothers didn’t cause a problem because it had too many assets. 

If you are trying to determine whether an entity is a problem, 

you say, what are its liabilities, who loses if it doesn’t pay its 

debts? And a mutual fund doesn’t have any debts in almost every 

case. 

So the idea that we would designate mutual funds as SIFIs because Countrywide made bad mortgages seems rather extreme. Mr. 

Atkins, I want to focus with you on these credit rating agencies. 

You put forward the idea that the fault is the people who pay 

attention to the credit rating agencies, who rely on the credit rating agencies. Let’s say you are an ordinary consumer, you have $50,000 to invest, and you are trying to compare the Vanguard bond fund with 

the T Rowe Price bond fund. 

And they both have the exact same portfolio in ratings, 20 percent AAA, 30 percent AA, 40 percent, exactly the same and one is 

yielding 10 basis points more than the other. How would you, 

knowing that you have $50,000 to invest, which means you can’t 

hire Deloitte and Touche to give you a report. How would you decide to forego the extra point 1 percent of return when you see the 

only way you have of evaluating those two bond portfolios is how 

the individual bonds are rated by the credit rating agencies? How 

44 

would you take your own advice and not rely too much on the credit rating agency? 

Mr. ATKINS. You make a good point, but what I was trying to 

refer to before was to government regulators who actually should 

have known better. And to the SEC where— 

Mr. SHERMAN. We all should have known better when they gave 

AAA to alt-A, when they gave the highest rating to liars’ loans. 

But how are they ever going to stop doing that when they are 

selected and paid by the issuer? We dealt with that in the Frank 

and Sherman amendment to Dodd-Frank, but it went into conference, and it got diluted just enough that the SEC could wiggle 

its way around it and issue a report saying they don’t want to do 

anything. 

And so now, we have pretty much the same system we had before. That is to say, you can make a million bucks by giving somebody a good grade. And if you give them a good grade, somebody 

else will hire you to give them a good grade. 

I don’t think that it will be mortgage debt which causes the next 

crisis, or at least not in the next few years, because we have some 

sort of memory, slightly longer than goldfish. And we won’t let that 

mistake happen right away. 

But whether it is corporate bonds, whether it is sovereign debt, 

there are so many opportunities people have—put together a package of debt, buy a good rating, sell it, and then you as an investor 

almost have to buy it. 

And the money—and imagine yourself working for T Rowe Price 

or working for Vanguard, would you put together the bond portfolio 

that had 10 basis points less yield but had the same ratings as 

your competitor knowing that you as the investor would choose not 

to invest in your fund? 

I would say the credit rating agencies cannot be ignored. They 

are not ignored by investors. They cannot be ignored by money 

managers. And as long as they are selected by the issuer, we are 

just waiting for the next crisis. I yield back. 

Mr. HUIZENGA. The gentleman’s time has expired. With that, the 

Chair recognizes the gentleman from North Carolina, Mr. 

Pittenger, for 5 minutes. 

Mr. PITTENGER. Thank you, Mr. Chairman. I would like to respond to Mr. Capuano’s references earlier. He was lauding the merits of the Dodd-Frank Act and attributes of it and what it had done 

on behalf of our economy and our housing market. 

I am from Charlotte. Charlotte is one of the better economic regions of the country. According to a Metro Study, which is a nationwide data company, in 2006 we had 24,415 housing starts. In 2014, 

we had 9,238 housing starts. 

We are up 40 percent from where we were. And I think stats are 

relative. You can convey a stat in whatever way that you want to 

make them sound good, and I would compliment Representative 

Cleaver that we need the facts and those are the facts. 

So while I always appreciate the enthusiasm of Mr. Capuano, I 

think we need to be clear that we have not seen the return in the 

market, in the housing market which my former company was involved in for 25 years in, throughout the country. 

45 

Access to capital is critical, and it is not there. The impediments 

in getting that capital are clear. These developers had to go outside. They had to go private equity and other firms that are much 

more costly. 

So for clarification, I felt that was prudent. 

Dr. Calabria, as you know, the insurance companies are under 

extensive supervision by the States. State laws or regulations are 

designed to do three things: stop serious financial distress in an insurance company from ever developing; redress material financial 

distress when it occurs; and limit the scope and impact of a stress 

event by facilitating interstate coordination and remedial action. 

Do you believe that there exist gaps and regulation of insurers 

than have made FSOC designation of insurers necessary? 

Mr. CALABRIA. I do not. 

Mr. PITTENGER. Well, if no gaps exist, why do you believe FSOC 

has moved forward with the designation of insurers— 

Mr. CALABRIA. What I would submit and this has been a really 

consistent theme under both Republican and Democrat treasuries 

is there has long been a suspicion of the State insurance regulatory 

system, one of the few things that for instance Treasury Secretary 

Paulsen did before the crisis was issue a report on how bad the 

State insurance system was. 

And so Treasury has long had this viewpoint of, we need to get 

rid of State regulation of insurance. I don’t think they have been 

shy about it and I think FSOC has largely followed it. 

Let me also say you have raised a very important point in regard 

to Congressman Capuano’s points, which is, of course, is that what 

we should be doing is comparing this recovery to previous recoveries. 

The argument that if we had not done Dodd-Frank or the stimulus of this, that we would have been stuck in a hole and people 

would stop going to work and living in caves or whatever, that is 

not the case; economies recover. 

Mr. PITTENGER. Thank you. Are you concerned that firm-specific 

non-bank designations of insurance companies could create competitive imbalances in the insurance market? 

Mr. CALABRIA. Yes. As I mentioned in my earlier remarks about, 

to me, I worry that the designation would encourage insurance 

companies to look more like banks. 

And in my opinion, the largest insurers are far more better capitalized and in far better shape than the typical larger bank. So, 

I don’t want MetLife to look like Citi; I think that would be a gross 

mistake. 

Mr. PITTENGER. Professor Zywicki, do you have a comment on 

that? 

Mr. ZYWICKI. I don’t have anything more to add than what Mark 

said. 

Mr. PITTENGER. Very good. Mr. Atkins? 

Mr. ATKINS. Yes. I agree with that, and I think you have to look 

no further than the President’s own appointed insurance expert on 

FSOC, who completely slammed not only in really harsh terms 

frankly, not only the designation of Pru, but also the designation 

of MetLife as being—he said that was unfounded basically. 

Mr. PITTENGER. Thank you. I yield back. 

46 

Mr. HUIZENGA. The gentleman yields back. Just to let our Members know, there has been a motion to adjourn, a vote call. It is 

a 15-minute vote. So with that, we are going to continue with some 

questioning here, but if it is all right with our panel, I believe we 

will shortly take a break to go vote and then reconvene. 

The Chair recognizes Mr. Ellison of Minnesota for 5 minutes. 

Mr. ELLISON. I want to thank the Chair and the ranking member 

and also the panel. Mr. Silvers, one of the requirements of DoddFrank was publicizing the ratio of CEO pay to median worker for 

publicly traded firms. 

I just want to point out that back in 1980 when I was a sophomore in high school, the ratio was about 42:1. In 2014, CEOs received about 373 times the average employee. 

I guess my question to you is, why is this important knowledge 

for investors, and how does this knowledge further our discussion 

of addressing economic stability and even equity? 

Mr. SILVERS. There is—what that information is about obviously 

is internal equity within the firm, and there is a substantial body 

of research most recently developed and focusing on retail stores 

which suggests that there is a correlation between essentially internal equity within the firm and long-term firm performance. 

Contrary to what my colleague on the panel, Mr. Atkins, suggests, the securities laws from their very inception were designed 

to ensure that the public had material information about the management of public corporations. It is very clear, the public would 

very much like to know this, what this ratio is and know it accurately for all public companies. But the more fundamental question 

is, it is the law of the land. Congress passed that statute and the 

public is entitled to have it enforced, which it hasn’t been so far. 

