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THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

HEARING 

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

SEPTEMBER 22, 2016 

Printed for the use of the Committee on Financial Services 

Serial No. 114–103 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

JEB HENSARLING, Texas, Chairman 

PATRICK T. MCHENRY, North Carolina, 

Vice Chairman 

PETER T. KING, New York 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

SCOTT GARRETT, New Jersey 

RANDY NEUGEBAUER, Texas 

STEVAN PEARCE, New Mexico 

BILL POSEY, Florida 

MICHAEL G. FITZPATRICK, Pennsylvania 

LYNN A. WESTMORELAND, Georgia 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

ROBERT HURT, Virginia 

STEVE STIVERS, Ohio 

STEPHEN LEE FINCHER, Tennessee 

MARLIN A. STUTZMAN, Indiana 

MICK MULVANEY, South Carolina 

RANDY HULTGREN, Illinois 

DENNIS A. ROSS, Florida 

ROBERT PITTENGER, North Carolina 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

KEITH J. ROTHFUS, Pennsylvania 

LUKE MESSER, Indiana 

DAVID SCHWEIKERT, Arizona 

FRANK GUINTA, New Hampshire 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

BRUCE POLIQUIN, Maine 

MIA LOVE, Utah 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

MAXINE WATERS, California, Ranking 

Member 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

MICHAEL E. CAPUANO, Massachusetts 

RUBE ́ N HINOJOSA, Texas 

WM. LACY CLAY, Missouri 

STEPHEN F. LYNCH, Massachusetts 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

GWEN MOORE, Wisconsin 

KEITH ELLISON, Minnesota 

ED PERLMUTTER, Colorado 

JAMES A. HIMES, Connecticut 

JOHN C. CARNEY, JR., Delaware 

TERRI A. SEWELL, Alabama 

BILL FOSTER, Illinois 

DANIEL T. KILDEE, Michigan 

PATRICK MURPHY, Florida 

JOHN K. DELANEY, Maryland 

KYRSTEN SINEMA, Arizona 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

SHANNON MCGAHN, Staff Director 

JAMES H. CLINGER, Chief Counsel 

(III) 

C O N T E N T S 

Page 

Hearing held on: 

September 22, 2016 .......................................................................................... 1 

Appendix: 

September 22, 2016 .......................................................................................... 59 

WITNESSES 

THURSDAY, SEPTEMBER 22, 2016 

Lew, Hon. Jacob J., Secretary, U.S. Department of the Treasury ...................... 5 

APPENDIX 

Prepared statements: 

Lew, Hon. Jacob J. ........................................................................................... 60 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Hensarling, Hon. Jeb: 

Letter from Treasury regarding questions for the record ............................. 68 

Written statement of the Property Casualty Insurers Association of 

America .......................................................................................................... 69 

Huizenga, Hon. Bill: 

Letter from Representative Huizenga and Representative Moore to Dr. 

Jim Yong Kim, President, World Bank Group, expressing alarm over 

the World Bank’s cancelled Uganda Transport Sector Development 

Project, dated July 14, 2016 ......................................................................... 77 

Response letter from Dr. Jim Yong Kim, dated August 2, 2016 .................. 79 

Pearce, Hon. Stevan: 

Article entitled, ‘‘A Fed Insider Warns of the Risk of Low Rates’’ ............... 81 

Rothfus, Hon. Keith: 

Letter to Senator Pat Toomey from Patrick Gallagher, Chancellor of 

the University of Pittsburgh, dated October 30, 2015 ............................... 85 

Letter to Representative Mike Doyle from Rich Fitzgerald, County Executive, Allegheny County, Pennsylvania, dated December 1, 2015 .............. 87 

Letter to Senator Pat Toomey from David J. Gray, Senior Vice President 

for Finance and Business/Treasurer, The Pennsylvania State University, dated December 14, 2015 ..................................................................... 89 

Letter to Senator Robert P. Casey, Jr., from William Peduto, Mayor 

of Pittsburgh, Pennsylvania, dated May 4, 2016 ....................................... 90 

Letter to Representative Mike Doyle from John K. Weinstein, Treasurer, 

Allegheny County, Pennsylvania, dated November 23, 2015 .................... 92 

Waters, Hon. Maxine: 

New York Times editorial entitled, ‘‘The Fake $400 Million Iran ‘Ransom’ 

Story,’’ dated August 23, 2016 ..................................................................... 93 

(1) 

THE ANNUAL REPORT OF THE FINANCIAL 

STABILITY OVERSIGHT COUNCIL 

Thursday, September 22, 2016 

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

The committee met, pursuant to notice, at 10:06 a.m., in room 

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

Members present: Representatives Hensarling, Royce, Lucas, 

Garrett, Neugebauer, Pearce, Posey, Fitzpatrick, Luetkemeyer, 

Huizenga, Duffy, Stutzman, Hultgren, Pittenger, Wagner, Barr, 

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

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

Capuano, Hinojosa, Scott, Perlmutter, Carney, Sewell, Foster, Kildee, Murphy, Delaney, Beatty, Heck, and Vargas. 

Chairman HENSARLING. The Financial Services Committee will 

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

a recess of the committee at any time. 

This hearing is for the purpose of receiving the annual testimony 

of the Chair of the Financial Stability Oversight Council (FSOC). 

I now recognize myself for 3 minutes to give an opening statement. 

With today being the official start of fall, it is disappointing that 

the Financial Stability Oversight Council has delivered the equivalent of a summer rerun. Its 2016 annual report is basically identical to its 2015 annual report, breaking little new ground and adding little new value. 

FSOC, charged with identifying risks to our financial stability, 

continues to mention only in passing the need for fundamental 

housing finance reform. It fails to adequately analyze the substantial risk that Fannie Mae and Freddie Mac, institutions at the epicenter of the last financial crisis, pose for precipitating the next. 

Furthermore, since the advent of the Dodd-Frank Act, we are losing, on average, one community financial institution a day in 

America, as they are crushed by a Federal regulatory burden. The 

big banks have only grown bigger. Banking system consolidation 

can clearly contribute to heightened financial system risk, yet there 

is absolutely no mention in FSOC’s report of Federal regulatory 

risk brought on by Dodd-Frank, a glaring omission. 

But the most scandalous omission remains FSOC’s conspiracy of 

silence regarding the existential threat posed by America’s 

unsustainable national debt and our staggering unfunded obligations. Since President Obama came to office, the national debt has 

increased by a mind-boggling 84 percent. The Congressional BudgVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
2 

et Office (CBO) noted in a recent report that the President’s 2017 

budget would add nearly $7.5 trillion to our publicly held debt, 

equivalent to $59,609 for every American household. 

CBO recently warned that such high and rising amounts of debt 

have, ‘‘serious long-term consequences for the economy and would 

constrain future budget policy.’’ On this, again, FSOC remains silent, and thus its annual report loses credibility. 

Although FSOC’s annual report is disappointing, this committee’s focus must remain on FSOC’s frightening and likely unconstitutional powers. FSOC’s open-ended and virtually standardless 

SIFI designation process clearly gives Federal regulators broad license to concentrate immense economic power in their own hands. 

The designation authority is taking our financial system, regrettably, one step closer to a government-controlled utility model, a 

model whereby Washington will allocate credit to politically favored 

classes at the cost of our freedom and our prosperity. This must 

change. 

Finally, FSOC’s highly politicized structure and penchant for secrecy are emblematic of a shadow regulatory system that is antithetical to American democratic principles. That is why it is so important that last week this committee favorably reported the Financial CHOICE Act. The Financial CHOICE Act will help bring 

about economic growth for all and bailouts for none. It will end 

bailouts once and for all by removing FSOC’s ability to designate 

privileged too-big-to-fail firms and it replaces bailouts with bankruptcy. It would protect our financial system with high levels of 

loss-absorbing private capital and impose the strictest fines and 

penalties ever on those committing financial fraud. It would hold 

FSOC accountable and focus its mission solely on the vital task of 

monitoring emerging threats to our financial system. It is undoubtedly a better way forward. 

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

statement. 

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

Secretary Lew, thank you for joining us today to discuss the Financial Stability Oversight Council’s 2016 annual report. 

Last week, the U.S. Census reported that median household income increased by more than 5 percent, the largest increase in both 

percentage and dollar terms since the government began tracking 

this data nearly 50 years ago. The Census Bureau also reported 

that the poverty rate declined by 1.3 percentage points and that 

the number of people without health insurance in the United 

States declined by 4 million. 

All told, our progress is rather remarkable compared to where we 

were 8 years ago when, during the last days of the Bush Administration, we were shedding more than 700,000 jobs per month and 

millions of people were being displaced from their homes. 

But make no mistake, we need to be doing more, especially to address the wealth gap, and particularly for African American and 

Hispanic households, whose economic security was devastated by 

the financial crisis. 

Unfortunately however, there is an unnerving sense of amnesia 

from my colleagues on the other side of the aisle about the dark 

days of the crisis. Here we are, 8 years after that devastation and 

3 

more than 6 years after Dodd-Frank became the law of the land, 

considering the same harmful deregulatory proposals that would 

undo the critical progress we have made. 

Just think about this. Two weeks ago, one of the largest banks 

in the United States, which was supposedly one of the most wellrun, was found to have opened more than 2 million unauthorized 

deposit and credit accounts for unsuspecting customers. This is a 

massive fraud of historic proportions that begs the question of what 

further reforms may be needed. And yet, in this committee the answer is deregulation and more opportunities for Wall Street to 

write the rules of the game. And like the Consumer Financial Protection Bureau, the FSOC is on the front line of those attacks. 

With Wall Street reform, we created the FSOC to look across the 

entire financial system, identifying gaps that may exist between 

regulators and action to prevent another meltdown. No longer 

would we allow banks to shop around for the weakest regulator or 

move money around the globe to escape regulation. 

Earlier this year, we saw just how effective the FSOC can be in 

preventing companies from growing too large or risky as to threaten the economy. General Electric Capital voluntarily agreed to 

shrink itself and sell off much of its consumer financial business, 

returning to its roots as an industrial company. The firm is now 

smaller, safer, and less likely to cause risk to the rest of the financial system if it becomes stressed. In turn, FSOC allowed GE Capital to shed its systemically important designation and the higher 

regulatory standards that came with it. 

What this means is that Wall Street reform is working as it 

should. The system is creating incentives for firms to shrink themselves and it is ensuring that companies like GE renew their focus 

on creating jobs in the real economy. 

And yet, despite this progress, my colleagues on the opposite side 

of the aisle are intent on dismantling the FSOC. Nowhere has this 

effort been more apparent than the chairman’s Dodd-Frank repeal 

bill, which received bipartisan opposition in the committee last 

week. This harmful legislation would strip the FSOC of its ability 

to designate nonbanks for heightened supervision, repeal all existing designations for large complex firms like AIG, and otherwise 

limit its ability to operate effectively. This bill and others would 

put Wall Street back in the driver’s seat and leave consumers and 

investors to fend for themselves. 

Rather than continuing this committee’s focus on harmful 

rollbacks, we should be supporting further reform and exploring 

how we can do more to prevent scandals like the one at Wells 

Fargo. 

So I look forward to your testimony, Secretary Lew, on the state 

of our financial markets and what we need to keep doing to prevent a repeat of the 2008 financial crisis. 

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

time. 

Chairman HENSARLING. The Chair now recognizes the gentlemen 

from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee, for 1 minute. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

4 

The Financial Stability Oversight Council’s mission is to ensure 

the stability of the U.S. financial system and to identify future 

risks to the system. It was given authority to designate banks and 

nonbanks alike for heightened regulation. I believe, however, it 

also has the responsibility to ensure that the recommendations and 

designations are appropriately calibrated and provide sufficient 

clarity to the marketplace. 

To date, FSOC has failed to live up to its duty to be a responsible 

Federal agency. First, FSOC has failed to exercise its authority 

under Section 115 of Dodd-Frank to ensure that the application of 

heightened prudential standards is applied fairly to the bank holding companies. In the face of analysis from the Office of Financial 

Research that suggests $50 billion banks aren’t systemically important, FSOC has instead chosen arrogance over prudent tailoring. 

Second, the FSOC has failed to implement a fair, transparent, 

and measured process when designating nonbanks as systemically 

important. As the U.S. District Court Judge Collyer noted, the determination process is ‘‘fatally flawed.’’ Yet, FSOC has created additional regulatory uncertainty by appealing this legal ruling. 

Third and finally, the FSOC’s regulatory protectionism has failed 

to identify market concerns like those seen with the liquidity constraints in the bond markets. 

I hope today we will finally get to hear substantive answers to 

legitimate policy questions instead of the usual Democratic talking 

points praising Dodd-Frank. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Garrett, the chairman of our Capital Markets Subcommittee, for 1 

minute. 

Mr. GARRETT. Thank you, Mr. Chairman. 

And, Mr. Secretary, it is good to see you again. I understand that 

you are a tough man to nail down to get to this hearing today, even 

though it is the rule of law. But I guess I would be too if my job 

was to come here and try to defend FSOC. 

So we are starting to get at a point of an Administration’s tenure 

where people inevitably turn to talking about legacy and what you 

all will be leaving behind. Unfortunately, when it comes to FSOC, 

the Obama Administration’s legacy will be remembered by what? 

Secrecy, obfuscation, and a continued refusal by the Administration, and especially you, to answer the most basic and simple questions to provide transparency to either this committee, to Congress, 

and most importantly, the American people. 

And it is not just the legislative branch that notices this. The recent court decision invalidating the designation of MetLife is a reminder to all of us that we live in a system governed by the rule 

of law, Mr. Secretary, and not by the rule of bureaucrats. 

So, Mr. Chairman, I hope the Treasury Secretary finally understands this, and I look forward to some of his answers today. With 

that, I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

Today, we welcome the testimony of the Honorable Jack Lew, 

Secretary of the Treasury. Secretary Lew has previously testified 

before this committee on a number of occasions, so I believe he 

needs no further introduction. 

5 

Mr. Secretary, without objection, your written statement will be 

made a part of the record, and you are now recognized for 5 minutes to give an oral presentation of your testimony. Thank you. 

STATEMENT OF THE HONORABLE JACOB J. LEW, SECRETARY, 

U.S. DEPARTMENT OF THE TREASURY 

Secretary LEW. Thank you, Chairman Hensarling, Ranking Member Waters, and members of the committee. I appreciate the opportunity to testify today regarding the 2016 annual report of the Financial Stability Oversight Council. 

We have just passed the eight-year anniversary of the collapse 

of Lehman Brothers. Every autumn this dates provides a grim reminder of the most severe financial crisis of our lifetimes. But it 

is also an opportunity to measure the tremendous progress we have 

made to build a safer and more resilient financial system that will 

support long-term economic growth. 

Six years ago, we worked together to put in place the most farreaching, comprehensive update of the financial regulatory system 

since the Great Depression. The Dodd-Frank Wall Street Reform 

and Consumer Protection Act addressed serious weaknesses that 

contributed to the crisis, putting in place new consumer, investor, 

and taxpayer protections and effectively restoring confidence in our 

Nation’s financial system. 

Today, the success of these reforms continues to be reflected in 

a long and stable economic recovery. We have cut the unemployment rate in half. Our economy is more than 10 percent larger 

than its pre-recession peak. U.S. businesses have added a total of 

15.1 million jobs since private sector job growth turned positive in 

early 2010. And our financial system is safer and more resilient, 

providing the critical underpinnings for more inclusive long-term 

growth. 

Recent Census Bureau data demonstrates that significant strides 

have been made. The Nation’s poverty rate is down. For Hispanics 

and African Americans, it is at the lowest level in more than a decade. Household incomes are rising, with 2015 seeing the fastest 1- 

year growth since the Census Bureau began reporting on household 

income in 1967. 

Recent enforcement actions by the OCC and the CFPB also remind us of the ongoing need for robust protections and that that 

need is very real. Without a strong consumer watchdog, the financial system can be dangerous for consumers and businesses alike. 

Indeed, one of the most important lessons of the crisis was the 

need for a financial regulator dedicated to looking out for and protecting consumers. 

The last financial crisis had at its core abusive practices that 

should have been prevented. As the only regulatory agency focused 

solely on consumer financial protection, the CFPB is designed to 

ensure that markets for consumer financial products and services 

are fair, transparent, and competitive, and it has been fulfilling 

this statutory mission actively and well. 

The conduct that led to recent enforcement actions again underscores the importance of finalizing strong, sensible executive compensation rules, a central component of Wall Street reform. 

6 

Moving forward, it is critical that we continue to build upon the 

success of Wall Street reform in creating a framework for responding to risks that arise in any part of the financial system. Rather 

than regulating purely in reaction to crises, Wall Street reform established a forward-looking approach that is focused on regulating 

and identifying risks presented by markets as a whole and by types 

of activities wherever they are conducted. 

The Financial Stability Oversight Council exemplifies this approach. Previously, financial regulators too often operated in silos, 

and there was no single agency or group specifically charged with 

collectively monitoring and maintaining financial stability. 

For the last 6 years, FSOC has brought the entire financial regulatory community together to be on watch for signs of vulnerability 

and to respond to emerging threats to financial stability before 

they turn into crises. 

Today, the Council continues to benefit from the diversity of expertise and perspectives of its members, and the Council has been 

open-minded and deliberative in its approach, regularly engaging 

with stakeholders, frequently updating the public on its views and 

actions, and always remaining careful to avoid a one-size-fits-all 

approach to addressing different types of risks, and always asking 

important questions and looking to data and analysis for answers. 

Before I discuss the Council’s finding in its sixth annual report, 

it is worth noting the report’s significance. The Council’s annual report serves as a key mechanism for public accountability and transparency, setting a marker for action, and outlining the Council’s 

priorities and a roadmap for the year ahead. It is the product of 

extensive collaboration and data-driven analysis, capturing the consensus of the Council’s members on key risk areas, as well as recommendations to mitigate those risks. Importantly, the report includes a statement signed by each of the Council’s 10 voting members that affirms that all of the issues and recommendations in the 

report should be fully addressed. 

The Council’s 2016 annual report focuses on 12 key areas that 

have been the topic of Council discussions over the past year. 

These areas include cybersecurity, risks associated with asset management products and activities, reforms to wholesale funding markets, and global, economic, and financial developments. For each 

area the report cites progress made and, if necessary, the need for 

further action on the part of Council members and member agencies. 

Cybersecurity remains a key area of focus for the Council. In response to increasing threats presented by cyber attacks, the U.S. 

financial sector has stepped up efforts to improve security across 

the system. Efforts include incident response planning, greater information sharing and analysis, and establishing private sector 

best practices for assessing risk. 

The report makes several recommendations for building on this 

important work. The Administration remains committed to staying 

ahead of this issue, and we look forward to working with both the 

Council and Congress as we continue to address it. 

The Council is focused on potential risks to financial stability 

posed by asset management products and activities. As these products and activities represent an increasingly important part of the 

7 

U.S. financial sector, the Council will continue to evaluate their implications for financial stability. 

To that end, in April of this year we published an update regarding the Council’s review of potential risks in this area, in particular 

focusing on liquidity, redemption, and leverage risks. This update 

was the result of nearly 2 years of data-driven analysis and engagement with key stakeholders and reflects the Council’s focus on 

asking tough questions to help inform its views. Our work in this 

area is ongoing, and we plan to provide timely public updates as 

our analysis continues. 

Let me close by saying that in the years ahead, it is vital that 

we remain vigilant to ensure that we do not return to the pre-crisis 

way of doing things, looking narrowly at jurisdictional lines dictated by the kind of charter a firm has selected and reacting to old 

problems instead of identifying and addressing the threats that lie 

ahead. The old approach did not work, and regulators did not respond in time to prevent a crisis. We cannot go back. 

That means we must not only remain steadfast in opposing efforts to roll back reform, but also that we must continue to build 

on the progress that we have made. The work of the Council has 

been critical to this progress, and it is important that the Council 

continue to have the tools necessary to respond to future threats 

as they emerge. 

I want to thank the other members of the Council and all the 

staff involved in the development of the 2016 annual report for 

their hard work and commitment. I would encourage the committee 

to work with the Council to build on the progress that we have discussed today. 

The recent news of consumer fraud by a large firm should 

strengthen our collective resolve to work together to build on Wall 

Street reform, rather than advancing legislation that would return 

us to the days when we had broad regulatory gaps and weak consumer protections. 

Going forward, I am confident that the progress we have made 

over the past 6 years will continue to promote the strength and stability of the U.S. financial system for many years to come. 

Thank you, Mr. Chairman. I appreciate your accommodating my 

schedule by adjourning at 1 p.m., and I will do my best to keep my 

responses brief so we can get in as many questions as possible. 

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

60 of the appendix.] 

Chairman HENSARLING. The Chair now recognizes himself for 5 

minutes for questions. 

Mr. Secretary, one of the emerging threats listed in the FSOC report is the possibility of a destructive cyber attack. As I believe you 

recall, it wasn’t 6 months ago that seven Iranians linked to the Iranian Revolutionary Guard were indicted for a coordinated cyber attack on major U.S. financial institutions. Attorney General Loretta 

Lynch said at the time, ‘‘These attacks were relentless, they were 

systematic, and they were widespread.’’ So I have a couple of questions about the recent $1.7 billion in 

payments the Administration recently made to Iran, payments that 

we now know were made in cash, made in secret, and $400 million 

of which we know coincided with the release of American hostages. 

8 

Secretary Kerry, your fellow Cabinet member, said of related 

sanctions relief under the JCPOA, ‘‘I think that some of it will end 

up in the hands of the Iranian Revolutionary Guard Corps or other 

entities, some of which are labeled terrorists.’’ 

So isn’t it true, Mr. Secretary, that since the $1.7 billion was 

paid in cash, we have no way of tracing the money, and you have 

no way of assuring us that it will not be used for terrorist purposes? 

Secretary LEW. Well, Mr. Chairman, the payments that you are 

referring to are payments related to the Hague Tribunal settlement. President Obama— 

Chairman HENSARLING. I understand that, but the question is, 

can you trace it, and can you guarantee us that it will not be used 

for terrorism? 

Secretary LEW. We have laid out the facts related to this transfer 

in a letter sent to this committee. The payments complied with 

U.S. sanctions— 

Chairman HENSARLING. I understand that, Mr. Secretary, but it 

is a yes-or-no question. Can you guarantee us that it will not be 

used for terrorist purposes? Because I don’t believe you can trace 

it. 

Secretary LEW. Mr. Chairman, if you would just give me a 

minute, I will answer your question, just give me a minute. 

Chairman HENSARLING. Well, if you would answer the question, 

I would allow you to give the context. 

Secretary LEW. Mr. Chairman, you in your question characterized this incorrectly. It was not ransom. It was settlement of a contractual dispute. 

Chairman HENSARLING. I didn’t use the word ‘‘ransom,’’ Mr. Secretary. I said it— 

Secretary LEW. You did. 

Chairman HENSARLING. No, I didn’t. You could read the record. 

I said it coincided with the release of American hostages. 

Secretary LEW. You have asked a specific question about where 

the money goes. The payment went to the Central Bank of Iran. 

We do a lot of work to monitor the support that Iran gives to terrorist organizations. We have not seen— 

Chairman HENSARLING. What I asked, Mr. Secretary, was, could 

you trace the money? Can you trace the money? 

Secretary LEW. We have not seen an increase in terrorist funding 

by Iran. 

Chairman HENSARLING. Okay. I think we will move on, Mr. Secretary, because I am not getting an answer. But I want to know— 

and we have pursued this line of questioning before—who authorized the cash payment? We know that cash has been called the currency of terrorism. You have an entire office at Treasury devoted 

to terrorism and financial intelligence. According to press reports, 

senior officials at the Justice Department indicated objections. 

Did you object to the payment or were you the one who authorized the cash payment? 

Secretary LEW. Mr. Chairman, the President spoke clearly to the 

facts of this on January 17th. We have given you the details in a 

letter. This was a settlement of a contract claim where the United 

9 

States Government and the American taxpayer was exposed to potentially $5 billion to $10 billion of additional damages— 

Chairman HENSARLING. It was the settlement of a contract. The 

question is, Mr. Secretary—you are avoiding the question—who authorized the cash payment? 

Secretary LEW. The method of payment is a technicality. The 

agreement to settle a contract dispute was a substantive issue. 

Chairman HENSARLING. It is not a technicality to those who are 

on the receiving end of Hezbollah missiles in Israel. 

Secretary LEW. The payments were consistent with our sanctions 

laws. They were consistent— 

Chairman HENSARLING. Did you authorize the cash payment, yes 

or no? 

Secretary LEW. The method of payment was worked through a 

process that we outlined in a letter that we provided to this committee. 

Chairman HENSARLING. Okay. Mr. Secretary, isn’t it true that 

under 31 U.S.C. 1304, you must personally certify payments for the 

Judgment Fund? So these funds could not have been released except on your signature? 

Secretary LEW. Mr. Chairman, I am telling you the payments 

were properly made. I was aware of them. I was cognizant that it 

was happening. It was an appropriate settlement of a contract dispute that saved the American taxpayer billions of dollars. 

