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THE ANNUAL TESTIMONY OF THE 

SECRETARY OF THE TREASURY ON 

THE STATE OF THE INTERNATIONAL 

FINANCIAL SYSTEM 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

SECOND SESSION 

MAY 8, 2014 

Printed for the use of the Committee on Financial Services 

Serial No. 113–78 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

GARY G. MILLER, California, Vice Chairman 

SPENCER BACHUS, Alabama, Chairman 

Emeritus 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SHELLEY MOORE CAPITO, West Virginia 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

PATRICK T. MCHENRY, North Carolina 

JOHN CAMPBELL, California 

MICHELE BACHMANN, Minnesota 

KEVIN McCARTHY, California 

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 

TOM COTTON, Arkansas 

KEITH J. ROTHFUS, Pennsylvania 

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 

CAROLYN MCCARTHY, New York 

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 

GARY C. PETERS, Michigan 

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 

STEVEN HORSFORD, Nevada 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

May 8, 2014 ....................................................................................................... 1 

Appendix: 

May 8, 2014 ....................................................................................................... 45 

WITNESSES 

THURSDAY, MAY 8, 2014 

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury ...................... 6 

APPENDIX 

Prepared statements: 

Lew, Hon. Jacob J. ........................................................................................... 46 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Lew, Hon. Jacob J.: 

Written responses to questions for the record submitted by Chairman 

Hensarling and Representatives Duffy, Hinojosa, Hultgren, Moore, 

Posey, and Ross ............................................................................................. 57 

(1) 

THE ANNUAL TESTIMONY OF THE 

SECRETARY OF THE TREASURY ON 

THE STATE OF THE INTERNATIONAL 

FINANCIAL SYSTEM 

Thursday, May 8, 2014 

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The committee met, pursuant to notice, at 10:03 a.m., in room 

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

Members present: Representatives Hensarling, Royce, Capito, 

Garrett, Neugebauer, McHenry, Campbell, Pearce, Posey, 

Fitzpatrick, Luetkemeyer, Huizenga, Hurt, Stutzman, Mulvaney, 

Hultgren, Pittenger, Barr, Cotton, Rothfus; Waters, Maloney, 

Velazquez, Sherman, Meeks, Hinojosa, Clay, McCarthy of New 

York, Lynch, Green, Moore, Ellison, Carney, Foster, Kildee, 

Delaney, Sinema, Beatty, Heck, and Horsford. 

Chairman HENSARLING. The committee will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the committee at any time. This hearing is for the purpose of receiving the Secretary of the Treasury’s annual report on the state 

of the international finance system. 

I now recognize myself for 5 minutes to give an opening statement. 

Secretary Lew, we welcome you back to the committee. We trust 

that your testimony on the state of the international finance system will prove insightful and forthright. 

I would note that on his very first day in office, President Obama 

declared his Administration would be, and I quote, ‘‘the most open 

and transparent in history.’’ The President pledged a ‘‘new era,’’ 

and an ‘‘unprecedented level of openness across the massive Federal Government.’’ 

Regrettably, the American people have instead witnessed what 

Time Magazine recently described as ‘‘the most secretive presidency in American history,’’ an Administration that has ‘‘censored 

more documents and delayed or denied access to more government 

files than ever before.’’ Again, the source is Time Magazine, not 

Tea Party Monthly—Time Magazine. 

From matters surrounding the IRS, to Obamacare, to Benghazi, 

this Administration has refused to be accountable to the American 

people and their elected Representatives in the United States ConVerDate Nov 24 2008 17:38 Feb 06, 2015 Jkt 088540 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\88540.TXT TERRI
2 

gress, a co-equal branch of Government enshrined in Article I of 

our Constitution. 

Too often the Administration has obfuscated answers, delayed 

answers, or refused to provide answers, a pattern that is seen 

throughout the Administration. To focus a moment on Treasury, 

the Center for Effective Government released a report card a few 

weeks ago grading Federal agencies on their implementation of the 

Freedom of Information Act. No agency in what is supposed to be 

history’s ‘‘most open and transparent’’ received an A. The Treasury 

Department received a D, but in fairness to the Secretary, several 

agencies received an F. 

This is not a surprise to many of us since requests for information from this committee unfortunately are too often ignored or delayed or, Mr. Secretary, produced on the eve of your next appearance. And Mr. Secretary, as you know—we know you are a busy 

man, but appearances before our committee have proven challenging to schedule, and during your last appearance before our 

committee, I personally asked you if this Administration had ever 

submitted a balanced budget. Twice, I did not receive an answer. 

Also, in your last appearance before our committee, Mr. Garrett 

asked you if the Volcker Rule would have a negative impact on the 

corporate bond market. Three times you declined to answer that 

question. Mr. McHenry asked you whether Treasury had ever 

sought a legal opinion on debt payment prioritization. In that case, 

you did not answer four separate times. 

Mr. Secretary, when it comes to my questioning I want to be fair, 

but I would like an answer. I would be happy to give you a moment 

to put it in context, but I would respectfully request, again, that 

questions that are put to you are answered. 

Mr. Secretary, with respect to scheduling, we know that you have 

recently had surgery. We are glad that you are recovering. I think 

most of us have said that both privately and publicly. 

And we are certainly not unsympathetic to the havoc that 

wreaked on your schedule. But I do note that press reports indicate 

that subsequent to your return to work, you did manage to schedule 2 full days of appearances in Detroit, 2 full days of meetings 

at the World Bank. 

Today we are grateful, but we also know that you are only going 

to schedule 2 hours this month for a statutorily required appearance before our committee—a statutorily required appearance that 

is now 2 months late and comes on the heels of the last statutory 

appearance before the committee, which was 9 months late. As we 

both know, your next statutory appearance is scheduled next 

month. I would respectfully request that you prioritize the appearance and schedule sufficient time to answer all Member questions. 

Briefly, let me turn to the state of the international finance system. On the important matter of increased taxpayer commitment 

to the IMF, I feel again, the Administration was somewhat less 

than open and transparent. 

The fact that the IMF is moving forward with a package for the 

Ukraine without the quota increase would seem to belie the Administration’s claim that the increase was essential to the IMF’s 

ability to render effective assistance to Ukraine. I am sure we will 

hear more from the Secretary on that matter. 

3 

And as I gaze to my left and my right, looking at the national 

debt clock spinning out of control, I again wonder about the wisdom of effectively converting an emergency commitment to the IMF 

to a permanent one. And when I hear of proffered reforms, a robust 

exceptional access framework appears to be lacking, and it begs the 

question of whether on a go-forward basis, the reforms that have 

been proffered will lead the IMF to exacerbate or mitigate global 

bailout mentality. I believe Chairman Campbell will have more to 

say on this subject in his opening comments and in his questions. 

Again, Mr. Secretary, we do welcome you back here. We wish you 

a continued good recovery. We look forward to having you back 

next month, at which time we hope you will be able to stay longer 

and catch up on your schedule. 

The Chair now recognizes the ranking member for 4 minutes for 

an opening statement. 

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

Mr. Secretary, we are delighted to have you here this morning. 

And I am very pleased that despite the fact that you have only enjoyed your position for a very short period of time, the Administration continues to be successful in growing this economy. 

In the last 50 months, as you are indicating, the private sector 

has created 9.2 million jobs, and we are very pleased. Because of 

our oversight responsibilities here, we have worked hard, you have 

worked hard, and the housing market certainly is improving. 

We are very pleased about the rise in home prices and, of course, 

what is happening with our homeowners as we get out from under 

the loss of wealth that we had been experiencing following the recession. Now, we have so many homes that are no longer underwater. 

However, today this hearing is supposed to deal with concerns 

about what is happening in the international community. So I 

would like to move quickly to talk a little bit about the IMF. 

I had hoped that by this point we would have ratified the IMF 

quota reforms that modernize the IMF to take account of rapid 

changes in the global economy. As you are well aware, these reforms were negotiated by the Bush Administration and completed 

in 2010 by President Obama. And despite repeated efforts by this 

Administration to secure their passage, they continue to languish 

here under the Republican-controlled House. 

Negotiated in 2008 by the Bush Administration and completed in 

2010 by President Obama, the reforms would modernize the IMF 

to take account of rapid changes in the global economy. But despite 

the benefits these reforms would entail, House Republicans already 

this year rejected two efforts by the Administration to attach to 

larger measures legislative language that would authorize U.S. 

participation in the reform package. 

The 2010 agreement would double the IMF’s general resources to 

ensure the emergency lender has enough firepower to respond to 

crisis hitting its members. It would also update the governing 

structure, how the IMF’s voting power is distributed among members, to reflect a global economy in which emerging markets are 

now major growth drivers and some European countries have lost 

their economic might. 

4 

These reforms are an essential first step to maintain the IMF’s 

legitimacy in a volatile world. But none of this will happen until 

the United States has approved its new quota, which would require 

a shift in U.S. funds, not new financial commitment. 

In my view, depriving it of the resources to combat future global 

market crises would directly undercut the U.S. national interest. 

Growth remains below potential in most regions, including in major 

markets for the United States, and unemployment in many countries remains at historic highs, with the number of long-term jobless still growing. If these crises are not solved soon, an entire generation could be blighted. 

Global stability is ultimately nurtured through trust in international institutions that resolve issues through cooperation rather 

than economic or political dominance. Should the IMF reforms continue to be delayed, what is at risk is the trust that is key to the 

stability of the international system. 

I see that my time has expired, so I yield back. And thank you 

very much. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from California, Mr. Campbell, the Chair of our Monetary Policy 

and Trade Subcommittee, for 3 minutes. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

And thank you for coming, Mr. Secretary. 

As you know, I and the majority of this committee opposed the 

2010 agreement that was made by the Administration, made almost 4 years ago now. But there are three points I want to—you 

and I have discussed and debated that opposition both publicly and 

privately. 

There are three points I would like to make in my 3 minutes 

about that opposition. Point one: Please don’t confuse the opposition to the agreement with opposition to the IMF or the United 

States’ leadership role in the IMF. The IMF serves a very important purpose worldwide for stability of economies around the world 

and the world economy generally, and the United States’ leadership role in it has been important, has been critical, and is a leadership role which we should not abdicate and from which we 

should not step back. 

So please understand and don’t confuse, just because we don’t 

agree with the agreement that was made 4 years ago doesn’t mean 

that we are against the U.S. involvement in, leadership of, or the 

mission of the IMF. We are not. 

That being said, here is what we don’t agree with: We don’t believe that the IMF, in order to achieve that mission, needs any 

more taxpayer money. Now I know your belief is, and I am sure 

you will say in your opening remarks, that it is not additional taxpayer money because it has already been put in an account, the 

NAB account, with the IMF. I get that. But we can rescind that. 

That is not a permanent commitment at this point. 

In fact, we could introduce a bill tomorrow to rescind about $60 

billion of that and bring that money back. And that is what I think 

we ought to do is we ought to be bringing that money back, because 

the IMF has over $200 billion in forward-lending authority. It does 

not need any additional U.S. taxpayer funds to accomplish its mission and accomplish its role. 

5 

Third, the reforms in the 2010 agreement are a step forward. 

They are positive. No disagreement there. But they don’t go far 

enough. 

Even with those reforms—and consider that they were made 4 

years ago. We have had the euro crisis since then. There has been 

a lot of change in the world—the Ukrainian issue, all of these other 

changes that have happened just in these last 4 years. Even after 

those reforms, the IMF is still too euro-centric and still does not 

have enough controls to make sure that we are not encouraging 

countries to take on too much debt because the IMF will take care 

of it at some point later. 

It is not that the reforms in the 2010 agreement go too far; it 

is that they don’t go far enough. What we believe we need is more 

reforms and less U.S. taxpayer dollars to assure our leadership in 

and the role of the IMF in the future. I look forward to discussing 

this further in our questions. 

Thank you. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Minnesota, Mr. Ellison, for 1 minute. 

Mr. ELLISON. Thank you, Chairman Hensarling, and Ranking 

Member Waters. 

And welcome back to the committee, Secretary Lew. 

I regret that I have to leave early today. A dear friend of mine, 

and of this whole country, has gone to his reward, and so I am 

going to go attend Congressman Oberstar’s services. 

But I just wanted to say that I am committed to preserving and 

expanding the remittances lifeline to Somalia. I want to continue 

to enlist the Treasury Department in seeking solutions to improve 

the lives of all people abroad who need and rely on remittances 

from our country. And together I think we can make Somalia—and 

other countries—a stronger nation, a more secure nation, and a 

better partner for the United States by improving the flow of remittances and providing technical assistance to help Somalia set up a 

world-class banking system that will withstand scrutiny and can 

push away terrorist financing. 

On Tuesday, we passed the Money Remittances Improvement 

Act. That is great. And the language of the bill granted authority 

that the Treasury sought, and so thank you. 

That is all I have today. Farewell. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Clay, the ranking member of our Monetary Policy and Trade Subcommittee, for 3 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And thank you, Secretary Lew, for your attendance today. 

The IMF was created post-World War II at the Bretton Woods 

Conference. The goal of the IMF is to create a cooperative and institutional framework for the global economy that would facilitate 

international trade and balance global economics to build and grow. 