In terms of the larger issue of economic stability, underneath the 

economic crisis that began in 2007 was a generation of wage stagnation. It created the political and economic circumstances in 

which a wide variety of people in both parties were tempted to substitute credit for wages. 

I think if you listen closely to my colleague Professor Zywicki’s 

testimony, he is in favor of that kind of substitution; I am not. I 

think that substitution profoundly destabilized our economy and 

threatened not just our long term prosperity, but it threatens us 

with repeated and increasing severity of financial crises. 

The pay ratio rule is designed to put valuable information in the 

hands of both investors and the public that is relevant to that problem. 

Mr. ELLISON. Mr. Chairman, I also want to ask for unanimous 

consent to introduce into the record an article from Forbes dated 

June 16, 2014, which says, ‘‘The Highest Paid CEOs are the Worst 

Performers.’’ 

Mr. HUIZENGA. Without objection, it is so ordered. 

Mr. ELLISON. Yes, so there you go. 

I would also like to point out, just for the record too, that the reality about mortgage loans made during the financial crisis and 

prior to it, is that about 66 percent of the loans are equity stripping 

refinances. And these were cash-out refinancing of homeowners 

with substantial equity. Too often, loans on predatory terms. I just 

want to point that out as well. 

47 

And Mr. Zywicki, I wonder if I could ask you a question, sir. In 

your testimony you complained, or you pointed out that the CFPB 

is engaged in a massive data mining program. You said it collects 

data from hundreds of millions of consumers and credit records, 

which ‘‘far exceed any reasonable regulatory purpose.’’ 

And then you cite Mr. Newt Gingrich in a footnote to support 

your claim. Are you aware that Mr. Gingrich is on retainer from 

the U.S. Consumer Coalition? 

Mr. ZYWICKI. I cited that because— 

Mr. ELLISON. Are you aware? 

Mr. ZYWICKI. No. I wasn’t aware, but— 

Mr. ELLISON. Are you aware that is a 501(c)(4) organization, 

which according to its founder Brian Wise is dedicated to trying to 

undermine the CFPB? Did you know that? 

Mr. ZYWICKI. I am not aware of that. 

Mr. ELLISON. So you cited a source and you don’t know the terms 

upon which that citation was made? 

Mr. ZYWICKI. I do know the terms because I know those data are 

accurate, because I have seen similar numbers elsewhere and I just 

cited that as the most immediate data on hand. 

Mr. ELLISON. You cited Gingrich. You didn’t mention that he was 

paid by the U.S. Consumer Coalition. Did you? 

Mr. ZYWICKI. No. I didn’t know that. 

Mr. ELLISON. You didn’t mention he was compensated for his advocacy? 

Mr. ZYWICKI. No. 

Mr. ELLISON. You didn’t mention that? 

Mr. ZYWICKI. No. But the data is out there and the data has been 

reported elsewhere. That was just the most recent source. 

Mr. ELLISON. So a compensated source to advocate a particular 

line of argument, you don’t think it was worth the public’s time to 

know that? No, you don’t. 

Okay, my time is over. 

Mr. HUIZENGA. The gentleman’s time has expired. 

Mr. ELLISON. I have no further questions for this witness. 

Mr. HUIZENGA. The gentleman’s time has expired. 

With that, we are going to go to our last questioner before we 

take a brief recess. 

And the Chair recognizes Mr. Rothfus of Pennsylvania for 5 minutes. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Mr. HUIZENGA. Sorry, we won’t start the clock yet, but just so 

that everybody is clear, the game plan will be that we will recess 

briefly, go and vote, and return immediately and continue with the 

hearing. 

And with that, Mr. Rothfus? 

Mr. ROTHFUS. Thank you, Mr. Chairman. And I thank our panel 

for being here this afternoon. 

It is always good to take stock on anniversaries. So we are at 5 

years now for Dodd-Frank. I would like to go back though 7 years 

before Dodd-Frank, just to set the record straight. We have heard 

a lot about Fannie and Freddie. I want to remind people what was 

going on in the early 2000s, an attempt to reform what was going 

on at Fannie and Freddie. 

48 

Indeed, this committee held a hearing on September 25, 2003, on 

whether there needed to be some reforms with the way things were 

being done at Fannie and Freddie. Regarding these entities and its 

regulator, Barney Frank made a number of really striking statements, including this one, ‘‘I do think I do not want the same kind 

of focus on safety and soundness that we have in the Office of the 

Comptroller of the Currency or the Office of Thrift Supervision for 

the Fannie and Freddie regulator. I want to roll the dice a little 

bit more on this situation toward subsidized housing.’’ 

Dr. Calabria, any reaction to rolling the dice? 

Mr. CALABRIA. I guess, first of all, I note that the OCC was the 

primary regulator of Citibank, so even OCC level of regulation apparently wasn’t very good. 

But that said—let me, if I can, and certainly not—personal push 

back a little bit, lots of people across the aisle were wrong on 

Fannie and Freddie, and so I do think that is worth remembering. 

I think if we could put aside— 

Mr. ROTHFUS. But they are wrong on Fannie and Freddie. 

Mr. CALABRIA. They are wrong on Fannie and Freddie. A number 

of people were— 

Mr. ROTHFUS. And it was a big contributing factor to what we 

saw? 

Mr. CALABRIA. Absolutely. 

Mr. ROTHFUS. With Dodd-Frank. Now let’s—I want to talk a little bit about Dodd-Frank and how it was marketed as a way to end 

too-big-to-fail. 

Prior to its passage, then-Secretary Geithner claimed the law 

would end too-big-to-fail. And yet at the signing ceremony for the 

Dodd-Frank Act, President Obama proclaimed the following, ‘‘After 

taking office, I proposed a set of reforms to empower consumers 

and investors to bring the shadowy deals that caused this crisis 

into the light of day, and to put a stop to taxpayer bailouts once 

and for all. Today, those reforms will become the law of the land.’’ 

Of course, we know that Secretary Geithner backtracked from 

his suggestion that this would end too-big-to-fail. In 2014 the question came up, and he said, ‘‘Of course, it didn’t end too-big-to-fail.’’ 

Dr. Calabria, I would like to go through the list that the President talked about and get your thoughts on whether the reforms 

that the President claimed have in fact been achieved. Specifically, 

has Dodd-Frank empowered consumers and investors, or has it resulted in fewer and more expensive choices for consumers, and reduced upward mobility, particularly for those economically disadvantaged groups who have historically had the most difficulty accessing credit? 

Mr. CALABRIA. I think the numbers are fairly obvious that it has 

been a burden in that regard. 

Mr. ROTHFUS. Has Dodd-Frank eliminated shadow lenders, or 

has the avalanche of regulations that is imposed on our financial 

institutions actually led consumers to less regulated areas? 

Mr. CALABRIA. That certainly seems to be the case. 

Mr. ROTHFUS. And finally, did Dodd-Frank put an end to taxpayer bailouts once and for all, or did it rather enshrine too-bigto-fail into law, resulting in an expansion of the Federal safety net 

and increasing the probability of future crises and bailouts? 

49 

Mr. CALABRIA. So again, to clarify my earlier statements, I do believe that Dodd-Frank offers a path to ending bailouts, I just note 

that it is an optional path, and I think it is highly unlikely that 

regulators will ever choose it—and one of the reasons I believe so 

is because there are similar powers that were put in place for 

Fannie and Freddie and they were not used at that time. 

So, as long as we have the Tim Geithners or the Hank Paulsens 

at the seat, to me, I think you should bet your money on that the 

creditors are going to get bailed out. 

Mr. ROTHFUS. Professor Zywicki, earlier this week the IMF released its annual review of the U.S. economy. The report found 

that some key vulnerabilities in the U.S. financial system have yet 

to be addressed, notably the housing finance system. 

The IMF also found that the Federal Reserve’s extraordinary 

loose monetary policy and low interest rates have encouraged firms 

to take on additional risks in search of better returns. 