Chairman HENSARLING. If you won’t tell us who authorized the 

cash payment, what we do know is on multiple occasions, the Administration said that you had no choice but to use cash, and, in 

fact, your State Department spokesman on August 3rd said, ‘‘It 

couldn’t be done over wire transfers.’’ The President himself on the 

very next day said, ‘‘We could not wire the money.’’ Yet, a Treasury 

Department spokesman acknowledged that on at least two occasions, the U.S. did make payments via wire transfer, in July 2015 

or April 2016. 

So did Politico get it wrong, did your spokesperson get it wrong, 

or did the President get it wrong? Why were we misled? 

Secretary LEW. Mr. Chairman, the President got it right. You 

weren’t misled. The payments were made as described— 

Chairman HENSARLING. There were two wire transfers made, one 

in July 2015 and one in April 2016. 

Secretary LEW. Mr. Chairman, I am happy to answer your question, but you have to stop interrupting me every time I start. 

Chairman HENSARLING. Well, if we would get answers, then I 

wouldn’t have to interrupt. 

Secretary LEW. I am happy to answer your question, but you 

have to let me speak. 

Chairman HENSARLING. Okay. I would like to listen. 

Secretary LEW. All right. We have done a very effective job cutting Iran off from the international financial system. The payment 

that was made by wire to Iran was not for a billion dollars, and 

not for a million dollars. It was for $900,000. It went to a foreign 

bank account that Iran had. And it was a difficult process to get 

the money, as it has been difficult for Iran to get access to its own 

money under the JCPOA, because we have been so effective in isolating Iran from the international financial system. 

10 

The method of payment— 

Chairman HENSARLING. The wire transfers were made. 

Secretary LEW. The method of payment— 

Chairman HENSARLING. That is correct? 

Secretary LEW. The method of payment is a technical detail. The 

agreement was that this settlement would go to the Central Bank 

of Iran, and it was done in a way that was consistent with the 

agreement. 

Chairman HENSARLING. You are confirming that at least two 

wire transfers went to Iran, correct? 

Secretary LEW. Mr. Chairman, I am telling you that before the 

transaction that we are discussing, the transfer we are discussing, 

one had gone. The other was subsequent. It was for $900,000. And 

it was a difficult process because, as it has been hard under the 

JPOA and the JCPOA, it has taken Iran a lot of time to get access 

to its own money that it is entitled to under the agreement. 

I am not saying— 

Chairman HENSARLING. Thank you, Mr. Secretary. I believe that 

the President did get it wrong. 

My time has expired. 

Secretary LEW. No. You are totally incorrect. I just disagreed 

with you, Mr. Chairman. 

Chairman HENSARLING. The Chair now recognizes the ranking 

member for 5 minutes. 

Ms. WATERS. Mr. Chairman, I would like unanimous consent to 

enter into the record from the opinion pages of The New York 

Times an editorial entitled, ‘‘The Fake $100 Million Iran Ransom 

Story.’’ 

Chairman Hensarling. Without objection, it is so ordered. 

Ms. WATERS. I think it is perhaps incumbent upon us to help debunk the distortion of what took place with Iran. 

Let me just say, it is not simply about the so-called ransom story 

that has been made up by my colleagues. Every attempt that my 

colleagues on the opposite side of the aisle have made to discredit 

the Iran agreement, to try to dismantle the Iran agreement, has 

been made. 

Just yesterday, we were on the floor with a bill that simply said 

that my Republican colleagues wanted to identify and list, I don’t 

know, a whole array of the leadership of Iran and expose them for 

their assets, where they came from, what they are doing with it. 

They have been told over and over again that even that action did 

nothing but signal harassment and a conclusion by Iran of a bad 

faith effort by the United States. 

I don’t know why they continue it. As a matter of fact, I have 

said over and over again that this country needs the support of the 

Congress of the United States as our President takes the rightful 

leadership to act on behalf of this country and to negotiate deals 

and to do the business of the Presidency. But what we find is an 

undermining of this President at every turn, and it has been absolutely shameful what has been happening with this Iranian agreement. 

And so this conversation that just took place is just one more effort for my colleagues to send a message across the world that our 

President cannot count on the Congress of the United States, that 

11 

we negotiate in bad faith, and that somehow what is going on in 

the United States is bad for the rest of our allies who have supported us. 

This ties in to what the Presidential candidate Mr. Trump is 

doing. He has a theme about making America great again. Some 

of us think America is already great to begin with. And his alliance 

with Putin, his friend that he may be doing business deals with, 

all of this ties in together. 

What are we doing? In the name of trying to acquire the Presidency and align themselves with Trump, are they continuing to try 

and dismantle the leadership of this country, to undermine us, talk 

about how bad we are, how crippled we are, how Mr. Trump knows 

better than our generals, on and on and on again? 

It needs to stop. You should not have to suffer this today. This 

is a continuing of a political effort, I guess to align with the theme 

of America not being so good, not so great, and what they are doing 

somehow with Mr. Trump is going to make it better. This is absolutely outrageous. 

I had some other things that I wanted to talk with you about 

today, but let’s just put it on the line. What we have here is the 

opposite side of the aisle, the Republican Party and Mr. Trump, 

who are not only not supportive of the President, they just don’t 

think this country is much good. They just don’t think that the 

generals know what they are talking about. They just think Putin 

is our friend. They just think somehow this country has gone to the 

dogs, I suppose, and they have to do everything that they can to 

prove it by proving that somehow this Iranian deal that is going 

to help keep the world safe, and certainly the Middle East safe, 

that somehow it is wrong, it is no good, and it should be undermined, be damned our allies who joined in with us in this deal to 

help reduce Iran’s ability to have the kind of nuclear capability 

that could cause a holocaust. 

And so I just want to tell you, Mr. Secretary, I am sorry that you 

have to endure this. This should not be a place where this kind of 

politics is placed, put before you. It is happening. I would hope that 

you would refrain from even trying to answer some of these questions that are being raised. 

This is a great country. The Iranian deal was a great deal. The 

President provided great leadership. We don’t have to be ashamed 

of it. Shame on them. 

I yield back the balance of my time. 

Chairman HENSARLING. The Chair now recognizes the gentleman 

from Texas, Mr. Neugebauer, chairman of our Financial Institutions Subcommittee. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. 

Before I get to my FSOC question, I just want one follow-up 

question from Chairman Hensarling, and this is just a yes or no. 

Did we record the serial numbers on the cash that was delivered 

to the Iranians? 

Secretary LEW. Congressman, I would have to check— 

Mr. NEUGEBAUER. Could you check on that? I think that was the 

chairman’s question. I just want to know if we have some 

traceability there. 

12 

My question applies to your capacity as Treasury Secretary and 

chairman of the FSOC. As you are probably aware, the Federal 

banking agencies submitted a required report on investment activities of banks required under Section 620 of the Dodd-Frank Act. 

This month the report was delivered to Congress and to FSOC, and 

the Federal Reserve Board made a recommendation to Congress to 

repeal the merchant banking authority for banks. 

As you know, Gramm-Leach-Bliley gives the joint rulemaking authority both to the Federal Reserve and to the Treasury to issue 

regulations implementing merchant banking authority and limitations. In fact, they did so in 2001. 

Before the submission of the 620 report, did the Federal Reserve 

consult the Treasury Department regarding its recommendations 

on repealing the merchant banking provision? 

Secretary LEW. Congressman, it was a report prepared by the 

regulators independently. We obviously are familiar with the issue, 

but we were not involved in the preparation of that report. 

Mr. NEUGEBAUER. So I guess since Congress gave the authority 

to, and the Treasury has joint rulemaking authority with the Federal Reserve— 

Secretary LEW. I believe the report was under a different authority than the joint rulemaking. There were two different pieces of 

work that were involved. 

Mr. NEUGEBAUER. It was a recommendation? 

Secretary LEW. Yes. 

Mr. NEUGEBAUER. Do you agree with the recommendation? 

Secretary LEW. So, look, we are looking at the report and would 

be happy to work with this committee as we review it to respond 

more fully. We just received the report as well. 

Mr. NEUGEBAUER. So does the Treasury believe it has the appropriate tools to analyze the risk from merchant banking activities? 

Secretary LEW. Yes, I think we have the ability to understand 

merchant banking. It is not new to us that there are issues regarding merchant banking. You are asking about a specific report that 

came about a week ago. 

Mr. NEUGEBAUER. So with the tools that you have and the activities that you had in the past, have you found that merchant banking is too risky, or you haven’t been able to mitigate it, or what 

would be your response on merchant banking? 

Secretary LEW. Look, I think that the issue regarding merchant 

banking is really an issue that has arisen out of the fact that in 

the original legislation, Dodd-Frank legislation, distinctions were 

made between different kinds of activities so that private equity is 

treated one way, merchant banking is treated another way. And I 

think we are going to need to take a look at whether there are inconsistencies there that do require attention, and I would be happy 

to get back to you. 

Mr. NEUGEBAUER. So I think basically there is probably approximately $26.7 billion in merchant banking investments held by 

banks. If the vote was to eliminate merchant banking activities, 

who is going to take up that slack? 

Secretary LEW. Well, I think it would require legislative action. 

As I understand the recommendation that the regulators made, 

was they proposed legislative action to remove a provision that exVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00016 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
13 

empts merchant banking from the rules. So it would require this 

body to act. 

Mr. NEUGEBAUER. So that recommendation was made to FSOC, 

and FSOC has not acted on that recommendation? 

Secretary LEW. We just got the recommendation very recently. 

We haven’t had a meeting since we got the report. I am not aware 

of administrative authority that exists to do that. But I would be 

happy to check and get back to you. 

Mr. NEUGEBAUER. So you weren’t consulted, and you have just 

received the report. Is that what you are saying? 

Secretary LEW. The report came to us, I forget if it was a week 

or 10 days ago, and it was done by the regulators independently. 

Mr. NEUGEBAUER. But you didn’t have any prior knowledge— 

Secretary LEW. No, no. 

Mr. NEUGEBAUER. —that that was going to be the recommendation? 

Secretary LEW. I don’t believe so. I am happy to check. 

Mr. NEUGEBAUER. So what will be the process moving forward? 

When will FSOC take up discussions on that particular recommendation? 

Secretary LEW. I will have to get back to you, Congressman. We 

haven’t had an FSOC meeting since that report came in, and I am 

not in a position to respond until we have had a chance to look at 

it and discuss it. 

Mr. NEUGEBAUER. So will FSOC report its findings to Congress? 

Secretary LEW. We are happy to work with this committee going 

forward as we review it and as you review it. We got the recommendations, as I point out, just very recently. 

Mr. NEUGEBAUER. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Mr. Secretary, last week the majority passed legislation that will 

severely hobble the CFPB by subjecting it to a politicized Congressional appropriation process, repealing the single director structure 

and putting up significant roadblocks to its ability to create rules 

and enforce them. More shockingly, it will remove the Bureau’s authority to bring enforcement cases against abusive products and 

services. 

In light of what we know about the impact of predatory products 

leading up to the financial crisis and the recent evidence that Wells 

Fargo was trying to extract profit in deceptive ways, what will 

these changes to the CFPB do to Americans’ economic security? 

Secretary LEW. Congresswoman, I think that if you look at the 

financial crisis, it is undeniable that at the heart of it was a practice of mortgage lending that was abusive and that when it became 

a part of our financial system through complex financial instruments, ended up triggering a financial crisis. So we know that abusive practices are not just unfair and bad in terms of the individuals who are affected, but if left unchecked, can become a real 

threat to financial stability. 

I think the recent actions taken by the CFPB and the OCC reflect the ongoing need for tough consumer protection, for indeVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
14 

pendent consumer protection, and for an agency set up in a way 

that is workable, which is what we have now in the CFPB. I think 

it is a good thing that there was a place for those issues to go for 

them to be addressed. It was the largest fine that the CFPB has 

made. 

I am not saying that every issue becomes an issue of financial 

stability. I actually think it is important to address things, even if 

it is just a question of abusing millions of consumers. But we also 

know that when these kinds of abuses occur, it can accumulate into 

financial stability risk. 

So for both reasons, I think it is critical that the CFPB maintain 

the ability to operate, and I believe it has operated very well. And 

if you go around to the industries that are affected by the CFPB, 

there actually are many who say the same thing, that they have 

done their job very well. 

Ms. VELAZQUEZ. Thank you. And then we wonder why there is 

so much anger among working people in this country. So here we 

have regulations to prevent the same crisis that we saw from happening again, and yet people continue to use deceptive ways to get 

people and to exploit working families in this country. 

I hope that the Department of Justice looks into this and brings 

justice, not only for the families that are impacted and the consumers that were impacted, or even for those workers that were 

tricked into going into behavior that was not the right behavior 

just because of the pressure coming from the top at the bank. 

Mr. Secretary, you are well aware that Puerto Rico is currently 

facing a severe financial crisis. The median household income is 

$18,000, just one-third of the national average. Forty-six percent of 

the population lives below the poverty line. 

On top of these challenges, the island is still struggling with the 

Zika virus, which has infected now 20,000 people on the island, including 1,500 pregnant women. And just yesterday, a massive 

power outage left the island without electricity. Half a million people in the island today have no water. 

I know we passed PROMESA that was signed into law in June. 

It will provide for a control board and a restructuring mechanism 

for the island’s $70 billion debt. 

My question to you is, PROMESA did not include any proposal 

to reinvigorate the island’s economy for the long term. The U.S. 

Government has a colony in the Caribbean. It is Puerto Rico. We 

have a moral responsibility. 

So given the situation that I just described, what is your view 

of what is needed to happen in Puerto Rico? Should we in Congress 

revisit what we did and come out with— 

Chairman HENSARLING. The time of the gentlelady has expired. 

If the Secretary could give a brief answer, please. 

Secretary LEW. Thanks, Mr. Chairman. 

I would just say briefly, PROMESA was extremely important. It 

will provide the basis for Puerto Rico to have a fiscal plan that 

leads to debt restructuring and financial stability. But as we have 

always said, alone it is not enough. There needs to be more action. 

We have proposed that Puerto Rico be treated as States are 

treated for the purpose of Medicaid reimbursement and for the 

earned income tax credit, things that really would stimulate the 

15 

economy, and we look forward to working with this Congress to 

take additional steps to make sure that there is a long-term economic plan for Puerto Rico. 

Chairman HENSARLING. Again, the time of the gentlelady has expired. 

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

Garrett, chairman of our Capital Markets Subcommittee. 

Mr. GARRETT. Thank you, Mr. Chairman. 

Mr. Secretary, I think it is fair to say that all of us in Congress, 

myself included, are outraged at the activity that occurred over at 

Wells Fargo, that I know you are very familiar with, over a number 

of years. The entire incident now has a number of people clamoring 

for regulators to be tough when they finalize the incentive compensation rules under Section 965 of Dodd-Frank, which I am sure 

you are familiar with. 

The current proposal is intended to limit compensation of financial firms and includes a provision that would require something 

called clawbacks of compensation for certain high-level executives 

that could go back as far as 7 years. But like a lot of things for 

the other side of the aisle, it depends on just what executives we 

are talking about here when this happens. 

And so let me give you one example: you, Mr. Secretary. You 

joined Citigroup back in 2006, and by 2008, you became the chief 

operating officer of the Citigroup Alternative Investments unit, 

which at that time managed $54.3 billion. Then the Alternative Investments group began to do what? Hemorrhage money that year. 

And by the end of 2008, Citigroup had laid off more than 50,000 

employees. The stock price dropped by 75 percent. And then, of 

course, they were bailed out by who? The American taxpayers, to 

the tune of $45 billion. 

Then, to add insult to injury, last year the SEC announced that 

two Citigroup affiliates, including the one where you were the chief 

operating officer, agreed to pay $180 million to do what? To settle 

charges that your unit defrauded investors. 

So you were the senior officer at the Citigroup unit which lost 

money, that contributed to the bank’s near collapse, and which 

later was charged with defrauding investors. Talk about a legacy. 

Was any of your compensation at Citigroup ever clawed back? That 

is a yes or no. 

Secretary LEW. Congressman, I am proud of my record implementing financial reform, pushing hard for— 

Mr. GARRETT. So was any of— 

Secretary LEW. —pushing hard for the executive comp rule. 

Mr. GARRETT. I am not asking that, Mr. Secretary. Let’s just get 

to the question. I saw how you did not answer the chairman’s question. 

Simple question: Was any of your money, your seven-figure compensation package, ever clawed back for the time that you were the 

chief operating officer? 

Secretary LEW. The issues regarding my compensation have been 

well worked over. 

Mr. GARRETT. So then it is an easy answer, Mr. Secretary. 

16 

Secretary LEW. I have answered many questions. I was paid in 

a way that is well-understood and disclosed. I am telling you that 

my services in this role— 

Mr. GARRETT. Mr. Secretary, please answer the question. 

Secretary LEW. —have been to make sure that we put rules in 

place that work going forward. 

Mr. GARRETT. Mr. Secretary, simple question. You were paid. 

Your unit was defrauded. 

Secretary LEW. Congressman, I— 

Mr. GARRETT. Was any of your money ever clawed back? 

Secretary LEW. I was not subject to any action of any kind because— 

Mr. GARRETT. Okay. 

Secretary LEW. —no one has ever asked any questions that led 

to that, nor will they. 

Mr. GARRETT. See, Mr. Secretary, simple. The answer is no. None 

of your money was— 

Secretary LEW. And let’s remember what my role was when I 

was there. 

Mr. GARRETT. Yes, you were the chief operating officer involved— 

Secretary LEW. Yes, I was responsible for administrative activities, not for designing risk products. So let’s just remember what 

my role was. 

Mr. GARRETT. Mr. Secretary, you were a senior executive. 

Would the proposed incentive compensation rules capture or impact any of your compensation if those rules were in place back 

then? 

Secretary LEW. I am not aware of anything that relates to me 

personally, but I also am not directly involved in writing the rules, 

so I can’t tell you exactly where they are. I have urged the regulators to have broad such rule. 

Mr. GARRETT. Should the rules be such that senior executives— 

and Elizabeth Warren doesn’t make differentiation between COOs 

and CEOs. She says all senior executives should have clawbacks. 

Is she wrong? 

Secretary LEW. I think that the questions that have been asked 

in designing these rules have been, how do you align incentives for 

risk taking? 

Mr. GARRETT. That is not the question. 

Secretary LEW. No, but that is what the driving issue is. How do 

you make sure that there is not an incentive in the compensation 

to take risk— 

Mr. GARRETT. Here is one—okay, let me ask you this then. Here 

is an alignment. 

Secretary LEW. And that is the right question. That is what we 

have been pushing. 

Mr. GARRETT. Mr. Secretary, thanks. Here is one on the alignment. When you left there, despite all the hemorrhaging and the 

taxpayer bailout, you received something called a bureaucratic 

parachute. You had a promise in your contract that you would be 

paid $944,000 if you took a high-level position in the U.S. Government. Hey, I guess you got that, didn’t you? 

Was that a payment contingent upon you doing and your unit 

doing a good job? Was that contingent upon the fact of whether or 

17 

not there was any fraud in your unit? Or did you just get paid regardless? 

Secretary LEW. Congressman, my compensation was based on my 

performance at the job. The only thing that that provision said was 

I didn’t lose my last year’s pay. 

Mr. GARRETT. The performance of your job? The company lost 75 

percent stock. It went down. 

Secretary LEW. Congressman, you don’t know what my job was. 

Mr. GARRETT. Well, yes, I do. It is in this disclosure as to what 

you are. You were the coordinator for all the units, oversee coordination between operations, technology, human resources, legal, financial, regional departments. Seems like you had your finger on 

every single aspect of the company. I guess you are telling us that 

you are not responsible for anything. 

So, Mr. Chairman, I will end with this. I want to make it clear 

for the record that so long as you are a high-ranking Democratic 

official you can make allthe money that you want on Wall Street, 

but if you are not one of them, then you have to play by the rules 

if the company collapses. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Sherman. 

Mr. SHERMAN. Mr. Secretary, let me spend the first couple of 

minutes on stuff so noncontroversial that I don’t think anybody in 

the room will disagree, because you deserve at least a couple of 

minutes. 

Secretary LEW. I don’t need any time. I am fine. 

Mr. SHERMAN. Oh, I know. But you deserve it anyway. 

First, thank you for the Treasury Department announcement 

and clarification that I asked for last time you were here. So the 

8,000 people from my district who had to evacuate for months due 

to the world’s largest methane leak can clearly understand that 

they are not going to be taxable on the money they got to reimburse them for their expenses when they were living outside their 

home. 

Second, last time you were here, back in March, I brought up the 

issue of a U.S.-Armenia tax treaty. I know we have told your staff, 

so I am not blindsiding you here, that I would bring this up again. 

And the answer I have gotten from your staff is, hey, it would be 

wonderful if we did it, but it is a matter of prioritizing our resources. So I want to review with you why I think it is a priority. 

Canada, whose Treasury Department analog has maybe a tenth 

of your resources, negotiated a treaty with Armenia. Your Department has negotiated treaties with Luxembourg and Malta and with 

dozens of other countries. But what I think your staff may be losing track of is they are looking at everything through solely an economic lens, and they also need to look from a geopolitical and foreign policy lens. 

And I am asking your Department to just have one tax lawyer 

spend a few months to do something, and I want to describe how 

important it is from the standpoint of the Congress and the standpoint of the executive branch, State Department, foreign policy, Defense Department. 

18 

We in Congress have provided a billion dollars of aid to Armenia 

over the last 25 years. The executive branch has a policy of getting 

the Newly Independent States that became independent from the 

Soviet Union, to wean them from Moscow. And that is so important 

that not only have you done tax treaties with Estonia, Latvia, and 

Lithuania, but we have put our lives on the line. We admitted Estonia into NATO. We could be at war with Russia. We could lose 

soldiers in the field. 

Now, I am not asking anybody in the Treasury Department to 

put their life on the line. Just asking to do something that should 

be rather easy because I have persuaded—well, I have talked with 

the Armenians. They will start with your model treaty. 

Given that the Congress has provided a billion for this objective, 

given that our soldiers are ready to die for this objective, can you 

spare a tax lawyer for a few months? 

Secretary LEW. So, Congressman, I understand the strategic significance of Armenia and appreciate the source of your concern. We 

obviously look at these tax treaties through an economic tax policy 

lens, and the basic question that we ask is, can we avoid the kind 

of double taxation that treaties are meant to avoid? We don’t have 

any evidence that there is double taxation. 

Mr. SHERMAN. That was the answer you gave last time. It is a 

chicken and egg. There is no investments because there is no tax 

treaty. There is no tax treaty because there is no investment. 

I have done my best to persuade you on this, and I have just a 

minute to go on to something, and that is, too big to fail is too big 

to exist. You and FSOC have the right to break them up. People 

on this committee could cosponsor the Sanders-Sherman bill and 

break them up. 

We know that they are so big, they are too-big-to-fail. We know 

that if they get in trouble, they will be bailed. The chairman says, 

well, don’t list them, and they won’t be bailed. We were all here— 

many of us here in 2008. If they are about to go under, this Congress will pass new laws to bail them out. 

So we are talking about fail. We are talking about bail. We are 

also talking about jail, because the Attorney General announced 

that he would be reluctant to criminally indict them, these institutions, because of the effect it would have on the economy. 

But Wells Fargo has given us two more reasons, one Democrat, 

one Republican. It appears as if Wells Fargo, for example, was too 

big to manage. Here you had, they hired 5,300 good people. They 

established a system that caused those people to commit 2 million 

felonies. They didn’t monitor. They didn’t notice. That is too big to 

manage and, and, finally, too big to regulate, because all the regulators at Wells Fargo missed this too. 

Too big to fail. Too big to jail. Too big to regulate. Too big to 

manage. Please break them up. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Missouri, Mr. 

Luetkemeyer, chairman of our Housing and Insurance Subcommittee. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

19 

Good morning, Mr. Secretary. I would like to have my questions 

in the areas of SIFI designations and community banking, so let 

me start out with the SIFI designation stuff. 

Dodd-Frank calls for the automatic designation of any bank with 

more than $50 billion in assets to be a SIFI. Mr. Secretary, we 

have had Barney Frank, the author of the Dodd-Frank bill, in this 

committee, sitting in that chair, who has testified in this committee 

that he told us that the $50 billion threshold is arbitrary and that 

we should look at alternative methods for determination. We have 

also heard from other regulators, such as Chair Yellen, Governor 

Tarullo, also on this issue, and they support a different approach 

as well. 

Would you agree that size should not be the only thing to determine what a systemically important financial institution is? 

Secretary LEW. Congressman, I think ultimately the real issue is 

risk, and size is one indicia of risk. 

Mr. LUETKEMEYER. Do you agree then it is not just size? 

Secretary LEW. I think part of the challenge is that when people 

talk about what size bank is a big bank, the conversation is often 

unconnected to where the banks fall in terms of size. There aren’t 

that many banks over 50, and when you talk about numbers like 

the piece of legislation did last year of drawing the line at 500, you 

are talking about only a very few institutions. Some of the largest 

institutions are in between. 

Mr. LUETKEMEYER. Mr. Secretary, I have just a few minutes here 

please. 

My piece of legislation takes away all of the size definitions. Size 

is only one issue. As you can see there is on the board here—you 

probably can’t see it from where you are sitting. 