The Bretton Wood Act required congressional authorization to 

change the U.S. quota of shares in the fund or for the United 

States to vote to amend the articles of agreement of the IMF or the 

World Bank. Thus Congress has veto power over major decisions 

6 

of both institutions. In regards to voting power, the United States 

is the only country able to unilaterally veto major IMF decisions. 

Recently, Congress passed the Ukraine bill, which provides close 

to $1 billion in guarantees, and imposes sanctions on Russia. 

As stated to you this past December, an earthquake devastated 

Haiti on January the 13, 2010, leaving millions homeless. In the 

wake of the disaster the American people and the global community rallied to provide relief to the Haitian people. As the Center 

for Economic and Policy Research points out in a report, despite 

billions of dollars pledged to build back a better Haiti, more than 

350,000 Haitians remain internally displaced and it is unclear 

what sustainable impact our funds have had. 

Mr. Secretary, can you give members of this committee a 

progress report? You stated to me and this committee that you 

would, and as of today this committee has not received this information. 

One problem that the IMF faces with the American public is perception. Most Americans ask, ‘‘Why should the U.S. Government 

spend money on the IMF?’’ after looking at the current situation 

in Haiti. Most Americans believe if the U.S. Government, through 

the IMF, cannot get it right in Haiti, which is a few hundred miles 

from the coast of Florida, how can they get it right in Ukraine, 

which is on the other side of the world? 

Mr. Secretary, I am looking for answers and hopefully you can 

provide them today. We wrote you and inquired about this in December and have not heard back from you, so I am looking for your 

response. 

Thank you very much. 

I yield back, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

Today, we welcome the Honorable Jacob Lew, U.S. Secretary of 

the Treasury, to our committee today. He has previously, as you 

know, testified before our committee, so I believe he needs no further introduction. 

Without objection, Secretary Lew’s written statement will be 

made a part of the record. 

Mr. Secretary, I would request that you give a brief presentation 

orally of your written testimony, given the limitation of your scheduling. 

Again, Mr. Secretary, welcome. You are now recognized for your 

statement. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Chairman Hensarling, Ranking Member Waters, 

and members of the committee, thank you for the opportunity to 

testify today. I appreciate your cooperation in rescheduling this 

hearing, and I will keep my opening remarks brief to permit maximum time for questions. 

Because of the grit and determination of the American people, 

the United States economy has experienced nearly 5 years of 

growth. Our businesses have created 9.2 million jobs over the last 

50 months. Our deficits have also been cut by more than half. 

7 

Still, we need to keep our focus on actions that can help accelerate growth, create jobs, and expand opportunity, as last week’s 

advanced report of GDP showed. 

One of the most cost-effective ways to confront our economic 

challenges is with our investments in the international financial institutions. These institutions, which include the International Monetary Fund and the multilateral development banks, promote a 

more stable global economy while also protecting our national security and advancing our values and interests around the world. 

The World Bank and other multilateral development banks are 

critical to our economy, and the testimony I submitted lays out in 

detail how they help unlock export markets, foster opportunities for 

American businesses, and create jobs in the United States. Yet, 

given the heightened attention on Europe right now, I am going to 

use the remainder of my time to talk about what is happening in 

Ukraine and the significance of the International Monetary Fund. 

I know everyone here wants to do everything possible to address 

the crisis in Ukraine, and we have taken significant steps unilaterally and with our international partners to promote stability, especially with the Ukrainian elections happening later this month. 

As part of our response, we have coordinated a global effort to 

impose serious economic costs on Russia and hold accountable 

those who have violated Ukraine’s sovereignty and territorial integrity. 

As President Putin has admitted, our sanctions have caused additional damage to Russia’s already weak economy. Consider that 

the ruble has fallen to near all-time lows, Russian stocks this year 

have dropped significantly, and investors are fleeing Russian markets. 

The IMF forecasts that $100 billion in investment will exit Russia this year, and Russia has already slipped into recession. At the 

same time, Russian companies are finding it harder to get capital, 

and Russia’s credit rating was recently downgraded to just above 

junk status. 

Our strategy has been to move in a systematic and targeted way, 

and we urge Russia to pursue a diplomatic solution to this situation. Should Russia continue its unlawful and provocative acts, we 

have a range of tools at our disposal including sanctions that would 

target companies in certain important sectors of the Russian economy. 

Now as we stand with the Ukrainian people during this critical 

time, it is essential that Congress pass the 2010 IMF quota reforms. The $1 billion in loan guarantees that we are providing 

Ukraine is an important step, but our bilateral assistance, while 

important, is not enough. The IMF approved a very important assistance program for Ukraine just last week, and only the IMF has 

the capacity to provide the full sweep of financial and technical 

support that Ukraine requires and will continue to require for the 

foreseeable future. 

The IMF is the world’s first responder in a crisis of this kind and 

is the one institution with a proven track record of helping countries like Ukraine implement market-based restructuring and restore growth. 

8 

Prominent business leaders, Members of Congress, and former 

senior Administration officials of both parties have affirmed that 

passage of the 2010 IMF quota reforms is critical to the United 

States. Blocking these reforms threatens our leadership position in 

the IMF and undermines our international credibility. 

Passing them, though, is a win-win for the United States. These 

reforms do not require us to commit one new dollar to the IMF, 

and they will allow us to maintain our strong influence within this 

institution. 

At this time of geopolitical uncertainty, it is critical that we continue to demonstrate our longstanding bipartisan commitment to 

American leadership in the world and the important role that the 

IMF plays in containing economic crises. 

With that, let me thank you for the opportunity to appear before 

you today, and I look forward to answering your questions. 

[The prepared statement of Secretary Lew can be found on page 

46 of the appendix.] 

Chairman HENSARLING. Thank you, Mr. Secretary. 

The Chair yields himself 5 minutes for questions. I want to start 

off my line of questioning dealing with the Financial Stability 

Oversight Council (FSOC) and its interaction with the G-20’s Financial Stability Board. There is bipartisan concern about the—if 

you will, the who, what, where, when, and why of designating 

nonbank financial institutions as systemically important financial 

institutions (SIFIs), which, as you know, can have huge, not just 

domestic but global, implications for the financial system and the 

economy. 

So, Treasury is one of the members of the G-20’s Financial Stability Board, which has designated at least three U.S. insurance 

companies now as global SIFIs: MetLife; Prudential; and AIG. Correct? 

Secretary LEW. That is correct. 

Chairman HENSARLING. And as part of that process, did Treasury approve of that global SIFI designation? 

Secretary LEW. Mr. Chairman, I think it is important to put the 

FSB and FSOC responsibilities in context. 

Chairman HENSARLING. Mr. Secretary, again, I am happy to give 

you time to give the context, but could we get the answer first and 

then the context? Because sometimes I fear I get the context; I 

don’t get the answer— 

Secretary LEW. Mr. Chairman, the FSB is a group that acts by 

consensus, and it does not make rules for any of the national governments. Each of our national authorities makes our own rules, 

and only the FSOC can designate with the effect of that designation having real meaning in terms of what happens afterwards. 

Chairman HENSARLING. Allow me to ask it this way then: Did 

Treasury consent in the designations? 

Secretary LEW. Mr. Chairman, the process is a consensual process. Ever country has its own ability to make its own decisions for 

itself. 

Chairman HENSARLING. I understand that, Mr. Secretary. 

Secretary LEW. And the process— 

Chairman HENSARLING. So is the answer yes, that Treasury consented, or did Treasury object? 

9 

Secretary LEW. Mr. Chairman, what I am—the point I am trying 

to make is that the designation that has an effect is the FSOC designation. We have not made a determination with regard to one of 

the companies— 

Chairman HENSARLING. I understand that. 

Secretary LEW. —with regard to others. Any decision that we 

make will be guided by the process in the FSOC, where we consider very carefully all the evidence, and ultimately, the case made 

by each firm. 

Chairman HENSARLING. Let me try it one more time: Did Treasury consent or object to the designation by the Financial Stability 

Board of designating AIG, MetLife, and Prudential as global SIFIs? 

Secretary LEW. Mr. Chairman, it is not a vote; it is a consensus 

decision made in the FSB. 

Chairman HENSARLING. I sense, Mr. Secretary, we are just not 

going to see eye-to-eye— 

Secretary LEW. Yes, I— 

Chairman HENSARLING. —on what an answer to a question is— 

Secretary LEW. I think the real— 

Chairman HENSARLING. —but let me move on with the limited 

time that I have. 

Secretary LEW. But if I could just— 

Chairman HENSARLING. Please. 

Secretary LEW. —make one other point, Mr. Chairman. 

The process by which these designations are made is one where 

FSOC goes through very substantial analysis. It is never the case 

that you start with a decision. You always make a decision based 

on the analysis of facts, and a firm has the ability to— 

Chairman HENSARLING. I understand that, Mr. Secretary. I am 

just trying to figure out what Treasury’s decision was, and you 

seemingly— 

Secretary LEW. We have not— 

Chairman HENSARLING. —won’t tell us. 

Secretary LEW. —made an FSOC decision. 

Chairman HENSARLING. I guess de facto, there was consent. But 

I don’t understand why it is so difficult to admit it in open testimony if that is what happened. 

Secretary LEW. The place where Treasury will make a decision 

on whether or not to designate a firm is in the FSOC. 

Chairman HENSARLING. Okay, well the question is, then, to what 

extent is FSOC following the lead or the direction of the Financial 

Stability Board, since shortly after participating in the Financial 

Stability Board’s proceedings, FSOC designated at least two of the 

nonbank insurance companies as SIFIs, correct? 

Secretary LEW. Those processes were well under way at FSOC at 

that point. They were made independent of the decision made at 

the FSB based on the analysis in— 

Chairman HENSARLING. How are they independent if you have 

already sat through one set of proceedings? So you are saying that 

one set of proceedings had nothing to do with the other set of proceedings? 

Secretary LEW. The decisions made at the Financial—the FSB do 

not require that a national authority take an action. 

Chairman HENSARLING. No, I understand that, Mr. Secretary. 

10 

Secretary LEW. And what they do—what I was going to do by 

putting it in context is, in response to the financial crisis, what the 

FSB has become is a place where an international conversation can 

take place to try and put model approaches that lead us closer to 

doing the right thing— 

Chairman HENSARLING. I understand that, Mr. Secretary. 

Your time is limited and my time is limited at the moment, so 

let me just end with this statement. There is increasing, again, bipartisan concern about the immense discretionary power that 

FSOC has, and frankly, how little transparency it has, notwithstanding the actions taken yesterday. It has an incredible ability 

to take these nonbank institutions and effectively put them into a 

bailout position with very little transparency, with very little indication of the methodology used by which to make these decisions 

and adjudications. 

As you well know, we will have you back next month. We will 

have another hearing next month on this process. I would simply 

call upon you, as head of FSOC, to cease and desist with these designations until all of our questions can be answered fully and Congress can exercise its oversight authority over this incredible process. 

Secretary LEW. Well— 

Chairman HENSARLING. With that, I yield 5 minutes to the ranking member. 

Secretary LEW. Mr. Chairman, if I may, on the question of 

FSOC, which we will have more of an opportunity to discuss, I 

think it is important to know that the statute set it up for a purpose and FSOC is carrying out a statutory responsibility. And it 

does it with great care and great—and a process that I think has 

great integrity. 

Chairman HENSARLING. And very little transparency. 

Five minutes to the ranking member? 

Ms. WATERS. Thank you very much. 

Mr. Secretary, I really want to talk about two things here. First 

of all, in your testimony you did hit on a point that many of us 

here on our side of the aisle are particularly concerned about. Specifically, you noted that despite the growth in corporate profits, and 

all-time highs in the stock market, the poor and the middle class 

continue to struggle to make ends meet. 

Could you expand a bit on your role in promoting opportunities 

for entrepreneurship and small business? What is Treasury’s role 

in promoting ladders of opportunity? And what can Congress do to 

help you to be more effective in that mission? 

And in answering that question, could you talk a little bit about 

the Small Business Access to Capital Act? I have co-sponsored that 

with Gary Peters. This would help to create opportunities for small 

businesses by granting them access to capital they need to grow 

their businesses. I know there is some activity over in the Treasury. Could you help me out a little bit on that? 

Secretary LEW. Congresswoman, we obviously worry at large 

about the state of the economy, because growth in the economy has 

everything to do with how small businesses and—and middle-class 

families will do. But with specific regard to small business, there 

are a number of programs at Treasury that I think have been enorVerDate Nov 24 2008 17:38 Feb 06, 2015 Jkt 088540 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 K:\DOCS\88540.TXT TERRI
11 

mously helpful, and they range from the New Markets Tax Credit 

to the CDFI programs to the States Small Business Investment Initiative. 

I think if you look at these programs—and when I was in Detroit 

I got a chance to see each of these programs, the results that we 

were having. It was very important to actually see what is happening with these programs. 

The SSBCI program—there is a parts manufacturing plant in 

Detroit which is making factory replacement parts for U.S. auto 

manufacturers. Those parts would not be manufactured in the 

United States, probably, if there had not been the assistance from 

SSBCI to get the kind of financing necessary to take a plant that 

would have been a vacant and—a property that was an eyesore and 

turn it into 200 local jobs. 