Finally, the report expressed concern about consolidation within 

the banking sector, particularly that large and interconnected 

banks dominate the system even more than before. 

I find this report to be particularly troubling given that it was 

bad government housing policy and Fed monetary policy that 

helped set off the last financial crisis. Furthermore, there is much 

evidence out there that Dodd-Frank regulations and the SIFI designation process is actually encouraging additional consolidation 

rather than eliminating it. 

What do you say to these concerns and those identified by the 

IMF? 

Mr. ZYWICKI. I agree with all of that, which is, big banks are getting bigger, and smaller banks are getting crushed. We have done 

nothing to deal with the incentives that consumers have to walk 

away from homes that are underwater such as requiring higher 

downpayments, doing the State anti-deficiency laws. And we are 

seeing exactly the same phenomenon we saw earlier. 

And I don’t want to overlook something that Dr. Calabria mentioned early, which is, the fuel that drove this fire was the Federal 

Reserve’s crazy monetary policy from 2001 to 2004 and thereabouts. And we are doing exactly the same thing now and we are 

inflating another bubble probably in the housing market in a lot of 

areas. 

Mr. ROTHFUS. Thank you, Mr. Chairman. I yield back. 

Mr. HUIZENGA. The gentleman yields back. 

And just so that everybody is aware, we have 2 minutes and 40 

seconds left in this 15-minute vote, and so we will recess at this 

time, and until immediately after votes, when we will return. 

Thank you. 

[recess] 

Chairman HENSARLING. The committee will come to order. 

The Chair now recognizes the gentleman from Connecticut, Mr. 

Himes, for 5 minutes. 

Mr. HIMES. Thank you, Mr. Chairman. And thank you to the 

panel. 

I really appreciate this opportunity to reflect after 5 years on the 

effectiveness of Dodd-Frank. I was here when it was put together 

and I participated in the many discussions around its creation. And 

50 

I remember the extravagant, not to say apocalyptic warnings about 

how this was going to be what everything else, the Democrats proposed at that time, a job-killing bill. 

That it would represent—what has generated some echoes here 

today, a lack of freedom for consumers, and all sorts of other 

things. And of course—and this caught my attention, it was to devastate, and again, the language was beyond apocalyptic. It was to 

devastate a key American competitive advantage, our capital markets. 

A lot of that criticism has begun to fade such that we hear echoes 

of it today. It is hard to call all that stuff job killing when you have 

been through 12 million new jobs created in on average 250,000 

jobs added per month. It takes some sting out of that accusation. 

The question of the capital markets, though, caught my attention. I have the privilege and sometimes challenge of representing 

a district which is very, very dense with people who work in the 

financial services industry. And I am the first to recognize that 

there was both individual and institutional crazy, if not to say 

criminal, behavior in the industry. 

But it is also true that these capital markets are essential to 

Main Street, to borrowing for mortgages and student loans and 

consumer lending, and of course for our businesses. So I thought 

I might just take a look at the facts around what has occurred in 

the capital markets in these last 5 years and just together some 

facts which are displayed there. 

And I would ask the Chair for unanimous consent to make this 

a part of the record. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. HIMES. Businesses and people borrow and access capital. On 

the upper left there, you see the commercial and industrial loans 

since Dodd-Frank, a very strong rise up 60 percent. 

Small businesses, its access venture capital—in the upper right, 

you see venture capital investments up over 100 percent. People 

and companies benefit from the stock market. 

At the lower left, you see the behavior of the Standard & Poor’s 

500, up almost 100 percent in the 5 years since Dodd-Frank. That 

is a pretty darn nice return for some people who got badly hurt in 

the crisis and of course represents, if nothing else a real vote of 

confidence for those capital markets that we were promised would 

be devastated by Dodd-Frank. 

Lower right, what about people, consumer credit. Again, we have 

been hearing a lot today about a reduction in freedom in terms of 

the products that are available to consumers. The graph in the 

lower right would suggests that if even if there is a reduction in 

freedom there and a reduced reduction in choices there has certainly not been reduced consumption of consumer credit. 

So I think it is fair to say that the facts demonstrate that DoddFrank, far from having a catastrophic effect on the capital markets, 

actually contributed to the restoration of those markets and something that we consider a key competitive advantage. 

We now hear the criticisms reduced to the abstract and academic 

notion that those things could have been better. If only others had 

been in charge we would have had a more robust economy or perhaps those charts, which are pretty dramatically in their north-easVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
51 

terly direction, would be somehow more northerly in their direction. 

But those facts are important. And they are important because 

we see efforts to eliminate an awful lot of the protections which I 

would argue would perhaps turn those graphs around. 

I did want to make that point, and that reflection at this 5-year 

anniversary, but I do have a question. Again, representing as I do 

the district for whom the financial markets are pretty important, 

I have always recognized that while a very important and good 

step forward, Dodd-Frank is far from perfect. And there are in fact 

changes that should be made. So in the very limited time I have 

left, I would just love to get from each of you, very quickly, if you 

could make one change, the change that would draw agreement on 

the part of peer-reviewed academics and others, if you could make 

one change to Dodd-Frank, what would it be? 

Let me just quickly go from left to right. 

Mr. ATKINS. It is hard to pick out of all 15 titles, but I would 

start with Title I, for sure. And address the potential of the FSOC 

and the Fed bringing in bank regulated. 

Mr. HIMES. Thank you. 

Mr. Calabria? 

Mr. CALABRIA. I reiterate that there is a lot to choose from, but 

if you want to talk where there is most robust agreement, I think 

most of the academic literature does suggest that Title I of designating entities sends the wrong signal to the marketplace. 

Mr. HIMES. Thank you. 

Mr. Silvers? 

Mr. SILVERS. I would restore Glass-Steagall. 

Mr. HIMES. Restore Glass-Steagall, meaning force a separation of 

commercial banking activity from brokerages? 

Mr. SILVERS. And obviously I wouldn’t literally take the words of 

Glass-Steagall. I would try to enforce that concept in modern context. 

Mr. HIMES. Thank you. 

Mr. Zywicki? 

Mr. ZYWICKI. I would make the CFPB into a bipartisan commission and put it on budget, and remove its role in safety and soundness checks. 

Mr. HIMES. Okay. So two Title I’s, one CFPB, and Glass-Steagall. 

Thank you. I appreciate it. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Indiana, Mr. 

Messer. 

Mr. MESSER. Thank you, Mr. Chairman. 

I would like to start with Mr. Calabria, and talk a little bit about 

some of the unintended consequences of Dodd-Frank. As you heard 

from our colleagues on the other side of the aisle today apologists 

for Dodd-Frank are fond of saying that the law struck a direct blow 

against Wall Street, remade the financial systems so that those 

firms no longer enjoy the privileges that made them too-big-to-fail, 

and gave rise to the taxpayer bailouts of 2008 and 2009. 

In reality though, the biggest Wall Street firms are the beneficiaries, not the victims, of Dodd-Frank, both because the law ceVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00055 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
52 

ments them as too-big-to-fail, and because the massive regulatory 

dragnet they cast over the financial system makes it difficult for 

smaller firms to compete. 

There is no mystery to this. Goldman Sachs CEO Lloyd 

Blankfein and JPMorgan Chase CEO James Dimon have both said 

that Dodd-Frank gives them some competitive advantages because 

of the broad scope of regulatory cost associated with the law. 

Harvard University released a study recently that confirms this. 

And just anecdotally, we all know you can count on the fingers of 

one hand, the number of new banks that have been chartered since 

Dodd-Frank was enacted. 

So, Mr. Calabria, whom should we believe? Our colleagues on the 

other side of the aisle and the Obama Administration who loudly 

proclaim Dodd-Frank administers harsh medicine to Wall Street or 

the CEOs of those same firms who tell us they are actually the 

competitive beneficiaries of this law? 