Secretary LEW. I can’t read it from here. 

Mr. LUETKEMEYER. Behind you is a copy of a chart from the Office of Financial Research Brief Series dated April 13, 2016, and 

this is how globally systemic important banks are determined. And 

as you can see, there are five separate things, and those separate 

criteria are exactly the five criteria that I have in my bill: size, 

interconnectedness, suitability, complexity, cross-jurisdictional activity. 

If those are good enough to determine a G-SII, should they not 

be good enough to determine what a SIFI is here in the United 

States? 

Secretary LEW. I think the challenge is that the designation process is a very cumbersome one, and if you were to require the decisions firm by firm for every single firm, it would require a much 

more massive structure than we currently have. 

Mr. LUETKEMEYER. A minute ago, though, you said that complexity is something we need to take a look at. Yet now you are 

going back to size. If you do that, we are looking at an institution 

that is $50 billion at the bottom end of this versus the larger banks 

that are $2 trillion. That is 40 times difference in size. 

Secretary LEW. Yes, I totally agree that there is a difference. 

Mr. LUETKEMEYER. How can a bank that is $50 billion— 

Secretary LEW. We have tried in every way that we can to use 

regulatory flexibility and keep looking for new regulatory flexibiliVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
20 

ties and to treat firms differently based on what is appropriate to 

their risk level. 

Mr. LUETKEMEYER. The way to treat them more equitably and 

more fairly and more flexibly is to support my bill from the standpoint that suddenly we have different criteria that you as a regulator can use. This is something that even the Office of Financial 

Research says is a way to go about it. So it is a little frustration 

on my part. 

Can you tell me, sir, what the cost is to designate a SIFI? 

Secretary LEW. I would have to get back to you on what the cost. 

It is a long process. 

Mr. LUETKEMEYER. Okay. What is the cost to de- designate? And 

you have already got— 

Secretary LEW. I am sorry. I couldn’t hear you. 

Mr. LUETKEMEYER. What is the cost to de-designate? You have 

already got all the information. Your examiners are in the banks. 

They live there. You have all the information at hand. What additional costs are there to de-designate? Or would there be additional 

costs? 

Secretary LEW. Which institutions are you talking about right 

now, Congressman? 

Mr. LUETKEMEYER. The ones that are designated SIFIs. 

Secretary LEW. The ones that FSOC has designated? 

Mr. LUETKEMEYER. Yes, the ones that are designated— 

Secretary LEW. The largest firms? 

Mr. LUETKEMEYER. Yes, the ones that are designated by the $50 

billion threshold. 

Secretary LEW. So there are two different issues. We have designated 12 institutions that are large nonbank institutions for insurance companies— 

Mr. LUETKEMEYER. Yes, but the ones that are over $50 billion, 

sir, also have to pay fees, have to be under the same regime, regulatory regime, as the big guys. 

Secretary LEW. That is not an FSOC determination. They are 

covered under Dodd-Frank for oversight and supervision. 

Mr. LUETKEMEYER. Okay. Okay. 

Secretary LEW. We don’t make the designation. 

Mr. LUETKEMEYER. But my question is, you already have the information to designate them, what additional costs are there to dedesignate? I am just asking a question about cost, not whether you 

can or not. I am just asking about cost. 

Secretary LEW. I think the process of determining whether they 

are covered now is a fairly simple one, because it is based on a review of information that is available on size. If you had an individual firm-by-firm review to see whether you meet multiple criteria, it is a very different process than the current one. So for me 

to answer the question in the current versus— 

Mr. LUETKEMEYER. Okay. One more quick question. One more 

quick question. My time is totally expired here. 

In my home State of Missouri, we have 44 banks less than $50 

billion at the end of 2015. Twenty-six of them lost money. Those 

are all targets for merger. In fact, one in my district 30 miles away 

from me was merged on Monday morning. This is all due to the 

21 

complexity and the increased cost of compliance. What are you 

going to do about that? Does concern you at all? 

Secretary LEW. I agree with you that small financial institutions, 

community banks, and regional banks play an important part in 

our financial landscape. They meet important needs. We are continuing to look for how we can craft flexibilities that are appropriate so that we can make sure that the risks are visible but not 

overly burdensome. And we look forward to working together to 

find ways to do that. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Meeks. 

Instead, the Chair recognizes the gentleman from Texas, Mr. 

Hinojosa. 

Mr. HINOJOSA. Thank you, Mr. Chairman. And thank you, my 

good friend, Greg Meeks. Thank you. 

Mr. Secretary, thank you for your testimony today. We appreciate your efforts as chairman of the Financial Stability Oversight 

Council to identify the risks to our financial stability and to respond to emerging threats and vulnerabilities in our financial system. 

The chairman’s Dodd-Frank repeal bill, which received bipartisan opposition in the committee this past week, would provide a 

so-called off-ramp for Dodd-Frank and Basel III’s capital and liquidity requirements and it would replace those safeguards with an 

insufficient leverage ratio that fails to contain the guardrails in 

other proposals. For example, while the chairman has attempted to 

conflate this bill with proposals from people like FDIC Vice Chair 

Thomas Hoenig, the chairman’s proposal doesn’t include the same 

limits on derivatives activity in order to receive regulatory relief. 

So, Mr. Secretary, my question is: Can you discuss how replacing 

more complex risk weights along with other Dodd-Frank measures 

might make sense for community banks engaged in traditional 

banking activities but is wholly insufficient when it comes to global 

mega banks? 

Secretary LEW. Yes. Congressman, that is a very good question. 

I think we should be looking for ways to simplify reporting, where 

appropriate, for small banks that don’t engage in a lot of risky activities. We have to always be aware that even small banks are in 

the business of making risk decisions. That is what banks do. And 

we have seen in the past that in the accumulated activity, small 

institutions can create a financial risk that is significant, but it is 

different than the activities of large global financial institutions. 

And we should be trying to distinguish. 

For the largest financial institutions, I think if you look at what 

we have done in financial reform and Wall Street reform that has 

made the system safer, we have gotten much more transparency. 

We see what they are doing. We see what they are holding. We understand how it is connected to the financial system. They have 

capital buffers internally. So when they take risks, we know how 

much of the risk that they are taking they can absorb before they 

have to look outside for any kind of help. 

22 

I think if we were to roll that back, it would be terrible. It would 

be—we have done it, a lot of other major economies have done it. 

If you look at how the global financial system responds to shocks 

nowadays, we could just look back to the week after the vote in the 

United Kingdom on Brexit. There was a sense of confidence in financial institutions that just wouldn’t have existed without financial reform. 

Mr. HINOJOSA. Thank you for that clarification. So what impact 

would H.R. 5983, the chairman’s Dodd-Frank repeal bill, have on 

financial stability and international confidence in the U.S. banking 

system and capital markets if it were enacted? 

Secretary LEW. Look, I believe that if we were to roll back some 

of the protections in Wall Street reform that that legislation would 

roll back, it would bring back concerns about the stability of the 

U.S. financial system the next time there is a bump in the road. 

Bumps in the road happen. They are either geopolitical or economic. You want a financial system that can withstand those kinds 

of shocks. We are in a much stronger place now, and I think it is 

a mistake to go back. 

And if I could just add, there is some things we still need to do. 

From the back and forth a few minutes ago, you wouldn’t know it. 

We are pressing very hard for executive compensation rules to be 

finalized by the regulatory bodies so that we can align risk-taking 

incentives and compensation in a better way. 

Mr. HINOJOSA. I agree that we have come a long way in recovery. 

So let me ask a question on the economic recovery of our country. 

Much more progress needs to be made in order for us to climb out 

of that hole created by the 2008 Great Recession, which was 

spurred by an historic Wall Street-created financial crisis. Tell us, 

to what extent would our progress have been even more remarkable had the Republicans in Congress not been so committed to fiscal austerity? 

Secretary LEW. Congressman, I believe that the early imposition 

of tight fiscal controls was actually something that held back our 

recovery here in the United States. We would have grown faster if 

we had put longer term deficit reduction in place, not slammed on 

the brakes so quickly. 

Mr. HINOJOSA. Would GDP be higher today? 

Secretary LEW. I believe it would. And we have seen, since we 

have more sensible policies through two budget agreements putting 

in place longer term savings and freeing up short-term spending, 

the economy has actually done better. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Michigan, Mr. 

Huizenga, chairman of our Monetary Policy and Trade Subcommittee. 

Mr. HUIZENGA. Thank you, Mr. Chairman. So many issues, so little time. 

I do want to say, first of all, congratulations, Mr. Lew. Oftentimes, depending on who is sitting in there, you get a Jekyll or 

Hyde performance on the other side of the aisle. Quite honestly, I 

am waiting for the outrage of the other side with vaunted claims 

of how the economy has benefited Hispanics and African Americans 

that you just spoke about in your testimony. A robust economy is 

23 

needed for all. Unfortunately, this Administration has not provided 

that. Wall Street is doing just fine. Main Street is not. And intercity Main Street is even doing worse. And I just—it is, I guess, 

going to the dogs characterization depends on who is sitting in the 

seat. So they like who is saying it, just not what is being said. 

I got just teed up. Now I had a question at the end of this, but 

I got teed up by my colleague from Texas about this. You testified 

as well that Dodd-Frank and the Council have ‘‘made the financial 

system safer.’’ However, former Treasury Secretary and Harvard 

president Lawrence Summers says that ‘‘major financial institutions don’t look any safer than they were before Dodd-Frank and 

may even be more risky.’’ He also flagged Dodd-Frank’s myriad of 

regulatory restrictions as a prime suspect for this duplicity. So I 

am going to follow up with that in a written question. But I am 

going to give you literally 20 seconds here to address that. 

Secretary LEW. I don’t think that paper in any way called for 

rolling back Wall Street reform. 

Mr. HUIZENGA. But it said it didn’t work. 

Secretary LEW. I think what it did was it looked at one indication, market evaluations, and used that to do some analysis. We 

have seen markets get things wrong. They didn’t predict the 

subprime crisis because of what was going on in the financial sector. It didn’t predict the outcome of the vote in the United Kingdom. So I would be careful to just assume that one thing—you have 

to look at the whole picture. 

Mr. HUIZENGA. While we are on the United Kingdom, obviously 

we saw that European unity was something that has been called 

for as Greece has been bailed out before. We have had this personal conversation. I have contacted Treasury Department well 

over a year regarding further IMF financial participation in a 

Greek bailout, and I am urging you to oppose that. Even former executive director of the fund who voted for the first bailout has come 

out against a third one. 

Since you last appeared before us, the IMF’s evaluation office released a scathing report on the fund’s involvement in Greece, blasting its debt sustainability analysis and concluding, ‘‘that the best 

governance was not practiced, as the board was poorly informed 

and too late in several instances, and as a result the decision-making and supervisory roles of the executive board were undermined.’’ 

At some point, we have to acknowledge the damage the IMF’s 

credibility has been immense. And you have stated that it was important for European unity. We have seen elections, the Brexit in 

England. We just—recent elections in Germany that I am sure 

have many of your colleagues over there very concerned. 

My next issue is the World Bank. And, Mr. Chairman, I would 

like to submit for the record a couple of letters to the record that 

were sent by Ms. Moore, my ranking member, and myself. We 

wrote a letter to President Kim— 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. HUIZENGA. —expressing our alarm over a failed transportation project in Uganda. This project was linked to the sexual exploitation of children, among other appalling consequences. Moreover, the bank’s new safeguards have been criticized for ignoring 

human rights, even as they protect, and this is not a joke, the 

24 

rights of farm animals. Given all this, I hope we can work together 

so that the ongoing IDA negotiations result in realistic commitments as well as true reforms at the bank. 

Thank you. 

And finally, just kind of rounding off, going back to the chairman’s questioning on Iran. There was a letter to Senator Marco 

Rubio in June that Thomas Maloney, the senior at Legislative Affairs, said: The Administration has not been and is not planning 

to grant Iran access to the financial system. To be clear, until Iran 

has addressed other concerns we have with its behavior outside the 

nuclear file, the U.S. financial system, including the branches of 

U.S. financial institutions abroad, will remain off limits to Iran, 

and U.S. persons will not be able to provide financial services or 

products to Iran without explicit authorization. 

Iran’s behavior is outside of the nuclear profile. Terrorism remains unchanged. You even said that earlier. You said it hasn’t 

gotten worse. That means it hasn’t gotten better either. Just yesterday, you announced the authorization of U.S. financial institutions to finance aircraft sales. Doesn’t this contradict your written 

assurances to Congress? 

Secretary LEW. No, Congressman. The licenses that were issued 

yesterday for aircraft were something that were negotiated in the 

Joint Comprehensive Plan of Action, and they were consistent with 

it. It goes only to entities that do not engage in terrorism and it 

cannot be used— 

Mr. HUIZENGA. The $1.4 billion in cash was consistent with it 

too, but it doesn’t make it right. 

Secretary LEW. The U.S. financial system remains closed, except 

for very specific purposes. And this I don’t believe—I am not aware 

of a transaction through a U.S. financial system that will support 

it. But a licensed activity is the only exception. 

Mr. HUIZENGA. My time has expired. 

Chairman HENSARLING. The time of the gentleman has expired. 

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

Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

And let me first welcome you, Secretary Lew. It is coming another way, but as a member of this committee and a member of the 

Foreign Affairs Committee, I think that I want to—this piece talking about the settlement payment to Iran, as I see what they put 

up on the board and I have heard the questions by the chairman 

when I was listening in my office, it just seems to me that my colleagues on the other side of the aisle are using as fodder for a convenient political spin. They are playing politics this election year. 

And the majority have quickly turned to these talking points about 

the Administration’s settlement being a ransom payment. This despite the fact that the Obama Administration had, in fact, briefed 

Congress in advance, I say that again, it had been said before, Congress was briefed in advance of the $1.7 billion settlement of a 

longstanding claim with the Government of Iran. You did brief 

Congress. Is that not correct? 

Secretary LEW. It was fully described by the President at the 

time, and we briefed Congress at the time. 

25 

Mr. MEEKS. And it is not the first time, nor is it unusual that— 

in fact, I think that it was a smart thing using leverage when conducting diplomatic negotiations. That is a common and smart strategy that is utilized not only by this Administration but has been 

done by past ones also. Is that not correct? 

Secretary LEW. I believe that settling something for $1.7 billion when you were exposed to $5 to $10 billion of risk is the right outcome. 

Mr. MEEKS. In fact, that is right. Because isn’t it true, Mr. Secretary, that had the Administration not negotiated the Hague settlement, we would have ended up ultimately paying much higher 

for the 1979 failed arms sale? 

Secretary LEW. I believe that we resolved it in a way that saved 

the United States and U.S. taxpayers substantial exposure. 

Mr. MEEKS. And on top of that, for the record, on top of that, 

since the establishment of the U.S.-Iran Claims Tribunal, all U.S. 

citizens’ claims against Iran that were registered under the Algiers 

Accords have also been resolved, and Americans, as a result, by us 

doing that, have gotten about—what is it? About $2.5 billion in 

payments? 

Secretary LEW. Yes. I don’t know the total, but to my knowledge, 

they have all been paid. 

Mr. MEEKS. So let me—and the record should be clear about 

that, that this was a smart deal done utilizing leverage that you 

had. You have leverage, you don’t give it up, you utilize it. That 

was done by the Administration. And the fact of the matter is, I 

would like to say that it was something that nobody else did, it was 

unique, your thought, but other Administrations have done the 

same thing. Democrats and Republicans. Is that not correct? 

Secretary LEW. Settling outstanding claims? 

Mr. MEEKS. That is right. 

Secretary LEW. Yes. It is not a new phenomenon. It obviously is 

a new conversation. For decades, we haven’t had an ability to have 

a conversation with Iran to settle this. And we faced the possibility 

of an enormous judgment against the United States. 

Mr. MEEKS. So let me go back to what we were talking about, 

in the time that I have left, and that is dealing—which is FSOC. 

Because FSOC, which was created by Dodd-Frank Act, is something that I believe is an absolute necessity as a framework so that 

we can deal with the complex multisector interconnected financial 

risks in our financial markets. And I encourage FSOC to further 

embrace greater transparency in its designation process and in how 

designated entities would be regulated. Because it is key, I strongly 

believe that we should emphasize and focus on working with the 

designated firms so that they can de-risk, if we work with them, 

and they no longer become risky, it is much better to eliminate systemic risk as opposed to supervising it. Is that not correct? 

Secretary LEW. Yes. Congressman, I actually think that the process the GE went through demonstrates that it is a two-way street. 

GE, for its own business reasons, changed its focus to go back to 

being an industrial as opposed to a financial firm. It came and 

made the showing that it was no longer engaged in the activities 

that caused it to be designated, and we quickly responded by dedesignating. And we have not—for the debate about designation, 

26 

you would think that hundreds of firms have been designated. It 

is four nonbanks and eight utilities. We are not out going aggressively to designate firms. We identified firms with a high level of 

risk. And if another firm were to appear that presented risk, we 

should go forward. 

But we always lay out the basis for designation so that they 

know what it is that is making them be designated. And it is a 

business decision whether they want to be in the form they are 

with some additional oversight or change their business structure. 

It is not like being designated stops you from doing your business. 

It just means we have more visibility so we can see what is going 

on. 

Mr. MEEKS. Thank you. I had another question, but I think I am 

out of time and I don’t want to hear that gavel from the chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Wisconsin, Mr. 

Duffy, chairman of our Oversight and Investigations Subcommittee. 

Mr. DUFFY. Thank you, Mr. Chairman. 

And welcome, Mr. Lew. I want to go back to your Iran deal. I 

think you testified that wire transfer payments were made to Iran 

before the $1.7 billion cash payment and— 

Secretary LEW. I testified that one $900,000— 

Mr. DUFFY. Went before. 

Secretary LEW. Yes. 

Mr. DUFFY. And— 

Secretary LEW. Sometime before. 

Mr. DUFFY. That is my recollection too. And a wire transfer also 

went to Iran after the cash payment. Is that correct? 

Secretary LEW. Yes. 

Mr. DUFFY. So the fact is, per your testimony, that wire transfers 

to Iran are possible. I will take that at face value. 

Secretary LEW. No. Congressman, it is very important. 

Mr. DUFFY. No, no, no, no. 

Secretary LEW. The wire transfer—you have to understand what 

a wire transfer does. 

Mr. DUFFY. I am—my time. Let me get to my question, though. 

Secretary LEW. What you stated was incorrect. 

Mr. DUFFY. I am going to repeat my question. 

Secretary LEW. So I just want to make it clear what you stated 

was incorrect. 

Mr. DUFFY. Now, you made a wire transfer before the cash payment, you made a wire transfer after the cash payment. And the 

President told the American people that we could not wire the 

money. So it leads me to believe that the Administration has not 

been truthful— 

Secretary LEW. No, Congressman. 

Mr. DUFFY. —with the American people, based on your testimony 

today, because wire transfers could take place. 

Secretary LEW. Indulge me to answer your question. The wire 

transfer goes to an account in a foreign bank. A European bank, 

say. It doesn’t go to the Central Bank of Iran directly. The question 

is, if you have a contract settlement with a party that you have no 

trust, they don’t trust us, we don’t trust them, they are not asking 

can you get the money to an account that they may or may not be 

27 

able to get access to. It was part of the negotiation to get the 

money to the Central Bank of Iran. 

Mr. DUFFY. Okay. So but wire transfers can take place. And the 

wire transfer before the $1.7 billion and the wire transfer after the 

$1.7 billion, were those also converted to cash? 

Secretary LEW. Just as a factual matter, Congressman, it was 

quite— 

Mr. DUFFY. Yes or no. 

Secretary LEW. —it was quite challenging for Iran— 

Mr. DUFFY. Were those converted to cash? 

Secretary LEW. —to get access to that money. It was quite challenging. 

Mr. DUFFY. There’s a reason for that. Right? They are the lead 

sponsor of terror. We have rules in place so they can’t access cash. 

Secretary LEW. I enforced those rules. Yes, I understand those 

rules. 

Mr. DUFFY. So let’s talk about the rules. In the Code of Federal 

Regulation, you can’t load up a plane full of cash in the U.S. and 

fly it to Iran lawfully. So to get around that rule, what did you do? 

You wired the money to Europe and then had it converted to cash 

and sent to Iran so you didn’t violate the law. So, yes, you complied 

with the law, but you got around the spirit of the law. Right? 

Secretary LEW. Congressman, we have successfully cut Iran off 

from the U.S. financial system. When we agreed— 

Mr. DUFFY. I agree. 

Secretary LEW. —to settle a legal claim with Iran, part of that 

agreement is you make payment. The way you make payment is 

you wire money to their account or you— 

Mr. DUFFY. Convert it to cash? 

Secretary LEW. The question was, how do they get access to the 

payment of the settlement? And we worked through foreign banks, 

and they wanted access— 

Mr. DUFFY. Mr. Lew, the problem— 

Secretary LEW. —which was not unreasonable, given that it was 

a negotiated settlement. 

Mr. DUFFY. It is unreasonable because this is a bad deal. 

Secretary LEW. No, Congressman. 

Mr. DUFFY. No, Mr. Lew. They are the lead sponsor of terror in 

the world. 

Secretary LEW. Let’s go back to the deal. 

Mr. DUFFY. We have cut them—no, no. We have cut them off 

from cash because cash is the currency of terror. 

Secretary LEW. Yes. 

Mr. DUFFY. And so when you make payments, yes, you are going 

to make it to a foreign bank. And they are restricted in how they 

might use that money. And they want to access the cash because 

the cash is untraceable and they can use it for nefarious things 

that we object to. And you made the payment anyway in cash. 

Secretary LEW. Congressman, the Joint Comprehensive Plan of 

Action gives Iran access to its own money in international banks. 

Mr. DUFFY. I don’t have much time left. 

Secretary LEW. No. Let me answer your question, Congressman. 

Mr. DUFFY. Hurry up. 

28 

Secretary LEW. This is a very important question. Part of the 

agreement that caused Iran to dismantle its nuclear program and 

increase their—make it take 12-plus months, not 3 months, to develop a nuclear weapon—which they dismantled their nuclear program. We had to keep our part of the deal, which was to give them 

access to their own money. 

Mr. DUFFY. In cash, right. 

Secretary LEW. They have been having a hard time. And I am 

not going to apologize for saying we need to keep our deal. They 

need to get access to that cash. 

Mr. DUFFY. I am going to reclaim my time. I heard you— 

Secretary LEW. And in the case of settling a contract— 

Mr. DUFFY. We can have a disagreement on—this is my time, 

though. 

Mr. Lew, I have— 

Secretary LEW. Mr. Chairman, can the Congressman get a few 

more seconds so I can answer his question? We shouldn’t have to 

talk over each other. This is a very important matter. 

Chairman HENSARLING. Without objection, but the time belongs 

to the gentleman from Wisconsin. 

Mr. DUFFY. If I could have unanimous consent for another 30 

seconds? 

Chairman HENSARLING. Without objection, the gentleman is accorded an extra 30 seconds. 

Secretary LEW. I respect the question. And I don’t want to be 

talking over each other. I would like to explain it. 

A deal is a deal. When you have a country dismantle its nuclear 

program and you give them access to their money, that means they 

are going to get money. It is going to go to the Central Bank. We 

knew that. We said all along we are going to make sure that we 

keep our eye on what they do in terms of nefarious activities and 

use our other authorities to stop that. 

Mr. DUFFY. I have given you the time, but I only have now 30 

seconds. But I know, I wish I had more time. I wish I did, but 

maybe we will talk over coffee one day. 

Secretary LEW. But the other half of my comment actually is 

very important. 

Mr. DUFFY. Can you guarantee—Mr. Lew, you say you cut a good 

deal, you are proud of the deal. Can you guarantee the American 

people that that $1.7 billion in cash will not be used to fund terror? 

Secretary LEW. Look, Congressman, I have said— 

Mr. DUFFY. I will take that as a no. Yes or no. 

Secretary LEW. These are not yes or no questions. 

Mr. DUFFY. They are yes or no questions. 

Secretary LEW. Be serious, Congressman. 

Mr. DUFFY. I am very serious. 

Secretary LEW. All right. Then give me a chance to answer your 

question. 

Mr. DUFFY. This is a serious issue. 

This is a yes or no. I have a few more moments. So in regard— 

Secretary LEW. Congressman, if I have the time, I will answer 

your question. If not, let’s be serious. 

Mr. DUFFY. It is a yes or no. So I have one more question for you. 

We have unfrozen assets. Right? Whether it is $100 billion or they 

29 

had payments, that is only $40 billion. Do you know if any of that 

money has also been allowed to go to Iran in cash or gold or any 

other— 

Secretary LEW. Congressman, people are coming up with all 

kinds of— 

Mr. DUFFY. You are the Treasury Secretary. That is why I am 

ask you. 

Secretary LEW. I have seen things— 

Mr. DUFFY. I am asking the Treasury secretary. 

Secretary LEW. We have—we gave— 

Mr. DUFFY. Yes or no. 

Secretary LEW. Mr. Chairman, may I answer the question? 

Congressman, you— 

Chairman HENSARLING. Please answer the question. 