So I think the act that you are describing that you have co-sponsored would reauthorize SSBCI, and we would look forward to 

working with you and the Congress to finding a path towards continuing to invest in economic growth that is generated by small 

businesses in urban and rural areas. 

Ms. WATERS. I am very appreciative of that. 

And I will be in contact with you about the New Markets Tax 

Credits. I think there needs to be a little reform there. We have 

so many of the bigger organizations or companies or businesses 

that are having the advantage of the program, but we have a lot 

of other community organizations that want to get more involved. 

So, we will talk about that more. 

This gives me an opportunity now to talk about servicing. I understand that the Financial Stability Oversight Council’s annual 

report, which came out yesterday, identified market servicing—in 

particular, nonbank market servicing—as an emerging issue that 

we should all be paying a close attention to. 

On the issue of nonbank services, the report notes that market 

servicing rights are increasingly being transferred to these companies. While the Consumer Financial Protection Bureau (CFPB) 

servicing rules apply to these companies with regard to consumer 

protection, many of these companies are not subject to prudential 

standards such as capital, liquidity, or risk management. 

Now, I am paying attention to this because in the subprime meltdown—and doing loan modifications I learned an awful lot about 

the services. I learned that many of them were not well-trained; I 

learned that many of them were involved in ways that they could 

benefit from having second liens themselves; on and on and on. 

So we are worried about this. Can you tell us what you know, 

what you understand about these services? And should we be paying attention to this report that just came out? 

Secretary LEW. Congresswoman, the reason that we highlighted 

it in the FSOC annual report is it is an area that we think warrants more attention. The CFPB plays a very important role in 

terms of the consumer protection aspect of it, but as unregulated 

entities, the questions that you pointed to in terms of capital, liquidity, and servicing capacity are very important. 

Our mortgage system only works well when payments are made 

and credited properly and the system flows. If that function were 

12 

to break down in any way, it would wreak havoc with the mortgage 

system. 

We didn’t put it in the report because we think that it is today 

a burning crisis; we put it in because the job of FSOC is to look 

ahead at what are the problems that could emerge. This is one of 

the areas which we think warrants additional attention. And I 

think it is one of the really sensible things about FSOC, which is 

that it is not made to ask what happened in the last crisis, but 

what are the things we should be worrying about as we look forward. 

Ms. WATERS. Thank you. Servicing is an extremely important 

issue. Thank you. 

I yield back. 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from California, the 

Chair of our Monetary Policy and Trade Subcommittee, Mr. Campbell, for 5 minutes. 

Mr. CAMPBELL. Thank you, Mr. Chairman. 

Back to international affairs, if we may, let’s start at the point 

of agreement. IMF is important. The United States’ leadership in 

it is important. Agreed? 

Secretary LEW. I think we agree on that. 

Mr. CAMPBELL. Okay. 

Secretary LEW. I hope we agree on that. 

Mr. CAMPBELL. All right. Very good. 

So, let’s get to the matter of the two places where we disagree, 

the first being the matter of how much capital the IMF needs to 

perform their function and how much additional U.S. taxpayer 

money. Now if I can put this in some perspective for you, one of 

the things that we will all be struggling with later this summer— 

and the Administration as well—is the bankruptcy or lack of cash 

running out of the transportation fund. 

And we could bring this money back. I understand it is scored as an investment, so if—and I understand—$100 billion went in 

there in 2009. We can’t get all $100 billion back because some of 

that money has been permanently deployed, but we can get $50 billion or $60 billion or so back, and it would score at something, 

which arguably we could use to help with this rather difficult situation that we are facing this summer. 

Are you open to discussing something different than the agreement that was made in 2010 in terms of the United States’ financial commitment to the IMF—or additional financial commitment? 

Secretary LEW. Congressman, I don’t think we get to unilaterally 

decide to reopen the 2010 agreement. The 2010 agreement is an 

international agreement. If we walk away from it, it falls apart and 

there is no agreement. So it leaves the IMF in a place where it has 

no ability to address the reform issues or to recapitalize the quota 

system. 

I actually don’t agree with your characterization of there being 

sufficient resources in the IMF if you were to withdraw the new arrangement to borrow monies. Right now, the way the IMF is planning to deal with a crisis, were a crisis to develop, would be to use 

both the quota and the NAB. We saw in 2008–2009 how quickly 

resources get called into play. 

13 

I actually don’t think that if we and other countries withdrew 

from the new arrangements to borrow and the quota reform is not 

enacted that the IMF would be properly funded to deal with a crisis. 

So I think that is a fundamental difference in terms of what the 

need is. 

Mr. CAMPBELL. And on your second point, that is a legitimate 

disagreement. You don’t know. Nobody can know for sure how 

much more they might need or what crisis would occur. 

And of course, the IMF is not the only international entity; it is 

not the only one supporting Ukraine; it is not the only one out 

there that is available. So, granted. That is simply a disagreement 

as to whether additional U.S. taxpayer money—given all the limitations we have on that these days—is best deployed in that way. 

To your first point that you made though, I agree, if we walk 

away from the 2010 deal it falls apart and there is no deal, but we 

can make a new deal, can’t we? 

Secretary LEW. The 2010 agreement was worked on for many 

years between two Administrations. It reflected a compromise 

where the United States maintained its position and Europe essentially gave up share so emerging markets could have a growing 

share. It preserved our veto power and our leadership role in the 

institution. 

I think it is a good deal for the United States. I think it is a good 

deal for the IMF. I think opening it up creates an enormous 

amount of uncertainty. 

And I actually think the point you just made about there are 

other institutions, I don’t think there is another institution. There 

is no other institution that could have provided almost $18 billion 

of support for Ukraine in the time that the IMF did. 

And that will be the foundation for Ukraine having an economically viable future and a politically stable one. 

Mr. CAMPBELL. My only point is that the E.U. came in with 

money. We came in with money directly. 

Secretary LEW. But it is all built on the IMF. 

Mr. CAMPBELL. There were other—no, I am not disagreeing with 

that. I am just saying that it doesn’t have to be 100 percent of all 

that goes in there. 

Going back to the reforms, because I have less than a minute 

here, do you agree with me—or with us up here—that ideally we 

would like those reforms to go farther than they did? 

Secretary LEW. I think that the world—you made the point in 

your opening remarks that the world has changed since 2010. I 

hear that from a lot of countries in the world who say that since 

2010, they have issues they would like to address. 

The problem is if you were to go back and address those issues 

now, I don’t know that it would get resolved in a way that is as 

constructive as 2010. It would take a very long time. And the 2010 

agreement was a good step. 

Mr. CAMPBELL. I hate to cut you off, but in my last 10 seconds, 

I would just like to leave you with this thought. We have been at 

odds on this thing. We don’t have to be at odds. I think it would 

be more constructive if we had conversations rather than just 

throw things at each other over a wall. 

14 

Secretary LEW. I agree with that. You and I have had good conversations in private on this. I have talked to dozens of Members 

of the House and the Senate on this, and I will continue to make 

myself available for those conversations any time. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. Clay, 

the ranking member of our Monetary Policy and Trade Subcommittee. 

Mr. CLAY. Thank you, Mr. Chairman. 

And, Mr. Secretary, I have just received a letter from Assistant 

Secretary Fitzpayne in response to our inquiry, a letter dated April 

9th and I am just seeing it. But I have noticed that the U.S. contribution of $120 million to the Haiti reconstruction fund, and that 

deals with housing reconstruction, rubble removal, and education. 

Do you have anything else you can update us on as far as progress? 

Secretary LEW. Congressman, we did respond, as you noted. I 

would be happy to go back and get a more detailed response. I 

think the history of providing assistance in Haiti has been very 

challenging, not just in response this round but in previous rounds. 

It is something that we have put an awful lot of effort into trying 

to make sure that the assistance we provide and that is provided 

through international financial institutions builds a foundation for 

a sustainable future for Haiti. But Haiti is a very, very difficult 

challenge. 

I think it is hard to compare countries. Haiti has a lot of unique 

characteristics. We very much want that money to be used well and 

to leave Haiti with a stable future. We look forward to working 

with you to go through the analysis of that. 

Mr. CLAY. Thank you so much. 

Let’s shift to the Ukraine. There is a perception that quite a few 

of our European partners rely on imports of fuel and natural gas 

from Russia. Talk about the effectiveness of strategy by targeting 

the inner circle of billionaires close to Vladimir Putin and what 

kind of impact that has had. 

Secretary LEW. Congressman, our strategy from the start has 

been to make clear that we were going to take decisive action. It 

would be action that they felt and that it would be indicative of our 

willingness to go further down that path should we need to. 

The sanctions that we have put in place have targeted people in 

the Russian government, some of the largest business executives in 

Russia, a bank that is the bank that many of these people who are 

close to the president of Russia bank at. And it has gotten their 

attention. 

I think that we see many indications that they are very concerned about the sanctions, that it is hurting their economy. The 

thing about sanctions that I always say, regardless of country, is 

sanctions do not change the policies of another country; sanctions 

create an environment where leaders understand the consequences 

that if they fail to change their policies, their country is going to 

be hurt. 

And I think that we have succeeded in that, and part of the reason we have succeeded is the resolve we have shown. The President 

has put in place an Executive Order that makes very clear that we 

have more tools at our disposal. 

15 

I think our cooperation with the European allies is very important. If we act alone in the world, it doesn’t have the same effect. 

If we sanction a company and somebody from another country 

comes in and does business with it, then that is back-filling the activity that we have shut down. 

So it is very important to cooperate on international lines. We 

are working with the G-7, with our European allies, and we—I do 

it with my counterparts at the finance minister level; the President 

does it with leaders; the Secretary of State does it with foreign 

ministers. 

I think we are making progress. I think the meetings that the 

President and Chancellor Merkel had last Friday reflected that, as 

did their public statements. 

Mr. CLAY. About the $1 billion loan guarantee agreement, how 

will the loan guarantee help return Ukraine to a path of economic 

recovery? 

Secretary LEW. The package that the IMF put in place, which, 

as you know, is close to $18 billion, is going to create challenges 

in the Ukrainian economy. It is going to raise gas prices; it is going 

to result in a weaker exchange rate. 

The burden needs to be borne by those who can afford to bear 

it, and the billion dollar loan guarantee in large part will be used 

to make sure that those who really can’t bear the burden have 

some recourse. 

As a matter of preserving political stability, that is very important. It is one thing to tell a company that can use gas more efficiently that it is going to be paying more for gas; it is another thing 

to tell families to shut off the heat in a cold winter. 

So I think our loan guarantee is a very important piece that fits 

in. And, the IMF is sometimes in a position where it imposes conditions that are quite difficult. The loan guarantee is meant to put 

some real funding behind easing some of the burden on the most 

vulnerable people in Ukraine. 

Mr. CLAY. Thank you, Mr. Secretary, for your response. 

Mr. Chairman, I yield back. 

Chairman HENSARLING. The Chair now recognizes the gentlelady 

from West Virginia, the Chair of our Financial Institutions Subcommittee, Mrs. Capito, for 5 minutes. 

Mrs. CAPITO. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for returning to the committee. 

You might recall that the last time you were here, in December, 

the two of us had a brief conversation about the guidance on the 

financing of coal plants by MDBs, and today I have some specific 

questions about that guidance. 

Mr. Upton and Mr. Whitfield wrote to you to gather additional 

background information about how the guidance was developed, 

and I would like to ask unanimous consent to insert the letter to 

Secretary Lew from the two Representatives into the record. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mrs. CAPITO. Yes. I believe they sent this nearly 5 months ago, 

and to this date they have not received a response from you. 

I have a couple of questions. Countries other than the United 

States provide support for coal-fired power plants overseas. For instance, China’s export-import bank recently made a $1 billion inVerDate Nov 24 2008 17:38 Feb 06, 2015 Jkt 088540 PO 00000 Frm 00019 Fmt 6633 Sfmt 6633 K:\DOCS\88540.TXT TERRI
16 

vestment in a Serbian coal plant. In many cases, don’t you feel that 

the financing from developing countries or development banks in 

countries like China simply replace our U.S. financing and cause 

developing countries to use the Chinese coal technologies and 

equipment, et cetera, rather than coal technology made in the 

United States? 

Secretary LEW. Congresswoman, we obviously have been working 

with our international partners to fashion an approach to energy 

in developing countries where we promote resources that will not 

contribute to the climate problems that we have. We have not 

made it a uniform approach. For the poorest countries, we continue 

to have an exception for coal facilities— 

Mrs. CAPITO. Have you done that? Have these MDBs participated 

in the financing of coal plants in the poor countries, to your knowledge? 

Secretary LEW. I would have to check what the approvals have 

been, but I know our position is that for the very poorest countries, 

we would support them. 

I would say that the MDBs have supported some coal projects 

that we absented ourselves from voting on, for example in Pakistan. So, there has been approval of coal projects. 

I think the challenge we have in part is, how do we put technologies in place that are truly sustainable in those environments. 

It is actually not very likely that many of the poor countries would 

be buying lots of coal from the United States. That is not where 

they are—we are not selling a lot of coal to developing countries. 

You asked the question about technologies, and I think that is 

actually the more relevant issue. 

Mrs. CAPITO. Right. 