Mr. CALABRIA. Certainly, I think the evidence is pretty overwhelming that concentration has increased since both the crisis 

and since Dodd-Frank. I would be the first to say lots of causes go 

in there just as there are lots of causes with the market going up, 

I would, for instance, suggest that maybe 6 years of negative real 

short-term rates might have actually inflated the equity markets a 

little bit. And we will see what happens when those things turn 

around. 

But I think absolutely there is no doubt in my mind that you 

have seen growing concentration both on the commercial banker 

side and on the broker-dealer side. 

Mr. MESSER. Mr. Zywicki, you are nodding? 

Mr. ZYWICKI. I agree completely which is we have known for decades that regulatory structures fall harder as small businesses. 

What we have done is created this monolith, this huge regulatory 

structure then imposed at our community banks who obviously 

didn’t cause the problem here. 

And just the regulatory compliance cost is killing these businesses, not to mention, as I said, on products such as mortgages. 

It has gotten rid of their competitive advantage, which is relationship lending and sort of knowing about their customers. And so it 

is absolutely, in my view, accelerated consolidation of financial industry and further destabilized the financial system. 

Mr. MESSER. Thanks. 

Really quickly, Mr. Atkins, we would like to raise with you an 

issue that is actually beyond the scope of Dodd-Frank and deals 

with the liquidity coverage ratios under Basel III. 

It came to my attention, and you are probably well aware, that 

Federal banking regulators have excluded all American municipal 

bonds from being treated as highly liquid assets under the LCR 

rule, which creates a remarkable situation where certain German 

bonds qualify as these sorts of assets when most American municipal bonds don’t—all American municipal bonds don’t—that it obviously disincentivizes banks from investing in those assets and potentially raises borrowing costs. 

We all know that aside from U.S. treasuries for America municipal bonds, securities are some of the safest investments available 

with State and local governments having about a zero default rate. 

53 

To help ensure that we change that, I have authored, with Congresswoman Maloney from New York, legislation that would essentially direct the FDIC, the Federal Reserve, and the OCC to classify investment-grade American municipal bonds as level 2A securities and highly liquid assets. 

Everyone that I have talked to tells me that these investments 

are some of the safest in the world. Can you help me understand 

why it would make sense to allow German bonds to qualify as that 

kind of asset and not allow American municipal bonds? 

Mr. ATKINS. Yes. The problem with Basels I, II, and III basically 

is that they categorize these various investments in buckets. And 

there is always an incentive then to choose the riskiest, therefore 

the highest yielding ones, in each of those buckets and not to have 

a real market-based type of valuation to it. 

It is really the regulators choosing winners and losers, if you 

will. So, I think there is a fundamental flaw in all of that design. 

Mr. MESSER. Just a simple question: Do you think if a bank 

needed to sell investment grade municipal bonds, they could do 

that, and could they find buyers if we were at a time of financial 

stress? 

Mr. ATKINS. For a bank to— 

Mr. MESSER. Yes. 

Mr. ATKINS. Yes, I would think so. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. And I thank you for your 

service on this committee as well. 

It is my understanding that some of the Members today have 

opened the door to talking about invidious discrimination, and 

while we are talking about Dodd-Frank, I think that it is appropriate that we mention some aspects of invidious discrimination, 

because there are some things that Dodd-Frank does not do to the 

extent that I think that it should. So, I agree with those who contend that Dodd-Frank is an imperfect piece of legislation. 

Let’s just talk about some of the things that I would like to see 

us impact by way of the work of the committee. 

I have a statement here indicating that minority business owners 

paid interest rates that were 32 percent higher than what whites 

paid for loans in 2012. This is by way of the Federal Reserve, by 

the way. This is what the Fed says. Dodd-Frank doesn’t do enough 

to address this kind of invidious discrimination. I am pleased that 

someone brought it up today. Otherwise, I might not have put this 

on the record. 

According to The Wall Street Journal, in 2013 only 4.8 percent 

of loans made to buy homes were made to blacks. However, blacks 

comprised 13.2 percent of the total population in 2013. Now I know 

that we can rationalize that and say, blacks don’t make as much, 

they probably don’t have the credit history, there are all kinds of 

ways to rationalize it. But one of the best things that we can do 

is investigate and find out why blacks are at this number. 

In 2013, only 7.3 percent of loans made to buy homes were made 

to Latinos. However, Latinos comprised 17.15 percent of total popuVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00057 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
54 

lation in 2013. Dodd-Frank doesn’t do enough to help us, and I 

hope that the committee will. 

According to CNN, 2013 HMDA data, the conventional mortgage 

load denial rate was 10.4 percent for whites; by comparison, however, the denial rate stood at 27.6 percent of blacks, 21.9 percent 

for Hispanics, and 13.3 percent for Asians. 

The information goes on and on and on but I will move now to 

the Washington Post. Between 2004 and 2008, black borrowers 

were 54 percent more likely to have a high interest rate mortgage, 

black borrowers. Latino borrowers, 45 percent more likely to have 

a high interest rate than similar white Borrowers, I might add, and 

Asian-American borrowers were 7 percent more likely. 

Now, these are things that we can investigate, things that I 

think the committee should investigate. I think that on the heels 

of what we have just seen in South Carolina, where we are eliminating symbolism, it seems to me that we have an opportunity to 

actually get into the invidious discrimination that still takes place. 

And my hope is that we will look after these things at the committee level. We are currently examining the CFPB, and of course 

until 1968, we were known as the Banking Committee. 

These lenders bear a look being taken at them. My hope is that 

we will do it because we tell people to pull themselves up by their 

bootstraps. 

These loans, these mortgages are bootstraps. In my last 9 seconds, I appeal to the committee to please, it is an appeal, let’s look 

into this. I thank you, Mr. Chairman. I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. Tipton. 

Mr. TIPTON. Thank you, Mr. Chairman. I appreciate the panel’s 

time for being able to be here as we listen to our colleagues’ comments from the other side of the aisle. They want to be able to interpret that Dodd-Frank has helped bring the economy back. 

I think it is worthy to note that we have the lowest labor participation rate in 4 decades. For the first time, I think you have mentioned this, the Brookings Institution report coming out saying we 

have more small businesses shutting down than there are new 

business startups in this country. We are suffering under two trillion dollars worth of regulatory costs which is driving up cost, if 

you care about people who are on fixed incomes, young families 

who are trying to be able to get a start, increasing their cost by 

inhibiting their ability to have access to capital. 

We have talked about Dodd-Frank today and too-big-to-fail. Unfortunately, it has become apparent both anecdotally and empirically that the legislation has failed to be able to live up to its goals. 

Banks in my district and across the country have told me time and 

again that the compliance costs brought on by one-size-fits-all regulatory schemes made it impossible for them to be able to lend to 

creditworthy Main Street businesses. 

Instead of working with the community, small banks and credit 

unions are working to comply with rules and regulations that were 

intended to curb Wall Street banks. Delta Bank in Delta, Colorado, 

told me that they don’t know how much longer they are going to 

55 

do it because they feel that they are no longer working as a bank, 

they are working for the Federal Government and for regulators. 

Large banks do have the economy of scale to be able to deal with 

additional compliance costs but smaller banks simply cannot compete. Instead of promoting healthy growth in the financial system, 

the rate of decline in community banks’ market share has doubled 

since Dodd-Frank was enacted. For this reason, I introduced the 

Taylor Act of 2015, legislation that directs Federal regulators to 

consider the risk profile and business model of an institution promulgating regulations. 

Regulations will be tailored in order to be able to limit compliance costs when the regulation is considered not necessary or appropriate for the institution. This piece of legislation which has the 

support of over 55 State banking and credit union associations is 

a crucial step toward limiting the regulatory burden for those 

banks and credit unions that are struggling to be able to operate 

in our Main Street communities because of the burdens placed on 

them by Dodd-Frank. 

Mr. Zywicki, you had commented several times during your testimony about the destruction of the relationship between community 

banks and the customers that they were designed to serve. Can 

community banks survive in this new regulatory framework if they 

can no longer rely on that traditional banking relationship? 