Secretary LEW. —have a letter that our department sent you describing the transfer of cash. We have laid it out clearly. We have 

come up and given classified briefings. We continue to. 

Mr. DUFFY. My question for you that you wanted to answer, and 

I guess if he could answer the question. He has asked for it, Mr. 

Chairman, and I ask unanimous consent to allow that. 

I am now talking about the $100 million of unfrozen assets that 

might only be $40 billion. Not even $100 billion. Any of that money 

that you are aware of as the Treasury Secretary, not rumors, but 

you as the secretary, do you know if any of that money has been 

allowed to go to Iran, of those unfrozen assets, in cash or gold or 

any other kind of currency payment? 

Secretary LEW. Congressman, the— 

Mr. DUFFY. Yes or no. 

Secretary LEW. Congressman, the money is Iran’s money. And 

when it comes to the Central Bank of Iran, one way or another, it 

gets turned into cash that they can use. So you are only talking 

about what mode of transfer. 

Mr. DUFFY. Because you— 

Secretary LEW. I am not aware of cash transfers. 

Mr. DUFFY. You have allowed it to happen, sir. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has long 

since expired. 

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

Maloney, ranking member of our Capital Markets Subcommittee. 

Mrs. MALONEY. Thank you, Mr. Chairman. 

And welcome, Secretary Lew. I want to ask you about cybersecurity. And as you know, there have been several reported examples 

where hackers have successfully stolen banks’ credentials for the 

SWIFT system that banks use for international payments, and 

then used these stolen credentials to initiate fraudulent funds 

transfers. In one case, hackers were able to steal $81 million from 

the Bangladesh Central Bank’s account at the New York Fed. 

And I am concerned, and I want to know are you concerned, that 

repeated instances of fraudulent transfers through the SWIFT system will undermine the confidence, and I would say, the safety and 

soundness of international payments, and do you believe that this 

poses a systemic risk? 

30 

Secretary LEW. Congresswoman, obviously we are aware of the 

reported intrusions into the SWIFT system. And I would have to 

refer you to SWIFT for detailed responses on that. 

We do have confidence in the integrity of the global financial system, but we are also very much aware of the risks that the threat 

of cyber attack presents to every part of our financial system, and 

really every part of our electronic lives. It is true about utilities. 

It is true about virtually every system that we deal with. 

That is why the Presidenthas been so clear that we need to take 

the strongest action to have a coordinated approach to both putting 

best practices in place, sharing information, removing the stigma 

of being attacked. Because whether you are a business, a government, or an individual, you didn’t necessarily do something wrong 

that you were attacked. We have to stay a step ahead of the bad 

actors. That means that the more you know about how attacks are 

made, the more you can build systems to protect against them. You 

know that the attackers are going to come up with something new. 

It is not like they will stop where they are. We need to make sure 

that systems are updated so that you have the right equipment as 

well as the right software approaches. 

I think this is going to be a part of our lives for some time to 

come. We have to make sure it doesn’t become a threat to financial 

stability. I actually think the financial system is a step ahead of 

most other sectors. But that gives me little comfort, because the financial system requires electricity, it requires all of the other 

things that are part of our broader infrastructure that we all depend on. This is a serious, serious challenge throughout our economy and the world. 

Mrs. MALONEY. Thank you. I would also like to ask you about 

Brexit. And just 2 days after the FSOC published its annual report, 

the U.K. Voted to leave the European Union. And the day after 

that vote, the FSOC held an emergency meeting that was reported 

to discuss the financial stability and implications of the Brexit vote. 

Now that you have had time to reflect and to study this and to 

consider various scenarios for how the U.K. Will manage its exit, 

do you see any real risks to the financial stability of the United 

States coming from the Brexit initiative? And if the U.K. And the 

EU fail to reach a deal on financial services before the U.K. Leaves, 

could that pose a systemic risk to our financial system? 

Secretary LEW. Congresswoman, I think in the period right 

around the vote and after, there was very good preparation by central banks and by finance ministries to make it clear that there 

were sufficient resources in place to prevent what was a very volatile period from spilling over into a period of real loss of confidence. 

I think it was actually a measure of the success of financial reform 

that there was enough confidence in financial institutions because 

we knew what their balance sheets looked like, we knew what their 

capital was. And it gave central banks the ability to respond as decisively as they did. 

Mrs. MALONEY. And lastly—my time is almost over, and I want 

to talk about you de-designated GE Capital. It was the first de-designation in the council’s history. And this came after GE Capital 

made significant changes to its business model and divested nearly 

$300 billion of assets. Now, some critics of the FSOC have claimed 

31 

that GE Capital only escaped after they sold off virtually all of 

their financial businesses, and that therefore FSOC requires companies to gut themselves in order to be redesignated. Is that true? 

Is the only way for a company to get de-designated is to really divest? Or was GE Capital a unique case? 

Secretary LEW. Each designation is a unique case. It is based on 

the facts that are presented and the analysis of the company and 

the risk that it presents. In the case of GE, they made a business 

decision that, from my conversations with the company, had less to 

do with designation and more to do with their strategic vision of 

where the company should go. It had the effect of changing the 

analysis in a material way. And they were de-designated. 

Every company knows why they were designated. They all understand what their strategic business plans are. And they have 

the basis for making the decisions for themselves. 

Mrs. MALONEY. Thank you very much for your service. 

Chairman HENSARLING. The time of the gentlelady has expired. 

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

Pearce. 

Mr. PEARCE. How are you doing, Mr. Secretary? Nice to have you 

here today. 

Secretary LEW. Always a pleasure. 

Mr. PEARCE. I could tell. 

When the FSOC was created, basically you were charged with 

three statutory mandates, and the first being to identify the risk 

to the financial stability of the United States. So that is pretty 

well-established. 

Now, in your report today, you say that for the first time ever 

we can identify and respond to emerging threats to the U.S. financial stability. And then you go on to say that the council, the FSOC 

council, convenes regularly to monitor market developments and 

take action when needed to protect the American people. And then 

you continue on even further to say that the FSOC is supposed to 

report on recommendations for specific actions to mitigate the 

risks. 

For over 6 years, the Fed has kept interest rates extremely low. 

In fact, near the zero level. Mostly, the inflation doves in the Fed 

have downplayed the effect on the market. Now, just last week, you 

had the head of the Boston Fed, President Rosengren, he has been 

one of the biggest doves saying that there is no connection here. He 

came out and made a statement that says that he is concerned that 

easy money could be letting markets get out of hand as they were 

before the crisis. That sent the markets into turmoil. 

And so a market that hadn’t changed barely 1 percent in the previous month and a half suddenly was changing tremendously in the 

next 3 or 4 days. So the market is indicating some concerns that 

it might be true. 

So I guess my question—I would like to also submit that article 

for the record, Mr. Chairman. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. PEARCE. And then you have also Veritude saying that they 

are not going to trade in the bond market because it is just too 

hard to price. It is too unstable. 

32 

Now, to me, those are things that in my small town New Mexico 

way seem like they could be impacts on the stability—the financial 

stability of the United States. But I was kind of surprised because 

I am just thumbing through, I haven’t read the whole thing, but 

I am looking at your report, not just what you said here today, and 

I don’t see much about monetary policy affecting the markets the 

way that they seem to be. 

So I guess my question is, when you are ever sitting around talking to Janet Yellen, do you ever kind of look away from the TV 

cameras and say: We ought to be talking about this. It has a little 

effect maybe? Do you ever bring that up? 

Secretary LEW. Congressman, obviously, like all of our predecessors, the Chair of the Fed and I talk to each other, both in meetings and out of meetings, and I would hope that that remains true, 

because as the two senior economic— 

Mr. PEARCE. Okay. You are just now talking, sir. And with all 

respect, I am not trying to interrupt if you were really getting in 

saying: Yes, we have talked about it and stuff. But you are saying 

you want the conversation to be friendly and continue, and my 

time is escaping. And so I am not going to bother you anymore. I 

am just going to continue to make the points. Because I think that 

you are not looking at the financial instability at all that is coming 

up. 

When I am talking a look here, the Wall Street Journal of May 

20 says that it is not China, not the U.K. It is the lack of liquidity 

in the markets that is going to be a big problem. When I take a 

look at Bloomberg, they talk about today’s postcrisis regulations intended to make banks safer and discourage risk taking are eroding 

profits and forcing dealers to rethink their business model. These 

changes have created a vacuum in the bond market making trading 

much riskier. And then they go on in the same report to say that 

all of this matters because the $100 trillion global bond market is 

an essential part of the machinery that keeps the world economy 

going. And it is not even being referred to in your report. 

And finally, then where it all comes down to hit the road, is September 21st, a $1.9 trillion shortfall in the United States State and 

local pension fund is poised to grow as near a record low bond 

yields and global stock market turmoil reduce investment gains, 

that they are expecting 7 percent rate of return and they are getting 1 percent. And none of this is in your report, which leads me 

to think that you are not dealing with the financial instability of 

the U.S. at all. 

I yield back, Mr. Chairman. Thank you. 

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. 

Welcome, Mr. Secretary. And I have to say, I think that—well, 

first of all, thank you for your service to your country. And I think 

my predecessor, Joe Moakley, would be very proud of the job that 

you are doing. 

Secretary LEW. I am proud to have been connected to him. 

Mr. LYNCH. Yes. Good man. We miss him. 

33 

I do want to revisit the issue raised by the gentlelady from New 

York, Mrs. Maloney, around the SWIFT. That system was compromised. She is absolutely correct. $81 million. Apparently, a 

transfer from the Bangladesh Central Bank, but the payment was 

authorized to the New York Fed, and then the money ended up in 

the Philippines, and there we lost track of it. 

And so given the size, the volume of transactions between central 

banks and commercial banks on that SWIFT network, it does raise 

some concerns. And I was wondering—I did read a story in Reuters 

that we are in informal discussions with the Philippines. They 

would like to be part of TPP. Now, I am against TPP, but as long 

as you are having these discussions, one of the gaps in that whole 

theft of $81 million was that the Philippines have created an exemption for their casinos under the antimoney laundering protocols 

that we have at FATF. And I am just wondering, in those discussions, if we could persuade, no matter where TPP goes, if we could 

persuade the Philippines to get in compliance with that antimoney 

laundering protocol that we have—with a lot of the FATF countries, that might be a good use of our time. 

Secretary LEW. Congressman, I think in general, the more we 

bring other countries up to high standards of being able to stop illicit financial activity, to see money laundering, the better able we 

will be to take actions, not just in response to cybercrime, but in 

terms of funding of terrorism and other things of the like. I think 

the challenge of making sure our computer systems are safe is one 

that, as I was saying to Congresswoman Maloney, we deal with 

every day. Every CEO in the world deals with it every day. And 

it is going to be an ongoing challenge. 

I know SWIFT is taking very seriously the breaches that have 

been reported. And it is going to require action kind of broadly 

through the financial system to stay ahead of these cyber attacks. 

Mr. LYNCH. All right. Chairman Hensarling has set up a terrorist 

financing task force here that I share with Mr. Fitzpatrick. And we 

are just very concerned. In the Philippines, Abu Sayyaf is very active there. So God knows where this $81 million went. But that 

would certainly be a problem. 

I want to revisit the SIFI designation process a little bit. I know 

that the courts rejected the application of SIFI to MetLife. And I 

am just curious how that has changed your analysis. And I know 

you have sort of a three-stage review there. How is that going? Do 

you think MetLife is a risk because they have been declassified, I 

guess, de-designated? 

Secretary LEW. To be clear, a lower court has ruled in favor. We 

have appealed that. We believe we have the legal case to prevail 

on appeal. So we don’t believe that the end of the MetLife case will 

be to de-designate, but that is obviously up for the courts to decide. 

I think the process we went through was a rigorous one. The 

record supports the decision that we made. And I think some of the 

basis for the court’s decision is very flawed. I have made that clear. 

That is something that our appeal makes clear. 

Mr. LYNCH. Yes. 

Secretary LEW. I think going forward, the point I made earlier 

is, I think, very important to keep in mind. We have not designated 

500 institutions. 

34 

Mr. LYNCH. Well, I know that. 

Secretary LEW. We have designated 12. 

Mr. LYNCH. You said previously there are a very, very small 

number of companies and utilities. 

Secretary LEW. And they are—for a reason. Because they are 

so— 

Mr. LYNCH. But let me—I just want to—my time is running out. 

So—okay. So there is this process that I hear from some of the 

companies and banks that might be affected that—and it was cited 

in the lower court’s decision, that there is not enough flexibility for 

them to adjust their structure in a timely fashion to avoid SIFI 

designation. Is that something you are working on or—is that part 

of your response? 

Secretary LEW. I think that the process of consultation in the 

designation process has been very good. It has gotten better over 

time, but it has been very good all along. I think— 

Mr. LYNCH. That is according to you, just so you know. Some 

people don’t feel that way. But I agree with you. 

Secretary LEW. I think that it is not because there is a misunderstanding. It is because of basic issues of what businesses are doing, 

what they are about. And it is not that it—we obviously think that 

if decisions are made to reduce risk, that is a good thing. But if 

you are going to maintain a business organization that presents a 

high degree of risk, having oversight is important. It doesn’t put 

anyone out of business. 

Mr. LYNCH. Okay. Thank you for your indulgence, Mr. Chairman. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from California, Mr. 

Royce, chairman of the House Foreign Affairs Committee. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Mr. Lew, welcome. 

Secretary LEW. It’s good to be with you. 

Mr. ROYCE. We are glad you are here. I know that back in 1986, 

you sat next to Tip O’Neill back when he and Ronald Reagan were 

working on the 1986 Tax Act. And I was wondering what advice 

you might give maybe the next Administration in terms of how the 

Speaker and how the President could work on the compromises 

that would get us to a result, in my view, like that one. I think 

you are somewhat optimistic about the consequences of the economic growth that we saw after the 1986 act as well. 

So I wanted just to speak for a second to this issue you mentioned about this bipartisan widespread agreement that our current business tax rate is stifling economic growth and that it is 

making us uncompetitive. And there is an agreement, I think, on 

the need to eliminate loopholes. And I think also some of us who 

agree we should be taking tax revenue from money parked overseas to pay for infrastructure projects here, there is perhaps that 

element too that could help move this through. 

There seems to be some disagreement on whether to include 

small businesses that file on the individual side to include the 

passthrough companies. And I have followed your thinking through 

the years. I know early on, you thought it should all be done at 

once, and last month, I think you mentioned it needed to be broken 

35 

up in terms of how it was handled. But I thought I would ask you 

that question, and especially in terms of how we were able to 

achieve that result in 1986. 

Secretary LEW. Congressman, it is a great question. It is actually 

something I have given a lot of thought to. I think we have made 

a lot of progress in the discussions on a bipartisan basis on business tax reform. I think in terms of how we should close loopholes, 

how we should lower rates, how we should deal with international 

income, have a minimum tax, I think that we have an emerging 

consensus that has the ability to get bipartisan support. I think 

you put your finger on something that has been an issue. And I 

think it is a misunderstood issue. And if I could take just a minute, 

I would like to explain why. 

You can do business tax reform on the corporate side and provide 

a lot of benefit to small businesses by letting them deduct everything that they spend on investment by giving them simplified procedures. Real small businesses would benefit from where the 

emerging consensus for business tax reform is. The institutions 

that wouldn’t—the businesses that wouldn’t benefit are not small 

businesses. They are LLCs that organized after the last tax reforms to go from being corporations to being passthroughs. It is 

interstate pipeline companies, it is large financial firms like hedge 

funds. 

I think that if we look at the impact on real small businesses, 

we can get there. And I hope that we can, like, break apart where 

the impact of individual rates really falls. It doesn’t fall on the 

small neighborhood business. It is falling on these very large firms. 

And I think it would be a shame if that were to be an obstacle to 

cleaning up a business tax code that is profoundly broken. It is 

causing terrible consequences. We see the European commission 

now reaching into our tax base with state aid fines. That is a terrible thing. We need to stop it by fixing our Tax Code. 

And you put your finger on what I think brings it together so we 

should be able to get bipartisan consensus, which is using the onetime revenue that comes from having a tax apply to overseas income, whether it comes home or not, to fund infrastructure. That 

is one-time revenue. It is a perfect use for one-time revenue. 

Mr. ROYCE. Let me ask you another question too. And that is on 

the intersection of domestic and international regulations in the 

area of the Financial Stability Board. I am concerned that U.S. regulators, at least in part, rely on FSB determinations, yet FSB is 

not subject to the procedural due process. So I think we have an 

interest here in starting with FSOC rather than starting at the 

other end with European, Swiss-based FSB, where we end up without notice and comment or prohibitions on arbitrary and capricious 

actions, and then we work to accommodate the Europeans rather 

than the other way around. 

Given the impact that designation can have on a company, why 

utilize a process that lacks some basic protections here? Why don’t 

we reverse that process? 

Secretary LEW. Congressman, we do it the way you want us to 

do it. The only designations that we make, we make based on U.S. 

procedures. The FSB is a policy shaping, not an action determining 

body. It is not binding on nations, but it does help bring other 

36 

countries closer to meeting our standards. And I think it is good 

for us to have other countries have higher regulatory standards. 

Mr. ROYCE. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Georgia, Mr. 

Scott. 

Mr. SCOTT. Secretary Lew, I want to go back to the Iranian discussion for a moment, but from another perspective. We all agree 

the Iranian agreement is done, it is there, and that it is—whether 

you agree with it or not. But here is my concern. We all must agree 

that as a result, right now, Iran stands flush with billions and billions and billions of dollars. And as you alluded to, much of their 

own money. And I respect the President. He has tried very hard 

with this deal. I respect that deal. But here is my concern. 

We have an obligation to Israel to make sure that they have a 

memorandum of understanding. But here is the point, Secretary. 

The President recently issued his memorandum of understanding, 

and it is woefully weak. It is about the same amount of money as 

we did in 2008. Because, as you know, in the Naval Transfer Vehicle Act of 2008, we established a fact in law that the amount of 

military aid we give to Israel must make sure that Israel has the 

qualitative military edge. There is absolutely no way. 

But the President, in his memorandum of understanding, giving 

Israel about the same amount of money that we gave 10 years ago 

when we had our foot on Iran’s neck, the economyis down. Now 

they are flush with hundreds of billions of dollars more. So much 

so that they are now shipping weapons to Israel’s enemies up and 

down and all around the place. As you know, we were able to successfully stop three shiploads of weapons going to the Houthis, 

going to Hezbollah, going to Hamas, Syria, all of those places. 

My point is this. The President—some of us here in Congress 

want to work with the President. And I want to ask you if you 

could convey to him that David Scott wants to work with him. I 

have served on the NATO Parliament Assembly. I was the vice 

chair—the chairman of our Science and Technology Committee. We 

spent 2 years working on the Iranian agreement. I understand 

that. That is past. But now we got Iran, Israel’s number one 

enemy, flush with all this money. And we have an obligation in the 

Naval Transfer Act of 2008 to make sure that they have the qualitative military edge. And they don’t have it with the President offering—Bush offered in 2008, I think it was about $3.3 billion a 

year, and the President is talking about like $3.7 billion, when Iran 

is so far superior in its money. It has already put in $19 billion for 

moneys in weapons from China and Russia, and all that. 

So what I wanted to ask you was that if you could convey to the 

President that Congress has a step in this too. Let us work together. That memorandum of understanding for Israel, in order to 

make sure they had the qualitative military edge as by law we are 

saying, should be close to $7 billion a year. It is Congress that appropriates that money. Give us a seat at the table. Let us work 

with him on it. Could you do that for me? 

Secretary LEW. Congressman, I think just a couple points. First, 

I met yesterday in New York at the U.N. with Israel’s finance minister who saw the MOU as being very important in terms of guarVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
37 

anteeing Israel’s both military and financial security. So I don’t 

think your view is shared necessarily by the Government of Israel. 

Secondly— 

Mr. SCOTT. But let me tell you something, what my view is. I 

helped write that law in 2008. We made sure that they got the 

qualitative military edge. 

Secretary LEW. Which we have continued to stand by. 

Mr. SCOTT. And this does not— 

Secretary LEW. We continue to stand by that, yes. 

Mr. SCOTT. You don’t have the qualitative military edge giving 

them the same amount of money. 

Secretary LEW. I will leave the discussion of the military issues 

to our military experts. But this, as a financial matter, is a very 

important commitment between the United States and Israel. And 

I am proud that we were able to do it. I don’t think— 

Mr. SCOTT. Congress appropriates the money. Don’t you think we 

have a role in that? 

Secretary LEW. Congress always has the right to appropriate the 

money. I won’t challenge that. 

If I could just say, though, I think anyone comparing Israel’s 

economy and Iran’s economy, Iran has a broken economy. They 

have gotten some relief because of taking apart their nuclear program. But Israel has a very— 

Mr. SCOTT. There is not a dime of that goes to the Iron Dome 

or to David Sling or to combat the traffic of weapons going to 

Israel. 

Secretary LEW. And I totally agree with you. We should stand 

with Israel to make sure— 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Florida, Mr. 

Posey. 

Mr. POSEY. Thank you very much, Mr. Chairman. 

Secretary Lew, I have an issue that ties in with the chairman’s 

question about the role of the Treasury in making payments. For 

6 years, 6 long tortuous years, I have been fighting for a group of 

former hostages held captive by the Revolutionary Armed Forces of 

Columbia, better known as FARC. I know you are familiar with 

them. 

You see, these men were on a U.S. Government counternarcotics 

mission when they were captured by the FARC. One American was 

executed and the other three were held hostage for 51⁄2 years. They 

were subject to conditions that neither you nor I can even begin to 

imagine. Horrible. 

After returning home, the former hostages were granted a judgment under the Antiterrorism Act for damages against the FARC. 

However, the accounts to fund this judgment have been blocked by 

the Treasury Department since the Office of Foreign Assets Control 

is now designating all FARC accounts as kingpin. Congress clearly 

wanted terrorism victims to be compensated when it passed the 

law to allow them to access the frozen assets of terrorists. But the 

Office of Foreign Assets Control has eliminated their ability to do 

that by designating all FARC assets as kingpin. A small change to 

TRIA would fix this. 

38 

The bill that accomplishes this, H.R. 3394, the Captive Act, 

passed the House unanimously. Totally bipartisan, unanimous, in 

July. Now I am hearing that the Office of Foreign Asset Control 

is blocking the bill in the Senate. In the meantime, the FARC 

peace accord includes reparations for Columbian victims of the 

FARC terrorism, and a $450 million appropriation to implement 

the accord is waiting for Congressional passage. However, here we 

have American victims of terrorism who went through years of torture on behalf of the United States Government who have still not 

been compensated. 

My question for you is: Will you please work with me and these 

former hostages who have suffered so much already at the hands 

of FARC so that they don’t have to suffer at the hands of Congress 

and bureaucrats in the future, and let’s get them compensated? 

Secretary LEW. Congressman, I share your concern for victims of 

terrorism. And I understand that it is a very complex and heavily 

litigated issue regarding multiple claims to a limited pool of money. 

As I know you are aware, TRIA allows a person who has a judgment to go against blocked assets. But currently, the term ‘‘blocked 

assets,’’ as defined by TRIA, gives access to funds that are frozen 

pursuant to two statutes, IEEPA and the Trading With the Enemy 

Act. IEEPA is the principal tool that we at Treasury use to sanction terrorist organizations and their members as well as victims 

of state sponsors of terrorism. 

The Kingpin Act, as I know you know, is designed specifically to 

create tools to deal with the threat that our country faces because 

of the international narcotics trafficking. And amending TRIA to 

have the definition of blocked assets include property frozen under 

the Kingpin Act could very much undermine our efforts on that 

very important mission as well. So we would look forward to working together to pursue how we address the concerns that we share 

in terms of victims of terror having access to compensation. But 

our concerns are to protect another, I think, shared goal that we 

be able to take very decisive action to stop narcotics trafficking. 

Mr. POSEY. I am a little bit confused how giving American patriots the same or equal consideration of foreign people who have 

been terrorized would undermine any of our security efforts to fight 

terrorism or narcoterrorism. 

Secretary LEW. So the Kingpin Act is designed to provide resources that go against fighting narcotics trafficking. 

Mr. POSEY. I understand that. But this is taking resources from 

narcoterrorists and compensating American victims. And, I just 

don’t think there is any excuse for any bureaucrat in this country 

to hold up—to willingly, knowingly, willfully hold up the compensation of these gentlemen when it could be remedied so very easily. 

Chairman HENSARLING. The time of the gentleman— 

Mr. POSEY. I think there is a special place in hell for people that 

would do that. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. HECK. Mr. Chairman? 

Chairman HENSARLING. For what purpose does the gentleman 

from Washington— 

39 

Mr. HECK. I thought the protocol was to alternate between political parties. I have not yet had my opportunity. 

Chairman HENSARLING. I apologize to the gentleman from Washington. The gentleman from Washington is now recognized for 5 

minutes. 

Mr. HECK. Thank you, sir. 

Mr. Secretary, thank you for being here. I thought it might be 

interesting if we return to the ostensible purpose of our hearing 

today, namely the Annual Report of the Financial Stability Oversight Council. And I want to direct your attention to page 16 and 

some of the language relating to housing reform. 