Secretary LEW. We have a lot of technologies that we think ought 

to be in the mix of what they are buying, and we very much would 

like the mix of technologies to be one that both promotes access of 

U.S. companies to sell technology, but also clean and sustainable 

energy resources. 

Mrs. CAPITO. I think the concern is that we are dis-incenting our 

American technology to go around the world, and we are requiring 

CCS and things that are really unobtainable, particularly in an 

economic model. 

Let me ask you another question in this vein. What other Federal agencies did Treasury talk to, to develop this guidance? Was 

it EPA? Did you talk to Nettle in Morgantown, West Virginia, 

where they are doing a lot of the development of these technologies? What kind of other folks weighed in on this? 

Secretary LEW. There was an interagency discussion. I would 

have to go back and check with the participants— 

Mrs. CAPITO. Okay. I think that is part of the questions the two 

Congressmen have asked that I would like to get an answer to. 

I am going to shift gears here quickly. As Chair of the Financial 

Institutions Subcommittee, we have obviously spent a lot of time 

trying to protect and work with our community banks and credit 

unions to not put them in this one-size-fits-all. 

What kind of consideration, when you are going out into the 

international regulatory arena, are you giving to make sure that 

we are not bringing regulations from an international regime into 

17 

our country that has a totally different banking system, that we 

are asking some folks to change their business models—insurance 

companies is another example—that really doesn’t fit into this 

model? What can you tell them about that—tell us? 

Secretary LEW. Congresswoman, what I tell them is that we have 

taken great care—Congress has taken great care as it has written 

its laws and regulators have taken great care as they have implemented them to make sure that they don’t have a one-size-fits-all 

approach, that they treat community banks, where appropriate, differently, and they have been exempted from many rules and have 

special provisions put in that reflect their economic realities. 

I actually make the case in international meetings that we have 

a banking system that reaches out to all parts of our economy and 

actually makes capital available in communities to small businesses in a way that they don’t. So, I use our system as something 

of an example, because there is a real problem in Europe, for example, with access to capital by small businesses. 

Mrs. CAPITO. Well, we need to preserve that. 

Secretary LEW. We do. 

Mrs. CAPITO. And I appreciate your comments. Thank you. 

Chairman HENSARLING. The time of the gentlelady has expired. 

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

Maloney, the ranking member of our Capital Market Subcommittee. 

Mrs. MALONEY. Welcome, Secretary Lew. I want to ask you about 

the current report on terrorism risk insurance from the President’s 

working group on financial markets, which you chair. 

The report found that TRIA has been a resounding success since 

it was enacted in 2002. It has ensured that terrorism risk insurance is available and has kept prices steady and affordable. 

But the report also contains some troubling information. It found 

that, ‘‘the market currently is tightening in light of uncertainty as 

to whether TRIA will be renewed.’’ 

Based on this, would you say that Congress’ and this committee’s 

failure to swiftly reauthorize TRIA is actually harming the American economy by driving up insurance prices unnecessarily? 

Secretary LEW. Congresswoman, we strongly support the reauthorization of TRIA, and we think the sooner the better. The market has changed since the attack on the World Trade Center gave 

rise to the need for a program like this, but it hasn’t completely 

healed. 

And I think it is a real problem if there is not an extension of 

TRIA, and in our largest, most populated areas, institutions start 

having challenges getting terrorism insurance. At the time when it 

was put into effect, I had firsthand knowledge of what it meant to 

try to get terrorism insurance. I worked as chief operating officer 

for New York’s largest employer, and we didn’t have access to private insurance at the time. It was very scary. 

So I think it is important. We have to work together on this. We 

have to do it in a way that reflects the changes in the market. And 

I think the sooner we have that conversation to work on a bipartisan way to get it enacted, the better. 

Mrs. MALONEY. As we all know, and I am sure you know, too, 

it is very rare that Congress passes a bill that does exactly what 

18 

it is supposed to do and doesn’t cost the taxpayers one cent. But 

that is exactly what happened with the passage of TRIA, and it has 

been successful for over a decade. 

So my question is, based on the report from the President’s working group, do you think it is wise to make any dramatic changes 

in TRIA? 

Secretary LEW. Congresswoman, I think that reauthorizing is 

critically important. And we should look at whether or not changes 

can be agreed to that are appropriate, but reauthorizing it is the 

critical issue. And we have made clear we want to work together 

on that. 

Mrs. MALONEY. Does the private market have the capacity to 

step in if the government exits the terrorism risk insurance market? 

Secretary LEW. I think, as our report indicated, we don’t think 

that the private market would be able to fully meet the needs and 

there would be an issue of the price. It is obviously not exactly the 

same situation we had in 2001, but the need is still there. And that 

is why reauthorization is so important. 

Mrs. MALONEY. And obviously if, God forbid, we have another attack, the government will respond and be as helpful as possible. 

Wouldn’t you say that it makes all the sense in the world to have 

this framework in place in the event that you do have it? 

Secretary LEW. I think it is better to anticipate and insure 

against risks than it is to just wait until something happens and 

then there is no one, other than the government, who can step in. 

Mrs. MALONEY. Do you think increasing the trigger for that government backstop in TRIA will force small and medium-sized insurers out of the market entirely, ultimately increasing the cost to 

government? 

Secretary LEW. The question of the trigger is one that I would 

be happy to look at in detail. Obviously, the existing program has 

worked well. Whether or not there is any room there is something 

that I would have to examine. 

Mrs. MALONEY. And in terms of the reauthorization, do you think 

that reauthorizing the program for 3 years will provide enough certainty for the markets? Most of us have supported legislation for 

5 years or 10 years. What do you think about the idea of just 3 

years for the TRIA reauthorization? 

Secretary LEW. In general, you hear from the business community certainty is just critical to their comfort in making investment 

decisions, so I think more certainty is better than less. But reauthorization is better than expiration. So, it is a conversation that 

I think we all ought to have. 

Mrs. MALONEY. Thank you for your testimony. 

Chairman HENSARLING. The gentlelady yields back. 

The Chair now recognizes the gentleman from New Jersey, Mr. 

Garrett, Chair of our Capital Markets Subcommittee. 

Mr. GARRETT. Thanks. I didn’t hear the Secretary’s schedule. You 

are here today for about 2 hours, is that correct? 

Secretary LEW. That is correct. 

Mr. GARRETT. Yes. And did I hear—are you scheduled to be with 

us next week? 

Secretary LEW. Our offices are working on— 

19 

Mr. GARRETT. But are you scheduled here next week? 

Secretary LEW. I think our offices are working on finding a time 

that is— 

Mr. GARRETT. All right. I was hoping that I could get a ‘‘no,’’ so 

I could lay the foundation to actually get a yes-or-no answer out 

of you, but even on a simple question like that, I guess I can’t. So 

let’s go on to the substantive questions. 

Secretary LEW. I don’t believe next week is one of the options, 

but— 

Mr. GARRETT. Right. Let’s go on to the substance. 

FSB, in their press release, says that they made the designations 

that the chairman talked about in consultation with IAFIS and national authorities. Yes-or-no question: Are you the national authority that they consulted with? 

Secretary LEW. There are a number of U.S. representatives on 

the FSB. 

Mr. GARRETT. And are you the national authority that they consulted with on this issue? 

Secretary LEW. I am trying to answer your question. There are 

multiple U.S. authorities— 

Mr. GARRETT. Who are they? 

Secretary LEW. It is the Federal Reserve Board and the SEC— 

yes, the Federal Reserve Board and the SEC. 

Mr. GARRETT. Okay. So they did this in consultation—and your 

word was there was a consensus—was there a vote taken by all the 

authorities—U.S. authorities? Because it is the— 

Secretary LEW. Typically, the FSB is not a body that votes, so 

that is why—when a body acts by consensus it usually— 

Mr. GARRETT. When a body works by consensus, it says—has the 

people in the room and says, ‘‘Let’s see where everybody stands on 

it.’’ So did the U.S. authorities all agree with this position? Did 

they say where they—did you indicate where you felt on this position? 

Secretary LEW. Look, I expressed my views on these matters in 

FSOC meetings. 

Mr. GARRETT. I am asking here, did you give your position on 

this, and did each of the other U.S. authorities give their position 

on the insurers? That is a yes-or-no question. 

Secretary LEW. Congressman, it is not really a yes-or-no question, because the— 

Mr. GARRETT. You did not give your opinion? 

Secretary LEW. We have representatives who participate in the 

FSB. 

Mr. GARRETT. I understand that. Did you give your opinion? 

Secretary LEW. The process that I— 

Mr. GARRETT. Did you give your opinion? I want a yes or a no. 

Secretary LEW. I am trying to answer your question, Congressman. The process— 

Mr. GARRETT. Would you please give me a yes or a no? You could 

tell us how many hours you are going to be here. Can you tell me 

whether you gave your opinion on whether these should be globally— 

Secretary LEW. Congressman, I expressed my views on these 

matters in the FSOC. 

20 

Mr. GARRETT. So the answer is yes. Okay. 

Secretary LEW. I have never relinquished my ability to make decisions to anybody other than FSOC. 

Mr. GARRETT. Thank you. So the answer is yes, you gave your 

opinion. Did the other U.S. authorities give their opinion? 

Secretary LEW. You will have to ask the other authorities. 

Mr. GARRETT. So was it the consensus of the U.S. authorities— 

did you agree that this was the correct decision by the— 

Secretary LEW. Congressman, I understand you are trying to ask 

yes-or-no questions, but to maybe answer your question, if you will 

just give me the ability to give— 

Mr. GARRETT. I would love to do that in writing or in meetings. 

But you have not returned my phone calls and you have not agreed 

to a meeting with me, so I am doing it here. 

Are you the national authority on the areas dealing with asset 

management? Would you be the authority in that area or would 

that be the SEC? 

Secretary LEW. Congressman, the— 

Mr. GARRETT. Yes? 

Secretary LEW. FSOC is now looking at questions regarding asset 

management. The regulatory body that has principal regulatory jurisdiction over asset managers is in many cases the SEC, but there 

are aspects of it regulated by other agencies as well. 

Mr. GARRETT. So would they be the authority that would be responsible in this matter? 

Secretary LEW. U.S. regulatory bodies do not make their decisions in international group. 

Mr. GARRETT. If they don’t, who does? 

Secretary LEW. The FSB is not making U.S. policy. It is— 

Mr. GARRETT. I am asking a simple question. As far as the decisions at FSB that the U.S. regulators are present at, that you have 

already identified, will you be the authority in this area? Will all 

three of you have to agree? Will the SEC have the authority to 

make this decision? 

Who makes these decisions? If we don’t know, then maybe we 

should have legislation directing this, if you can’t give us a yes-orno answer. 

Secretary LEW. Congressman, I would be happy to speak to you 

about how the FSB works and the important function it plays. 

Mr. GARRETT. Would you be happy to also give us the criteria 

that the FSB and the FSOC use in their criteria decision-making, 

as well? 

Secretary LEW. The FSOC has worked in a very systematic way. 

Mr. GARRETT. Would you be willing to give us the criteria for— 

by FSB and by FSOC? That is a yes-or-no question. 

Secretary LEW. FSOC has published on its Web site a lot of information about designations made— 

Mr. GARRETT. They have a lot of information. 

Secretary LEW. Yes. 

Mr. GARRETT. They have not indicated what their criteria is. So 

would you be willing to say here and now that for both FSB and 

for FSOC that you would identify specifically what the criteria is? 

And if not, why not? 

21 

Secretary LEW. Congressman, we have indicated the basis for our 

judgments in FSOC where we have made designations, and as I 

have said a number of times, the FSB— 

Mr. GARRETT. Would you be willing to allow Members of Congress to appear and attend these FSOC meetings, closed meetings? 

Secretary LEW. That is a separate question. 

Mr. GARRETT. It is the next question. Very good. 

Secretary LEW. I have 1 second. I am happy to answer your question— 

Mr. GARRETT. Would you allow Members of Congress to come 

into closed meetings? If not, why not? 

Chairman HENSARLING. Brief answer, if possible. 

Secretary LEW. The FSOC process is one that balances carefully 

the important issues of transparency with the need to deal with 

issues that are regulatory matters where proprietary and confidential information and supervisory information is discussed. We work 

very hard to create a way of balancing that and I look forward to 

working with you on it. 

Mr. GARRETT. Is that a yes or a no? 

Secretary LEW. I don’t think open FSOC meetings are the— 

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 welcome, Mr. Secretary. 

U.S. participation in the IMF advances many of our interests 

overseas, notably developing foreign markets for small business exports. Can you please elaborate on how our continued support of 

the IMF helps our economy and small businesses create jobs? And 

I do not want a yes-or-no answer. 

Secretary LEW. Thank you. 

Congresswoman, if you look at where the demand in the world 

is, it is mostly outside of the United States. Europe is the largest 

export market. At a time when the IMF stepped in during the financial crisis to make sure that Europe didn’t just continue to just 

careen into a depression, that meant that there would be demand 

for U.S. products. 

And it is not one-to-one. You can’t say that if the economy avoids 

depression business X, then business Y or Z gets a certain amount 

of business. But we know the aggregate, U.S. exports are higher 

and small businesses are a big part of that. 