Mr. ZYWICKI. It is hard to see how and it isn’t just that they are 

exiting the mortgage market, as I said, 64 percent of community 

banks said they have changed their mortgages because of DoddFrank, 15 percent said they completely exited or are considering 

exiting the market, and 70-plus percent have said that the cost and 

everything has changed the way that they do business. 

I don’t see how in the current regime they can possibly survive 

under that sort of regime, and I think it was perfectly summarized 

by the bank you reference which is that their customer now is the 

Federal Government, not their customers. 

They are looking over their shoulder constantly rather than looking at the person across the desk from them and I think that is 

terrible. I will add one other thing, it is not just mortgages, it is 

also, according to the Kennedy study, agriculture loans. 

These big banks aren’t going out to rural communities and making agricultural loans and that sort of thing. These community 

banks serve an important function in the American banking ecosystem, a lot of consumers prefer it, and I think it is a shame that 

they are being competed out of the market not because they can’t— 

because they just aren’t allowed to compete on a fair footing because of the regulatory cost. 

Mr. TIPTON. You just spoke to two things that are near and dear 

to my heart. I represent a rural district in Colorado, agricultural 

interests and small businesses. Are we inherently seeing, because 

of Dodd-Frank, small businesses, small banks literally now being 

almost forced into a position where they are going to have to be 

able to merge, be bought up by a larger institution and that the 

impacts that is obviously going to have in terms of that relationship? 

Mr. ZYWICKI. That is obviously what we are seeing, that they are 

being forced to—they are either disappearing or being forced to 

56 

merge and it is an unbelievably ironic consequence of Dodd-Frank 

that the big banks are getting bigger. That we are getting more 

consolidation of the banking system when the whole idea was to 

get rid of too-big-to-fail. The big banks are getting bigger. 

Mr. TIPTON. And so we are just codifying too-big-to-fail as we 

continue to pursue an overzealous regulatory regime that is impacting us at the local level. 

I think it is important. Oftentimes, we talk about the rules, regulations, the laws that are passed, but what you are speaking to is 

something that I believe we need to be focusing on. These are the 

people at home. The Hopscotch Bakery in Pueblo, Colorado, is a 

very small bakery. The owner came to me and she said that the 

big issue for her was access to capital with a local community bank 

who wanted to be able to make the loan, but regulatorily was not 

going to be able to make that loan. Do we need to focus more on 

the outcome of the law and how it is impacting Americans? 

Mr. ZYWICKI. Absolutely. And we hear those stories from all over 

the country. 

Mr. TIPTON. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Williams. 

Mr. WILLIAMS. Thank you, Mr. Chairman, for holding this hearing today, and I want to thank all of you for being here. 

I wanted to switch gears a little bit and discuss how the CFPB 

under Dodd-Frank has continued to expand its influence into areas 

where it has no authority. That is something even Director Cordray 

told me himself that the law doesn’t address. Of course, I am talking about the auto industry. I am a car dealer. I am one of them. 

Okay. 

So Mr. Zywicki, I would like to ask you about the CFPB settle- ment with Allied Financial in which CFPB got Allied to pay $98 

million by accusing the company of discrimination against car buyers based on disparate impact statistics. 

I have said this in previous hearings but I think it is worth repeating today, as a car dealer myself, the idea that I would charge 

different prices to my customers based on race, religion or the color 

of one’s skin is offensive not only to me but to my industry. In fact, 

if I was doing that, I don’t think I would be very successful. 

So, it has been a year-and-a-half since the Allied settlement. Do 

you know if the CFPB has paid any of the $98 million to consumers 

whom the CFPB said were discriminated against? 

Mr. ZYWICKI. Thank you, Congressman Williams, because I think 

this example of what they are doing with the auto dealers is one 

of the most egregious examples of regulatory empire building I 

have ever seen. 

Dodd-Frank makes it very clear that they can’t regulate auto 

dealers, and so instead what they have done is essentially strongarmed indirect auto lenders and they essentially forced them to become arms of the Federal Government to enforce this agenda. What 

is this agenda? It is an agenda that has been written about extensively which is sort of disparate impact on steroids. 

There is an amazing study that the American Financial Services 

Association published by Marsha Courchane which uses as 

Bayesian Improved Surname Geocoding and whatever the term is 

57 

to try to identify the so called plaintiffs and it is a joke. It has no 

verifiability in doing it. They finally entered into this settlement for 

Allied under who knows what conditions and they don’t have any 

real—they don’t actually have any victims. 

They have statistical victims. They have created this claim form 

that seems to be completely on the honor system where people 

don’t have to prove they were overcharged, they don’t have to prove 

anything, they can just write in and get some money. 

And so maybe the CFPB is going to distribute money to people, 

but there is no indication that they are distributing to actual victims of discriminatory practices. 

Mr. WILLIAMS. With that being said, in fact I had my staff pull 

up the form. This is it right here, that they would have discriminated buyers fill out. In my opinion, it is ripe for fraud, and you 

have agreed with me. 

If you look at this form, it basically says if you took out a loan 

that Allied later financed in a certain period of time, the CFPB will 

assume you were discriminated against. I am in the business but 

I have bought two cars and financed them through Allied, so I wonder if I should fill this form out and send it in. 

Now, Mr. Zywicki, in the interest of time, just a quick yes-or-no 

answer to the following question if you don’t mind. Do you think 

the process the CFPB set up that we are talking about is designed 

to determine— 

Chairman HENSARLING. Wait, I’m sorry, would the gentleman 

suspend and hold the clock? Apparently, we have one vote on the 

Floor, and might I suggest that the gentleman from South Carolina—have you voted on this? 

Mr. MULVANEY. I have not. 

Chairman HENSARLING. Perhaps we can avoid a recess if the 

gentleman from South Carolina and the gentleman from Maine 

would quickly go vote and return back to the committee room. Perhaps we can avoid a recess here. 

I thank the gentleman for yielding, and we yield back to the gentleman from Texas. 

Mr. WILLIAMS. Thank you, Mr. Chairman. Do you think the process we talked about is designed to determine whether borrowers 

were actually discriminated against? 

Mr. ZYWICKI. No. I don’t see that. 

Mr. WILLIAMS. And what about the CFPB restitution form we 

just mentioned? Do you think it prevents fraud? 

Mr. ZYWICKI. No. I don’t see any indication it does. 

Mr. WILLIAMS. And do you see anything that would indicate that 

the CFPB is even asking whether borrowers paid a higher interest 

rate than other loans? 

Mr. ZYWICKI. I don’t see that either. 

Mr. WILLIAMS. Not on there. Mr. Calabria, for you. Under Section 1022 of Dodd-Frank, the CFPB was given a broad authority 

to exempt financial services providers from its rules based on asset 

size, volume, et cetera. 

As you know, the CFPB has used this authority sparingly, often 

creating an exemption so small that it doesn’t actually help those 

credit unions or community banks that are hurting because of overregulation. I am saying this really quick because I am working on 

58 

a proposal that would exempt community banks and credit unions 

under $10 billion in assets from CFPB rules, going forward. 

Effectively, it turns the exemption on its head and forces the 

CFPB to consider the impact on smaller financial institutions and 

make an affirmative finding that community banks and credit 

unions are indeed the intended targets of these rules. So, my question to you is this, do you think Section 1022 B of the law is clear? 

Mr. CALABRIA. Absolutely. Yes. 

Mr. WILLIAMS. Thank you. And shouldn’t the CFPB be doing 

analysis and affirm that smaller financial institutions actually 

need or don’t need to be included in the rules they are writing? 

Mr. CALABRIA. Yes. I think they would be better allocating their 

resources on larger entities. 

Mr. WILLIAMS. Mr. Chairman, I yield back. Thank you very 

much. 

Chairman HENSARLING. Sorry, the gentleman yields back, since 

we are trying to kill a little time here before the other gentlemen 

return from the House Floor. At this time, we yield to the gentleman from Kentucky, Mr. Barr, whom I trust will take his full 

5 minutes. 