Among other things, it says, ‘‘The Council recommends that regulators and market participants continue to take steps to encourage 

private capital to play a larger role in the housing finance system. 

Further, the council acknowledges that, under existing regulatory 

authorities, Federal and State regulators are approaching the limits of their ability to enact reforms that foster a vibrant, resilient 

housing finance system. The council therefore reaffirms its view 

that housing finance reform legislation is needed to create a more 

sustainable system.’’ 

So I am one who believes that it is a far stretch of the imagination to believe that conservatorship is a status which should exist 

in perpetuity. That it is implicitly by definition something that is 

temporary. So I would like to see us move forward. But yet it is 

not altogether clear to me what is meant and the whys behind 

these assertions in this report. For example, what is inherently unstable about the status quo, as much as I would like to see us move 

forward? I do not understand why it is the council believes that 

what we have is not stable as a consequence. 

Secretary LEW. Congressman, we continue to have a housing finance system where most mortgages are in one way or another 

government backed, either through FHA or through the GSEs, 

which are in conservatorship. We think a more stable approach 

would be to have private capital taking risk, coming in, and having 

a mortgage market that is not dependent on having a backstop of 

government support. 

Mr. HECK. Why would it be more stable? I understand why it 

would be—arguably, I would understand why it would be more vibrant and more dynamic, because if we were to increase private 

sector participation, we might have more innovation. But what is 

inherently unstable about how we do things now? 

Secretary LEW. If ultimately the goal is to attract private capital 

into the housing market, it would be a good thing if we had avenues for private capital to have business models to get into the 

housing market and bear the risks that they are taking in a way 

that is not fully dependent on one or another form of government 

backstop. The challenge is how to get legislation that would permit 

the development of the structure that would meet those criteria. 

Mr. HECK. I agree with all that, Mr. Secretary, except I still don’t 

hear an answer to my question. What is unstable about how we are 

doing it now? 

I agree with everything you said about the importance of moving 

forward with increased private capital participation, but the report 

40 

says that it would be more stable. What is unstable about how we 

are doing it? 

Secretary LEW. If you go back to the period before the financial 

crisis, it was explicitly said that the government didn’t stand behind the GSEs. Then there was a financial crisis and the government had to bail out the GSEs, which is why we are in the conservatorship now. 

I don’t think that anyone designed a system for permanent conservatorship or wanted a system of permanent conservatorship, but 

it requires legislation to move on from where we are. To me, as 

someone who cares deeply in long-term access to housing in this 

country, it would be better if we right now had a blueprint in legislation for what the mortgage finance of the future looks like. 

Mr. HECK. Do you believe that home ownership, the percentage 

of the population enjoying home ownership, would increase if we 

were to allow for increased private sector capital? 

Secretary LEW. I think it certainly could, yes. Obviously, it depends how it is done, so I can’t answer in an unqualified way. 

I think it is important that anyone who is creditworthy should 

have access to a home mortgage. I think right now we have a tighter credit box than is necessarily warranted, and we have tried 

through clarifying some of the regulatory issues, things like putback risk, to ease the credit box some. But we also saw in the leadup to the financial crisis that it is not a good thing for people who 

can’t afford a mortgage to get in over their head. 

So striking that balance right and having risks borne where the 

decisions to take a risk are being made would be a better way in 

the future. Obviously, we are going to do everything we can to keep 

the mortgage market healthy during the period of conservatorship. 

Mr. HECK. Thank you, Mr. Secretary. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from North Carolina, 

Mr. Pittenger. 

Mr. PITTENGER. Thank you, Mr. Chairman. 

Hello, Mr. Lew. It’s good to see you. 

Secretary Lew, did the Office of Terrorism and Financial Intelligence, did that office raise any concerns about the method of payment to Iran, the hundreds of millions of dollars in cash to a State 

Department-designated sponsor of terrorism? Did they raise any 

concerns? 

Secretary LEW. Congressman, I am obviously not going to get 

into any individual things in this setting. 

Mr. PITTENGER. They are under your purview, and I just asked 

you a direct question. Did they raise any concerns? 

Secretary LEW. I would say that the view within the Treasury 

Department is that everything that we did was consistent with 

both good policy and the law. 

Mr. PITTENGER. So they didn’t raise any concerns? 

Secretary LEW. I am really not going to comment one way or the 

other on what I did or I didn’t hear from intelligence briefers. 

Mr. PITTENGER. This is your Office of Terrorism and Financial 

Intelligence in Treasury. 

Secretary LEW. We have consistently seen analysis and shared 

analysis that shows— 

41 

Mr. PITTENGER. Were you apprised of any concerns by that office? 

Secretary LEW. Congressman, I was not briefed internally on reasons not to proceed with this transaction, but I am not going to describe who told me what. 

Mr. PITTENGER. Did that office conduct any analysis as to the impact of sending ultimately billions of dollars over to Iran? 

Secretary LEW. Congressman, we have done extensive analysis 

on what Iran is doing outside of the JCPOA, the Joint Comprehensive Plan of Action, and we have tried as best we can, and we have 

some ability to see what is going on, to see what the— 

Mr. PITTENGER. How many banks operate—Mr. Secretary, excuse 

me, but we have limited time. 

Secretary LEW. But I didn’t answer your last question. 

Mr. PITTENGER. How many banks operate under the SWIFT authority that gives them access to the international financial system, 

how many banks in Iran have that capacity? 

Secretary LEW. I would have to get back to you, Congressman. 

Mr. PITTENGER. That would be an important thing to know. 

Secretary LEW. If I can just go back, it really is important to answer your last question. We have been looking to see if, as we said 

at the time the JCPOA was agreed to, that there would not be a 

substantial increase in funding, and we are not seeing the increase 

in funds available to Iran going to the purposes that we all want 

to stop. If we see it, we will stop it. If we see ships going, we will 

try to stop them. 

Mr. PITTENGER. I think going through the financial system, 

through the SWIFT bank authority, has enormous impact. 

Mr. Secretary, Pastor Saeed Abedini, he was one of the hostages. 

I went over and greeted him in Germany when he arrived. As he 

was waiting in Iran to depart from the Swiss airline, Swiss-provided aircraft, to go to Germany, he asked one of the guards: Why 

the wait? Why can’t we board and leave? And Pastor Abedini testified in Congress and also in the media that they were waiting for 

a plane to arrive, and once that plane arrived, then they would be 

able to depart. And, of course, we have seen pictures of planes that 

arrived and bags coming off. 

Did it ever really concern you that the reality of paying for these 

hostages, these ransoms, was not just perception, but in reality 

that is what the Iranians believed? 

Secretary LEW. Congressman, I can’t speak to what anyone else 

believed, but I can tell you what I understood at the time and what 

I know now. We had three separate negotiations, all of which were 

going on because a window had been opened at the same time. We 

didn’t talk to Iran for decades, but with the negotiation of the Joint 

Comprehensive Plan of Action, we had the ability to negotiate for 

the release of Americans being held against their will. We had the 

ability to settle an outstanding legal claim. The fact that all those 

things came together is because we were talking to each another. 

Mr. PITTENGER. When you see that the three hostages were released— 

Secretary LEW. I couldn’t hear you. I am sorry. 

Mr. PITTENGER. In fact, it became very offensive to Pastor 

Abedini. He said: What is going to happen now is we have exacerVerDate Nov 24 2008 13:36 Mar 14, 2018 Jkt 025947 PO 00000 Frm 00045 Fmt 6633 Sfmt 6633 K:\DOCS\25947.TXT TERI
42 

bated the problem, and we are going to see a dollar amount put 

on every hostage. 

Secretary LEW. But, Congressman, there is a fundamental difference between ransom, which is when you give your money to another party, than having separate transactions where you give a 

party its own money. 

Mr. PITTENGER. It all happened at the same time. 

Secretary LEW. And that is all this was. 

Mr. PITTENGER. One last question I would like to ask you, 20 seconds. Mr. Secretary, have we ever paid cash in large sums to any 

other government before? 

Secretary LEW. I would have to go back and check the history. 

We do a lot of business in a lot of ways. I know your time is almost 

up, Congressman. I know this has been a very difficult week in 

your city, and I just want to express my own personal sympathies 

to the families that have been injured and suffered a loss. 

Mr. PITTENGER. Thank you. We need the leadership of Martin 

Luther King in my City today. Thank you. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Kentucky, Mr. 

Barr. 

Mr. BARR. Thank you, Mr. Chairman. 

Secretary, welcome back to the committee. 

If I could just follow up on the questions from my colleague from 

North Carolina related to the Administration not seeing where the 

money is going, and I think your testimony was you don’t see 

money going to terrorist elements. That kind of begs the question, 

if you are transferring money to the Government of Iran in cash, 

of course you are not going to see whether or not, that is the whole 

point. 

Secretary LEW. We actually tried to keep track of what is going 

on as best we can see it in all ways. 

Mr. BARR. But the question that has been asked and I am still 

looking for an answer is, can you track cash payments to Iran and 

whether or not that ends up in the hands of, say, Hezbollah? 

Secretary LEW. So, look, the challenge—and this is an issue we 

dealt with directly when the Joint Comprehensive Plan of Action 

was being debated. I cannot tell you Iran will stop doing things we 

don’t want them to do. We are going to do everything we can to 

stop them using those authorities. 

But just as we had agreed in the JCPOA that they would have 

access to their money, we said we will do everything we can to stop 

the flow of money. But once money goes into the Central Bank of 

Iran, the mode of transfer is not the issue. We have the same challenge, if you had given them the money through a check, we would 

still have to watch where the money goes afterwards. We are doing 

that. We do not see it going. 

Mr. BARR. Can you tell us in Congress and the American people 

today that the $1.7 million that was transferred in cash is not 

funding terrorism? 

Secretary LEW. Look, I understand that you are focused on the 

cash, but we are looking at how much money is going to support 

regional— 

Mr. BARR. That is a no. I interpret what you are saying as a no. 

43 

Secretary LEW. Congressman, don’t interpret me. I will speak for 

myself. I will speak for myself. 

Mr. BARR. We all know you can’t tell us whether or not that 

money is not going to be used— 

Secretary LEW. Congressman, can you show me, contrary to our 

analysis, that we have seen— 

Mr. BARR. The point is it was your testimony that you don’t see 

it going to terrorism, but that is why you don’t see it going to terrorism, because it is in cash. 

Secretary LEW. No, Congressman, that is not why. That is not 

why. 

Mr. BARR. Let me switch to another topic. Let me switch to another topic. 

Secretary LEW. I can’t in this setting describe to you everything 

that we know and see, but that is not correct. 

Mr. BARR. This is evidence why the Iran deal is bad for America. 

It is bad for Israel. It is bad for our allies. And it is bad in terms 

of preventing terrorism. 

Let me switch to another topic. Let me switch to another topic. 

Secretary LEW. But, Congressman, you just got to the core—you 

just got to the core issue, which we disagree on. 

Mr. BARR. The time is mine, Mr. Secretary. Let me switch to another topic. 

Do small community banks and credit unions represent competition to large institutions like Wells Fargo? 

Secretary LEW. I am going to go back and answer your last point 

Mr. BARR. No, I really want to move on. 

Secretary LEW. I really want to answer the last question. 

Mr. BARR. You can send me a letter. We can visit afterwards. I 

really do want to move on to the issue of Wells Fargo. I would like 

to move on to the issue of Wells Fargo. 

Secretary LEW. I think the world is safer with nuclear weapons 

not being 3 months away from development in Iran. That is a fundamental disagreement. 

Mr. BARR. Mr. Secretary, can I ask you another question? 

Chairman HENSARLING. The time belongs to the gentleman from 

Kentucky 

Mr. BARR. Mr. Secretary, do small community banks and credit 

unions represent competition to large institutions such as Wells 

Fargo? 

Secretary LEW. I think that there should be competition at all 

levels of the banking structure. 

Mr. BARR. Do they represent competition to large institutions 

like Wells Fargo? 

Secretary LEW. In some of their business they do. 

Mr. BARR. According to the FDIC, at year end 2010, the year 

that the Dodd-Frank Act became law, there were 7,657 banks. By 

the end of 2015, the number had declined to 6,182. The number of 

community banks had declined by 14 percent, double the rate of 

that in the period leading up to Dodd-Frank. Credit unions, we 

have lost 1,500 credit unions in this country since Dodd-Frank. 

So since the enactment of Dodd-Frank, the number of new bank 

charters can be counted on the fingers of one hand. You have few 

new charters, you have much fewer banks, and you have 1,500 

44 

fewer credit unions. You have less competition. Not a very good 

record for enhancing financial stability. And, I would add, eliminating the competition to large banks like Wells Fargo. 

If I was a defrauded customer of Wells Fargo, I would be angry 

at the institution, no doubt about it. But I also would be angry that 

the promises from the politicians that Dodd-Frank was going to 

protect me are hollow promises and that maybe why that is the 

case is that large banks like Wells Fargo have less competition 

today. 

Secretary LEW. Congressman, I think if I was injured by a financial institution, I would be glad that there is a CFPB out there to 

protect me 

Mr. BARR. Let’s talk about that, because the CFPB was around 

in 2011 when these alleged activities began, and it wasn’t, in the 

timeline that I have seen, it wasn’t until 2015 that the OCC got 

the CFPB involved. It looks to me like a case of regulatory incompetence. 

Secretary LEW. I think if you look at how the facts unrolled here, 

the action that was taken this week reflected the OCC and the 

CFPB taking action, and there would have been no CFPB if it 

weren’t for Dodd-Frank. 

Mr. BARR. You know what? Far from an argument for enhancing 

the power of the CFPB, I think what the Wells Fargo scandal says 

is that we need to reform the CFPB so it actually focuses on its 

mission of protecting consumers instead of taking away choices 

from consumers. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Rothfus. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

Secretary Lew, over the last 7 years the spirit of Washington has 

been to never let a crisis go to waste, and the result of that attitude has been the crafting of rules that systematically take a 

wrecking ball to one industry after another. 

Cambria-Rower Business College in Johnstown, Pennsylvania, 

for example, closed its doors this summer, after serving its community for over 100 years, because of the Department of Education’s 

crackdown on higher education providers, thousands of coal miners 

have been laid off in my district and across the country as their 

employers have been bankrupted by Washington regulations, and 

millions have had their health insurance wrecked. As I have noted 

many times in this room, community banks are closing or consolidating in a desperate effort to stay viable in the face of a swarm 

of new rules and regulations. 

And now, unfortunately, the Federal Government’s wrecking ball 

has another target: money market funds. As you know, the July 

2014 amendments to Rule 2(a)7, which go into effect next month, 

on October 14, require stable value institutional, prime, and taxexempt money market funds to be offered only with a floating net 

asset value, or NAV. The FSOC annual report touches on money 

market funds, and I want to add some context here. 

Many institutions face legal constraints or have policies that prohibit them from investing in cash pools that fluctuate in value. In 

45 

fact, for them the stable NAV is an intrinsically valuable feature 

of money market funds. 

In anticipation of this rule, we have seen nearly $1 trillion rush 

out of prime and tax-exempt funds. Prime funds, a key source of 

funding for corporations and banks, have dropped by 48 percent. 

Tax-exempt funds, which buy approximately 70 percent of the 

short-term debt issued by municipalities, universities, and hospitals, have dropped 42 percent. 

And on that, Mr. Chairman, I would like to offer into the record 

letters to Senator Pat Toomey from the officers at Penn State and 

the University of Pittsburgh expressing concern about what is happening in this industry and support for Senator Toomey’s legislation to address this. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. ROTHFUS. And also letters from the Allegheny County executive, the Allegheny County treasurer, and the mayor of Pittsburgh 

to my colleague, Congressman Doyle, expressing similar concerns. 

Chairman HENSARLING. Without objection, it is so ordered. 

Mr. ROTHFUS. This has caused borrowing costs for firms, municipalities, hospitals, and schools to spike at a time when they need 

access to affordable capital, and much of the money that has moved 

out of prime and tax-exempt funds has gone into Treasury and government funds. In other words, the effect of the rule has been to 

stifle investor demand for commercial paper and debt issued by 

municipalities and important institutions in our communities and 

to stimulate demand for debt issued by the Federal Government 

and the GSEs. 

This rule effectively subsidizes Fannie, Freddie, and the Federal 

Government at the expense of the private market and borrowers. 

This thwarts investor preference by forcing investors into government funds to get the stable NAV. 

With all of this distortion and disruption and the tilting of the 

playing field, I don’t think we can say that this rule is necessary 

or helpful. Money market funds have a long history of stability and 

security through the financial crisis, and I worry that this wrecking 

ball will take out an important and necessary part of our financial 

system. 

Are you aware of the exodus of funds from prime and tax-free 

money market funds and the subsequent flow into government 

funds? 

Secretary LEW. Congressman, we have been monitoring flow of 

funds. I don’t think that the impact that we have seen is as dramatic as what you are describing, and I think— 

Mr. ROTHFUS. I would encourage you to listen to the municipalities and the universities that are out there and to gauge what they 

are seeing. 

Secretary LEW. So, Congressman, I think we have to—I am 

sorry? 

Mr. ROTHFUS. Go ahead. You were going to say? 

Secretary LEW. No, we have to remember that during the financial crisis there was a real concern about the stability of money 

market funds. There was a very careful, measured action taken by 

the SEC to try and put in place rules that would govern, which I 

46 

think are going to enhance financial stability. We are not seeing 

dislocations in the marketplace on a broad basis— 

Mr. ROTHFUS. You haven’t seen a trillion dollars move out of 

these funds? 

Secretary LEW. I am not saying money hasn’t— 

Mr. ROTHFUS. Isn’t that a significant dislocation? 

Secretary LEW. I think that we are not seeing problems arising 

in the market where funding needs can’t be met. And that is the 

metric that we look at. Is there liquidity in the market? Are markets working? And markets are working. 

Mr. ROTHFUS. Would you agree that this has tilted the playing 

field? If you need a stable NAV and your only option is to go to 

a fund that has Fannie paper or Freddie paper or Treasuries, that 

that is going to have a preference over municipals and AAA corporate bonds? 

Secretary LEW. I think you have to look at the whole picture, 

Congressman. We had a situation during the financial crisis where 

the risk that money market funds were going to break the buck? 

Almost took what was the worst recession since the Great Depression and throw a switch to make it a depression itself. 

There was a serious issue here. I don’t think the action taken 

has caused disruptions that to date have raised serious concerns. 

But we will look at it. Obviously, we will continue to look at it. 

Mr. ROTHFUS. Again, I think you want to talk to the universities, 

talk to the municipalities, because this is a big issue for them. 

I yield back. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Arizona, Mr. 

Schweikert 

Mr. SCHWEIKERT. Thank you, Mr. Chairman. 

It’s always an interesting time when you get to come hang out 

with us, right? 

Secretary LEW. It is never boring. 

Mr. SCHWEIKERT. Can I do just an idiosyncrasy, but I am interested in this. And I ran over here, so I didn’t have enough time, 

so I am doing part of this from memory. In, I think, April there 

is something, I think it is referred to as the 387 rule. It is how 

taxes or how you value if you have taken a stock interest in a loan. 

Secretary LEW. 385 

Mr. SCHWEIKERT. 385, that is it. Sorry. Thank you for correcting 

me. 

If I remember just the preamble on the rule proposal was what, 

75 pages? So the preamble trying to describe the proposed rule was 

actually longer than the rule itself. 

Where do you see that? I know a number of organizations, a 

number of folks from Arizona, where we are a State that is very 

entrepreneurial and trying to desperately bring in capital and are 

worried about sort of the tax treatments underlying. And I know 

I am getting a little technical. But, first, where do you see those 

rule mechanics? 

Secretary LEW. So, Congressman, we issued the 385 rule as part 

of our effort to make it harder for U.S. companies to invert, to take 

U.S. companies and change the address and avoid U.S. tax liability. 

47 

The reason the preamble was a bit lengthy is we raised a number of questions that we wanted to get comments on. So we weren’t 

surprised that issues were raised. We raised the issues ourselves 

in the preamble. 

While we got hundreds of comments, it all comes down to six 

issues, which we have been working hard at addressing, and I am 

pretty comfortable that we are going to be able to have a final rule 

that resolves many of the concerns that have been raised but that 

won’t damage the principal purpose of the rule, which was to stop 

inversions and to stop earning stripping and taking unfair advantage of the tax system. 

Mr. SCHWEIKERT. Those are two very different things, though. 

On one side, I will use—I despise the term earning stripping, I 

mean, between merged organizations or affiliated organizations 

and the recognition of do you consider this a stock holding or is it 

really a debt pledged with stock or convertible to preferred. That 

is different than the inversion debate. 

So you could see from my view of the world as sort of someone 

that sees the world as an accountant, are we sort of conflating 

some of the different issues. 

Look, it is a hard read. I accept that. 

Secretary LEW. We have said all along that the best way to deal 

with inversions is through tax reform and legislation. We have limited administrative tools, and we use Section 385, which in its simplest way has broader impact than you need. We are working to 

address the consequences that are not central. 

Mr. SCHWEIKERT. But do you think as you are sort of addressing 

towards the final rule, there is that—I am reaching—279, it is the 

tax treatment, where you can’t recognize the interest costs between 

the organizations? I think that was also within the rule set. 

Secretary LEW. Are you talking about the financial transactions 

between foreign subsidiaries of a U.S. firm? 

Mr. SCHWEIKERT. Actually I think it is within an acquisition and 

the costs in between. 

Secretary LEW. I am going to have to follow up and get the specific question. 

What I can tell you about the way we have handled this rulemaking is we have done it by the book, by the Administrative Procedures Act. We have gotten comments. We have taken meetings, 

hundreds of conversations. We have talked to committees of Congress of jurisdiction. And I think we are going to be able to put 

final rules out that address many of the concerns that have been 

raised. 

Mr. SCHWEIKERT. I had one other question I have always wanted 

to ask you. If we would do tax reform, particularly if we would 

clean up our territorial tax system, solution? 

Secretary LEW. I think what we have proposed and what I think 

there is bipartisan support for is something that is a bit of a hybrid 

system. We think that there should be a minimum tax on U.S. income overseas. 

Mr. SCHWEIKERT. No, no, no, I remember that, but truly if we developed a true— 

Secretary LEW. I think the hybrid approach is better myself. 

48 

Mr. SCHWEIKERT. Okay, be preferred. But I am a territorial tax 

system person, but it would solve— 

Secretary LEW. But that is why I think there is a—in answer to 

Chairman Royce’s question—I think there is the basis for a bipartisan compromise here. We have worked very hard to build that. 

Mr. SCHWEIKERT. Okay, because you saw Chairman Brady a couple of months ago did sort of put out an outline, and within that 

was some territorial tax— 

Secretary LEW. And Chairman Camp before him put out proposals that overlapped considerably with the proposals that we 

have put forward. I think that this is something tax writers should 

be able to work through early next year. 

Mr. SCHWEIKERT. Okay. Just wonderful. 

Can I steal 15 seconds? 

Chairman HENSARLING. Fifteen seconds. 

Mr. SCHWEIKERT. We have our demographic crisis. You in a previous life did some great writings in talking about what is about 

to happen debt-wise. Can I beg of your organization to at least do 

a solicitation of the appetite for long-term U.S. sovereign debt to 

see if we could maybe do some of our financing over the demographic bubble? 

Secretary LEW. Congressman, we remain open-minded to new approaches, but we have done a lot to lengthen the weighted average 

of maturities. 

Mr. SCHWEIKERT. Outside the current WAM, I am talking 45, 65, 

100s. 

Secretary LEW. I am happy to have a longer conversation. I can’t 

with the gavel going. 

Mr. SCHWEIKERT. Thank you, Mr. Chairman, for your tolerance. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Maine, Mr. 

Poliquin. 

Mr. POLIQUIN. Thank you, Mr. Chairman, very much. 

Mr. Lew, thank you very much for being here. I noted that when 

you walked in you indicated very clearly to me that you had not 

taken your Maine summer vacation. I want to let you know that 

Maine is a wonderful place to have a fall vacation, and I am sure 

your wife would greatly appreciate it, and we would appreciate it. 

Secretary LEW. If only I got a fall vacation. 

Mr. POLIQUIN. Yes, really. 

Sir, Americans are very alarmed and very frightened about an 

increasing number of terrorist attacks here at home and abroad. Do 

you agree with the State Department’s assessment that the country 

of Iran is a primary state sponsor of terrorism, yes or no? 

Secretary LEW. We have implemented all of the rules on terrorism. 

Mr. POLIQUIN. Do you agree that Iran is a state sponsor of terrorism, yes or no? 

Secretary LEW. I have— 

Mr. POLIQUIN. Mr. Lew, you are really good about not answering 

questions. 

Secretary LEW. We have made that designation. 

Mr. POLIQUIN. Do you agree that Iran is a state sponsor of terrorism, yes or not? Do you agree with the State Department? 

49 

Secretary LEW. I obviously agree that they are a state sponsor 

of terrorism. 

Mr. POLIQUIN. Okay. You agree. I got it. Do you also agree that 

untraceable cash is the currency of terrorism? 

Secretary LEW. I do believe that cash in the private economy is 

a big problem because you can’t track it. 

Mr. POLIQUIN. Great. Okay. So now let’s go beyond. Okay, we 

agree on those two things. Thank you very much. 