So I think that the United States has both economic and national 

security reasons that the IMF is just of critical importance. And 

our leadership in the world is very much compromised when we 

don’t keep our commitments like the 2010 reforms, or we make a 

situation where the world is looking at the United States as the obstacle to moving into a more secure place. 

Ms. VELAZQUEZ. Thank you. 

Secretary LEW. Just in the case of Ukraine, we pushed very hard 

for the kind of package that the IMF ended up putting in place. 

I am proud of the fact that we succeeded, but I can tell you, it was 

harder because we are the one country that is standing in the way 

of the IMF reforms. 

Ms. VELAZQUEZ. Thank you. 

22 

Mr. Secretary, the United States continues to negotiate with its 

11 partners in terms of the Trans-Pacific Partnership trade agreement. As you know, the Administration has been less than forthcoming with specifics of the agreement. 

Can you elaborate today on how this trade agreement will benefit 

U.S. small and medium-sized exporters? 

Secretary LEW. Congresswoman, Ambassador Froman has been 

up for many meetings on the Hill and I have been up for many 

meetings on the Hill. We look forward to continuing to consult with 

Congress. Obviously, I have relatively narrow areas of responsibility of the financial sector and USTR has the broad responsibilities. 

I would just point to the meetings that the President had just a 

few days ago in Japan, and it underscores the importance to the 

U.S. economy. The President was insisting that one of the things 

that has to happen with TPP is that Japan has to open its auto 

and agriculture sectors to imports. While there wasn’t a final 

agreement, I think there was progress made there that is laying 

the way for an agreement which will open important markets. 

Overall, I think the United States has a great interest in being 

part of the growing Pacific economy, and it would not serve U.S. 

interest if we didn’t have a high-quality agreement where we got 

to sell our goods. 

Ms. VELAZQUEZ. Can we trust that there will be safeguards in 

place so that small and medium-sized businesses will not be put at 

a disadvantage? 

Secretary LEW. The theory behind TPP was a new approach to 

trade agreements. It was to say we are going to set a high level 

and only countries that are willing to abide by high standards can 

be part of it. So if we can get a high standards agreement, I think 

it will help across the board with U.S. exports, and that will help 

small businesses. 

Ms. VELAZQUEZ. Thank you. 

After we experienced our own financial crisis in 2008, this government took drastic action to stabilize the system, stimulate the 

economy, and enact strong new financial reforms. But some have 

argued that these measures have placed U.S. companies at a competitive disadvantage. 

With our economy now in strengthening recovery, can we now 

say that the U.S. firms actually have an advantage over foreign 

competitors as a result of our efforts? 

Secretary LEW. I think that if you look at the U.S. recovery, it 

has been stronger and deeper and longer than recoveries in other 

places because we responded with clarity and decisiveness, both in 

terms of our fiscal policy and in terms of financial reform. I am 

proud of the fact that we are leaders in driving the world to its 

higher standards so that we don’t have a crisis like that again. 

And it is important that we cooperate in international bodies 

where we don’t relinquish our decision-making but what we do is 

try to drive the world to a higher standard overall so that we are 

not out there alone with high standards. Frankly, this is not a 

world where you can have your own high standards and be safe if 

you don’t have high standards around the world. 

Ms. VELAZQUEZ. Thank you. 

23 

Chairman HENSARLING. The time of the gentlelady has expired. 

The Chair now recognizes the gentleman from Texas, Mr. Neugebauer, Chair of our Housing and Insurance Subcommittee. 

Mr. NEUGEBAUER. Secretary Lew, thank you for being here 

today. 

As you know, Mr. Secretary, in the President’s 2015 budget proposal, it had a section on the Terrorism Risk Insurance Act (TRIA). 

In that proposed section it stated that the Administration was committed to implementing reforms to limit taxpayers’ exposure, 

achieve cost neutrality. It also went on to say that it would work 

to identify appropriate adjustments that would achieve a full transition to the private sector. And then finally, the section offered 

suggested reforms to be increasing the program trigger and the industry co-pay. 

Mr. Secretary, is that pretty much the Administration’s current 

position on TRIA? 

Secretary LEW. As I was saying just a few moments ago, our position is that TRIA needs to be reauthorized and we look forward 

to working with Congress on a bipartisan basis to reauthorize it in 

a way that is effective. 

Mr. NEUGEBAUER. So, Mr. Secretary, did you not have any input 

into the President’s budget proposal under the TRIA section, since 

TRIA falls under your— 

Secretary LEW. No. I have tried to indicate an openness to looking at either straight reauthorization— 

Mr. NEUGEBAUER. Mr. Secretary, the question is did your—did 

Treasury have—write that part of the—I know that all of the agencies pool together as the President puts the budget together, but 

that comment should have originated from Treasury since you 

oversee TRIA, right? 

Secretary LEW. The provisions in the budget reflect the Administration view. The report that we issued— 

Mr. NEUGEBAUER. So the Administration view, then, is that you 

think we should move to, and I quote again, ‘‘transition to the private sector,’’ and that some of the suggested reforms are to change 

the program trigger and the co-pay? That would be the Administration’s position? 

Secretary LEW. Any specific decisions we would make on provisions would have to be connected to our most current analysis of 

what the market conditions are, and the impact. The report that 

we just recently issued indicates that the market is not ready to 

step in and do this without an ongoing extension of TRIA. 

Mr. NEUGEBAUER. But transitioning to the private sector was a 

part—and I quote—‘‘achieve a full transition to the private sector.’’ 

That is Treasury’s decision? 

Secretary LEW. Yes. But I didn’t—I don’t recall the timeframe. I 

don’t know that there was a timeframe in there. 

Mr. NEUGEBAUER. It says transition, and so—but you would support transition to the private sector over a period of time? 

Secretary LEW. But the question of can we—could we not have 

TRIA and have access to insurance? We do not believe that right 

now the market is such that without TRIA there would be adequate access to this insurance. 

24 

Mr. NEUGEBAUER. But maybe changing the program triggers and 

the co-pay would be one way to transition to that? 

Secretary LEW. I am happy to discuss specific issues, but I don’t 

think any of the language you read suggests specific positions 

based on the current conditions of the market. 

Mr. NEUGEBAUER. When was this written? What do you know 

now that you didn’t know then? 

Secretary LEW. The report that was just issued—was issued just 

about a week or 2 ago is the most current analysis. And we would 

look forward to working on a bipartisan basis to reauthorize TRIA 

and we would be open to ideas that are consistent with the policy 

that we have set forth. But not having a reauthorization or having 

a reauthorization that doesn’t permit market access would be a bad 

thing. 

Mr. NEUGEBAUER. I want to go back to another issue that some 

of my colleagues have been talking about, but in a little bit different perspective. I know that they have been talking about the 

Financial Stability Board’s role and your interaction and maybe the 

Fed’s interaction on the designation of GISIs. But as you also 

know, the Financial Stability Board has directed the International 

Association of Insurance Supervisors (IAIS) to come up with capital 

standards for internationally active insurers, and this would impact about 40 of our domestic companies. 

I think the real question that we have here and the reason, Mr. 

Secretary, that you are getting a lot of questions here is, I think 

there is a lot of concern, both from Members of Congress and the 

industry, that who is representing the U.S. interests at the table? 

And if you acquiesce and say you support some of the things that 

this Financial Stability Board is proposing and some of these international agencies begin to adopt these standards, it could impact 

the competitiveness of U.S. companies. 

And I think what we want to hear is that you are not saying 

with a wink and a nod to the Financial Stability Board, ‘‘Hey, we 

support these ideas.’’ I think a lot of folks are concerned that the 

U.S. regulatory structure is adequate and that the insurance industry did probably did as well as any financial industry during the 

downturn. 

Secretary LEW. Congressman, I have tried to make it clear that 

any designation of U.S. firms will be made in FSOC by a process 

that is very thorough and listens carefully to the concerns raised 

by U.S. firms. I do think there is real benefit to the FSB looking 

at issues on a global international basis to have standards where 

other countries are lifting their standards as well. We have never 

delegated our ability to be the supervisors of our own firms. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman, for 5 minutes. 

Mr. SHERMAN. A couple of observations: These standards we are 

negotiating for are published standards. Our Asian competitors are 

experts in unpublished and sub rosa obstacles that our small businesses simply can’t deal with. 

And also, as to the IMF developing markets, it is also developing 

competitors, both good and bad. 

25 

As to China currency, Mr. Secretary, we have talked about it before. A recent report that China is boasting about shows that on 

a purchasing power parity basis, China’s economy is roughly the 

size of ours. What that means is that on the standard they are 

bragging about, their currency is undervalued not by 20 percent or 

30 percent, but 50 percent. 

I know you are working to try to push up their currency. We 

could identify them as a currency manipulator and impose tariffs. 

I know that isn’t the Administration position. But I hope you would 

take a look at the Chinese boasting that the real measure of the 

size of their economy, and hence, the real measure of their currency, shows a 50 percent undervaluation. 

I want to turn your attention to Norwalk, Connecticut. There is 

the Financial Accounting Standards Board, which is proposing that 

we capitalize all leases. This will add $2 trillion to the liabilities 

of American businesses and $2 trillion to the assets, as well. This 

will throw off every ratio between liabilities and owner’s equity and 

is estimated to devastate not only real estate but manufacturing 

and retail. It cost millions of jobs—$400 billion off of our GDP. 

I don’t think you came here to discuss that, but I do hope—usually you would just leave to Norwalk, Connecticut, and the FASB 

these intricate issues, but when we are talking about trillions of 

dollars on balance sheets and hundreds of billions of dollars of effective—on our economy, I hope that you and your staff would take 

a look at this FASB proposal. 

Secretary LEW. We would be happy to take a look at it. 

Mr. SHERMAN. In May and December of last year you came and 

said you would be happy to take a look at the California system 

for worldwide unitary apportionment. Because one of the questions 

you haven’t been asked here is, if a television set is designed in 

Japan, manufactured in Malaysia, and sold in California, where is 

the profit earned? And the answer, of course, is the Cayman Islands. 

We need to go with a new system for calculating what portion 

of a multinational’s income is subject to U.S. tax. I know you promised to look at it then. I can’t imagine that you have had the time. 

Secretary LEW. I actually did go back, and my Assistant Secretary for Tax Policy has taken a look at it and he would be happy 

to follow up with you. 

Mr. SHERMAN. Okay. So I will give him a call and we will take 

it from there. And that is— 

Secretary LEW. And, Congressman, if I can just go back to your 

characterization about the size of the Chinese economy, I think 

that just for— 

Mr. SHERMAN. I want to squeeze in another question. I have 

made the point before. Their currency is undervalued. I hope you 

do even more— 

Secretary LEW. I just want to defend the U.S. economy. Our— 

Mr. SHERMAN. It is a great economy. 

Secretary LEW. —per capita purchasing power— 

Mr. SHERMAN. Mr. Secretary— 

Secretary LEW. —and our strength in the world is number one 

still. 

Mr. SHERMAN. We are number one. Go, America. Next question. 

26 

Secretary LEW. I don’t think anyone would trade their economy 

for ours. 

Mr. SHERMAN. I am not trading anything for anybody. Go, America. 

Now, you are trying to get us to go along with this IMF change. 

You have said the IMF being under this new and the existing system, we have a veto over what decisions they make. And I was told 

often that we had a veto at the World Bank, a very similar institution. And then the World Bank loaned $1.4 billion to Iran. 

I had a chance just last week to talk to the number two at the 

IMF—a Chinese national, Zhu Min. He tells me that, no, the 

United States does not have the kind of veto that would prevent— 

which would allow us to prevent IMF lending to Iran and that, in 

fact, the IMF has an economic team in Tehran now doing the work 

that would allow the IMF and other international lenders to decide 

whether to make loans to Iran. 

Now I hope that the United States and Europe remain united as 

to what sanctions to impose on Iran, but I don’t know what the 

policies are going to be. Can you go back to the negotiating table 

before you come to Congress to negotiate—go back to the negotiating table at the IMF and say, ‘‘We need to go to Congress and 

prove to them that we alone can block loans to Iran if that is American policy?’’ 

Secretary LEW. Congressman, the way our veto works at the IMF 

is that we have a veto over administrative changes in the IMF; we 

don’t have a veto over each decision that is made. Our veto gives 

us a disproportionate voice at the IMF and it gives us the ability 

in almost every case to drive decisions where we want them to go. 

The reason we need to do the IMF reforms is to make— 

Mr. SHERMAN. But if I empower the IMF, the IMF may empower 

Tehran. 

Secretary LEW. But if the United States doesn’t have the strong 

voice it has, our ability to have the IMF make the decisions that 

we believe are right is weakened. And that is why IMF reform is 

so important. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from New Mexico, Mr. 

Pearce, for 5 minutes. 

Mr. PEARCE. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary, for being here. 

And as a veteran and strong supporter of our military and national security, I was fascinated that you mentioned national security 5 times in your handout to us. But I also note that you specifically referenced what you are doing, too, in Afghanistan and Pakistan. 

Pakistan and Afghanistan are ranked number two and three on 

a global terror index. Both counties are known for harboring and 

exporting and terror. 