Mr. BARR. Yes, Mr. Chairman, I would like to take even more 

with this great panel. But I appreciate the recognition, and I thank 

the panel for your testimony. 

This has been a fascinating hearing as we examine the impact 

of the Dodd-Frank law 5 years since its enactment. And let me 

start with Professor Zywicki. I am particularly concerned about the 

impact that the Consumer Financial Protection Bureau is having 

on access to consumer credit. For many of my constituents in central and eastern Kentucky, and I too have heard that, the unfortunate stories of creditworthy borrowers who are no longer able to access a mortgage or get a credit card or an auto loan or maybe short 

term credit. 

The example that you gave about the gentleman who needs a $500 transmission change just to get to work but no longer has access to short-term credit or a payday loan really does have a negative impact not just on the broader economy but on these families. 

And it is really sad. 

But let me ask you a follow-up to Chairman Neugebauer’s proposal, which was a proposal to reform the Bureau to a commission 

structure, a bipartisan commission structure. I also have a reform 

bill called the Taking Account of Bureaucrats’ Spending Act 

(TABS). 

This would place the Bureau under the appropriations process 

like many other regulators in the Federal Government. What impact would that have in terms of effectuating the Congress’ power 

of the purse in holding the Bureau accountable? 

Mr. ZYWICKI. I think that would definitely increase the responsiveness and the ability of the CFPB to do its job. Which is, too 

much independence, just bureaucrats left to their own devices, do 

their thing, right? What we have learned over time is that checks 

and balances actually work, that Congress’ role in being able to 

control the power of the purse and actually supervise with some 

strength over executive agencies, makes the agencies better for the 

consumers. 

59 

Mr. BARR. Now, let me ask you an out-of-the-box question because we have these reform ideas that are actually consistent with 

the original design of the Bureau. But I was interested in your testimony and your former service at the Federal Trade Commission 

and its focus on the mission of promoting competition and choice 

as a core of consumer protection. 

My question to you is, would it be something that you would entertain as a positive idea to actually fold into the mission of the 

Federal Trade Commission the functions of the Bureau, if the Bureau continues to fail the American people? 

Mr. ZYWICKI. I agree completely, which is I actually agree with 

the idea of having one agency that would regulate consumer credit. 

I don’t think the old system did work. I thought we could have 

just given it to the FTC, if we don’t, we should model it after the 

FTC, and I have written a long law review article where I urge exactly what you are suggesting, Congressman Barr, which is combining a mission of competition and consumer protection and understand the consumer’s benefits not just from consumer protection 

narrowly defined but also from innovation, competition, choice, 

lower prices and all those sort of things. 

Mr. BARR. I want to read your law review article because I totally agree that competition, choice, and innovation is the best consumer protection. 

Let me turn to Mr. Atkins, and I appreciate your service and 

your expertise. Secretary Lew testified in front of this committee 

a few weeks ago and we talked about changes in the capital markets after Dodd-Frank. Some of the illiquidity that we are seeing 

in the fixed-income markets as a result of the Volcker Rule in particular—and I appreciate your testimony about the concerns you 

have with the Volcker Rule, especially since proprietary trading 

really wasn’t the cause of the financial crisis. 

My question to you is, when Secretary Lew was asked about 

illiquidity, he disclaimed responsibility from regulations in Volcker, 

and his answer was that he thought changes in market structure 

were to blame for the liquidity problems. And Dr. Calabria, I think 

you mentioned that there could be some changes in fixed-income 

market structure. 

And he also mentioned high frequency trading. My question to 

you is, could you comment on Secretary Lew’s refusal to assign any 

blame whatsoever to Volcker and other regulatory pressures? 

Mr. ATKINS. I don’t know exactly what he said then, but to ascribe everything to market structure changes, or you know, some 

people have said to increased transparency in the market has led 

to that, I think that is not accurate. I think you have to lay blame 

at the Volcker Rule because basically, you have to have people 

trading in the markets to set price. 

Mr. BARR. As I mentioned, the Volcker Rule is forcing banks to 

divest of AAA paper that hasn’t defaulted in 20 years, and there 

was really not much response from the Secretary on that. 

Finally, let me conclude with Dr. Calabria, we talked about consolidation and SIFI designation in OLA, and this new safety net as 

contributing as opposed to detracting from too-big-to-fail. Can you 

comment on what—those factors, is Dodd-Frank, the cause of these 

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derstand economies of scale and the need for large institutions to 

service complex customers, but could you briefly comment on that? 

Mr. CALABRIA. Let me say, rather than cause, I think it is best 

to think of that as a contributor. 

Mr. BARR. Yes, thank you. I yield back. 

Chairman HENSARLING. The Chair wishes to inform Members 

that the Chair did not know there were two votes on the Floor as 

opposed to one. I am going to yield to the gentleman from New 

Hampshire, Mr. Guinta for 5 minutes, at which point he will recess 

the hearing until after the completion of the second vote. 

Again, we appreciate the indulgence and patience of the panel. 

The Chair recognizes the gentleman from New Hampshire. 

Mr. GUINTA [presiding]. Thank you, Mr. Chairman, and thank 

you for your indulgence relative to our voting schedule this afternoon. 

I first want to thank the panel for being here. It is clear to me 

and there has certainly been debate about this, but I have clearly 

seen the harmful effects of Dodd-Frank and the effects that it has 

had on community financial institutions, and most importantly, 

those consumers and users of those products. 

The Mercatus Center of George Mason University recently released a paper, actually back in February 2014, which showed that 

small bank have eliminated or are planning to discontinue certain 

products or services as a result of Dodd-Frank, that is indisputable 

fact. 

Nearly 64 percent of the banks surveyed anticipate making 

changes to the nature or assortment and volume of mortgage products and services as a result of this new regulatory action. The 

study also showed that roughly 10 percent anticipate discontinuing 

residential mortgages due to Dodd-Frank. And approximately 5 

percent have already done so. Residential mortgages or mortgage 

servicing, home equity lines, credit, and overdraft protection are 

among the most likely products and services to be cut. 

In New Hampshire, where I represent, we have about 30 community banks that offer a wide array of products and services to Granite Staters. However, due to severe regulations, I continue to hear 

from my community banks that they have had to limit products. 

They have had to limit loans and services to my constituents, to 

their customers and consumers. I personally do not see that as a 

favorable response to Dodd-Frank; maybe others disagree. 

But I wanted to ask Professor Zywicki, would you agree that consumer choice in products and services is important for overall wellbeing for consumers? Or do you think that more choice in products 

and services harms those very consumers? 

Mr. ZYWICKI. I think— 

Mr. GUINTA. It’s a very simple and straightforward question. 

Mr. ZYWICKI. I think American families are a much better judge 

of what financial products are appropriate for their lives than 

Washington bureaucrats. And I think that consumers unquestionably benefit when they get to choose the institution or the products 

that they think will make them better off. 

Mr. GUINTA. Do you think that Dodd-Frank regulatory changes 

negatively affected community financial institutions’ ability to offer 

61 

products and services to consumers more than it affected larger institutions? 

Mr. ZYWICKI. Absolutely. Yes, as we have mentioned, we do see 

community banks shrinking, we see community banks retrenching 

in the products that they are offering. Some leaving very important—completely leaving very important market such as mortgages, simply because they can’t deal with the regulatory costs associated with Dodd-Frank. 

Mr. GUINTA. And since Dodd-Frank has been implemented, has 

consumer choice increased or decreased in products or services? 

Mr. ZYWICKI. Consumer choices unquestionably decreased, and I 

must disagree with the Congressman from Massachusetts, Congressman Capuano, who started to ridicule the idea that consumers 

are now paying—the consumers who have lost access to free checking are paying higher bank fees. 

We are talking about a million people who lost bank accounts because now they have to pay for bank accounts that used to be free. 