Secretary LEW. Congressman, just to be clear— 

Mr. POLIQUIN. It is my time, not yours, my time, not yours, sir. 

Now, you authorized the cash being flown into Iran. Now for 

whatever reason you authorized it, that is fine. That is your decision. I think it was a mistake, but you did it. 

Now, my question is the following. I know that the United States 

Government owed Iran this money. How about if we had instead 

put pressure on them to abandon their support of terrorism and 

disavowed their goal in their public statements about destroying 

Israel? What if we just had not transferred, you had not authorized 

the transfer of cash to Iran until they gave up their goal of destroying Israel and stopped sponsoring terrorism? Wouldn’t that have 

been a good idea? 

Secretary LEW. As a simple matter, Congressman, we wouldn’t 

have been able to resolve the dispute that left America at risk of 

having a $10 billion settlement. 

Mr. POLIQUIN. That is not the point, sir. That is not my point. 

Secretary LEW. That is precisely the point. 

Mr. POLIQUIN. Why in the world wouldn’t you just— 

Secretary LEW. We have done— 

Mr. POLIQUIN. I am asking the question, sir. Why wouldn’t you 

continue to withhold those payments until they stopped sponsoring 

terrorism? Why wouldn’t you do that? 

Secretary LEW. Congressman, I think you are mixing a bunch of 

things up. We are taking action. We have taken dozens of actions 

to designate entities that support terrorism. We are continuing to 

take our sanctions responsibilities very seriously to stop Iranian activity supporting terrorism. 

Mr. POLIQUIN. Let’s move on. Let’s move on. You are not going 

to answer the question, Mr. Lew. 

Mr. LEW. I am answering the question. 

Mr. POLIQUIN. You are really good about not answering the question. 

Secretary LEW. If you would give me the time, I am happy to. 

Mr. POLIQUIN. Last year your Administration, or the Administration of which you are a part, floated a horrible idea, which was to 

tax college savings plans. Do you agree that was a very bad idea? 

Secretary LEW. Congressman, that was withdrawn before it was 

even dry ink. 

Mr. POLIQUIN. I know it was. And the reason it was withdrawn, 

Mr. Lew, is because there were so many of us that made such a 

stink that it is a bad idea to tax college savings plans to make it 

more difficult for kids in Maine. 

Secretary LEW. We have done an awful lot to expand opportunity 

for college education in this country. 

50 

Mr. POLIQUIN. Okay, let’s move on. So you walked it back, your 

Administration walked it back. 

Secretary LEW. And I am very proud of our record, and I would 

love to talk about it. 

Mr. POLIQUIN. And I thank you very much, Mr. Lew, for agreeing 

with everybody that was a horrible idea. 

Now, here is my next question to you. 

Secretary LEW. I hope you will agree that expanding Pell grants 

and student loans has been a good thing. 

Mr. POLIQUIN. Here is my next question to you. Here is my next 

question, Mr. Lew. 

There is about—I may not have this number exactly right—there 

is roughly 24 trillion of private pension savings out there, retirement savings, folks that are trying to build up nest eggs to augment their Social Security payments when they retire. 

Do you think it is a good idea to tax retirement savings, like your 

Administration thought it was a good idea to tax college savings 

plans? Do you think it is a good idea to tax— 

Secretary LEW. I am not sure I understand your question. 

Mr. POLIQUIN. Do you think it is a good idea to tax retirement 

savings? 

Secretary LEW. We have promoted retirement savings through— 

Mr. POLIQUIN. Do you think it is a good idea— 

Secretary LEW. What proposal are you asking me to comment on? 

Mr. POLIQUIN. Because your Administration thought it was a 

great idea to tax college savings plans until you folks walked it 

back. Do you think it is a good idea— 

Secretary LEW. If it is your proposal, I am happy to look at it. 

We haven’t made that proposal. 

Mr. POLIQUIN. It is not a proposal. I do not advocate for that. So 

you don’t either. 

Secretary LEW. I thought you were proposing it. 

Mr. POLIQUIN. No, of course I am not. You know better than that, 

Mr. Lew. 

Secretary LEW. I would tell you I don’t think it is a good idea. 

Mr. POLIQUIN. Great. Then we agree on something. You think it 

is a bad idea—you think it is a bad idea to tax retirement savings. 

Secretary LEW. We have IRAs. We have 401(k)’s. We have all 

kinds of tax-protected savings for retirement. 

Mr. POLIQUIN. Then do I get your commitment and will you 

speak to the American people right now that if the Administration 

sends out a proposal to tax retirement plans, you will stand up 

against it, sir? 

Secretary LEW. I think I can safely say that in the next 4 months 

we are not going to be sending a new proposal. 

Mr. POLIQUIN. Will you stand up against it if that idea is floated? 

Secretary LEW. Congressman, we are in the last 4 months of this 

Administration, so I think—if this was 2 years ago, it would be one 

thing. 

Mr. POLIQUIN. Okay. I am assuming, since you think it is a bad 

idea—I am assuming, since you think it is a bad idea—we are on 

the same page, thank you, Mr. Lew—you will stand up against any 

attempt to tax retirement savings. That is what I heard? Thank 

you. 

51 

Secretary LEW. Congressman, don’t put words in my mouth. I am 

happy to answer a detailed question. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Pennsylvania, Mr. 

Fitzpatrick, the chairman of our Terrorism Financing Task Force 

Mr. FITZPATRICK. Thank you, Mr. Chairman. 

Mr. Secretary, proposed staff reallocations at the Treasury’s Office of Terrorism and Financial Intelligence, TFI, have raised some 

concerns about how they might affect the execution of TFI’s various 

missions, but also raise questions about compliance with appropriations language, civil service rules, and constraints on the gathering 

and use of financial intelligence data. 

Further, the amount of information on the proposed moves supplied to Congress has been minimal, and it appears that TFI is proceeding with them at full speed, that despite bipartisan staff admonitions to slow the process down until there is Congressional buyin, for fear of creating disruption in this critical part of our country’s effort to stop the financing of terrorism and other financial 

crimes. 

The fact that the plans are intended to be complete before a new 

President, a new secretary or deputy secretary takes office, raises 

the possibility that they may not agree with the realignment, creating more disruption as further moves or reversal might have to 

occur. 

So with that in mind, Mr. Secretary, I have a couple of questions. 

First is what is the purpose and what are the specifics of the proposal, if you can share them with us, please? 

Secretary LEW. Congressman, TFI is an extraordinary organization. I couldn’t be more proud of the work that they do and the effectiveness they have. It is a new organization. It was pulled together, cobbled together from a number of different subagencies 

after 9/11. 

Mr. FITZPATRICK. Can you tell us about the proposal specifically? 

Secretary LEW. And one of the things that good management requires is that you, particularly with a new organization, try and 

make sure that you get it right. 

I think the current acting under secretary, Adam Szubin, who 

grew up as a career official in TFI— 

Mr. FITZPATRICK. What is the proposal, Mr. Secretary? 

Secretary LEW. I am happy to get back to you on the details of 

the proposal. Frankly, I have deferred considerable latitude to the 

acting under secretary because he is truly expert in all of the detailed work that they do. 

Mr. FITZPATRICK. You may not have the answer to the question, 

but if you are agreeing to please get back to us. 

Secretary LEW. No, but what I can answer— 

Mr. FITZPATRICK. Staff has repeatedly asked for the information 

and it has not received any information about it. 

Secretary LEW. We have scheduled a briefing on the Senate side. 

We are happy to schedule a similar conversation on the House side. 

The challenge here is to ask, how do you take an organization 

that used to be separate organizations and make sure that it is as 

healthy as possible to do the very important work it does? And that 

52 

is what the acting under secretary has been looking at. No final decisions have been made. It is still a work in progress. 

Mr. FITZPATRICK. On the work in progress, knowing where it is 

going, because my concern is—and you just in response to Mr. 

Poliquin’s question said, sir, this is the end of the Administration, 

don’t get us on record. If you are moving forward— 

Secretary LEW. He was asking me about a new tax proposal. 

Mr. FITZPATRICK. If you are moving forward with the proposal to 

change the alignment, you need to come to us with some specifics. 

So I would ask, with the specifics that you do know, what impact 

would it have on the Treasury’s ability to, say, enforce the Bank 

Secrecy Act? 

Secretary LEW. We obviously take all of the responsibilities, including the Bank Secrecy Act, at the highest level of seriousness. 

There is no aspect of TFI’s work that isn’t important. And this is 

about— 

Mr. FITZPATRICK. Do you have any idea the impact of these proposed moves on the Bank Secrecy Act and the enforcement by 

Treasury? 

Secretary LEW. The objective is to make sure that TFI as an institution operates more effectively and more efficiently, not diminishing any of the activities. 

Mr. FITZPATRICK. You are speaking to all these questions at the 

30,000-foot level. You don’t have any specifics? 

Secretary LEW. I didn’t come here today with the plan in front 

of me. We will follow up at the staff level. 

Mr. FITZPATRICK. Okay. I appreciate that. 

Mr. Secretary, are there any declared whistleblowers at the 

agency? 

Secretary LEW. Not that I am aware of. I am looking back to see. 

Yes, my staff is not aware. 

Mr. FITZPATRICK. Not that you are aware of. 

Have any staff at TFI been ordered not to talk to Congress about 

this proposal that I spoke about in my first question? 

Secretary LEW. I know that there are some things that are in the 

clearance process, and we have to go through the clearance process 

internally within the Administration. But it is only a normal process, it is not anything specific about this. 

Mr. FITZPATRICK. Why can’t TFI redirect a portion of its anticipated 17 percent growth in FTE in the President’s fiscal year 2017 

budget or what ends up appropriated in a continuing resolution? 

Secretary LEW. If I could ask, if you could submit a question, I 

am happy to take it. That is at a level of detail that I would have 

to look at the question in more detail. 

Mr. FITZPATRICK. Mr. Secretary, I appreciate your willingness to 

try to answer the questions. You are not able to answer any of the 

questions here today. I would just— 

Secretary LEW. Congressman, I pay attention to a lot of details, 

but these are pretty small details, and I don’t understand the question. 

Mr. FITZPATRICK. Sure. But any major realignment, first of all, 

needs to be included so that we understand in the appropriations 

process what our respective— 

Secretary LEW. No, I agree. 

53 

Mr. FITZPATRICK. We will get you the question. 

Secretary LEW. Yes, I am happy to answer the question. 

Mr. FITZPATRICK. How long will it take you to answer these types 

of questions? 

Secretary LEW. If you give me the question today, we will get 

back as soon as we can. I would like to understand the question 

and be able to give you a complete answer. 

Mr. FITZPATRICK. Thank you, Mr. Secretary. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Colorado, Mr. 

Perlmutter. 

Mr. PERLMUTTER. Mr. Secretary, good to see you. Thank you for 

your service. Thanks for coming in and answering these questions 

even when my friends are kind of pounding away. I appreciate the 

way you handle it, the seriousness of this, but also your willingness 

to have a little bit of give and take with my friends. 

So I am going to just talk about a couple of things, first to thank 

you, thank the President. When President Obama took office, my 

district was at about 10 percent unemployment. We are on average 

about 3 percent today, and that is even—so the suburbs of Denver—and that is even with oil and gas not doing very well in my 

State, which would put us at about 2 percent unemployment. 

But strong economy. Foreclosures, which had been off the charts 

at the beginning of the Obama Administration, now very strong 

housing market, almost too strong. Hopefully supply starts catching up with demand. And lots of jobs. Strong economy. 

I just want to thank you for your part in doing that, because it 

is been a long, long road. So thanks to you. Thanks to this Administration. 

The other thing I want to talk about and say thanks, but we certainly aren’t there, and since the chairman is here, he knows this 

subject, it is marijuana and banking. And he knows it because I always bring it up, because we have to confront this and deal with 

it at some point. At least 25 States have some level of marijuana 

legalization, some kind of a regulatory structure in place, either for 

medical marijuana or recreational marijuana. If you add the States 

that have cannabis oil to deal with seizures, that is probably another eight States, and there are several that have it on their ballots this year. 

And the Federal law, particularly in the banking sector, and the 

State laws, kind of run smack dab into each other. And I appreciate the assistance that the Administration and Treasury have 

provided to give banks some potential path to allow legitimate 

businesses to be able to have banking services. So thank you for 

that. 

Now, my question is on this proposed 385 rule on debt equity 

kinds of transactions between subsidiaries or the parent and a subsidiary and money going offshore. I know that you all are trying 

to deal with inversions, and I appreciate that. But I guess I want 

to talk to you about it. I want you to tell me what you think the 

385 is intended to do. 

And I would just ask you all to be looking at those transactions 

that sort of have been in the hopper, and then this new rule comes 

down and it changes the economics of the deal in a tremendous 

54 

way. And I would ask you to consider either grandfathering in 

those deals that are in—haven’t yet closed or may be closing, and 

the effects on those particular deals. 

So I turn it over to you, sir. 

Secretary LEW. Congressman, the principal objective of the rule 

is to try to shut down inversions and to shut down the use of kind 

of blatant tax-avoidance devices. 

There were a number of issues raised in the preamble to the regulation, the draft regulation, saying we know that we took a kind 

of simple approach, that is going to raise concerns, we would like 

to get comment on each of the issues that might not be central to 

the core purpose. 

Not surprisingly, we got a lot of comments. The comments kind 

of circle around a half a dozen issues. We have been working on 

each of those issues to try to come up with policy solutions that address what might be peripheral or unintended impacts, protecting 

the core objective of the rule. 

We are making very good progress. I think that the business 

community feels that we have listened to the concerns raised. That 

is certainly what I am hearing. We have listened to the members 

of the tax-writing committees of Congress and many other Members of Congress, and we are working to try and finalize the rule. 

Critics of the rule quickly asked us to add enough time to the 

comment period so that it would be impossible to do a final rule. 

And we did not want to do that. We want to do a good rule. We 

will only do a good rule. So if we don’t finish with a good rule, we 

won’t do it. But I think we have time to do a good rule. 

Mr. PERLMUTTER. And I think you do too, and I appreciate the 

fact that you have been taking comments from folks. I guess I want 

you to hear again particularly those instances where there is this 

lookback of 3 years or 36 months, there is the potential for a deal 

that was—and these are big and complicated deals—that you take 

into consideration the fact that they were underway as this regulation came into play. So please look towards some grandfathering on 

this. 

Secretary LEW. And thanks for your comments at the beginning 

of your remarks. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentleman from Indiana, Mr. 

Stutzman. 

Mr. STUTZMAN. Thank you, Mr. Chairman. 

And thank you, Mr. Lew. It is good to see you again, and I appreciate your time here. 

I would like to talk about the situation at Wells Fargo Bank. I 

was looking at an article that you have a couple of quotes, and I 

would like to read them. It says that after the Senate hearing the 

other day, that Senator Robert Menendez of New Jersey had said 

they will hold a hearing on the bank’s aggressive sales tactics next 

week. 

‘‘The magnitude of this situation warrants thorough and comprehensive review,’’ the committee members said in a letter on 

Monday. And now, Treasury Secretary Jack Lew is adding his voice 

to the chorus of criticism. 

55 

‘‘The pattern of behavior that we have seen here is something 

that needs to stop. It is not acceptable to do things that are designed to increase either an individual or firm’s bottom line by deceiving customers or passing on charges that are either invisible or 

they don’t know about. 

‘‘This is a wake-up call,’’ he continued. ‘‘It should remind all of 

us, and firms, that culture and competition make a difference. How 

you reward people, how you motivate people, what values you hold 

people to matter.’’ 

You said that, correct? 

Secretary LEW. I think a couple words were misquoted there, but 

yes. 

Mr. STUTZMAN. Well, looking at the timeline—and I will talk 

about the CFPB. I don’t think the CFPB is serving the American 

people. This is case number one, proof number one. You look at the 

timeline, that we know that wrongful termination lawsuits were 

filed against Wells Fargo by former employees alleging fraudulent 

accounts back in 2009. Wells Fargo started seeing a CFPB presence 

in the Wells Fargo offices in 2011, early 2012. Is that correct? 

Secretary LEW. Congressman, I can’t comment on a specific regulatory matter. I don’t have visibility into all of the details, into any 

of the internal details of regulatory actions. 

Mr. STUTZMAN. Okay. Then, in mid-2013, CFPB apparently first 

hears of the problems at Wells Fargo through whistleblower tips. 

The point that I am trying to make to you is CFPB is not doing 

its job. 

Secretary LEW. I don’t agree with that, Congressman. 

Mr. STUTZMAN. When did you know about the situation at Wells 

Fargo? 

Secretary LEW. Congressman, I was not aware of the situation in 

the depth, the scope of it, until the final action. Obviously, there 

had been some news coverage, but the full magnitude of it was a 

matter that regulators were looking at. I think but for the CFPB, 

the penalties would not have been in place. 

Mr. STUTZMAN. That is true, but the greater penalty to Wells 

Fargo is going to come from their customers. I am a Wells Fargo 

customer, and I am mad. I am upset about it. And I am mad at 

them, but I am also mad at the CFPB, I am mad at the government, because 5,300 people were fired. This is not just a small 

scam. 

Secretary LEW. Congressman, if you are proposing increasing 

CFPB resources so they can have more people watching, I would 

be happy to work with you. 

Mr. STUTZMAN. I knew you would say that, because that is always the answer from a failed agency, is give us more funding, give 

us more so we can go in and find this. 

They were in Wells Fargo as early as 2011, 2012, and approximately 939 employees were fired for improper sales practices in 

2011. Another 1,000 in 2012. Another 1,250 in 2013. And then 

CFPB, who has been there for almost 2 years, first hears about it 

through whistleblower tips. What were they doing? 

Secretary LEW. Congressman, I really can’t comment on what the 

regulatory actions—I just don’t—they properly doing that independently. 

56 

What I can tell you is for a brand new organization, the CFPB 

has done an enormous amount of good work to make sure that the 

American consumer, when they get a mortgage, can understand 

what they are getting, to make sure that banks cannot put in place 

the kinds of provisions that led to the subprime crisis in 2008. And 

they have a cop on the beat roll as well, and I think it is a good 

thing they were there to levy a penalty against this behavior. 

Mr. STUTZMAN. I don’t see how it could take this long—5,300 people were talking somewhere. Somebody had to know something. 

And I don’t know how you didn’t know about it. When did you first 

hear about it? 

Secretary LEW. Congressman, I don’t recall when I first heard 

about it, but I just told you the scope of it was obviously quite dramatic in the final regulatory action. 

Mr. STUTZMAN. Well, I tell you, the American people don’t trust 

Washington, and now this has happened. This was supposed to 

prevent big situations like this happening. 

Secretary LEW. Let’s agree on what we can agree on. We should 

have tough regulators who are watching to see that things that 

hurt consumers get stopped and don’t happen. 

Mr. STUTZMAN. Then we should fire— 

Secretary LEW. Let’s work together on that. 

Mr. STUTZMAN. Let’s fire a bunch of CFPB regulators— 

Secretary LEW. I think you are going in a place that I wouldn’t 

go. That is not fair. 

Mr. STUTZMAN. We are firing them at Wells Fargo. 

Secretary LEW. We can continue this conversation. 

Mr. STUTZMAN. Thank you, Mr. Chairman. 

Chairman HENSARLING. The time of the gentleman has expired. 

The Chair now recognizes the gentlelady from Utah, Mrs. Love. 

Mrs. LOVE. Thank you. 

Secretary Lew, thank you for being here. We are getting close to 

the final moments and you get to head out. 

But I ran across an analysis that was done by the Corporation 

for Enterprise Development and the Institute for Policy Studies, 

and the analysis stated that it would take 228 years for Black families to amass wealth of White families in the United States. Is that 

something that the Administration is concerned about? 

Secretary LEW. Congresswoman, I am not familiar with that 

analysis, but we are very, very concerned about the differences in 

asset accumulation and income-earning capability. 

Mrs. LOVE. It was really interesting because in your opening 

statement it almost sounded like you thought that we were doing 

okay and that everything was— 

Secretary LEW. We are doing a lot better, but we have consistently said that the benefits of growth are not being experienced as 

broadly as they should be and the difference in terms of the impact 

of the housing crisis on the only asset that a lot of African American families had, their home, was disproportionate. So there is 

still a lot of work to do. 

Mrs. LOVE. It also states that it is going in a different direction. 

When we look at all of the industries, we just talked about the 

CFPB, we talked about some of these other agencies, that has 

made it a lot more difficult for Black families to get ahead. 

57 

What we are concerned about, and what I see often, is that 

most—a lot of the time—the majority of the time, these are agencies that actually hurt the people that they vowed to protect. And 

I was wondering if you were looking into some of these policies and 

if you could see the same things that aren’t just my opinions, but 

opinions of people on both sides. 

Secretary LEW. We have done quite a number of things to look 

at financial inclusion, access to the financial system, access to credit, to actively promote more inclusive practices, both in the private 

sector and in terms of things that we can do. 

I will give you an example. When we have summer jobs, we are 

promoting that summer job programs are linked to opening a bank 

account. 

Mrs. LOVE. Are you actually looking at the current policies that 

actually are hurting American families, especially the poorest 

among us, and seeing if there is any way that we can correct some 

of those policies? That is what I am asking. I am not asking you 

to do more. I am actually asking if you are seeing any areas where 

we can undo some of the damage that has been done. 

Secretary LEW. I don’t agree necessarily with what the source of 

the damage is, but I am certainly agreeing with you that the result 

is unacceptable. 

Mrs. LOVE. I know I have very little time. I just wanted to get 

your opinion on that. 

Secretary LEW. It is an interesting subject I would love to spend 

more time on. It is one of the central topics we have to make 

progress on as a country. 

Mrs. LOVE. In the next few days my colleagues and I on the Subcommittee for Monetary Policy and Trade are scheduled to have a 

hearing to examine the implications of the Financial Stability 

Board for U.S. growth and competitiveness. Since you are here 

today, I wanted to take an opportunity to ask you just a few questions about the FSB. 

As you are aware, many of us remain concerned about the extent 

to which U.S. regulators defer to international bodies like the FSB 

when it comes to promulgation of regulations that impact the 

United States institutions and the United States economy. 

So another international organization similar to the FSB is the 

Basel Committee on Bank Supervision. The group is currently considering changes to the regulatory framework known as Basel III. 

So, as reported last month, European members of the Basel Committee are apparently pushing back against the proposed changes 

to how Basel III framework assesses credit, operational, market 

risks, with some European members reportedly threatening to reject the proposal. 

It seems that the European regulators are willing to defend their 

rules, their institutions, in such organizations. Why are the United 

States regulators by contrast so willing to defer to the agenda of 

the FSB? 

Secretary LEW. I don’t think that is an accurate description of 

how U.S. regulators participate. We have used our involvement in 

the FSB, in the Basel Committee, and all of the international bodies to drive an agenda of increasing the quality of regulation and 

making it closer to the United States. 

58 

Mrs. LOVE. Okay. So can you give me a single example in which 

you or your Treasury colleagues have objected or resisted an FSB 

initiative? 

Secretary LEW. The FSB only makes decisions by consensus, so 

it doesn’t get to a decision if it is not a consensus. We drive that 

process with our views. 

Mrs. LOVE. So you have never objected to any— 

Secretary LEW. No, no, I didn’t say— 

Mrs. LOVE. Can you give me some sort of example? 

Secretary LEW. I have 10 seconds left. We are happy to get back 

to you in writing. 

Mrs. LOVE. Okay. I yield back. 

Chairman HENSARLING. The gentlelady yields back. 

There are no other Members in the queue, so I would like to 

thank the Secretary for his testimony today. 

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. 

We would ask, Mr. Secretary, that you respond as promptly as 

you are able. 

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 12:54 p.m., the hearing was adjourned.] 

(59) 

A P P E N D I X 

September 22, 2016 

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EMBARGOED FOR DELIVERY 

The Honorable Jacob J. Lew 

U.S. Department of the Treasury 

Hearing on the Financial Stability Oversight Council Annual Report to Congress 

House Committee on Financial Services 

September 22,2016 

Chairman Hensarling, Ranking Member Waters, and members of the Committee, thank you for 

the opportunity to testify today regarding the 2016 annual report of the Financial Stability 

Oversight Council. 1 

Congress created the Council under the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) to bring together the entire financial regulatory community for 

the first time to identify and respond to emerging threats to U.S. financial stability. The Council 

convenes regularly to monitor market developments and to take action when needed to protect 

the American people from potential risks to the financial system. Our approach has been 

data-driven and deliberative, and we consistently provide the public with considerable 

information regarding the Council's actions and views. 

The Council recently released its sixth annual report. The annual report represents the Council's 

consensus on key risk areas and recommendations to address those concerns. Each voting 

member of the Council signed a statement supporting the report's recommendations. This year's 

report highlighted many of the topics the Council has discussed over the last year, including 

cybersecurity, risks associated with asset management products and activities, reforms to 

wholesale funding markets, and global economic and financial developments. Those discussions 

1 The Council's 2016 annual report is publicly available at https://www.treasury.gov/initiatives/fsoc/studiesreports/Pages/20 16-Annual-Report.aspx. 
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laid the groundwork for many of the recommendations in the annual report, and these issues will 

continue to be areas of focus in the coming year. 