So, is there some explanation you can give as to why we would 

be supporting the building of economies in areas that basically 

are—I think the comments on the Web pages for the terrorists say 

they would like to annihilate America and annihilate Americans. 

Any reason that we should be taking that and running with it? 

27 

Secretary LEW. If you are asking why we have U.S. policies to 

promote a different kind of Afghanistan and Pakistan through our 

assistance programs—is that— 

Mr. PEARCE. I am just asking why we are lending money— 

Secretary LEW. I think we all well-learned— 

Mr. PEARCE. —to build economies in terrorist states. 

Secretary LEW. We have been involved through two Administrations, or multiple Administrations in both parties, in trying to 

make sure this is not a haven for terrorists to plan attacks on the 

United States in that part of the world. And our efforts are really 

aimed at making sure that there is not that kind of a haven, and 

part of it is making sure that there is an economy that works for 

people who are not inclined in that direction— 

Mr. PEARCE. Looking at what is going on in Iran and what will 

happen in Afghanistan— 

Secretary LEW. I think we have proven our will to take the fight 

to terrorists in Afghanistan and Pakistan. 

Mr. PEARCE. I think with us pulling our troops out, I think the 

judge is still out on—and the jury is still out on whether or not 

that nation will slide into the same sorts of things that we find in 

Iraq now. So I just find it interesting that at a time when we are 

cutting our military budget—the President’s budget slashed Defense spending, and so it looks like maybe they are going to subcontract the defense of the Nation out to the IMF, and I really appreciate you taking that role. 

When you talk frequently about Ukraine in your report, have you all dealt with the allegations that $20 billion in gold disappeared 

from the Ukraine, that $37 billion in loans disappeared from the 

Ukraine, that $70 billion was moved offshore in the last couple of 

years out of Ukraine? And we are going to go in there and we are 

going to stabilize situations where that kind of loss of assets is occurring? And so, have you all dealt with those allegations? 

Secretary LEW. Congressman, one of the first actions we took 

when the current situation developed in Ukraine was to take actions to try and stop the movement of money that was illegally 

taken out of Ukraine. It is something that we and the international 

community need to make sure that we do our part on, but there 

needs to be reform in Ukraine and a different kind of leadership 

in Ukraine. 

I think if you look at the interim government, it is trying very 

hard—and I think being quite effective under very difficult circumstances—trying to take a different course and not have the 

kinds of practices that you are describing, which is part of what 

has created the problem in Ukraine that they are dealing with 

right now. And it was not entirely a problem of Ukraine’s making; 

there was a lot of influence from Russia over the years. 

Mr. PEARCE. I will play that clip for my constituents, but I suspect I will not get a round of approval to vote from people who 

make $31,000 a year average income in my district to bail out 

countries—Greece—they refused to pay the tax—40 percent of the 

people refused to pay taxes. And you want people in New Mexico 

to pay taxes for the people over there who won’t pay their own 

taxes? I think that is going to be a hard sell, and I will play back 

your answers. 

28 

Secretary LEW. We have never lost a dollar on the IMF. So if you 

are talking about the IMF— 

Mr. PEARCE. I am just talking about situations. And you are here 

saying that we are the first responders in economic crises around 

the world, and I am just telling you that the idea that I am going 

to go back and explain to constituents why I would vote for something like that is probably not going to happen. 

Secretary LEW. But, Congressman, that is an important distinction— 

Mr. PEARCE. Now, if you would— 

Secretary LEW. The United States is not the responder. 

Mr. PEARCE. —please, I have 39 seconds. 

Secretary LEW. The IMF is. 

Mr. PEARCE. If you would please give me my time. 

I guess my last question is that there appears to be an IMF practice not to lend money into states which are illegally partitioned, 

divided up, maybe a civil war is going on. Our loans to the 

Ukraine, then, seem to give validity to Russia’s position in the Crimea. Do you have a comment on that in 10 seconds? 

Secretary LEW. I think we have made quite clear we think Russia’s behavior is illegal and is not recognized by the United States 

or the rest of the world. 

Mr. PEARCE. But there may be a de facto difference in what the 

practice says. 

Thank you. I yield back, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

McCarthy, for 5 minutes. 

Mrs. MCCARTHY OF NEW YORK Thank you, Mr. Secretary. I appreciate it. 

I am going to give you a moment or two to be able to answer the 

question explaining to people back home why the IMF is so—I 

don’t think we spend enough time with our constituents. I have, because the years I have been on the NATO parliamentarians, I see 

where the money goes, I see what the money does, especially in the 

smaller nations that need an upper hand. The money does go and 

help the regular people, like it would be, like say, for FEMA to help 

my people back home after Hurricane Sandy. So it is important to 

me that we get this passed. 

I understand that if we do not live up to our obligations—do you 

have any idea who might take our place if we don’t live up to our 

obligations? 

Secretary LEW. The first part of your question—it is so important 

to have an international body that is the first responder when 

there is an economic crisis. It should not be the United States in 

every case. In almost every case, it is the IMF. There is no substitute for the IMF. In Ukraine, we put a billion dollar loan guarantee on top of an almost $18 billion IMF package. 

Mrs. MCCARTHY OF NEW YORK Right. 

Secretary LEW. Our loan guarantee would not solve the problem, 

and I can’t imagine the United States stepping in to do that job entirely on its own. We have never lost a dollar in the IMF, so what 

we have done is we have, in the post-World War II world, created 

an institution where we promote economic stability and a world 

29 

that promotes U.S. economic growth, because we export to growing 

countries, and political stability where there wouldn’t have been 

otherwise. So it is incredibly important that the IMF be there. 

Now as far as our role in the IMF, there is no doubt the emerging economies have grown and they want a stronger voice. The 

2010 reforms were a step—an important step—towards giving more 

of that voice to emerging economies. It did not come from the 

United States; it was really a reallocation from Europe to the 

emerging economies. 

Where our veto does come in is we have to agree to changes at 

the IMF, but it is not a great thing for the leader of the world to 

be standing, blocking a reform that protects our interests when 

many others would say, ‘‘Why doesn’t your share go down?’’ 

Now, while they can’t do that to us, they can’t impose it on us, 

our ability to drive decisions where we want them to go in the IMF 

requires that we be seen as the leader who keeps our word. And 

I have no doubt that China would like to have a larger interest in 

the IMF. There are a lot of other countries that would like to have 

a larger say. 

Preserving our share, making sure that we keep our veto, having 

the strongest, most powerful voice in the world on these issues is 

part of what makes us the leader of the world. 

Mrs. MCCARTHY OF NEW YORK I think that when you think 

about the way you just answered that question—we talk about 

being a leader, a moral leader, certainly showing the way on working towards those countries that are looking for democracy, and I, 

for one, certainly would prefer to see us in the format as far as 

leadership, versus some of the other developing countries. And I 

think people have to take that into consideration. 

I am sure that the majority of us here on this committee or in 

this Congress would not like to see some dictatorship coming from 

other countries that are emerging. So that is some way that we 

have to protect it. 

I think there is a misunderstanding also on the amount of money 

that goes in and what our share is. But in the end, that is a payment towards leadership, and I think it is, thus, extremely important, and I am hoping my colleagues, as they get to understand 

this issue a little bit better, that we will be able to get this through 

as far as up on to the Floor and for a vote. 

We have worked on this for years, the same with the Export Import Bank. I know that is a little bit on the side, but for this country, it is extremely important. And for my constituents and for 

every little small business to have a part of that only grows our 

economy, and those are ways that we can go. 

So with that being said, I thank you for your work. I know a lot 

of people don’t understand it. I would say to my colleagues not so 

much to go out on a CODEL but to take trips that are educational 

and see how this all works in the other parts of the world, which— 

the trips are not fun, you work hard and it takes up your time, but 

it is quite an education. 

With that, I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

30 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, the vice chairman of our Monetary Policy and Trade 

Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. 

And I appreciate you being here as well today, Mr. Lew. 

Do you believe that the IAIS should develop global insurance 

capital standards? 

Secretary LEW. I think that it is important for there to be a global discussion of this, because while we have to make decisions for 

ourselves, and every national authority has to make decisions for 

itself, it is very useful to have an international discussion that 

drives the conversation to a high standard. I would just point out 

that in that IAIS process, our insurance experts sit at the table and 

have a strong voice. 

Mr. HUIZENGA. I understand. But should they be the ones developing it? That is not the place for just conversation; that is the 

place where they are developing standards, correct? 

Secretary LEW. Right. But I think it is important—it is more like 

a model code than it is law. 

Mr. HUIZENGA. Okay. 

Secretary LEW. And it leaves each national authority the ability 

to address issues in their own way. 

Mr. HUIZENGA. I understand. And I understand this might be in 

the bailiwick of the USTR, but would you support, then, financial 

services being a part of the TTIP conversations? 

Secretary LEW. No. I think it is important for financial services 

to be in the channels that they are in, where I think they are discussed in an effective way in international settings. We have been 

driving the discussion over the last number of years— 

Mr. HUIZENGA. I’m sorry, is that a yes or a no on TTIP? 

Secretary LEW. I do not think that they should be included in 

TTIP and subject to trade actions because I think that we each 

have requirements in our national authorities to do prudential regulation, and our standards have to be based on what it is that 

maintains the soundness of our financial system. 

Mr. HUIZENGA. So even with the Europeans potentially giving 

ground on some ag issues and some other things, as they have indicated at least to me and some of my colleagues, it seems to me if 

they are—the Europeans are interested in discussing financial 

services that might be a place we want to go. 

So having said that, can you assure me and the committee that 

any of these new rules that are developed by IAIS will be compatible with our State-based system of regulation? 

Secretary LEW. We do have a State-based system of regulation. 

Our Federal Insurance Office has taken a look at how to think 

about this in the future and it very much reflects the deep tradition we have of State-based regulation. 

When I am in international meetings, it is something people 

don’t understand all over the world. 

Mr. HUIZENGA. Sure. No, I— 

Secretary LEW. It requires a lot of explanation. 

Mr. HUIZENGA. So, it sounds like the answer is ‘‘maybe.’’ 

Secretary LEW. Well, no. We have a system of State-based regulation. We will make decisions in the United States on any changes 

31 

that come in that, if at all. And it is a tradition that is very important. 

Mr. HUIZENGA. I am sure you are a very smart man, very wellread, so I assume that you are well aware that in recent months, 

Federal Reserve Chair Yellen, Governor Tarullo, and others have 

stated that insurance companies ‘‘have unique business models,’’ I 

think was the phrase that was used in this committee, that make 

them very different from banks, and that a bank-centric regulatory 

model really isn’t going to work for a lot of these insurance companies. 

And coming from Michigan, we are the domicile of a couple of different Canadian insurance companies that are very recognized and 

well-known, not even necessarily physically-based, but the entry 

point is Michigan. And it seems to me when we are talking Canada 

and the United States, the largest trading partners in the world, 

we are not dealing with the problems that caused the economic 

downfall here. 

So I think there is a lot of concern by a number of us as how 

we are going to be dealing with these roles. And I just am—I understand you don’t want to answer the question of what the position of Treasury is advocating at the FSB to promote these statebased systems. 

At least, that is what I have heard, and my colleague from 

Texas, Chairman Hensarling, and a number of others have tried to 

take a run at that. You don’t want to answer whether you are advocating or not advocating; you are just saying you are a part of 

the process of review. But there are a lot of us looking for some 

assurance that we are not going to throw the baby out with the 

bath water here. 

Secretary LEW. Yes. I think that the question of designating the 

largest and most systemically significant institutions, we have only 

made a few decisions to apply that designation. 

Mr. HUIZENGA. So why— 

Secretary LEW. And there aren’t a lot of firms that would meet 

the threshold test— 

Mr. HUIZENGA. But then why would these just apply to international players? What is not going to make you say, let’s apply 

these standards to domestic—large domestics? 

Secretary LEW. I think if you look at the process that FSOC has 

gone through, it—we are not going to be applying it to all insurance companies in the United States, only companies that present 

systemic risk. And there, I think it is important, as Chair Yellen 

said, that they be regulated in a way that reflects the realities of 

their business model. And I know the regulators are looking at 

ways to do that. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair recognizes the gentleman from New York, Mr. Meeks, 

the ranking member of our Financial Institutions Subcommittee. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Mr. Secretary, I hope you recall that not too long ago we had a 

conversation at the White House regarding minority inclusion. I 

later followed up with a letter to your office asking that a greater 

number of minority-owned businesses and professionals be included 

32 

in the Treasury’s recently announced program to issue new floating 

rate notes. 

Since then, the Association of Securities Professionals, which is 

the premier trade association for minorities and women in the financial services industry, has brought to my attention that the 

Pension Benefit Guaranty Corporation (PBGC) and several other 

Federal pension funds are not contracting any minority- or womenowned firms for asset management, brokerage, and other financial 

services. 

A lot of the Members sitting here today—led by the ranking 

member—authored Section 342 of the Dodd-Frank Act on minority 

inclusion. And we frankly have yet to see its implementation at a 

level that meets many of our expectations. And so I was wondering 

if you could offer us any evidence or facts that point to the contrary? 

Secretary LEW. I think the record at Treasury, if you look at the 

TARP program, has been one where there has been substantial 

progress made on the representation of women- and minorityowned businesses, and it is something we take very seriously and 

we work very hard on. 