Those are the poorest, the most vulnerable Americans who were 

thrown out of the banking system because they couldn’t afford to 

pay the higher accounts. 

And whether it is higher rates on credit, less access to credit 

cards, less access to mortgages, or less access to home equity loans, 

across-the-board, we have seen consumer choice restricted and 

prices have gone up and consumers have been made worse off as 

a result. 

Mr. GUINTA. The gentleman from Massachusetts and I have 

similar districts in terms of some of the characterizations and categories of people we represent. I am from Manchester, New Hampshire, the State’s largest City. I used to be mayor—110,000, 

115,000 people, average median income, family income about 

$54,000. 

You go to the south end of Manchester, and you ask somebody, are they happy by paying $5 to $10 per month for the privilege of 

banking with their institution that they had banked with for the 

last 15 years, they would say arguably, no. But it is not just that 

issue, and this is where I think we have differences of opinion 

amongst the panel and the members of this committee. 

I look at cost of living, I look at the cost of groceries, I look at 

the cost of home heating oil. I look at the cost to do banking. I add 

those up, and I look to the people I represent who are struggling 

in this economy. It was mentioned that there is a 5.3 percent unemployment rate, that is true. But the average weekly wage in this 

country has not increased dramatically from 2008 to today—and I 

see my time has expired. I would like to recognize Mr. Mulvaney 

for 5 minutes. 

Mr. MULVANEY. Do you want to go vote? 

Mr. GUINTA. Yes. 

Mr. MULVANEY. Okay. Do you want me to sit over there or are 

you going to do that? 

Mr. GUINTA. I would invite you to take over as the Chair. 

Mr. MULVANEY [presiding]. Okay. Gentlemen, thank you very 

much, and I recognize myself for 5 minutes. 

Thank you for doing this, I know it has been a long day, and I 

know at least some of you been here enough to know how this 

62 

works. But for those of you who have not done—I consider how 

often you have been here before. We mean no disrespect by our 

coming and going, I can promise you that. And the questions that 

you get at the end, I hope are just as important as the questions 

you get at the beginning, since Mr. Emmer and I are the ones asking them at the end. 

I wish Mr. Meeks was here because he said something earlier 

today that caught my attention about stability and about how he 

was pleased with stability in the financial services markets since 

Dodd-Frank went into place. 

That sort of got my attention, because stability can be a really 

good thing, and then too much stability can be a problem. The 

banks in Greece today are really, really stable because they are 

closed. And my guess is they won’t be nearly as stable next week 

if they open again, but stability for the sake of stability is not necessarily a good thing but it is certainly something to pursue. 

And with that in mind, Dr. Calabria, you and I have talked in 

the past about other ways to get to stability, that if the goal of 

Dodd-Frank was to bring stability to the market to make sure 

banks could not fail or weren’t too-big-to-fail, or all the rhetoric we 

have heard, there are other ways to do that, which might be much, 

much simpler. And that would be to simply require banks to hold 

a higher level of capital. Would you like to talk to about that for 

a few minutes, sir? 

Mr. CALABRIA. Absolutely. I think we can have at the same time 

stronger regulation that is simpler regulation. And capital certainly 

is very much the regard—earlier, some comments were made about 

the Basel system of capital, and I would actually suggest that the 

United States just pull out. I think Basel has been a disaster, and 

the complexity does not work very well. 

I will note for the committee that for instance, probably Citibank, 

the most troubled bank during the crisis, its tier one risk-weighted 

capital never fell below 8 percent during the crisis. So that tells 

you that either something is wrong with our system of capital or 

maybe we didn’t need the TARP and all these things anyhow, or 

both rather. 

So I do think we need a simpler system and I think simpler does 

not mean weaker. I think that simpler could be stronger. And I do 

think we can get rid of a lot of the unnecessary costly regulations 

while actually having regulations that make us stronger. 

Mr. MULVANEY. There were things that discussed with one of 

your predecessors of Cato was this concept of the simpler system 

that will require a much higher level of capital. You can opt in or 

out. If you wanted to operate as a traditional bank, you wanted to 

have proprietary training, you wanted to do all the things that the 

Goldman Sachs of the world do. And if you want to maintain your 

6 or 10 percent capital, that is fine. And that option might be available to you. 

But if you wanted to be a community bank, and you didn’t want 

to deal with derivatives and interconnectivity, all you wanted to do 

was lend money so people in your neighborhood could buy cars and 

houses, maybe there could be a different system that would be set 

up for you at a higher level of capital. Do you have any thoughts 

as to what that level might be? 

63 

Mr. CALABRIA. So, and again, I would emphasize the need—I 

think that first of all it cannot be something that is risk-weighted, 

because I think that minimizes the transparency, it has to be a 

pure simple leverage ratio. I think something in the neighborhood 

at 15, 17 percent is something that will get you a tremendous 

amount of stability. 

I will emphasize in my opinion the tradeoff should not simply 

be—you hold 15, 17 and you get out of Dodd-Frank, it needs to be 

broader than that. I think there is a tremendous amount of costly 

regulations that predate Dodd-Frank— 

Mr. MULVANEY. But there are certain things that immediately 

will become surplusage if I had 15 percent capital, right? Such as 

what? 

Mr. CALABRIA. Absolutely. Some of the examination process, certainly, you want to make sure the capital is real, but I do think 

you can give some differences for institutions in terms of safety and 

soundness prudential regulations because ultimately what we want 

to have is that the bank’s owners have their money at risk. And 

I think that is what we want to substitute for. 

Mr. MULVANEY. Fair enough. Mr. Silvers, I am going to take advantage of the fact that I am here and nobody else is, which is a 

lot of fun. What do you think of that? It is probably the first you 

have heard of it. What are your thoughts? And again, I am committing a cardinal sin here, I am asking a question that I don’t know 

the answer to. But I would be curious to know what the Democrat 

witness thinks of, basically that kind of idea. I’m not asking you 

to support it or oppose it, I’m just curious as to your thoughts. 

Mr. SILVERS. Congressman Mulvaney, I have heard similar ideas, 

but I haven’t heard Dr. Calabria’s version. I think that in general, 

the basic notion that a straight capital test, that is not risk-weighted, it is a very important and good idea. It is a real problem in the 

Basel system that they keep going—that they keep going back to 

risk-weighted capital tests that allow for game playing in various 

ways. And that when you look at the straight capital test, it is very 

low. 

Mr. MULVANEY. And for lay people, which includes me, the risk 

weighting bias might for example encourage banks to hold sovereign debt versus corporate, is that right? 

Mr. SILVERS. It could encourage any number of things you might 

not want to encourage. 

Mr. MULVANEY. Okay. 

Mr. SILVERS. And it presumes something that—it has turned out 

not to be true over and over again which is that those particular 

regulators are good at picking what is risky and what isn’t. 

The question of whether or not you could do that with community—it is a kind of—you have heard me before talk about GlassSteagall—you are proposing a kind of Glass-Steagall. Meaning that 

you are proposing a different set of regulations and a different set 

of capital requirements depending on whether banks are active in 

the securities markets, derivatives markets, and various other exotic things. 

So I am inherently sympathetic to that. The caveat I would offer 

to you is this, during the subprime bubble, a lot of the loans that 

were made were actually not made by the banks that were financVerDate Nov 24 2008 17:11 Oct 26, 2016 Jkt 097151 PO 00000 Frm 00067 Fmt 6633 Sfmt 6633 K:\DOCS\97151.TXT TERI
64 

ing them. They were made by smaller institutions, generally nonbanks that were conduits. 

The main issue with a different regime for small banks is that 

question, are they going to be conduits for big things, that are 

going to move through without reference to capital. And thereby be 

vehicles for—what I would be concerned about is vehicles for exploiting consumers in various ways as turned out during the 

subprime crisis. That is the kind of thing you have to watch out 

for in these types of ideas. 