The Council's annual report is an important vehicle to highlight publicly potential threats to 

financial stability, and it serves as a key mechanism for public accountability and transparency 

regarding the Council's work. Each report is the product of extensive collaboration and analysis 

conducted by the Council and its member agencies that documents the Council's views of 

current risks and emerging threats to financial stability, along with recommendations for specific 

actions to mitigate those risks. The findings and recommendations set down a marker for action, 

providing transparency regarding the Council's upcoming priorities and a roadmap for the year 

ahead. Importantly, the statement in the annual report that is signed by each of the Council's 

voting members aflirms that all of the issues and recommendations in the report should be fully 

addressed. 

Areas of Focus of the Council's 2016 Annual Report 

The Council's 2016 annual report focuses on 12 themes that warrant continued attention and, in 

many cases, further action from the Council members and member agencies. 

• Cybersecurity; Government agencies and the private sector should continue to work to 

improve and enhance information sharing, baseline protections such as security controls 

and network monitoring, and response and recovery planning. 

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• Risks Associated with Asset Management Products and Activities: The asset management 

industry's increasing significance to financial markets and to the broader economy 

underscores the Council's ongoing consideration of potential risks to U.S. financial 

stability from products and activities in this sector, including further analysis of the 

activities of hedge funds. 

• Capital, Liquidity, and Resolution: Regulators should continue working to ensure that 

there is enough capital and liquidity at financial institutions to reduce systemic risk, 

including finalizing rules setting standards for the minimum levels of total loss-absorbing 

capacity and long-term debt maintained by certain large banking organizations operating 

in the United States. 

• Central Counterparties (CCPs): Council member agencies should continue to evaluate 

whether existing rules and standards for CCPs and their clearing members are sufficiently 

robust to mitigate potential threats to financial stability, and also should continue working 

with international standard-setting bodies to implement more granular guidance with 

respect to international risk management standards in order to enhance the safety and 

soundness of CCPs. 

• Reforms of Wholesale Funding Markets: Counterparty risk exposure has been 

significantly reduced in the tri-party repurchase agreement (repo) market, though the 

potential for fire sales of collateral by creditors of a defaulted broker-dealer remains an 

important risk. Better data are needed to assist the understanding policymakers have of 

3 
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how the aggregate repo market operates. Furthermore, regulators should continue to 

monitor and evaluate the effectiveness of structural reforms of money market mutual 

funds. 

• Reforms Relating to Reference Rates: Regulators and market participants should continue 

their efforts to develop alternative benchmark interest rates and implementation plans to 

achieve a smooth transition to these new rates. 

• Data Quality, Collection, and Sharing: While Council members have made progress in 

filling gaps in the scope, quality, and accessibility of data available to regulators, 

regulators and market participants should continue to work together to improve the scope, 

quality, and accessibility of financial data. 

• Housing Finance Reform: While regulators and supervisors have taken great strides to 

work within the constraints of conservatorship to promote greater investment of private 

capital and improve operational efficiencies with lower costs, federal and state regulators 

are approaching the limits of their ability to enact wholesale reforms that are likely to 

foster a vibrant, resilient housing finance system. Housing finance reform legislation is 

needed to create a more sustainable system that enhances financial stability. 

• Risk Management in an Environment of Low Interest Rates and Rising Asset Price 

Volatility: Depressed energy and metals commodities prices, large swings in equity 

valuations, and upward movement in high-yield debt spreads underscore the need for 

4 
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supervisors, regulators, and managers to remain vigilant in ensuring that firms and funds 

maintain robust risk management standards. 

• Changes in Financial Market Structure and Implications for Financial Stability: The 

growing importance in certain markets of proprietary trading firms and automated trading 

systems may introduce new vulnerabilities, including operational risks associated with 

the very high speed and volume of trading activity. Increased coordination among 

regulators is needed to evaluate and address these risks. 

• Financial Innovation and Migration of Activities: Financial regulators will need to 

continue to work hard to monitor new and rapidly growing financial products and 

business practices, even if those products and practices are relatively nascent and may not 

constitute a current risk to financial stability. 

• Global Economic and Financial Developments: Market participants and regulators 

should be vigilant in identifying and responding to potential foreign shocks that could 

disrupt financial stability in the United States. 

The annual report goes into detail on each of these important issues. These 12 areas of focus 

also demonstrate the need for the Council and its member agencies to persistently monitor these 

risks and to foster discussion and analysis around them. 

5 
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25947.006

As the forum designed to bring the financial regulatory community together to collaboratively 

identify and respond to potential threats to financial stability, the Council has done what 

Congress established it to do, including asking the tough questions that help us make our 

financial system safer. Our mandate is to shine a light on emerging threats before they can 

evolve into another financial crisis. 

As part of this responsibility, the Council has worked closely with a broad array of stakeholders, 

and has adapted its policies and procedures in response to good ideas stakeholders have raised. 

We have improved our transparency policy, strengthened our internal governance, provided the 

public with additional information on the nonbank financial company designations process, and 

solicited public comment on potential risks to financial stability from asset management products 

and activities. 

The Council remains a critical forum for identifying potential threats as the financial industry 

and regulatory environment continue to evolve. An example of this work is our ongoing 

evaluation of potential risks to financial stability from asset management products and activities. 

As these products and activities represent an increasingly important part of the financial sector, it 

is incumbent on the Council to evaluate any potential financial stability implications they 

present. To that end, in April of this year, we published a number of findings regarding potential 

liquidity and redemption risks and leverage risks, based on careful analysis that included 

engagement with key stakeholders. Our work in this area is ongoing, and we plan to provide 

timely public updates as our analysis continues. Separately, in the months ahead, the Council 

will monitor market responses to the implementation of the Securities and Exchange 

6 
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Commission's money market mutual fund reforms that go into effect next month. Risks to 

financial stability arising from the money market mutual fund industry were an important area of 

focus for the Council in the aftermath of the financial crisis. 

Finally, the Council will continue to monitor for potential threats posed by nonbank financial 

companies. The Council's nonbank financial company designations authority has been a critical 

tool to address a key weakness exposed by the financial crisis: that the failure oflarge, complex, 

and interconnected financial companies could threaten financial stability. The Council's process 

for considering nonbank financial companies for potential designation includes extensive 

engagement with companies and their primary regulators, and the reasons for designations are 

explained to the companies and to the public. The Council also annually reevaluates each of its 

previous nonbank financial company designations every year, and we take these reviews 

seriously. This June, the Council voted to rescind its designation ofGE Capital because the 

company had implemented strategic changes that significantly reduced the potential for the 

company's material financial distress to threaten U.S. financial stability. The Council's action 

shows that the designation process works as intended-- if a company changes in a way that 

addresses the risks it could pose to financial stability, there is a clear process for the Council to 

rescind a designation. 

As we recently marked the eight-year anniversary of the collapse of Lehman Brothers, it has 

become clear that the reforms adopted in the Dodd-Frank Act, including the creation of the 

Council, have made the financial system safer, more resilient, and supportive of long-term 

economic growth. We should not forget how damaging weak oversight of the financial system 

7 
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can be to our country and our economy. The Council has proven itself as an important forum for 

the financial regulatory community to come together, identify risks, and work collaboratively to 

respond to emerging threats to financial stability. It would be a mistake to roll back the clock on 

these protections or to constrain the ability of the Council or its member agencies to address new 

risks as they arise, including the Council's nonbank financial company designations authority. 

I look forward to questions Members of the Committee may have on the Council's annual report. 

8 
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25947.009

DEPARTMENT OF THE TREASURY 

WASHINGTON, D.C. 20220 

The Honorable Jeb Hensarling 

Chairman 

Committee on Financial Services 

U.S. House of Representatives 

Washington, DC 20515 

March 12, 2018 

Re: Responses to Questions for the Record Following September 22,2016 Hearing 

Dear Chairman Hensarling: 

Thank you for your inquiry regarding Questions for the Record sent to the Depmtment of 

Treasury following the "The Aruma! Report of the Financial Stability Oversight Council" 

hearing held on September 22, 2016. The answers to those questions were incomplete at the 

conclusion of the previous administration; thus, no answers will be submitted. 

Please contact the Office of Legislative Affairs should you have any further questions. 

Sin~:~J7 

/'~ ""l'c d/ ,/' 

/::..--. 

/"J':Irew Maloney 

Assistant Secretary for Le 
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Statement 

Property Casualty Insurers Association of America (PCI) 

For the House Financial Services Committee Hearing on 

"The Annual Report of the Financial Stability Oversight Council" 

September 22, 2016 

The Property Casualty Insurers Association of America (PC!) is pleased to offer testimony on 

accountability of the Financial Stability Oversight Council (FSOC) with respect to nonbanks 

designated as systemically important. PCI is composed of roughly 1,000 member companies, 

representing the broadest cross section of insurers of any national trade association. PCI 

members write more than $200 billion in annual premium, 35 percent of the nation's property 

casualty insurance. Member companies write 42 percent of the U.S. automobile insurance 

market, 27 percent of the homeowners market, 32 percent of the commercial property and 

liability market and 34 percent of the private workers compensation market. 

PCI appreciates the desire of Congress to identify and reduce systemic risk in financial 

institutions in the wake of the financial crisis of 2008. In passing the Dodd-Frank Wall Street 

Reform and Consumer Protection Act ("Dodd-Frank") the Congress sought to ensure the 

stability of America's financial markets and reduce the exposure of taxpayers to costly bailouts. 

Unfortunately, however, the FSOC is not following the intent of Congress, which was to 

designate only those financial firms that pose true systemic risk. PCI strongly recommends that 

the Congress exercise robust and effective oversight over the FSOC designation process, 

provide additional legislative direction to ensure that relevant provisions of Dodd-Frank are 

implemented in a manner consistent with the intent of Congress, and assure that the FSOC is 

properly focused on identifying true systemic risk. 

Background 

Dodd-Frank instructs the FSOC to "require supervision by the Board of Governors for nonbank 

financial companies that may pose risks to the financial stability of the United States in the 

event of their material financial distress or failure or because of their activities pursuant to 

1 
70 


25947.011

section 113." FSOC was created in the wake of the 2008 financial crisis, which caused the 

collapse of several large financial institutions and threatened others as well as the near freezing 

of credit markets in the U.S. and resulted in large government infusions of cash into some 

financial firms to prevent their failure from further destabilizing the national economy. 

Congress intended Dodd-Frank to prevent a recurrence of the crisis. More specifically, 

Congress directed the FSOC to identify firms that pose systemic risk to the economy so that this 

risk could be managed and eliminated. Unfortunately, however, the FSOC has failed in 

significant ways to fulfill the purpose Congress set for it. 

Flaws in the FSOC Nonbank Designation Process 

Inappropriate Pre-Designations with Foreign Governments. In designating three nonbank 

financial firms that are insurance companies, FSOC has failed in alarming ways to follow the 

decision-making process outlined in Dodd-Frank. First, there is substantial evidence that, 

before FSOC considered designations for some companies, members of the FSOC agreed with 

foreign regulators participating in deliberations of the Financial Stability Board (FSB) that 

certain of these firms would be designated as Global Systemically Important Financial 

Institutions (G-SIFis). For example, the FSB stated during the 2013 GSII designations that 

"implementation of enhanced supervision [of the GSIIs], including group-wide supervision, 

commences immediately." Moreover, FSB Chairman Mark Carney indicated in a letter to G-20 

ministers and central bank governors the FSB's expectations that member countries would 

implement the FSB regulations. Carney stated "Full, consistent and prompt implementation is 

essential to maintaining an open and resilient global financial system." A subset of members of 

the FSOC who participated at the FSB committed the United States to this position before the 

full FSOC had even considered the question. There is no evidence in Dodd-Frank that Congress 

intended U.S. systemic risk designations to be pre-determined by foreign regulators with the 

complicity of members of our own FSOC. 

2 
71 


25947.012

No Clear Rationale. The designation decisions handed down by FSOC have failed to clearly state 

the rationale for the decision based on activities in which the firm engages. Not only does this 

call the integrity of the designation decision into question, but it leaves all companies in the 

dark about what activities the FSOC considers systemically risky and thus provides no clear 

direction to companies on how to reduce systemic risk. It also provides no road map for how 

companies can take action to eliminate activities that pose systemic risk and thus become 

eligible to have a designation of systemic importance reversed. Thus, FSOC's failure to provide 

a clear rationale for its decision and an "exit ramp" for companies to address systemic risk 

issues actually works to thwart one of Dodd-Frank's primary objections- to reduce systemic 

risk. 

Congressionally-Prescribed Risk Factors Disregarded. Dodd-Frank set forth a list of factors the 

FSOC is to consider when determining whether a nonbank is systemically important. However, 

FSOC's designation decisions fail to engage in any meaningful analysis of these factors, focusing 

instead primarily on issues relating to the size of the company and on hypothetical and arguably 

implausible scenarios under which material financial stress at the company would pose 

systemic risk to the economy. Section 113 specifically instructed FSOC to consider and analyze 

ten specific "considerations," one of which is "the degree to which the company is already 

regulated by 1 or more primary financial regulatory agencies." The FSOC appears to have little 

understanding of the state-based system of insurance and assumed, without basis, that state 

insurance regulators would be unable or unwilling to respond effectively to problems in 

insurance companies. For example, the FSOC worried that financial troubles at a life insurer 

could lead policyholders to seek to surrender their policies in a disorderly manner, but the FSOC 

failed to acknowledge that state insurance regulators have the ability to impose stays or take 

other action to manage any such surrender activity. It was not the intent of Congress that the 

tools available within the existing regulatory structure to mitigate systemic risk should be 

disregarded. 

3 
72 


25947.013

FSOC Insurance Experts Disregarded. It is alarming that the FSOC has recently designated two 

insurance groups as systemically important over the strong and substantive objections of both 

FSOC's Independent Member Having Insurance Expertise as well as the non-voting State 

Insurance Commissioner Representative. These designations have therefore been made solely 

by FSOC members who have little background or expertise in insurance, who have exhibited 

limited understanding and interest in the state-based insurance regulatory structure, and who 

have disregarded the opinions of those who do have such expertise. There could be no surer 

sign that the FSOC designation process is flawed and in need of increased congressional 

oversight and reform. 

GAO Criticisms. The Government Accountability Office (GAO), in a report released on 

November 20, 2014, identified several of these flaws in FSOCs process. Specifically, the GAO 

noted that "FSOC's public documents have not always fully disclosed the rationales for its 

determination decisions and that "the lack of full transparency has resulted in questions about 

the process and may hinder accountability and public and market confidence in the process." 

GAO also criticized FSOC for "using only one of two statutory determination standards (a 

company's financial distress, not its activities)" and noted that "FSOC may not be able to 

comprehensively ensure that it had identified and designated all companies that may pose a 

threat to U.S. financial stability." The GAO recommended that "making FSOC's designation 

process more systematic and transparent could bolster public and market confidence in the 

process and also help FSOC achieve its intended goals." 

Failed Obligation to Consumers and the Economy. By failing to achieve the primary goal 

assigned to it by Congress, FSOC has left the door open to future financial crises while imposing 

unwarranted burdens and costs on companies that do not, in fact, pose systemic risk. Not only 

does this create additional costs for consumers, but it also fails to protect them from the 

negative economic implications of the next crisis. For this reason, if no other, significant 

reforms in the FSOC designation process are needed. 

4 
73 


25947.014

FSOC Reforms. To its credit, FSOC recently adopted several new measures designed to address 

some of these concerns. The new measures relate to: (1) improving engagement with 

companies being considered for designation; (2) enhancing public transparency; and (3) making 

the annual review process more meaningful. PCI applauds FSOC for taking these actions, which 

we view as improvements to the existing process. Nevertheless, they fall far short of fully 

addressing the shortcomings we, the GAO, and others have identified. Most importantly, they 

do not bring the FSOC designation process fully into line with that envisioned by Congress and 

set forth in Dodd-Frank. 

Suggestions for Improvement 

Transparent, Activities-Based Analysis. FSOC needs to accept the GAO's recommendation and 

make its systemic risk determinations more systematic and transparent. This includes following 

the mandate of Section 113 of Dodd-Frank to assess the activities in which a company engages 

- not just its size and hypothetical scenarios of financial distress. It also includes identifying 

activities that pose systemic risk and publicly announcing them before designating a company 

as systemically important. This will allow companies to reduce systemic risk before it becomes 

necessary for FSOC to consider designation. This would provide much greater confidence to the 

general public that true systemic risk is being addressed and rooted out of the economy. 

Off-Ramp. Once a company has been designated, a fair process is needed to give the company 

a reasonable road map for eliminating the activities that led to the determination so that the 

company can be de-designated. There is no process for this now, but this is also essential to 

achieving the goal of reducing systemic risk. 

Deference to Functional Regulators. Although almost all members of FSOC are regulators, no 

single member has expertise in all sectors of the financial services industry. In keeping with 

congressional direction in Section 113(a)(2)(H) of Dodd-Frank, FSOC must begin to recognize 

and utilize the expertise of the primary functional regulators and engage in meaningful analysis 

5 
74 


25947.015

of how that regulation can or does work to reduce systemic risk. This is especially true with 

respect to insurance as the vast majority of FSOC members have no background in that industry 

or its regulation. This means, in part, being more mindful of the strong views of insurance 

experts on the FSOC, but even more importantly, it means consulting with state insurance 

regulators before and during the designation process. The non-insurance expert members of 

FSOC need to invest significant time and attention to the state-based regulatory system and 

develop a much more sophisticated understanding of it before considering another insurance 

company for designation. 

Congressional Legislation. While increased Congressional oversight of FSOC is important, 

Congress needs to consider statutory changes to more tightly direct FSOC's decision-making 

processes. For example, H.R. 5180, introduced in the last Congress by Rep. Dennis Ross (R-FL) 

and Rep. John Delaney (D-MD) would make a good start. The bill would: (1) require FSOC to 

notify a nonbank financial company that it has been identified for SIFI designation; (2) codify 

FSOC procedures for SIFI designation voting requirements; (3) require FSOC to consider the 

impact of a SIFI designation on the company and its consumers; (4) mandate that FSOC explain 

the basis of its designation to the company; (5) allow a company to submit a plan to modify its 

activities prior to designation; and (6) allow a company to contest a SIFI designation every five 

years. To this might also be added requirements for FSOC to give greater deference to 

functional regulators and to report to Congress on any designations, including detailed 

descriptions of how FSOC fully followed the requirements of Section 113 of Dodd-Frank. 

Congressional Intent and Public Policy Basis for Improvements 

In considering how to exercise its oversight responsibilities over FSOC as well as what legislation 

may be needed to address flaws in the current FSOC process, we urge Congress and FSOC to 

keep in mind the following basic premises. These were part of the foundation on which DoddFrank was based and FSOC should be reminded of its obligation to implement Dodd-Frank with 

these public policy priorities in mind. 

6 
75 


25947.016

Size Alone Does Not Create Systemic Risk. FSOC must not create a new class of "too-big-to-fail" 

companies, blindly designating companies as systemically important simply because they are 

large without adequately analyzing other far more significant factors that are indicative of 

systemic risk. Few, if any, financial companies are systemically important solely because they 

are large. It is engaging in highly risky activities, coupled with interconnectedness, leverage, 

concentration and other considerations set forth in Dodd-Frank that pose systemic risk. Unless 

FSOC fully considers and analyzes all of those factors it cannot gain a holistic view of the true 

nature of the risks a company does and does not pose. 

Failure to Achieve Goal of Reducing Systemic Risk. FSOC must recognize that its goal is not to 

impose punitive regulation on financial companies, but to reduce systemic risk. If FSOC is true 

to that goal, it will work with companies to consider approaches to reducing systemic risk both 

before, during, and after consideration of a company for designation. To do otherwise fails to 

provide the protection to the economy that Congress envisioned when it passed Dodd-Frank 

and instead only causes significant market distortions and increased costs for consumers with 

little significant benefit. 

Insurance Is Not Systemically Risky. There was widespread recognition during the legislative 

process that led up to the passage of Dodd-Frank that traditional insurance activities simply are 

not systemically risky. Property-casualty insurers, in particular, have low leverage, are not 

interconnected with other financial firms, do not pose a "run-on-the-bank" threat, are highly 

competitive with low market concentration, have low failure rates, and have their own effective 

and self-financed resolution system. When one of Dodd-Frank's namesakes, former Rep. 

Barney Frank, testified last summer in a House Financial Services Committee hearing assessing 

Dodd-Frank, he said that he didn't believe "asset managers or insurance companies that just 

sell insurance are systemically important." (He also said it was never his intention that a 

nonbank designated by the FSOC should be regulated as a SIFI in perpetuity, and noted that he 

had sent a letter to FSOC stating that view.) 

7 
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25947.017

Conclusion 

The time has come for Congress to ensure that FSOC fulfills the responsibilities it was given 

under Dodd-Frank. The flaws identified in FSOC's decision-making process must be corrected 

and it must be refocused on the job Congress gave it to do-reducing the threat of systemic risk 

to the country's economic prosperity. 

8 
77 


25947.018

JEB HENSARLING, TX, CHAIRMAN 

Dr. Jim Yong Kim 

President 

World Bank Group 

1818 H Street, NW 

Washington, D.C. 20433 

Dear Dr. Kim: 

Bnittd 2>tatts i!lOllBC or Rcprmntatiucs 

cr:ommittcc on jfinanciol ;:5truicri\ 

mg Rag burn i'l onnc 011icc ,1.'\uilding 

Ulashingmn, '01[ 10515 

July 14, 2016 

MAX1N'E WATERS, CA, RANKING MEMBER 

We are writing to express our alarm over the World Bank's cancelled Uganda 

Transport Sector Development Project. As you know, the Bank is facing serious allegations 

related to misconduct by a Chinese contractor, including sexual exploitation of minors, 

repeated harassment offemale staff, and deficient safety measures that may have resulted 

in five fatalities. The Bank has admitted that its supervision of the project was inadequate, 

particularly with respect to protecting Ugandan girls. 

In addition to negligent supervision, the Bank's slow response to local communities' 

accusations is troubling. According to the Bank's own timeline, Ugandans had to wait six 

months from the time they first voiced their complaints until the Bank's Country Director 

wrota to public authorities requesting follow-up by law enforcement. Ten months elapsed 

before the Bank suspended the project, and delays in the Management Response meant 

that the Bank's Inspection Panel did not visit Uganda until one year following the initial 

allegations. As the Panel continues to investigate this case, we urge you and Bank 

management to cooperate fully while respecting the Panel's independence. We also ask that 

any findings of negligence and wrongdoing lead to appropriate disciplinary action. 

The failure of this project to protect, let alone benefit, Ugandans should inform 

supervision in all sectors and regions going forward. We believe that the Bank must 

strengthen its role in supervising and monitoring its projects to ensure that the poor are 

protected in the Bank's work. Any actions by the Bank that would weaken its oversight 

could undermine support for the institution. 

Additionally, the Bank has long faced criticism, including from its own staff, for a 

culture that too often places the volume of lending above concerns for the effectiveness of 

that lending. Last October, the Subcommittee on Monetary Policy and Trade held a hearing 

on the multilateral development banks that explored this very problem, and a report hy the 

Rank's Independent F.valuation Group notes how the "pressure to lend" has characterized 

the Bank's culture for decades, often at the expense of development outcomes.' It is clear 

1 LearTJ,ing and Resu.lts in World Bank Operations: Toward a New Learning Strategy, Independent 

Evaluation Group, 2015. 
78 


25947.019

Dr. Jim Yong Kim 

July 14, 2016 

Page 2 

that such a culture can distract from the proper preparation and administration of projects, 

including monitoring and supervision, thus putting development at risk. 

In the case of Uganda, the Bank clearly should have made supervision a higher 

priority. We hope that future beneficiaries, be they in Africa or elsewhere, will encounter 

more capable and responsive partners at the Bank. 

Chairman 

Subcommittee on 

Monetary Policy and Trade 

Sincerely, 

cc: The Honorable Jacob Lew, Secretary of the Treasury 

ORE 

Ranking Member 

Subcommittee on 

Monetary Policy and Trade 
79 


25947.020

Jim YongKim 

President 

The Honorable Bill Huizenga 

Chairman 

The Honorable Gwen Moore 

Ranking Member 

WORLD BANK GROUP 

Subcommittee on Monetary Policy and Trade 

United States House of Representatives 

2129 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairman Huizenga and Ranking Member Moore, 

August 2, 2016 

Thank you for your letter of July 14,2016 expressing your concerns about the cancelled Uganda 

Transport Sector Development Project. I share your views about the gravity of the situation. 

As you know, in my statement of December 2015, I publicly acknowledged the multiple failures 

of this project--on the part of the World Bank, the government of Uganda, and the government's 

contractor-as well as our obligation to properly prepare and supervise our projects so the poor 

and vulnerable are protected. That did not happen in this case. 

That is why l ordered that the project be cancelled and the road components of two other projects 

in Uganda be suspended. It is also why I committed to doing everything in our power to ensure 

support for the affected communities, prevent retaliation against the complainants, and assist the 

Government's efforts to address deeply rooted social problems. Most importantly, I will ensure 

that we, as an institution, learn the lessons from this case so that we better prepare and supervise 

our projects. l would like to take this opportunity to outline some of the specific actions we have 

taken. 