The floating rate auction is handled like all other auctions are. 

It is developed internally with—the product is developed internally 

within Treasury and it is handled through the primary dealers. So, 

it is really not a program where we have contracts that we are putting out. 

But where we do contracts, where there are those issues, we take 

these issues very seriously, and I am happy to look at the issue you 

are raising with regard to PBGC. 

Mr. MEEKS. Yes, because I need you, because it seems as though, 

and here the whole idea is to make sure because there are lots of 

dollars there and it seems that they are going to certain segments 

and others are being left out. And the opportunity at least to participate in the system is not there. 

And so, I would love to have a further dialogue. I think this is 

very important, and maybe we need to go through the process 

again as to what it is and how some of these firms could—they 

want to compete with anyone else. They are not asking for anything special, but they want to make sure the door of opportunity 

is there. And that is why we noticed when we went through all of 

this previously; Section 342 was very important to us. 

And so, I would love to have another follow-up discussion in that 

regard and see what we can do there. 

Secretary LEW. I would be happy to. 

Mr. MEEKS. Let me then also ask—the OCC, the FDIC, the 

NCUA, and the Federal Reserve all recently testified before this 

committee, and they all have established permanent and high-level 

offices in their organizations that specifically deal with small and 

community financial institutions. 

They further testified that they all agreed that it was good practice to have such functional and policy-making separations between 

big institutions and community financial institutions. The U.S. 

Treasury sets broad financial and economic policies for the entire 

financial industry. 

33 

Community bankers have long complained about a lack of voice 

at the U.S. Treasury and how one-size-fits-all financial policies and 

regulations have been detrimental to their business model. So it 

just seems to me, wouldn’t it make sense to have a separate office 

and/or official—senior official at the Treasury who handles specifically small or community financial institutions? 

Secretary LEW. Congressman, let me start by agreeing that the 

concerns of small banks, and small businesses have to be treated 

very seriously and incorporated into any decision we make that affects their interests. I think our record shows that we have done 

that by action as we have gone through various decisions that we 

have made. 

I am not sure that having a separate silo for smaller firms actually helps accomplish that goal. There is the risk that decisions 

start getting isolated from each other and you don’t see the potential impact. So I am happy to look at the idea, but to me the important question is, as each decision is made, are those kinds of questions being asked and answered? 

And I would worry a little bit that by creating a place where people worry about that and suggesting that it is not everyone’s responsibility, you could end up with less, not more impact. But I am 

happy to look at it. 

Mr. MEEKS. Okay. And lastly, the House is voting today on the 

Electrify Africa Act. And we now have nominees—new nominees, 

in fact, at the World Bank and the African Development Bank who 

will be instrumental in pushing the initiative forward as they view 

these very important development institutions. 

What can the U.S. Treasury do to ensure that this initiative is 

successful and that American firms, and particularly minority 

firms, can participate in the Electrify Africa Act? 

Chairman HENSARLING. The time of the gentleman has regrettably expired. 

An exceedingly brief answer, Mr. Secretary? 

Secretary LEW. Congressman, I am happy to look at the proposal. 

I would just say that Power Africa is a very important initiative 

that the President has announced and that we are working on in 

conjunction with other agencies, and I would be happy to follow up. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from North Carolina, Mr. McHenry, the Chair of our Oversight and 

Investigations Subcommittee. 

Mr. MCHENRY. Good morning. 

Secretary LEW. Good morning. 

Mr. MCHENRY. Are you having a good day? 

Secretary LEW. I am having a fine day. I hope you are, too. 

Mr. MCHENRY. Yes, I am. Thank you. 

Are you a member of the FSOC? 

Secretary LEW. I am the Chair. 

Mr. MCHENRY. Okay. So that is a yes? 

Secretary LEW. Yes. 

Mr. MCHENRY. Oh, good. You have actually said yes or no today. 

This is excellent. So we just want to start off on that basis that we 

have had two nice exchanges here. 

I want to ask you about the nonbank SIFI designation process. 

As a member of FSOC, and as the Chair, as you just said, do you 

34 

meet with firms that are to be designated or contemplated to be 

designated? 

Secretary LEW. The way the process is set up, the initial stages 

are done using public information, but as it proceeds into a stage 

where it is being considered for a decision, there is contact with the 

companies to get information. And after a preliminary judgment is 

made, the firm has the ability to meet with the entire Council. 

Mr. MCHENRY. All of the FSOC voting members? 

Secretary LEW. Yes. One firm, Prudential, availed itself of that 

opportunity and the entire FSOC met with them. 

Mr. MCHENRY. Is that before or after the notice of proposed designation? 

Secretary LEW. It is after the proposed designation but before an 

action has been taken. 

Mr. MCHENRY. Before the action has been taken. So the FSOC 

votes to propose the designation, then the firm is able to in essence 

appeal and come before you? 

Secretary LEW. Right. But they are having extensive contact with 

the people preparing the record. 

Mr. MCHENRY. Are those your deputies or is that some lower 

level? 

Secretary LEW. It is either the deputies or the technical staff— 

Mr. MCHENRY. So in this whole process, do you ever meet with 

these firms that are potentially designated? 

Secretary LEW. I just described how we meet with them. 

Mr. MCHENRY. Okay, then explain this to me: So you only meet 

with the firms as a full group after you have proposed a designation that they are SIFIs? Is that correct? 

Secretary LEW. There is— 

Mr. MCHENRY. Is that correct? 

Secretary LEW. As a member of FSOC, that is where I have met 

with them, yes. But there is extensive contact with the firms before 

that point. 

Mr. MCHENRY. Are voting members meeting with firms to be 

designated? 

Secretary LEW. Only after the proposed designation. 

Mr. MCHENRY. Okay. Thank you. 

So, why is that the case? Can you cite a rule or regulation on 

why you only meet with them after you have proposed their designation as an SIFI? 

Secretary LEW. We have laid out a procedure that we work 

through in an orderly way, where a record is established, where in 

the early stages, the goal is not to have there be any kind of a notion that these are market-sensitive processes. 

Reaching out creates a different situation than not reaching out. 

So there is a desire to first look at all the public information before 

you even take the step of reaching out. 

Mr. MCHENRY. Right, but you only meet with them— 

Secretary LEW. But before a designation is made, there is extensive contact. 

Mr. MCHENRY. You only meet with them after you make a market-moving designation with a proposed SIFI designation. You only 

meet with these folks afterwards. As a voting member, you have 

already testified that is the case. 

35 

Secretary LEW. In stage three, where the record is put together 

for the FSOC to make a judgment, there is extensive back-andforth with the company, and that is preparing a record that goes 

to the voting members. And after a proposed designation is made— 

which is all confidential; there is nothing public in that process— 

the firm has the opportunity to meet with the Council. 

Mr. MCHENRY. Okay. So let me move on. 

You sent a letter yesterday stating that what you said in front 

of the—your testimony in front of the Senate was incorrect. You 

said if the debt limit was not raised, and assuming Treasury had 

sufficient cash on hand, the New York Fed’s system would technologically be capable of continuing to make principal and interest 

payments from Treasury, counter what you testified. And I appreciate you correcting the record. 

So my question is, if the Fed is able to make principal and interest payments, why is your assertion that credit markets would 

freeze still correct? 

Secretary LEW. Congressman, I stand by everything I have said 

about the debt limit, including at that hearing. There— 

Mr. MCHENRY. Actually, you were saying that you were incorrect 

at the hearing in this letter. 

Secretary LEW. No, that is not what the letter says, and I am 

happy to answer your question. I only have 10 seconds. 

Mr. MCHENRY. Go for it. 

Secretary LEW. A little bit more time would be helpful. 

Chairman HENSARLING. Please, Mr. Secretary. 

Secretary LEW. There is no way to pick and choose what payments you make of the Federal Government without defaulting, so 

even if you have a technical ability to write a check to pay interest 

and principal, then you are not paying Social Security or veterans’ 

payments or contractor payments. And if you don’t extend the debt 

limit you end up with the Government of the United States, for the 

first time in its history, defaulting. Nobody should want to do that. 

The question I was responding to yesterday was just a technical 

question, and the letter speaks for itself. 

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. 

And thank you, Mr. Secretary, for helping the committee with its 

work. 

I will be in Ukraine again next week, and the last time I was 

there I heard considerable complaints about what was perceived as 

our weakness in terms of economic sanctions against Russia, so I 

know that the results have been mixed at best. 

But I do know that between the Federal Reserve and the Treasury, we maintain currency exchange reserves that allow parties 

who engage in international trade to convert their rubles, for example, into dollars. And I think one of the most impactful things we 

could do, I think if we really wanted to get Russia’s attention, 

would be to restrict the ability of those businesses in Russia to convert their rubles into dollars. And I think if the E.U.—if the European Central Bank did the same thing, I think it would send a very 

strong message to the Russians that from a financial position, we 

36 

completely disapprove of what their activities are in Crimea and in 

Eastern Ukraine. 

Is this something that you have thought about or Treasury has 

considered in terms of a sanction? Because these individual sanctions on the oligarchs are not getting us there, and unless we are 

not really serious, this is something that we should be thinking 

about. 

Secretary LEW. Congressman, I think we have been very clear 

that we have additional steps we can take. The President has 

issued an Executive Order that gives me the authority to designate 

sectors in the Russian economy. We have been taking steps which 

I believe have had an impact; they are clearly being felt by Russia. 

The goal of these sanctions is for President Putin to change his 

policy. It is for there to be a way out of this through a diplomatic 

resolution. And we are—we hope we don’t need to take additional 

steps, but we have made clear that we have additional steps— 

Mr. LYNCH. Reclaiming my time, the impact seems to be very, 

very narrow. It is on the oligarchs. But Putin’s popularity for what 

he is doing is still very, very high. He still has the support of the 

Russian people because the impact is not being felt on them and 

they are not seeing the consequences of—they are not feeling the 

consequences of his actions. 

What I am saying is that if we restrict the currency exchange for 

the ruble, I think it would have a detrimental effect on the value 

of the ruble, the liquidity. And if the Europeans do the same thing, 

we could really send a very strong—an extremely strong message 

to Putin and to the Russian people that this is not a behavior that 

we condone. 

Secretary LEW. I don’t think that there is any doubt on the part 

of the Russian leadership that we have additional steps we could 

take that will increase the amount of pain it causes to the Russian 

economy. And I think the expectation of that has had an effect on 

their judgments, but obviously not the effect to correct the situation. 

We are going to continue at this, and we have made it clear that 

it is unacceptable. We have made it clear. It is not the goal of sanctions to cause pain to the Russian people; it is to change the policy 

of the Russian government. 

I think the Russian economy is weak. It has gotten weaker and 

people are beginning to feel it. And whatever popularity there was 

around the initial moves in Crimea, the pain is only going to get 

worse and worse if they don’t— 

Mr. LYNCH. All right. I am going to have to reclaim my time. 

Look, the European Bank for Reconstruction and Development is 

basically the only international financial institution that has a specific mandate to work in countries, and this is a quote from their 

enabling act: ‘‘those countries committed to and applying the principles of multiparty democracy, pluralism, and market economics.’’ 

Oddly enough, the United States has 10 percent of the voting 

power within the European Bank for Reconstruction and Development. And yet, they are doing business in Russia. 

And do you really think that is consistent with our participation 

in that program, to support what Putin is doing by continuing to 

37 

invest in Russia through the European Bank for Reconstruction 

and Development? 

Secretary LEW. Since this current situation has developed there 

have not been loans to entities that are connected to the Russian 

government. There were a couple of loans made to firms that had 

no connection to the policies. 

But as the situation on the ground changes, it is one of the many 

things that we are going to keep our eye on as to whether the policy there also should change. We would not support loans that 

would support the Russian government. 

Mr. LYNCH. I hope so. All right, thank you. Thank you, Mr. Secretary. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

Speaking of time, because of the time that the Secretary has 

agreed to spend this morning, the Chair intends to call on three 

more Members: Mr. Royce; Mr. Green; and Mr. Mulvaney. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, Chair of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you, Mr. Chairman. I appreciate it. 

Mr. Secretary, as you know, the Fed, the Treasury through the 

FIO, and the NAIC are all engaged with the IAIS over the development of international capital standards for certain insurers. And I 

am somewhat troubled to hear that IAIS is likely to propose that 

the capital standards be applicable to more than just systemically 

important firms. In other words, they are going to extend that to 

internationally active insurance groups. 

I think it has been noted today that Treasury also sits on the Financial Stability Board, which engaged the IAIS and oversees that 

institution through this process. And as a threshold matter, I am 

very concerned to hear stakeholders talk to me about the lack of 

coordination among U.S. representatives engaged in IAIS. 

Unlike some of my colleagues, I do think there should be a 

strong Federal role in coordination. So my question is this: How 

can we ensure that our participants in this process speak with a 

uniform voice and ensure that we support insurance-centric standards so that U.S. companies who operate around the globe are not 

disadvantaged here at home or in other countries? 

Secretary LEW. Congressman, I am not aware of a difference 

amongst the U.S. participants in terms of the principle you just 

stated, that there be insurance-centric standards if standards are 

applied. The IAIS has participants from—who have deep expertise 

in the U.S. insurance industry, including the State regulatory process. So I think it is important that our participation there is very 

well-informed, and it is important not just on the substance but in 

the tradition of State regulation in the United States. 