The notion that we should have banks to do the business of providing credit to businesses and consumers, and banks that play in 

secondary markets and they should have different rules perhaps 

different capital requirements, and that it should matter what the 

size is, I agree with all of that. 

Mr. MULVANEY. That is interesting. I wish you were here yesterday. We just had a hearing on the SIFI designation of bright-line 

rule of $50 billion, and it would have been interesting to have that 

insight. 

Mr. SILVERS. If you don’t mind, I would be happy to say something about that. A lot of the discussion about SIFIs it seems to 

me, you really don’t want—you want the ability to look at what— 

what firms are actually doing. So that for example, the discussion 

that all mutual funds are not systemically significant doesn’t match 

what happened in 2008. 

It is very clear that money market mutual funds are systemically 

significant. The same thing is true with insurance companies. If 

you have a pure life insurance company, the odds that it is going 

to be systemically significant may not be very great, but on the 

other hand, if you have an entity on the side here that is dealing 

in derivatives very extensively, that is a subsidiary of an insurance 

holding company which was AIG, that can be a very, very dangerous thing, as we learned. 

The $50 billion—in my view, the $50 billion test is—it is certainly the case that institutions that have more than 50—that have 

$50 billion in assets can, depending on what they are doing could 

be systemically significant. 

Mr. MULVANEY. But the simple fact they are $50 billion doesn’t 

make them so. 

Mr. SILVERS. I am not convinced that is the right number, but 

I will tell you this, I am definitely convinced that saying that by 

definition mutual funds are or insurance companies are not systemically significant, that is a mistake. 

Mr. MULVANEY. Gentlemen, just to show you who actually runs 

the place, I am the only Member of Congress here and I am being 

told by staff on both sides that I have to stop now. 

And I will respect it because it comes from the Democrat staff— 

if it was coming from these folks I would ignore them. But I will 

close by saying this. Dr. Calabria and Mr. Silvers, the other gentleman, I am sorry I didn’t get a chance to ask you gentlemen the 

same question because I would be curious to know what your 

thoughts are. 

But Mr. Hill, Mr. Schweikert, and I have a bill that at least 

starts to try and begin a conversation about an alternative banking 

65 

system, something that would operate outside of Dodd-Frank and 

be different for different types of banks, smaller, simpler banks. 

And don’t be surprised if you get something from our offices in 

the next couple of days to ask you to weigh in on that because I 

am very curious to know what a lot of folks think about it. So I 

appreciate your time. 

With that, we are going to recess for a few minutes. The second 

vote has not started yet. So my guess is as soon as the second vote 

starts, you will see people starting to trickle back in. I cannot 

imagine we will be in recess longer than 10 minutes. 

So if you gentlemen would like to take a break, this is a really 

good time, and we will stay in recess for approximately—until, let’s 

call it 2:00. Thanks, gentlemen. 

[recess] 

Chairman HENSARLING. The hearing will come to order. 

I recognize the gentleman from Minnesota, Mr. Emmer. 

Mr. EMMER. Thank you, Mr. Chairman, and thanks to the panel 

for your patience in being here. In the short time, there are just 

a couple of areas I want to cover which have been covered in some 

respects today. 

But I just want to make it clear because I have some things from 

my district that I want to share with you. Why don’t we do—Mr. 

Zywicki if you would, I think others have already given this testimony but could you just confirm? Do you believe that Dodd-Frank 

is actually harming the ability of financial institutions to make 

loans and offer credit to people in businesses? 

Mr. ZYWICKI. Absolutely, yes. 

Mr. EMMER. And does this include minority-owned businesses? 

Mr. ZYWICKI. Yes. 

Mr. EMMER. In fact, would you agree that Dodd-Frank is having 

a disproportionately negative impact on Americans of modest 

means in minority communities? 

Mr. ZYWICKI. Absolutely. And we see that especially with the disappearance of free checking. Upper-middle-class people, for instance, haven’t really noticed that. But it is low-income people who 

are the ones who can’t afford these fees, who can’t afford the higher 

minimum monthly balances to be able to get free checking. 

They are the ones who are losing it. It is also these same people 

who have lost access to credit cards over the past years. It is the 

same people who can’t get access to mortgages. Disproportionately, 

it is lower income people who are bearing the brunt of Dodd-Frank. 

Mr. EMMER. I am going to quote, there are a couple of CEOs— 

the Goldman Sachs CEO has said, ‘‘More intense regulatory and 

technology requirements have raised the barriers to entry higher 

than at any other time in modern history. This is an expensive 

business to be in if you don’t have the market share in scale. Consider the numbers of business exits that have been announced by 

our peers as they reassessed their competitive position and relative 

returns.’’ 

And then JPMorgan Chase’s CEO has referred to the post-crisis 

regulatory regime as creating a ‘‘bigger moat that protects his bank 

and other too-big-to-fail firms from competition by new entrance in 

small firms that cannot internalize the cost of the Dodd-Frank regulatory requirement.’’ 

66 

Dr. Calabria, we have met, I apologize for butchering your name. 

Do you agree with these CEOs? 

Mr. CALABRIA. First of all, I think the evidence is pretty clear 

that concentration has increased and I think this always has to be 

a concern, so on one hand, regulation always bears a little heavier 

on smaller institutions. 

But I think it is also important to keep in mind that a lot of 

these regulations are essentially intended to be barriers to entry. 

And so, I do think we have to ask the question, are the institutions 

that are essentially kept out of the market—the good or the bad 

players. So I do think that—I guess, I should emphasize too, you 

will know coming from Econ 101, you reduce competition, you have 

to end up having higher prices for consumers. 

Mr. EMMER. Right. And basically, what they are telling us is that 

the bigger guys are able to survive; it is the smaller ones who are 

taking on these increased costs created by this extreme regulatory 

environment are suffering. 

And I am going to give you a couple for the record. In my district, this is from a banker who will remain anonymous, ‘‘We are 

a small community bank with three locations, compliance has always been a cost. This is just a part of our business. 

‘‘However, since Dodd-Frank this cost has expanded greatly. For 

example, within the last year, we had to hire a full-time compliance director at a cost of $60,000 plus benefits, and this is in addition to training two outside compliance firms, one assists our staff 

with deposit compliance and one with the loan compliance at an 

annual cost of about $40,000 per year. 

‘‘In addition to this, we have several members of our staff whose 

jobs have changed, so that instead spending time on revenue-generating activities, they are spending time on compliance. Unfortunately, since there is no offsetting revenue for this expanding cost, 

we are forced to consider passing the cost on to our customers with 

additional fees.’’ 

It is also changing the way they do business. And the credit that 

they can offer to start-up businesses and consumers who are trying 

to buy their first home or buy an automobile. 

In my last couple of seconds, Dr. Calabria, again, the Office of 

Financial Research and the Financial Stability Oversight Council 

are funded through assessments on bank holding companies. Effectively, this means that Congress has no appropriation mechanism 

to perform necessary oversight over these agencies. Do you think 

it would be wise for Congress to have more oversight of OFR and 

FSOC? 

Mr. CALABRIA. Absolutely. I am of the opinion that every single 

Federal agency out there should be part of the appropriations process. 

Mr. EMMER. Anybody disagree? Mr. Atkins? 

Mr. ATKINS. Not at all. I agree with you 100 percent. 

Mr. EMMER. All right. I see my time has expired. I yield back, 

Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

Currently, there are no other Members remaining in the queue, 

thus, I would like to thank our witnesses for your testimony today. 

67 

And again, I thank you for your patience with the schedule of Floor 

votes today. 

The Chair notes that some Members may have additional questions for this panel, which they may wish to submit in writing. 

Without objection, the hearing record will remain open for 5 legislative days for Members to submit written questions to these witnesses and to place their responses in the record. Also, without objection, Members will have 5 legislative days to submit extraneous 

materials to the Chair for inclusion in the record. 

This hearing stands adjourned. 

[Whereupon, at 2:15 p.m., the hearing was adjourned.] 

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A P P E N D I X 

July 9, 2015 

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