First, we worked closely with relevant government agencies on a series of actions to support the 

survivors of sexual abuse in the affected communities. ln Kamwenge and Kabarole districts, our 

partners on the ground have offered affected women psychosocial support, legal redress, medical 

care for girls, mothers and babies, financial support, and reintegration into school or vocational 

training. Many have taken up this assistance. The World Bank has engaged BRAC Uganda, a 

well-regarded NGO that works in the affected communities, to work with the survivors of sexual 

abuse and engage with the broader community to protect girls from threats of sexual violence. 

Second, we strengthened our team on the ground in Uganda-including by adding a social expert 

with extensive experience in addressing sexual and gender-based violence issues. 

18181 I Street, ~W • WashinJ,rtor:, DC 20433 • CS.\ 
80 


25947.021

The Hon. Bill Huizenga 

The Hon. Gwen Moore 

-2-

Third, through our continuing engagement with district leaders, community awareness of the 

threats facing children has increased significantly. District leaders are using public gatherings 

and free air time on radio to raise these issues openly and to encourage community members to 

report child abuse to the police. Road workers have taken part in group discussions, facilitated 

with police, on child protection and HIV/AIDS prevention. 

Fourth, on the legal action side, we have urged that the serious allegations of sexual misconduct 

be investigated and prosecuted. The Ugandan authorities have informed us that, to date, three 

cases have been successfully prosecuted and in at least one case, the perpetrator has been 

sentenced to four years in jail. Further cases are under active investigation. 

Fifth, we are working with the government to find ways to tackle sexual and gender-based 

violence at the national level. The government and the World Bank Group agreed to include in 

the new Uganda Country Partnership Framework, our multi-year joint strategy, support for a 

nationwide program on sexual violence, especially to reduce the risks associated with the influx 

of workers into local communities for road and other projects. 

Your letter quite rightly seeks to understand what we have been doing to address the institutional 

failings highlighted by this project. I have been very clear that we must identifY and address the 

weaknesses in our systems and this is a process that is underway. We must learn from failure. 

In the meantime, we are developing new guidance for our staff, especially those working on 

infrastructure projects requiring outside workers. We have also shifted more resources to the 

front-line to buttress supervision efforts. 

I hope this summary helps to address your concerns. Right now, the Inspection Panel, which has 

undertaken a thorough investigation, is finalizing its report. Once final, it will be discussed by 

the Bank's Board along with the World Bank's Management Response. Our next steps will be 

based on the Panel's findings. 

Let me conclude by assuring you that World Bank Group staff arc deeply committed to the 

institution's mission and twin goals of ending extreme poverty by 2030 and boosting shared 

prosperity. l see this wherever I go in the more than l 00 developing countries in which we work. 

Our commitment to ensuring everyone has the opportunity tor a better life is unwavering. 

Sincerely, 

cc: The Honorable Jacob Lew, Secretary of the Treasury of the United States 

Mr. Matthew T. McGuire, Executive Director for the United States, The World Bank Group 

1818 If Stn:et, '\iW • Wa~hington, DC 20433 • CSA 
81 


25947.022

A Fed Insider Warns of the Risk of 

Low Rates 

Among concerns behind Eric Rosengren's call for central bank to act: 

soaring commercial real-estate market 

Boston Fed President Eric Rosengren, pictured at the Jackson Hole economic symposium in 2015, has 

recently become concerned that easy-money po!lcies may be letting markets get out of 

hand, PHOTO. DAVID PAUL MORRIS/BLOOMBERG NEWS 

By 
82 


25947.023

MICHAEL S. DERBY 

Updated Sept. 19,2016 1:03 a.m ET 

!Q1 COMMENTS 

The Federal Reserve official who sent the market into its most volatile week of the summer over 

fears of more aggressive interest-rate increases couldn't have been a more unlikely candidate for 

that distinction. 

Boston Fed President Eric Rosengren has a well-established reputation as one of the Fed's 

leading doves-advocates of easy-money policies aimed at spurring faster economic growth. But 

more recently he has developed strong concerns that easy money could be letting markets get out 

of hand the way they did before the financial crisis. And he's publicly urging his colleagues to 

act before it gets too late. 

''It's not costless to get the unemployment rate very low;' Mr. Rosengren said in an interview 

Sept. 9. "The tools we have are quite blunt," so it's better to get ahead of potential problems, he 

said. 

Mr. Rosengren wasn't explicitly calling for the Fed to raise short-tenn interest rates at its 

meeting this Tuesday and Wednesday. Officials are divided over when to move, making it likely 

they'll wait until later this year. Futures markets put low odds on a rate increase this month. 

But he warns that the Fed needs to consider the effects of very low rates in fueling bubbly asset 

prices. His main source of concern is commercial real estate-the soaring market for office 

buildings, warehouses and apartment buildings. 

According to the Boston Fed, lending to the sector totaled $3.6 trillion as of March, withjust 

over half of that provided by banks and the rest from financial firms such as pension funds and 

I ife insurers. 

The Fed, the BOJ and Markets 

Fed Stands Pat. But Says Case for Rate Increase Has Strengthened 

Bank of Japan Charts New Course With Bond-Rate Target 

What the BOJ Did, in Six Simple Questions 

Heard on the Street: Doubt a December Hike? Be Careful 

Yen's Rally Makes BOJ's Job Tougher 
83 


25947.024

Prices have been rising steadily across the country since the end of2009, the Boston Fed 

said. Mr. Rosengren worries the gains are being driven in part by the scramble for returns in the 

low-yield world brought about by the Fed and its overseas counterparts, rather than by the 

fundamentals of supply and demand. 

·'Should prevailing economic conditions change in response to a large negative economic shock, 

commercial real-estate prices could decline relatively quickly, leading to large losses at 

leveraged finns,'' he said in an Aug. 31 speech in Beijing. That, in turn, could trigger a broader 

economic downturn, he said. 

The comments that sent markets tumbling came Sept. 9 in Quincy, Mass, when Mr. Rosengren 

said ·'a reasonable case can be made'' for raising rates to avoid overheating the economy. 

Most notably, he made the case for raising rates to head off financial instability despite the fact 

that this would slow the Fed's progress toward its goals of fostering job growth and 2% 

inflation-an unusual statement of the cost-benefit trade-offs. 

"A failure to continue on the path of gradual removal of accommodation could shorten, rather 

than lengthen, the duration of this recovery," he said. 

The comments augmented investors' concerns about other central banks' willingness or ability to 

keep the easy money flowing. The markets reacteg_yiolently. The S&P 500, which didn't move 

by more than I% for 43 straight days, has since swung by more than that amount four out of the 

past six trading days. Yields on the benchmark I 0-year Treasury note have risen 0.16 percentage 

point since Sept. 7. 

While a rate increase at the September meeting next week isn't likely, markets and Fed officials 

do seem on board with a move higher in the coming months, and Mr. Rosengren might be a 

consistent voice lashing them toward action. Forecasters at Wrightson !CAP told clients the 

Boston Fed leader is likely to argue for periodic rate increases-"a shot across the bows of the 

market'' to "reduce the risk that valuations would reach levels that would ultimately prove 

destabilizing'' 
84 


25947.025

Mr. Rosengren's worries about the risks posed by commercial real estate aren't fully shared by 

Fed officials. While some acknowledge the sector is getting pretty hot, there's some skepticism it 

could create problems for the rest of the economy. 

·'I don't dismiss what Eric is suggesting is something we may have to consider in time," Atlanta 

Fed President Dennis Lockhart told reporters Sept. 12. But, said Mr. Lockhart, who had a long 

career in banking before coming to the Fed, ·'I don't think it's an immediate question." 

Mr. Rosengren hasn't said when he'd like to see the Fed raise rates. In the interview, however, 

he said the Fed has "the luxury ... to move in a deliberate and gradual way" and suggested it 

shouldn't squander the opportunity. 

Mr. Rosengren joined the Boston Fed in 1985 and became its president in 2007. Before that, he 

was executive vice president for the bank's Supervision and Regulation Department, a job that 

informed his current outlook. Over his career, he has observed multiple chapters in which 

commercial real-estate problems have caused broader damage, citing episodes in New England 

and in Japan. 

His current warnings appear to be a tacit acknowledgment of the Fed's failure to take sufficient 

action to arrest the housing-market bubble in the years leading up the 2008 financial crisis and 

the worst economic downturn in generations. Much of that crisis was rooted in lending to 

borrowers with poor credit histories. Many economists said at the time that type of lending was 

too small to create real risks for the economy as a whole. They were wrong. 

The hawkish edge to Mr. Rosengren's recent comments marks a notable shift from when he was 

one of the strongest supporters of aggressive stimulus. 

''!don't worry much about labels," he said in the interview. 
85 


25947.026

P.!!trlek Gallagher 

Chancellor 

University of Pittsburgh 

ChancellM· of the Unh,enity 

The Honorable Pat Toomey 

United States Senate 

248 Russell Senate Office Building 

Washington, D.C. 20510 

Dear Senator Toomey: 

October 30, 2015 

107 Cathedral of Learning 

4200 fiftM Avenue 

Pittsburgh, PA '15260 

412~624~4200 

Fax: 412N624-7S39 

On behalf of the nearly 35,000 students enrolled at the University of Pittsburgh (Pitt), we 

since.rely thank you for your leadership in sponsoring S.l802, the Consumer Financial Choice 

and Capital Markets Protection Act of 2015, >vhich has been referred to the Senate Banking, 

Housing, and Urban Affairs Committee. Pitt students and faculty, as well as the residents ofthe 

city of Pittsburgh, all greatly benefit from our world-class facilities t1nanced primarily with tiL'<-

exempt bonds. Passage of S.lS02 will enable us to continue cost-efficient funding of modern 

classrooms and facility upgrades, which foster uew job growth and an expanded liL'l. base for our 

local economy. 

Pitt, like most other universities throughout the state, uses tax-exempt debt to finance 

vmious capital m1d public works projects. Money market funds (MMFs) are significant 

purchasers of tax-exempt obligations. Pitt is concerned that, without the passage of S.1802, 

MMFs may no longer purchase these debt obligations after October 2016, when the Securities 

m1d Exchange Commission (SEC) rule becomes effective. The SEC rule, in its current state, 

would increase project costs (reduced investor demand equates to higher interest rate costs for 

the issuer, strong credit ratings aside), and possibly delay the implementation of Pitt's capital 

plan, including campus preservation projects across our five-campus system. 

In addition, Pitt relies on MMFs for short-term investing needs as a safe, liqnid, and 

affordable cash management tool. These critical features enable Pitt to appropriately safeguard 

its financial assets (where capital preservation is guaranteed vis-a-vis a stable $!.00 net ~L'set 

value (NA V)), access operating cash (while not niggering taxable events with gains/losses), and 

effectively meet payroll and other payment obligations. Moreover, as a state-related university 

that is subject to stringent federal and state policies and legal restrictions on our investment 

options, MNfFs provide that stable and low risk option. lftbe SEC's new floating NAVis 
86 


25947.027

The Honorable Pat Toomey 

October 30, 2015 

Page Two 

imposed on M11Fs beginning in 2016, Pitt, alongside many of its peer tmiversities and colleges, 

will experience adverse effects from both debt-issuance and investor perspectives, as detailed 

herein. 

For all of these reasons, we thank you again on your leadership with this issue, and 

commend you for sponsoring 8.1802. 

c: Mike Ringler 

Art Ramicone 

Patrick Gallagher 
87 


25947.028

COUNTY OF 

The Honorable Mike Doyle 

U.S. House of Representatives 

239 Cannon HOB 

Washington, DC 20515 

RICH FITZGERALD 

COUNTY EXECUTIVE 

December 1, 2015 

ALLEGHENY 

Communication Sent via E-Mail to: Paui.Dalesandro@mail.house.gov 

Dear Congressman Doyle: 

I am writing you regarding the Consumer Financial Choice and Capital Markets Protection Act of 2015. 

This Act has been introduced in the United States Senate as Senate Bill1802. This Act will have a vital 

impact on investment funds and Allegheny County, and I ask that you please support the bill when it 

comes to the House. 

By way of background, pursuant to the Securities and Exchange Commission's rule Amendments, in 

October of next year certain categories of money market mutual funds will no longer be permitted to 

offer a stable $1 per share value. The financial entities running the money market funds will cease to 

operate these funds if they cannot maintain a stable new asset value because of the prohibitive cost for 

administration under the new SEC rules. 

This would have a significant impact in Allegheny County. Money market mutual funds buy approximately 

70% of the tax-exempt bonds issued by cities, counties, hospitals, colleges and universities. If money 

market mutual funds are no longer buying these tax-exempt bonds, the cost of the issuances increase 

with the increased interest rates, and subsequently there will be fewer buyers in the market. 

Because of this, various projects funded by the bond issuances will become more expensive for 

government entities, including Allegheny County. As a result, this could negatively impact the county's 

ability to fund essential capital infrastructure projects and improvements. If costs increase for tax-exempt 

debt issuers, it will directly lead to projects being reduced or delayed, which will result in fewer jobs. 

The Consumer Financial Choice and Capital Markets Protection Act of 2015 will preserve money market 

mutual funds for all investors while ensuring continuing safeguards and SEC regulation. This Act enables 

institutions to continue to implement the management tools they have historically relied on with proven 

success. 

OFFICE OF THE COUNTY EXECUTIVE 

1 01 COURTHOUSE • 436 GRANT STREET • PiTTSBURGH. PA 1521 9 • PHONE (4 1 2) 350-6500 • FAX (4 12) 3~0-6~ 1 2 

WWW.ALLEGHENYCOUNTY.US • EXECUTIVE@ALLEGHENYCOUNTY.US 
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Page 2 of 2 

I ask that you support this initiative when it is introduced in the United States House of Representatives. 

I thank you in advance for you time and consideration of this matter. 

Sincerely, 

c1d;Q 

Allegheny 

Rich 

County 

Fitzgerald 

~ 

Executive 
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Penn State 

The Honorable Pat Toomey 

U.S. Senate 

238 Russell Senate Office Building 

Washington, DC 20510 

Dear Senator Toomey; 

ll1wid J. Grny 

Senior Vice PJ\~ident for Finance 

and Business I Treasurer 

December 14, 20!5 · 

(814) 8<>5-6574 

FAX: (81·ll 863-8685 

The Pcnnsylvnnin Stale University 

2080!dMoin 

University Pork, PA 16802-1503 

On behalf of Penn State University, I write to thank you for your leadership in sponsoring S.l802, the 

Consumer Financial Choice and Capital Markets Protection Act of20 15, which has been referred to 

the Senate Banking, House, and Urban Affairs Committee. Penn State's 24 campuses, 17,000 faculty 

and staff, and I 00,000 students fulfill the University's land-grant mission each day in world-class 

facilities financed primarily with tax-exempt bonds through money market funds (MMFs). Approval 

of S.l802 will enable the University to provide modern classrooms and state-of-the-art research 

facilities that employ and educate some of the brightest minds in the Commonwealth. 

Penn State uses tax-exempt bonds to fund capital expenditures such as new construction, facilities 

upgrades, and property and equipment purchases. We are concerned that with the Security and 

Exchange Commission's (SEC) new rule, effective October 2016, prime money market funds may no 

longer purchase such debt obligations. The current SEC rule will increase project costs and could 

delay the implementation of future capital plans at campuses throughout Pennsylvania. 

Additionally, Penn State utilizes M!'v1Fs for safe, liquid, and affordable cash management. These 

features safeguard the Universities financial assets, as well as facilitate access to operating cash and 

the ability to meet payroll and other payment obligations. Importantly, as a state-related university 

complying with policies and limitations on our investment options, MMFs provide a stable and lowrisk option. With the SEC's new floating net asset value requirement on MMFs, Penn State will 

experience adverse e!lects from debt issuers and investors, and substantial costs to retinance debt. 

We are grateful for your leadership on this issue and commend you for sponsoring S.l802. 

Sincerely, 

c::---~ 

~--~~A?£ DavidJ.Gr:?~. Senior Vice President fofFinar~ & Businessrrrcasurer 

"Penn Slate is conuni!ted to affinnat!ve action. equal opporllmity mtd the divcrsily of its workforce." 
90 


25947.031

CITY OF PITTSBURGH 

"America's Most Livable City" 

Office of Mayor William Peduto 

Honorable Robert P. Casey, Jr.. U.S. Senator 

Grant Building 

310 Grant Street. Suite 241 5 

Pittsburgh. PA 15219 

Dear Senator Casey: 

'\1uy 4. 2016 

lam writing to request your support for S. 1802, the Consumer Financial Choice and Capital 

'\1arkets Protection Act of2015. This bipartisan legislation will help Pittsburgh and municipal 

emities across the country to maintain accesses to affordable capital for public infrastructure 

investment. Identical legislation. H.R. 4216. has been introduced in the House of 

Representatives and is cosponsored by Congressman :Vlikc Doyle. who represents the Pittsburgh 

area. 

Money market funds (MMFs) hold nearly two-thirds of the short-term debt that finances state 

and local governments and other municipal entities. including $6.7 billion of municipal debt 

issued by Pennsylvania entities. Short-term borrowing is the lowest cost lonn of funding. 

particularly tor non-government conduit issuers that suppmt hospitals. educational institutions. 

aflordable housing. ports and transportation infrastructure. 

Pursuant to the Securities and Exchange Commission's ("SEC") amcndmcnls to Rule 2a-7 

adopted July ~014. efJective October 14. 2016. certain categories of money market mutual thnds 

can no longer be offered nt a stable$ l per share. Jnst~ad ... the SEC rule requires that they otTer 

and redeem shares on a floating net asset value basis. Many investors tace legal constraints or 

investment policies that prohibit them !rom inYesting in cash pools that fluctuate in value. 

Therefore. these funds will be far less attractive to investors. limiting their ability to purchase 

municipal securities. 

As money market mutual funds shut down. which already is happening due to the SEC rule 

change, municipalities will have to nse other, potentially more expensive borrowing sources. 

Because of this. various projects lhnded by bond issuances wi II become more expensh·e tor 

government entities. including Pittsburgh. and the size and scope of projects will be negatively 

impacted. If costs increase lor tax-exempt debt issuers. it will directly lead to projects being 

reduced and delayed. which will result in thver jobs. 

512 CITY·COUNTY BUILDING 414 GRANT STREET PITTSBURGH, PENNSYLVANIA 15219 

Phont: 412-255-2626 Fttx: 412-255-8602 
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S. 1802 offers a reasonable compromise. It will restore the Jixed $!-per-share value tor moneymarket funds, while maintaining the other regnlations the SEC has adopted. I hope you will 

cosponsor this legislation so that state and local governments can have investment and financing 

options beyond those offered by banks. 

Thank you in advance for your consideration of this matter. 

~ Mayor 

w;m,ml'ed~ of Pittsburgh 
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25947.033

Office rif the Treasurer 

Qinuntu nf J\lleglyenu 

Courthouse 

JOHN K. WEINSTEIN 

TREASURER 

436 GRANT STREET • PITTSBURGH, PA 15219-2497 

PHONE (412) 350-4120 • FAX (412) 350-5649 

www.a!leghenycounty,us/treasurer 

Honorable Mike Doyle 

U.S. Congressman 

14th District of Pennsylvania 

263 7 East Carson Street 

Pittsburgh, PA 15203 

Dear Congressman Doyle: 

November 23,2015 

1 am writing you regarding the Consumer Financial Choice and Capital Markets Protection 

Act of 2015. This Act has been introduced in the United States Senate as Senate Bill 1802. This 

Act will have a vital impact on investment funds and Allegheny County, and I ask that you please 

suppoti the bill when it comes to the House. 

By way of background, pursuant to the Securities and Exchange Commission's Rule 

Amendments, in October of next year, certain categories of money market mutual funds will no 

longer be permitted to offer a stable $1 per share value. The financial entities running the money 

market mutual funds will cease to operate these funds if they cannot maintain a stable net asset 

value because of the prohibitive cost for administration under the new SEC rules. 

This would have a significant impact in Allegheny County. Money market mutual funds 

buy approximately 70% of the tax-exempt bonds issued by cities. counties, hospitals, colleges and 

universities. If money market mutual funds are no longer buying these tax-exempt bonds, the costs 

of the issuances increase with increased interest rates, and there will be fewer buyers in the market. 

Because of this, various projects funded by bond issuances will become more expensive 

for government entities, including Allegheny County. As a resu!L the size and scope of projects 

will be negatively impacted. If costs increase for tax-exempt debt issuers, it will directly lead to 

projects being reduced and delayed, which will result in fewer jobs. 

The Consumer Financial Choice and Capital Markets Protection Actof2015 will preserve 

money market funds for all investors while ensuring continuing safeguards and the SEC's careful 

regulation. This Act enables institutions to continue to implement the management tools they have 

historically relied on. 

I ask that you support this initiative when it is introduced in the United States How;e of 

Representatives. Thank you in advance for your considerati of this matter. 
93 


25947.034

10/4/2016 The Fake$400 Million Iran 'Ransom' Story- The New York Times 

l!!f}e *t\U !jfork ftimts http://nyti.ms/2bwkh Yp 

The Opinion Pages EDITORIAL 

The Fake $400 Million Iran 'Ransom' 

Story 

By THE EDITORIAL BOARD AUG. 23, 2016 

The first thing to know about the latest controversy over the Iran nuclear deal is that 

the Obama administration did not pay $400 million in "ransom" to secure the 

release of three American detainees. Yet that's the story critics are peddling in 

another attempt to discredit an agreement that has done something remarkablehalted a program that had put Iran within striking distance of producing a nuclear 

weapon. 

The truth is that the administration withheld the payment to ensure Iran didn't 

renege on its promise to free three detainees- a Washington Post journalist, a 

Marine veteran and a Christian pastor. That's pragmatic diplomacy not capitulation. 

The controversy erupted when The Wall Street Journal reported that the United 

States delivered $400 million in cash to Iranian officials after Tehran released the 

American detainees. It has provided an irresistible opportunity for Iran-bashing and 

Obama-bashing. 

What really happened was this: President Obama announced the $400 million 

payment along with the release of the Americans in January, the day that the nuclear 

deal was implemented. But the money was part of a separate negotiation over funds 

the United States has owed Iran since its 1979 Islamic Revolution. 

http:/lwww.nytlmes.com/2016108/23/opinionlthe-fak&400-million-iran-ransom-story.html?_r=-0 113 
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10/4/2016 The Fake$400 Million Iran 'Ransom' Story- The New York Times 

At that time, Washington froze Iranian assets in the United States, including 

money paid by Tehran for military hardware that the United States never delivered 

after its ally there, the shah, was overthrown. In 1981, the two countries agreed that 

a tribunal at The Hague would adjudicate the legal claims. 

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The United States and Iran have wrestled with this issue for decades, but efforts 

to reach a settlement intensified once the two sides began work on the nuclear deal. 

Tribunal decisions are binding, and the administration concluded it would lose at 

The Hague; in addition to $400 million, Iran was seeking billions of dollars in 

accumulated interest. 

The United States was not the only country facing a legal defeat with Iran. 

Earlier this month, Switzerland's highest court ordered Israel to pay Iran aronnd 

$1.1 billion plus interest in a dispute over an oil pipeline company that was set np in 

the 1960s. 

The $400 million plus interest, totaling $1.7 billion, that the United States 

agreed to pay was far less than what Iran was demanding. While the asset 

negotiations were separate from the negotiations over the nuclear program and the 

release of the detainees, all three issues came together in a carefully choreographed 

http:llwww.nytimes.comf2016108J23/opinionfthe-fake-400-million-iran.ransom-story.html?_r=O 213 
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10/4/2016 The Fake $400 Million Iran 'Ransom' Story- The Nav York Times 

push that many hoped would set the stage for more constructive relations between 

the two nations. 

Yet as the State Department spokesman John Kirby acknowledged on Thursday, 

when the Americans became concerned that Iran might delay freeing the detainees, 

who shonld never have been held in the first place, United States officials withheld 

the money temporarily to maintain "maximum leverage." Bnt it was Iran's money, 

and at some point, either through negotiation or arbitration, Iran was going to get it 

back. 

Where the administration went wrong was in not being more transparent 

sooner about how the detainees' release unfolded. If the administration had handed 

over the funds and not brought the detainees home, what would the critics be saying 

now? 

There are many reasons to fault Iran, including for its role in the Syrian 

President Bashar al-Assad's brutal civil war; aid to Hezbollah; hatred of Israel; and 

abysmal human rights record. But history is replete with instances of American 

presidents advancing national interests by working with governments they did not 

necessarily trnst. This is one of them. 

Follow The New York Times Opinion section on Facebook and Twitter 

( @NYTOpinion), and sign up for the Opinion Today newsletter. 

A version of this editorial appears in print on August 23, 2016, on page A22 of the New York edition with 

the headline: The Fake $400 Million 'Ransom' Story. 

© 2016 The New York Times Company 

http:/lwww.nytimes.com/2016108/23/opinionlthe-fake-40Q..million-iran-rans00'1-story.html? .J=O 

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