Mr. ROYCE. I understand, Mr. Secretary, but the reason for the 

question is we had a hearing here which vetted and where we 

heard about those differences of opinion. And so, that is why I 

raised it. 

But let me point out another point, and that is the FSB is also 

actively looking at designating nonbank companies as global SIFIs. 

A few months ago, the FSB proposed a $100 billion threshold for 

designating investment funds as G-SIFIs. 

38 

How was such an arbitrary number set? That was my first question. 

And to be fair, I am suspicious of the $50 billion threshold for 

U.S. banks as well. It is not a risk-based assessment. 

In this case, it appears that this $100 billion threshold—here is 

the point—exclusively captures only U.S. funds. At $100 billion, 

that is what it does. No foreign funds currently meet that threshold. So why would you support global designation criteria that only 

impact U.S. funds and put them at a disadvantage compared to 

their foreign competitors, and why support arbitrary thresholds at 

all? 

Secretary LEW. Congressman, the only designation that would result in regulation would be a national authority designation, which 

would have to have been made in the United States by FSOC. And 

I just want to point out that our review in this area has not concluded that designation is the right option. We don’t know that— 

there are other ways that the issue might be addressed and it 

might not need any further action. 

So we have not made a judgment in FSOC how to proceed with 

it. We are in the early stages of doing what FSOC was created to 

do, which is look ahead at the future challenges and make sure 

that we are thinking about them in advance. 

Mr. ROYCE. And from that I take that in these negotiations you 

are resisting this designation which would put U.S. firms at this 

competitive disadvantage? 

Secretary LEW. What I am saying is— 

Mr. ROYCE. I understand that it is an ongoing process— 

Secretary LEW. Yes. 

Mr. ROYCE. —but I was just trying to figure out where you actually are in the process— 

Secretary LEW. There is no ambiguity— 

Mr. ROYCE. —your position. 

Secretary LEW. —the decision on U.S. firms will be made in the 

United States and will be made by FSOC. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman HENSARLING. The gentleman yields back. 

The Chair now recognizes the gentleman from Texas, Mr. Green, 

the ranking member of our Oversight and Investigations Subcommittee. 

Mr. GREEN. Thank you, Mr. Chairman. 

I thank the ranking member. 

And I thank the witness for appearing today. 

Let’s, for a moment, talk about a cost-benefit analysis, because 

as we look at the IMF, the benefit that it accords the world, not 

just the United States, in my opinion outweighs the cost. Can you 

give some brief analysis in terms of cost versus benefit as it relates 

to the IMF? 

And if you would like to, you can direct it toward the United 

States, but I truly think that the global economy has a better 

standing because the IMF makes contributions. For example, if 

there is a bank that is solvent and at a time of crisis it is about 

to default, the IMF can prevent that from occurring and that then 

helps the global economy, which we happen to be a part of. 

39 

Secretary LEW. Congressman, I can’t give you a quantitative answer but I can tell you qualitatively that the U.S. economy and the 

global economy would be in a much worse place right now if the 

IMF didn’t exist, and if the IMF wasn’t acting responsibly both in 

moment of crisis, like 2008–2009, and when individual countries 

face crises. 

Our economic growth in the United States can’t be separated 

from economic growth around the world. As I was saying earlier, 

most of the demand in the world is not in the United States. Europe, if it were in a freefall through the last 5 years, wouldn’t have 

just been a problem for Europe; it would have been a problem for 

the United States because we export from the United States and 

our growth and global growth are interconnected. 

The fact that the IMF steps in with tough measures, responsible 

programs are based on countries putting their fiscal house in order 

and reforming their systems, and it puts the resources behind economic recoveries. And I think that right now, you are seeing one 

after another country in Europe emerge and go to the market with 

bond issues; you are seeing around the world in Asia and Latin 

America countries that are stronger because of the IMF programs; 

and you are seeing the United States, where our economic growth 

is, in significant part, tied to our ability to export to those markets. 

So I can’t give you exact numbers. I would be happy to go and 

try and put some numbers to it. But it is an enormously important 

institution, both for the United States and the world. 

Mr. GREEN. Thank you. I think you have given a good representation of how it impacts positively the United States and the world 

economy. 

Just to give some indication that the IMF is not a liberal institution, is it true that the increases in quota—that five of the increases in quota of the IMF took place under the reign of Republican Presidents? 

Secretary LEW. I haven’t looked at the number, but I can tell 

you, Republican and Democratic Administrations alike since World 

War II have made all the arguments that I am making here today. 

Mr. GREEN. On page 11 of your statement that you submitted, 

we have an indication that every living Treasury Secretary from 

James Baker on has gone on record urging us to support the IMF. 

Is this still a true statement? 

Secretary LEW. I can’t speak for each of them individually. If it 

was in my statement, I assume I checked it at the time. So I always like to give people a chance to speak for themselves. 

Mr. GREEN. I understand. 

And finally this: Is there a way for us to separate ourselves from 

the world economy and, in so doing, not have the ability to engage 

in diplomacy by way of utilizing our economic prowess? By participating with the IMF, this is a means by which we can use diplomacy as the first option. 

Can you just comment on how we have the benefit of diplomacy 

as a first option? 

Secretary LEW. I think that the United States leads by example. 

Everyone would love to have our economic system and, for all of 

our challenges, our political system. We are the strongest, most 

40 

stable country in the world. Everyone in the world looks to us as 

being the measure of strength. 

In an international financial context, the IMF is a place where 

we have an outsized voice because of that and because we have 

kept our commitments. And the reason I have such a passion for 

us ratifying the 2010 reforms is it would just be a terrible disservice to the United States and to our role in the world for that 

to erode at all. 

Mr. GREEN. If we didn’t have the IMF, would you recommend 

that we create one? 

Secretary LEW. There is nothing else that does what the IMF 

does. 

Mr. GREEN. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from South Carolina, 

Mr. Mulvaney, for 5 minutes. He will be our last questioner. 

Mr. MULVANEY. Thank you, Mr. Chairman. 

And thank you, Mr. Secretary. 

Secretary Lew, you are statutorily required to make this presentation, aren’t you? 

Secretary LEW. Yes, this is a statutorily required— 

Mr. MULVANEY. I understand that you have decided that you are 

only going to make yourself available for 2 hours, which I think expires here in the next couple of minutes. What is the statutory authority, sir, for you to limit your testimony to 2 hours? 

Secretary LEW. Congressman, it was an arrangement we—agreement we reached— 

Mr. MULVANEY. Do you have any statutory authority to unilaterally limit— 

Secretary LEW. I believe the statute just requires a hearing. 

Mr. MULVANEY. I’m sorry? 

Secretary LEW. I believe the statute just requires a hearing. 

Mr. MULVANEY. So you don’t have any statutory authority to say 

you are going to be present for a certain number of hours— 

Secretary LEW. I have tried to make myself available on any 

number of occasions to the committee. This is the third time I have 

had this hearing, and I have had other— 

Mr. MULVANEY. There are 20 members of this committee who 

won’t get a chance to talk to you today. That represents roughly 

14 million people. Would you be willing to stay for an extra hour? 

Secretary LEW. Congressman, I—we will work with the chairman 

on when— 

Mr. MULVANEY. I understand you have been working with the 

chairman since January 14th of this year to try and set up this 

meeting. We have also, I understand, been trying to work with you 

for a meeting next month. Will you appear before this committee 

in May, sir? 

Secretary LEW. This is May. 

Mr. MULVANEY. Excuse me, in June for the FSOC hearing? 

Secretary LEW. Congressman, I am going to leave that to be 

worked out between the committee and my staff. I— 

Mr. MULVANEY. Have you instructed your staff to make you 

available for a hearing before this committee in June? 

41 

Secretary LEW. I am sitting here because I committed to this 

hearing and I have told the chairman I will work on trying to— 

Mr. MULVANEY. Will you commit to a hearing before this committee regarding— 

Secretary LEW. Congressman— 

Mr. MULVANEY. —the FSOC in June? 

Secretary LEW. Congressman, I will work out a date that works 

for both of us. 

Mr. MULVANEY. I will take that as a no. 

I want to follow up— 

Secretary LEW. —a date that works for both of us. 

Mr. MULVANEY. I want to follow up on Mr. McHenry’s questioning regarding the letter that you sent last night regarding 

prioritization of payments. And I think you said to him that while 

it was technologically possible to prioritize payments, that it would 

still constitute default because Social Security checks wouldn’t go 

out, contracts wouldn’t be fulfilled, et cetera. 

Is that an accurate representation of your testimony to Mr. 

McHenry? 

Secretary LEW. It is close. 

Mr. MULVANEY. That is fine. How do you define ‘‘default?’’ 

Secretary LEW. I think when the Government of the United 

States fails to meet its obligations, it is in default of whatever obligation it has failed to meet. 

Mr. MULVANEY. So to you it means more than just not paying 

principal or interest on debt? 

Secretary LEW. Correct. 

Mr. MULVANEY. And it is your understanding, then, based on 

your letter of last night, that if the Treasury has sufficient funds, 

it will be able to make principal and interest payments on debt? 

Secretary LEW. No. All I said last night is that a check-writing 

system could work. It is not my decision to choose what to pay and 

what— 

Mr. MULVANEY. No, that is not what you said last night. You 

said that the New York Fed’s systems would be technologically capable of continuing to make principal and interest payments— 

Secretary LEW. Technologically capable. 

Mr. MULVANEY. —while Treasury was not making other kinds of 

payments. And my question to you is, if the Treasury is making 

payments on principal and interest but not making other payments, is that default, in your mind? 

Secretary LEW. Congressman, first of all, you did not accurately 

restate my letter because it does not— 

Mr. MULVANEY. Actually, I read it word for word. 

Secretary LEW. But you are leaving out the words ‘‘technologically capable.’’ It does not say that the payments will be made; 

it is not my decision. Only the President of the United States can 

decide whether or not to do that. 

Mr. MULVANEY. Did you tell anybody outside of Treasury— 

Secretary LEW. —and that decision has never been made by a 

President of either party. 

Mr. MULVANEY. Did you tell anyone outside of Treasury—did you 

tell anyone who owns any debt of the United States of America 

that their principal and interest payments could technologically be 

42 

paid—were capable of being paid—in the event the debt ceiling was 

not— 

Secretary LEW. The question that I was asked and answered on 

many occasions was has a decision been made, and I answered 

‘‘no.’’ 

Mr. MULVANEY. But the question you are being asked now, sir, 

is did you tell anybody else on Wall Street, anybody who owns any 

debt, that they were capable of being paid in the event the debt 

ceiling did not get raised? 

Secretary LEW. I can’t speak for all conversations that might 

have happened. I am not aware of any conversation I— 

Mr. MULVANEY. I am not asking about all—I am asking about 

your conversations. 

Secretary LEW. I am not aware of any conversation— 

Mr. MULVANEY. Did you ever tell Morgan Stanley they were 

going to get paid? Did you ever tell Bank of America they were 

going to get paid? 

Secretary LEW. I have no recollection of any conversation that I 

had with any party. 

Mr. MULVANEY. Do you have any recollection of having any conversation with any Wall Street firms regarding prioritization of 

payments? 

Secretary LEW. Look, I had many conversations where people 

asked what the decision was and I have said to them what I have 

said here. 

Mr. MULVANEY. I am not asking about the decision; I am asking 

you about the capability. The letter last night said it was technologically capable of making the payments. Who else knew that? 

Secretary LEW. Congressman, the— 

Mr. MULVANEY. When did you know that they were technologically capable of making the payments? 

Secretary LEW. The question of whether or not we make payments is the— 

Mr. MULVANEY. I am not asking that. Mr. Lew, when did you 

know the payments could be made? 

Secretary LEW. Congressman, I would have to check; I don’t recall the date. But the issue is—and I don’t know why anyone would 

want to be in a place where the United States— 

Mr. MULVANEY. But that is not my question, sir. My question is 

not why we would want to know; the question is, why did your testimony change? 

Secretary LEW. My testimony did not— 

Mr. MULVANEY. And who else did you tell? Who were you telling— 

Secretary LEW. Congressman, my testimony didn’t change. 

Mr. MULVANEY. —back in October that they were going to be 

paid when you were on national television telling people we were 

going to default? That is my question. 

Secretary LEW. Because you asked me my definition of default, 

it is the same today as it was then. If the United States of America 

fails to pay— 

Mr. MULVANEY. So if we ask you on television next time if debtholders will be paid, you will say ‘‘yes?’’ 

43 

Secretary LEW. No Congress has ever put the United States in 

a position where it couldn’t pay its bills, and no Congress— 

Mr. MULVANEY. But next time the debt ceiling becomes an issue 

and people ask you, ‘‘Will debt holders be paid,’’ will you say yes? 

My time is up. 

Thank you, Mr. Chairman. 

Chairman HENSARLING. Thank you. 

The Chair notes that some Members may have additional questions for this witness, 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 this witness 

and to place his 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 12:07 p.m., the hearing was adjourned.] 

(45) 

A P P E N D I X 

May 8, 2014 

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